Bill Would Overhaul Credit Reporting System, Remove Debt After Four Years

Image courtesy of Chris Blakely

Each year, thousands of consumers file complaints against the nation’s three credit bureaus — Equifax, Experian, and TransUnion. Most of these complaints are related to inaccurate information on a consumers’ credit report and the difficult time they often have in getting this misinformation corrected. That could change with the proposed overhaul of the system.

Representative Maxine Waters (CA), a ranking member of the U.S. House Committee on Financial Services, unveiled soon-to-be introduced legislation [PDF] today that would make significant reforms aimed at bringing the “broken system” into the 21st century.

The measure, entitled the “Comprehensive Consumer Credit Reporting Reform Act,” aims to augment requirements on the consumer reporting agencies (CRAs), and furnishers that provide information to these CRAs, to ensure consumers aren’t unfairly penalized for incorrect information or outdated debt that may appear on their reports.

“The growing reliance on credit information for non-credit uses means credit scoring has a significant impact on consumers’ lives,” Waters said on a press call Wednesday. “More and more landlords use these reports to decide when to rent to potential tenants, banks use this information to determine when a consumer can open an account, and employers use them to decide when to offer position or promote a worker.”

Waters said she used a previous reform bill introduced in 2014, and discussions with consumers groups to craft the proposal, which is expected to be introduced today.

The reform includes the follow provisions:

• Bad Mortgages — Providing relief to millions of borrowers who were victimized by predatory mortgage lenders and servicers, by removing adverse information about these residential loans that are found to be unfair, deceptive, abusive, fraudulent or illegal.

“This would give a fresh start to victims who were inappropriately steered into loans they could not afford,” Waters said.

•  Disputes – Establish clear standards for credit agencies and furnishers to improve the accuracy of reporting.

For the first time, consumers would have the right to appeal initial reviews of disputed items that are conducted by either credit bureaus or furnishers. It also would require furnishers, who regularly provide information about their customers to credit bureaus, to inform their customers of this practice and to let them know the first time that they actually report negative information about a specific customer. It also would require credit reporting agencies to establish dedicated “dispute” pages on their websites that are free of aggressive marketing of products and services.

• Decreasing Time On A Report — Ending the unreasonably long time periods that most adverse information can remain on a person’s credit report, shortening such periods by three years.

Waters contends that even if this information doesn’t factor into credit decisions, the presence on a report can still impact non-credit decisions.

• Student Loans — Giving distressed private education loan borrowers the same chance to repair their credit as federal student loan borrowers, by removing adverse information when delinquent private education loan borrowers make consecutive on-time monthly payments for a certain period of time on their loans.

Additionally, the reform would require furnishers and CRAs to remove delinquent private student loans that were obtained to attend fraudulent for-profit colleges.

• Medical Debt —
The reform would restrict how medical debt appears on credit reports by removing paid and federal medical reports within 40 days. Consumers would also be given a 180 day grace period before medical debt can be put on a report.

“This debt can be incredibly complicated and confusing,” Waters said.

• Clearer Information — Consumers would be given tools to help them understand how a credit report is complies and how their credit score is affected by this information. This would also expand access to free credit scores.