Consumer Credit Reporting, Credit Bureaus, Credit Scoring, and Related Policy Issues
Released: 2019-03-28T00:00:00

Introduction

The consumer data industry collects and subsequently provides information to firms about behavior when consumers conduct various financial transactions. Firms use this data to determine whether consumers have engaged i n behaviors that could be costly or beneficial to the firms. For example, lenders rely upon credit reports and scoring systems to determine the likelihood that prospective borrowers will repay their loans. The data may also be used to predict consumer behaviors that would financially benefit firms.

Although the general public is likely to be more familiar with the use of credit reporting and scoring to qualify for mortgage and other consumer loans, the scope of consumer data use is much broader. Insured depository institutions (i.e., banks and credit unions) rely on consumer data service providers to determine whether to make checking accounts or loans available to individuals. Insurance companies use consumer data to determine what insurance products to make available and to set policy premiums. Some payday lenders use data regarding the management of checking accounts and payment of telecommunications bills to determine the likelihood that a consumer will fail to repay small-dollar cash advances. Merchants rely on the consumer data industry to determine whether to approve payment by check or electronic payment card. Employers may use consumer data information to screen prospective employees to determine, for example, the likelihood of fraudulent behavior. In short, numerous firms rely upon consumer data to identify and evaluate the risks associated with entering into financial relationships or transactions with consumers.

Greater reliance by firms on consumer data significantly affects consumer access to financial products or opportunities. For example, negative or derogatory information, such as multiple overdrafts, involuntary account closures, loan defaults, and fraud incidents, may influence a lender to deny a consumer access to credit. Further, such information may stay on a consumer's reports for several years. The inclusion of negative information may be particularly limiting to consumers under circumstances in which such information is inaccurate or needs to be updated to reflect more current and possibly more favorable financial situations. Furthermore, consumers may find the process of making corrections to consumer data reports to be time-consuming, complex, and perhaps ineffective. The exclusion of more favorable information, such as the timely repayment of noncredit obligations, from standard credit reporting or scoring models may also limit credit access.

This report first provides background information on the consumer data industry and various specialty areas. The report examines one prominent specialty area—consumer scoring—and describes various factors used to calculate credit scores. Next, the report provides a general description of the current regulatory framework of the consumer data industry. Finally, the report discusses selected policy issues pertaining to consumer data reports. Specifically, the report addresses policy issues concerning inaccurate or disputed consumer data provided in consumer data reports; how long negative or derogatory information should remain in consumer data reports; differences in billing and collection practices that can adversely affect consumer data reports, an issue of particular concern with medical billing practices; consumer's rights; whether uses of credit bureau data outside of the financial services, such as for employment decisions, adversely affect consumers and should be limited; whether the use of alternative consumer data or newer versions of credit scores may increase accuracy and credit access; and how to address data protection and security issues in consumer data reporting. For each policy issue, the report addresses corresponding legislative and regulatory developments.

In the 116 th Congress, credit reporting and the consumer data industry is a topic of interest. On February 26, 2019, the House Financial Services Committee held a hearing on the consumer data industry, entitled, " Who ' s Keeping Score? Holding Credit Bureaus Accountable and Repairing a Broken System ." House Financial Services Committee Chairwoman Maxine Waters has also released two draft bills: the Comprehensive Credit Reporting Reform Act of 2019 (CCRRA) and the Protecting Innocent Consumers Affected by a Shutdown Act, which, if enacted, would address many of the policy issues discussed in this report. Where relevant, the report discusses the approach these bills would take to addressing the policy issues examined.

The Consumer Data Industry and Specialty Services

This section provides background information on the consumer data industry, which generally includes credit reporting agencies (CRAs), also referred to as credit bureaus (both terms are used interchangeably in this report). This section also provides background on credit scoring, a specialty service the industry provides, including a summary of the key factors known to affect credit scores.

Consumer Reporting Services

According to the Fair Credit Reporting Act (FCRA), which generally regulates the business of credit reporting, CRAs are firms that prepare consumer reports based upon individuals' financial transactions history data. Such data may include historical information about credit repayment, tenant payment, employment, insurance claims, arrests, bankruptcies, and check writing and account management. Consumer files, however, do not contain information on consumer income or assets. Consumer reports generally may not include information on items such as race or ethnicity, religious or political preference, or medical history.

