Credit Reporting Agencies (CRAs) collect consumer data, such as names, addresses, social security numbers, credit histories, and public information, then compile that information into consumer credit reports. CRAs also use this information to develop proprietary credit scores or share that information with entities that develop credit score models, which indicate a consumer’s propensity to repay a loan.
These credit reports and credit scores are sold to third parties, such as banks, insurance companies, employers, landlords, and other entities that would like more information on an individual before entering into a formal relationship.
The credit reporting system serves as an independent and consistent mechanism for community banks to assess a consumer’s past financial behavior and anticipate their future performance when making underwriting decisions.
The accuracy of credit reports, including the completeness and veracity of the information, is of the utmost importance to community banks, since the utility of the credit report is closely correlated with its accuracy and completeness. Competition among CRAs results in more accurate and higher quality data and lower credit costs for borrowers.
Preserving the Usefulness of Credit Reports
ICBA recognizes that mechanisms to correct inaccurate, incomplete, or unverifiable information in reports are necessary. However, we strongly oppose changes to the dispute process that would make it easier for individuals to make fraudulent claims of credit report inaccuracies.
While well intended, such changes could counter-intuitively decrease the credit report’s accuracy and usefulness by reducing the time banks have to resolve legitimate disputes. Significant resources would have to be expended by banks to respond to a high volume of fraudulent disputes.
Examination and Supervision of Credit Reporting Agencies
Community banks and other financial institutions are required by statute and regulation to safeguard personally identifiable information. All participants in the payments and financial systems with access to customer financial information should be subject to Gramm-Leach-Bliley Act-like data security standards, as banks are.
While the FTC and the CFPB currently have enforcement authority over CRAs, it is imperative that problems are caught and addressed before the enforcement stage. To ensure consumers receive enhanced protection of their personal information, Congress should subject credit reporting agencies to banking agency examination and supervision comparable to that which applies to community banks and other financial institutions.
ICBA recognizes that there may be potentially millions of consumers locked out of mainstream credit that could become eligible for credit through the use of alternative data and modeling. Alternative data and modeling techniques are changing the way that some financial service providers conduct business. However, new regulations that require community banks to incorporate alternative data into their credit decision processes could prevent community banks from making loans to those who need access to credit the most, increase costs, and stifle innovation.