Are Americans obsessed with their credit score? They have good reason to be worried, as there is much that ails the credit reporting industry.
Unfortunately, the leading legislative fix — creating a public credit reporting agency — would fail to remedy these serious problems.
The government has not proven to be a better guardian against cyberattacks any more than the private sector. Over 22 million Americans had their information stolen in the course of two separate attacks launched on the U.S. Office of Personnel Management between 2012 and 2015.
Error rates are common in government data, and trying to get them fixed is hardly simple. Anyone who has ever dealt with their local Department of Motor Vehicles (DMV) can attest to that. Furthermore, a public entity would be relying on the same data inputs as the private sector credit reporting agencies. So any errors in the data will still spoil the results.
Ensuring the algorithms used in credit scoring don’t have discriminatory impacts is long overdue. But the government doesn’t need to replace private credit agencies to ensure non‐traditional sources of data like rental history and utility bills are used to determine a fair credit report. Congress could just require it and give the FTC and CFPB the resource and staff to enforce the rules.
While well-intentioned, the proposal to create a public credit reporting agency is an example of a classic problem in policymaking, the misalignment between the policy problem and the policy solution. That’s a shame, because anyone who has ever dealt with the credit reporting agencies (basically everyone over the age of 18) knows the present system is rife with problems. But there are some ideas that could improve the credit reporting.
To safeguard private information, the credit reporting agencies should be required to adopt the latest and most effective anti-cyberattack protections — and be subject to fines and other penalties if they fail to do so. And if someone’s information is stolen, credit agencies should provide a free and seamless way to freeze and un-freeze their credit reports — as often as they want.
To help consumers keep tab on their credit report, Congress should enact legislation that requires the credit reporting agencies to continue the practice started during the Covid-19 pandemic — to provide free credit reports on a weekly basis.
Finally, to help reduce the discriminatory impacts of the credit ratings, Congress should enact a Community Reinvestment Act (CRA) type law for the credit reporting industry. Such a law would give the FTC and the CFPB the ability to limit the credit reporting agencies from using discriminatory data and to add non-traditional sources of information. The law would also would require the FTC and the CFPB to issue an annual report tracking the efforts of credit reporting agencies to reduce the discriminatory impacts.
America’s credit reporting system needs fixing. But success means we need to put in place the right policies. If we don’t, we will have missed a historic opportunity to protect consumer information, reduce errors, and eliminate discrimination in credit reporting.
Paul Weinstein Jr. is a PPI Senior Fellow and Director of the MA in Public Management at Johns Hopkins University.
[1] “Equifax Data Breach Settlement,” Federal Trade Commission, January, 2020.
[2] Michelle Black, “Millions of Americans have errors on their credit reports — do you?” bankrate.com, May 13, 2019
[3] Kelly Holland, “45 million Americans are living without a credit score,” CNBC, May 5, 2015
