Recently we reported that the Fair Isaac Corporation (FICO) was making changes to its credit reporting. They’re offering a new scoring model that no longer factors in past-due payments that have been paid off and they’re giving far less weight to medical debt.
Now Rep. Maxine Walters (D-Calif.) is introducing the Fair Credit Reporting Improvement Act of 2014. If enacted, this would make major updates to the 44-year-old consumer protection law.
The last time changes were made to this law, consumers were given the right to a free yearly credit report and mortgage lenders were required to let borrowers see their scores. That provision put an end to disreputable lenders claiming low scores as an excuse for high rates.
The Fair Credit Reporting Improvement Act contains nearly 20 new provisions designed to make access to credit both easier and cheaper for thousands of Americans.
Key provisions include:
Relief to borrowers who were victimized by predatory lenders. All adverse information about loans that were found to be unfair, deceptive, abusive, fraudulent or illegal would be removed.
Shortening the time that adverse information remains on a credit report. Currently adverse information remains for 7 years. The new bill would lower it to 3 years.
Removing fully paid or settled debt from a consumer’s credit report. Like other adverse information, this currently remains on a credit report for 7 years. Under the new law it would be removed immediately.
Giving consumers the right and ability to challenge adverse information on their credit reports. Credit furnishers would be required to maintain all relevant records for as long as adverse information remained on a consumer’s credit report. Consumers would have the right to review and challenge such information.
Erase private school loan default information for borrowers who are making an effort at repayment. As is the case with federal student loans, negative information from private school loans would be removed as soon as the borrower made nine consecutive on-time payments.
Bar employees from using credit information to eliminate job applicants. Do late payments on a car loan mean you won’t be a reliable employee? Ms. Walters says no – this is an unfair practice that leads to long-term unemployment. She also believes that it unfairly targets women and minorities who were victims of the financial crisis.
Is everyone in favor of these sweeping changes?
No. Credit experts such as John Ulzheimer of Credit Sesame worry that removing evidence all debt that has been paid would deny companies information needed to assess the risk in extending credit.
This bill was scheduled for introduction to the house on September 10. We’ll be watching the progress and reporting the results.
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