Government-sponsored enterprise plans for legislatively-mandated credit score modernization drew mixed opinions Thursday as lawmakers held a House Financial Services Committee hearing on broader consumer data rules.
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Dan Smith, president and CEO of the Consumer Data Industry Association, backed the idea of adding VantageScore at the GSEs to compete with FICO Classic, which has traditionally been the only required model.
“We are supportive of the inclusion of different scores and the competition,” Smith said.
But the National Consumer Law Center’s Chi Chi Wu questioned whether there would be a level playing field for the two credit models if the modern VantageScore were to be added as an alternative to Fair Isaac’s old Classic metric before FICO’s more recent 10T model is enterprise ready.
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“I’m not in the habit of defending corporations, but this seemed like it was making FICO compete with one hand behind its back, and that’s not good for competition,” said Wu, who is the NCLC’s director of consumer reporting and data advocacy.
The GSEs’ oversight agency does plan to add FICO 10T score as well as VantageScore at some point. But VantageScore’s data was made available for industry analysis earlier, putting it further down the path toward implementation.
The three major credit bureaus are behind VantageScore, and GSEs’ required tri-merge or their reports has minimized competition between them in the mortgage industry.
The GSEs’ oversight chief, Bill Pulte, has encouraged more competition between all these entities and with FICO as the mortgage industry has complained about large price increases for credit reports and scores.
Views on the single report
Rep. Brad Sherman, D-Calif., raised another concern about proposals at the GSEs during the hearing. He was skeptical about an industry group’s push to have Fannie Mae and Freddie Mac allow a single report option.
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“This would give them limited visibility into a borrower’s credit score. It increases the default risk,” Sherman said.
Smith agreed with Sherman, saying he considered allowing a single report “a very risky decision to make” due to differences in bureaus’ information.
The Mortgage Bankers Association, which has backed a single report option to lower costs, was not represented at the hearing, but it sent a letter to lawmakers reiterating its position that the move wouldn’t be risky because most GSE loans have high scores that minimize differences.
“Now is the time to end the requirement for a tri-merge report for every loan purchased by Fannie Mae and Freddie Mac and instead allow lenders the option to rely on a single credit report if the initial report has a score of 700 or above,” Bill Killmer, the MBA’s senior vice president for legislative and political affairs, wrote.
Current legislative proposals
Other credit reporting initiatives the House Committee on Financial Services focused on during the hearing were:
- The Credit Access and Inclusion Act (introduced by Rep. Young Kim, R-Calif.): This bill would put into place measures facilitating rent and telecommunications information reporting to the bureaus.
- The Eliminating Fraud in CFPB’s Complaint Database Act (Rep. Andy Barr, R-Ky.): This proposal would require attestations to truthfulness with penalties related to perjury when consumers file complaints in an effort to address credit washing concerns.
- The Fair Credit Reporting Reseller Accuracy Act (Rep. Michael Lawler, R-N.Y.): Proposes imposing a version of standards that the main credit bureaus have on those who redistribute their information.
- The FCRA Liability Harmonization Act (Rep. Barry Loudermilk, R-Ga.): This bill would change the Fair Credit Reporting Act and cap class action damages at the lesser of $500,000 or 1% of the defendant’s net worth. It would eliminate punitive damages.
Reactions to other credit reporting issues
Veneshia Ferdinand, an assistant vice president at Simmons Bank, told legislators on behalf of the American Bankers Association that proposals to add new credit reporting or rules around it should strike a balance between the need for accuracy and a goal to avoid red tape.
“When the system works as intended, it allows banks to manage credit risk while expanding access to credit, and that benefits the consumers, the local communities and the broader economy,” she said. “When laws restrict the reporting of accurate information or add unnecessary complexity, dispute resolutions can slow and the compliance costs rise.”
Wu questioned whether concerns like credit washing that stem from consumer misrepresentation outweigh the need to ensure borrowers can take action to correct their own information in his comments on the packages of bills.
She said NCLC generally opposes proposals restricting consumer redress, including the The Fair Credit Reporting Reseller Accuracy Act. She alleged this bill “purports to impose new accuracy standards on resellers, but actually gives these companies a free pass from liability.”
Wu also urged caution around rules aimed at adding alternative data like rent to credit records, noting that while this could improve credit readiness, it also comes with some risks.
“If you report negative as well as positive rent payments, you can literally make someone homeless, because 90% of landlords use credit reports,” Wu said.
The GSEs have said they focus only on positive rent reporting.
At least one bill sponsor took a different view than Wu, showing concern about excluding information expressed during the hearing.
“We’re seeing increasing pressure to weaken the completeness of credit reporting, whether by removing entire categories of debt or by promoting reporting systems that only consider positive information,” Barr said.
He advised caution around allowing exceptions for health-related obligations, although others like Bill Foster, D-Ill., noted that those debts “are not always predictive of a person’s creditworthiness.”
“When there’s an unexpected medical expense, sometimes that’s not necessarily totally indicative of the creditworthiness of the person, because it’s an unexpected expense,” Barr said. “However, this idea of just imagining that debt away and not disclosing it is not conducive to promoting accuracy.”