House Financial Services Committee Holds Hearing on Proposals to Overhaul Credit Reporting
The House Financial Services Committee (HFSC) recently held a hybrid hearing entitled “A Biased, Broken System: Examining Proposals to Overhaul Credit Reporting to Achieve Equity” to explore reforms to the credit reporting industry. Some Democrats proposed a national system, arguing that the three major credit reporting agencies (CRAs) are harming many Americans.
“Our current credit reporting system is broken,” said Committee Chairwoman Maxine Waters (D-Calif.) in her opening statement. “Good credit is a gateway to wealth. Yet, for far too long, our credit reporting system has kept people of color and low-income persons from access to capital to start a small business; access to mortgage loans to become homeowners; and access to credit to meet financial emergencies.”
Three pieces of legislation were brought up for discussion, including the National Credit Reporting Agency Act, which would form the Public Credit Registry (PCR) in the Consumer Financial Protection Bureau (CFPB). Currently, the three major CRAs—Equifax, Experian, and TransUnion—store credit reports that many lenders use to evaluate risk and determine if people qualify for a loan.
The hearing memorandum notes that consumers’ concerns have “increased consumers’ purchases of credit monitoring services and other products from the nationwide CRAs, which has allowed these companies to profit, in part, from their deficient practices.”
Though many House Democrats advocated for a nationally run credit reporting system, ranking committee member Patrick McHenry (R-N.C.) said that “we should be promoting competition to create better opportunities for consumers, not allowing a single government entity to run the credit reporting process for all Americans.”
The HFSC also heard testimony about how credit scores pulled from reports can be a disadvantage for certain populations. Yahoo Finance highlighted a Credit Sesame survey from 2020 that found that 54 percent of Black Americans and 41 percent of Hispanic Americans reported credit scores lower than 640.
“I encourage my colleagues to join me in re-evaluating how we determine creditworthiness and learning how we can harness new technologies to build a fairer and equitable credit system,” Waters concluded.