Equifax, Experian, and TransUnion are the three largest nationwide providers of credit reports. Other CRAs provide a variety of specialized consumer reporting services. Some specialty CRAs collect data regarding payment for phone, utilities (e.g., electric, gas, water), and telecommunication (e.g., cable) services. Utility and telecommunication service providers use the reports to verify the identity of customers and determine downpayment requirements for new customers. Property management companies and rent payment services may report to CRAs that specialize in collecting rent payment data for tenant and employment screening. Some CRAs specialize in consumer reporting for the underbanked, near prime, and subprime consumer segments, including consumers with minimal recorded data. Some CRAs specialize in debt collection (recovering past due funds) and fraud verification data.

Firms that use consumer reports may also report information to CRAs, thus serving as furnishers . A tradeline is an account attached to a particular consumer that is reported to a CRA by a furnisher. A tradeline serves as a record of the transaction (payment) activity associated with the account. Furnishing tradelines is voluntary, and furnishers are not required to submit tradelines to all CRAs. Furnishers also have different business models and policies, resulting in different reporting practices. Some furnishers may report all unpaid customer obligations that were deemed uncollectible and written off their balance sheets; some report when money balances owed surpass minimum threshold levels; some report only the principal balances owed minus the penalties and fees; and others may report all monies owed. Furnishers also have discretion over the types of obligations they wish to report.

Benefits to users of consumer data increase as more individual companies choose to participate as furnishers, but furnishers do incur costs to report data. To become furnishers, firms must be approved and comply with the policies of a CRA, such as fee registration requirements. The transfer of consumer data involves security risks, and many CRAs have adopted standardized reporting formats and requirements approved by the Consumer Data Industry Association (CDIA) for transferring data. Furnishers must be able to comply with industry data transfer requirements or some CRAs are unlikely to accept their data. Compliance may require investing in technology compatible with the computer systems of a CRA. Compliance costs may be more burdensome for smaller firms, causing some to choose not to be furnishers. In addition, entities that elect to become furnishers face legal obligations under the FCRA. The FCRA requires furnishers to report accurate and complete information as well as to investigate consumer disputes. Hence, reporting obligations could possibly, under some circumstances, result in legal costs, which may also influence a firm's decision to become a furnisher.

Business models and policies of CRAs are also different. Different CRAs may collect the same information on the same individuals but adopt different conventions for storing the information. One CRA may report a delinquent debt obligation separately from the penalties and fees whereas another CRA may choose to combine both items into one entry. Consequently, consumer reports obtained from different CRAs on the same consumer are likely to differ due to different policies adopted by furnishers, CRAs, or both.

Credit Scoring Services

A consumer score is a (numeric) metric that can be used to predict a variety of financial behaviors. Consumer credit scores are prepared for lenders to determine, for example, the likelihood of loan default. Other consumer scores can be prepared to predict the likelihood of filing an insurance claim, overdrawing a bank account, failing to pay a utility bill, committing fraud, or a host of other adverse financial behaviors. Consumer scores are typically computed using the information obtained from one or more consumer reports. Rather than maintaining a repository of credit records, some firms are primarily engaged in the production of consumer scores. Hence, consumer scoring can be considered a specialty service in the consumer data industry. For example, if a user of a consumer report subsequently wants a consumer score, it may be charged an additional fee.

Given the variety of different financial behaviors to predict, there are many consumer scores that can be calculated. Consumer scores for the same individual and behavior calculated by different scoring firms are also likely to differ. Consumer scoring firms may have purchased consumer information from different CRAs, which have their own policies for storing and reporting information. Each scoring firm has its own proprietary statistical model(s), meaning that each firm decides what consumer information should be included and excluded from calculations. Each firm can choose its own weighting algorithms. For example, included information can be equally weighted, or heavier weights can be placed on more recent information or on information otherwise deemed more pertinent. Sometimes the consumer scoring firm selects the appropriate weighting scheme, and sometimes the requestor of a consumer score may provide instructions to the preparer. Hence, consumers may not see the actual scores used until after the decisionmaking firms release them, particularly in cases when customized scores were requested and used in the decisionmaking process.

Existing Consumer Protections and Regulation of CRAs

This section provides a brief overview of existing consumer protections and regulation related to credit reporting.

