Waters bill gives CFPB "explicit authority" to monitor credit scoring

The way consumers’ credit data is reported, recorded, and used by the nation’s credit reporting agencies could be about to dramatically change, if a newly introduced bill makes it way through Congress.

On Thursday, Rep. Maxine Waters, D-CA, introduced the new legislation, called the “Comprehensive Consumer Credit Reporting Reform Act of 2016,” which would, according to Waters’ office, “overhaul the American credit reporting system so that it is fairer, more accurate, and less confusing for consumers.”

The legislation builds on a proposal Waters first discussed in 2014.

According to Waters’ office, credit reporting agencies currently compile and maintain files for about 200 million adults.

The three largest credit reporting agencies are TransUnion, Equifax, and Experian. The information contained in the files maintained by the credit reporting agencies is used for everything from mortgage lending, to auto lending, to renting, employment and many other financial decisions.

And 40 million of those files reportedly contain inaccurate information, Waters’ office said, adding that consumers often must “jump through numerous hoops” to try to get those errors corrected.

Waters claims that this new bill would fix many of those problems.

“American consumers are increasingly reliant on credit information that is used to determine their ability to buy a house, open a checking account, or even get a job,” Waters said.

“We’ve all heard the horror stories about the serious problems with credit reporting practices that unjustly restrict so many people’s economic opportunities,” Waters continued. “But I believe it is also time to shine light into the mysterious ‘black boxes’ that generate credit scores and give victims, who are saddled with poor credit because of predatory and unfair practices, the chance for a fresh start.”

According to Waters’ office, the bill contains several significant changes to the current credit reporting process, including decreasing the time most adverse credit information stays on a consumer’s credit reports to four years, as well as requiring the removal of paid and settled debts within 45 days.

The bill also gives the Consumer Financial Protection Bureau “explicit authority” to monitor the development of credit scoring models.

The bill would also requiresthe Federal Housing Finance Agency to study using alternate, additional or updated credit scoring models as part of the seller-servicers guides used by Fannie Mae and Freddie Mac on an ongoing basis.

Additionally, the bill allows borrowers who have been “victimized by unfair, deceptive or abusive acts or practices” of mortgage lenders or servicers to have adverse information related to mortgage loans removed from their reports.

The bill also “fixes” the dispute process so that credit reporting agencies and creditors, not consumers, “bear the burden” to prove the “accuracy and completeness” of credit information contained on credit reports.

The bill would also places limits on the “unfounded, wide-spread use” of credit information for employment purposes to two “narrow” instances: when required by local, state or federal law or for national security clearances.

According to information provided by Waters’ office, the bill also:

Protects the credit standing of victims of predatory and abusive practices related to foreclosures caused by discriminatory loans, delinquent or defaulted private education loans obtained to attend deceptive for-profit colleges, or fraudulent credit items resulting from shady caregivers, abusive domestic partners, or family members

Rehabilitates credit for distressed private education loan borrowers when they demonstrate consistent loan repayments for a certain period of time

Expands access to free consumer reports and credit scores so that consumers can better understand and improve their creditworthiness

And for the credit reporting agencies themselves, the bill bans “misleading and deceptive marketing and other unfair consumer reporting and credit scoring practices.”

According to Waters’ office, the bill calls for an end to the credit reporting agencies' “misleading” practice of automatically converting free trial periods for many consumer reporting products and services into paid, monthly subscription services, by requiring the credit reporting agencies to provide “explicit opt-ins” at the end of trial promotions.

The bill would also give the CFPB the discretion to cap the costs of any direct-to-consumers sales of products and services from CRAs that are unfair and unreasonable.

“This bill will bring much-needed accountability to the credit reporting industry, which will enhance consumer and creditor confidence in the integrity of information on reports and restore fairness in the system,” Waters said.