CFPB Report Looks at Impacts of Accurate Public Records in Credit Scoring

After a lawsuit initiated by 30 state attorneys general a few years ago, the three major credit bureaus, TransUnion, Experian, and Equifax, instituted the National Consumer Assistance Plan (NCAP) to address inaccuracies in credit reporting and ease the challenges consumers face in correcting information related to their scores. As part of its quarterly reporting on consumer credit trends, the Consumer Financial Protection Bureau (CFPB) issued a report reviewing the effectiveness of aspects in the NCAP related to civil public records.

There are three main types of civil public records typically tracked by the major credit bureaus that can contribute to a consumer’s credit report- bankruptcy, civil judgments, and tax liens. Under the NCAP, credit bureaus are now required to only include civil public records that contain a consumer’s name, address, and social security number or date of birth. The bureaus would also need to refresh their data on civil public records every 90 days.

Once the changes to civil public records were implemented, the use of such public records in credit reports fell dramatically. This was likely a function of the fact that previous records used by credit bureaus lacked the necessary personally identifying information (PII) and the energy spent verifying such records was substantial compared to the perceived effects of such records on a consumer’s credit report.

As noted in the report, the NCAP change wiped about 80% of the existing civil public records from credit reports. However, only about 4% of the consumers that saw a civil public record removed from their credit report benefited from being rescored into a higher credit score band (0.24% of all consumers).

One year ago, the CFPB asked the public for comments on the use of alternative data sources to help credit bureaus score consumers. Alternative data sources include rent payments, utility and cell phone bills and other non-traditional credit scoring methods. In 2016, the Obama Administration issued a report on the potential for alternative data sources in accessing affordable credit.

Lower income consumers often become credit visible (enough information for bureau to calculate credit score) through negative credit events like the civil public records restricted with NCAP. Providing alternative data sources and event verification standards could help more consumers build credit and more fully participate in the American economy.