As noted, the Fair Credit Reporting Act, enacted in 1970, is the main statute regulating the credit reporting industry. The FCRA requires "that consumer reporting agencies adopt reasonable procedures for meeting the needs of commerce for consumer credit, personnel, insurance, and other information in a manner which is fair and equitable to the consumer, with regard to the confidentiality, accuracy, relevancy, and proper utilization of such information." The FCRA establishes consumers' rights in relation to their credit reports, as well as permissible uses of credit reports. It also imposes certain responsibilities on those who collect, furnish, and use the information contained in consumers' credit reports.

The FCRA includes consumer protection provisions. Under the FCRA, consumers must be told when their information from a CRA has been used after an adverse action (generally a denial of credit) has occurred, and disclosure of that information must be made free of charge. Consumers have a right to one free credit report every year (from each of the three largest nationwide credit reporting providers) even in the absence of an adverse action (e.g., credit denial). Consumers also have the right to dispute inaccurate or incomplete information in their report. After a consumer alerts a CRA of such a discrepancy, the CRA must investigate and correct errors, usually within 30 days. The FCRA also limits the length of time negative information may remain on reports. Negative collection tradelines typically stay on credit reports for 7 years, even if the consumer pays in full the item in collection; a tradeline associated with a personal bankruptcy stays on a credit report for 10 years.

The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) established the Bureau of Consumer Financial Protection (CFPB), consolidating many federal consumer financial protection powers from other federal agencies. The CFPB has rulemaking and enforcement authorities over all CRAs for certain consumer protection laws; it has supervisory authority, or the authority to conduct examinations, over the larger CRAs. In July 2012, the CFPB announced that it would supervise CRAs with $7 million or more in annual receipts, which included 30 firms representing approximately 94% of the market.

The CFPB conducts examinations of the CRAs, reviewing procedures and operating systems regarding the management of consumer data and enforcing applicable laws. In 2017, the CFPB released a report of its supervisory work in the credit reporting system. The report discusses the CFPB's efforts to work with credit bureaus and financial firms to improve credit reporting in three specific areas: data accuracy, dispute handling and resolution, and furnisher reporting. As the report describes, credit bureaus and financial firms have developed data governance and quality control programs to monitor data accuracy through working with the CFPB. In addition, the CFPB has encouraged credit bureaus to improve their dispute and resolution processes, including making it easier and more informative for consumers.

Recently, Congress has also been interested in improving consumer protections in the credit reporting system, particularly in response to the 2017 Equifax data breach, which exposed personal information of millions of consumers. The Economic Growth, Regulatory Relief, and Consumer Protection Act ( P.L. 115-174 ), which was enacted in 2018, established new consumer protections relating to credit reporting, including the right to a free credit freeze. Credit freezes allow consumers to stop new credit from being opened in their name, to protect themselves from fraud and identity theft.

Policy Issues

This section examines selected policy issues pertaining to the use of credit reports and scores in consumer lending decisions. For each policy issue, the report highlights recent legislative and regulatory developments and discusses selected legislative proposals from the 116 th Congress that would address the issue.

Inaccurate or Disputed Information

The accuracy of consumer information in consumer data reports has been an ongoing policy concern. Inaccurate information in a credit report may limit a consumer's access to credit in some cases or increase the costs to the consumer of obtaining credit in others. In 2012, the Federal Trade Commission (FTC) reported that 26% of participants in a survey of credit report accuracy were able to identify at least one potentially material error on at least one of approximately three different credit reports prepared using their consumer information. After the reports were corrected, 13% of participants in the FTC study saw one or more of their credit scores increase. For those who saw an increase, over 40% of their scores rose by more than 20 points, which could increase the likelihood that the consumer would be offered less expensive credit terms.

Credit reporting inaccuracies may occur for various reasons. Consumers may inadvertently provide inaccurate data when applying for financial services. Furnishers may inadvertently input inaccurate information into their databases. Matching information to the proper individual poses challenges, such as in cases when multiple individuals have similar names and spellings. In some cases, the information may be properly matched, but the individual could be a victim of fraud or identity theft.

