The Consumer Financial Protection Bureau (CFPB) recently issued a misleading report that undermines the credit reporting ecosystem’s commitment to expanding financial inclusion to American consumers, especially among communities of color and others who have traditionally been underserved.
Credit reports do not contain race, gender, marital status or other kinds of demographic information. The Fair Credit Reporting Act (FCRA) and the Equal Credit Opportunity Act (ECOA) are federal statutes that require that lending be done fairly. Credit bureaus play an important role here. Looking back in time, creditworthiness may have been measured by the color of your skin, who your friends were, or to what house of worship you belonged. For women, creditworthiness was also measured by marital status. Our modern-day credit reporting system – facilitated by consumer credit reporting agencies – takes these biases out of lending. Lenders now use objective information to assess a borrower’s ability to repay. And if lenders end up lending in a biased way, their regulators can pursue remedies under ECOA or FCRA during the supervision and examination process. Consumers benefit from this system.
The credit reporting industry has also made significant, public commitments to furthering financial inclusion and expanding access to credit for the 63 million unbanked or underbanked adults in the U.S. By using new techniques, such as trended data or by bringing new kinds of alternative data (information not currently found in credit reports like utility payment history, rental payments, or bank transaction data) into the credit system, millions more consumers are able to access credit in a way they never have been before. With more information, lenders can better understand how consumers handle their finances, making more mainstream financial services solutions available. In addition, the credit bureaus have partnership programs that support home ownership and have invested in organizations that assist disadvantaged consumers. There are also more resources available today providing information to consumers so that they can better understand how credit works, access their credit report and improve their economic health and wellness.
Credit reporting is good for consumers. The system improves the credit decision process, and regulators can be proud of the role they play in ensuring that discrimination in lending is pushed out of the system.
In future reports, regulators should compare their data with regions where predatory “credit repair” companies concentrate advertising to consumers promising to “fix” negative information on their credit reports. These unscrupulous companies charge consumers hundreds of dollars a year and make unrealistic promises of removing legitimate information from credit files. It’s time for the CFPB and FTC to take action against these scams.