Credit Reporting

Position

• ICBA supports the use of consumer credit reports and credit scoring models as tools to objectively assess a borrower’s creditworthiness and ability to repay a loan.
• ICBA opposes reforms to the credit reporting system that impose significant operational costs on community banks, potentially impacting the affordability of loans.
• ICBA opposes efforts that limit the value of credit scores, such as limiting accurate and legitimate negative information on credit reports. Such limitations make credit more costly for all consumers, especially those that work hard to maintain a good credit score.
• ICBA opposes changes to the Fair Credit Reporting Act’s dispute process that would make it easier for individuals to make fraudulent claims of inaccuracies, imposing an undue burden on community banks as furnishers of credit information.
• ICBA opposes the creation and mandatory use of a government-owned and controlled credit bureau which would stifle innovation and could be manipulated for political purposes.
• Congress must subject credit reporting agencies to banking agency examination and supervision comparable to that which applies to community banks and other financial institutions.
• ICBA supports innovative ways to provide credit to unserved and underserved consumers. While we support banks’ efforts to consider “alternative data” in credit decision processes, we oppose any efforts to require the incorporation of “alternative data.”

Background

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.

Recent legislative, judicial, and executive activity has reduced the efficacy of credit reports and increased the burden of participation in its ecosystem. Among other consequences, the result of this activity makes it easier for individuals to make fraudulent claims of credit report inaccuracies.