The predictive power of consumer data, or the ability to accurately predict a consumer's likelihood to default on a loan, would be enhanced to the extent that consumer tradelines are regularly updated with correct and current information. As mentioned in the previous section, the CFPB has recently encouraged credit bureaus and financial firms to improve data accuracy in credit reporting. For example, since 2014, the CFPB has required the largest consumer reporting firms to provide standardized accuracy reports on a regular basis. The accuracy reports must specify the frequency that consumers dispute information, list furnishers and industries with the most disputes, and provide dispute resolution information. According to the CFPB, the top 100 furnishers provide 76% of tradeline information to the largest nationwide CRAs, and the furnishers regularly update the account status of reported tradelines. In addition, the larger CRAs have also made improvements to the communication tool they use to facilitate the dispute resolution process between consumers and furnishers. Further, effective July 1, 2017, the CRAs enhanced public record data standards for the collection and timely updating of civil judgements and tax liens. Public record data must contain minimum identifying information (i.e., name, address, and Social Security number or date of birth) and must be updated at least every 90 days; otherwise, the tax lien and civil judgment information will no longer be reported. The accuracy of credit reports, nonetheless, ultimately depends upon consumers to monitor and dispute any discrepancies.

If enacted, Chairwoman Waters' draft bill—the Comprehensive Credit Reporting Reform Act of 2019 (CCRRA)—would address some concerns relating to inaccurate or disputed data by establishing new consumer rights around the dispute process. These rights would include guaranteeing consumers more information about dispute investigations and granting consumers the right to appeal disputes to credit bureaus, thus formalizing the process. The CCRRA also would explicitly establish consumers' right to seek injunctive relief, a legal remedy where a court requires future behavior change (e.g., removing adverse information from a credit record). Lastly, the bill would provide credit restoration to consumers who are the victims of some predatory activities, such as deceptive lender acts or discrimination.

Length of Time to Retain Negative Information

Policymakers have also considered the appropriate length of time negative information should be allowed to remain on a credit report. Negative information generally refers to delinquencies or defaults, which typically remain on credit reports for seven years. Negative information in a credit report often results in a consumer appearing to pose a greater risk of default or other negative behavior. This may lead a consumer to either pay more for financial services or, in some cases, be denied access to credit entirely. Limiting a consumer's access to certain financial services, such as depository checking accounts or lower cost loans, may disproportionately affect the consumer's cost of engaging in financial transactions. Similarly, the use of consumer data reports by potential employers, discussed further below, may limit job opportunities that could arguably help applicants overcome financial challenges and thereby improve their credit histories.

Retaining negative information on credit reports for an extended period of time may pose benefits and detriments. On the one hand, under circumstances in which the underlying information in a consumer data report is inaccurate or out of date, consumers may improperly be considered to pose a greater risk to a firm. In that case, the consumer may be offered costlier credit options (or even face denials of credit) that do not accurately reflect the consumer's actual risk of default. In other cases, consumers also may unfairly be considered to pose a greater risk now due to circumstances in the past that they have since overcome. On the other hand, the longer information remains on the credit report arguably allows lenders to see long-term trends that may be helpful for distinguishing between a rare occurrence and a consistent pattern in a consumer's behavior. Shorter or insufficient periods of time in which negative tradelines appear on consumer reports may also compromise the ability to compute reliable scores. If lenders view credit reports and scores as unreliable due to premature removal of negative information, they could increase downpayment requirements across the board for all credit applicants or reduce loan amounts. In short, lenders who are uncertain about data reliability might adopt stricter underwriting and lending policies. In addition to restricting credit access generally, this could reduce competition by allowing lenders with an established relationship and more information on a consumer to provide more favorable terms to that consumer than other companies. In addition, the Association of Certified Fraud Examiners (ACFE) found that poor credit can signal criminal activity, and earlier removal of negative information may make it more difficult for an organization to detect fraud, which may be particularly costly for small businesses and nonprofit organizations.

Many preparers and users of credit scores have adopted weighting schemes that place less weight on older information in a consumer data report. Maintaining longer (rather than shorter) durations of negative tradelines on reports allows preparers to make greater use of variable-weighted algorithms to calculate scores, which may be useful when the importance of a weight needs to be modified over time. In addressing this policy issue, the CCRRA would shorten the time period that adverse information could remain on a person's credit report by three years (such that it remains on the report for a total of four years), among other things.

Inconsistent Billing and Reporting Practices: Medical Tradelines

Another policy issue that often arises in connection with credit reporting is that different holders of consumer debt bill differently and report to the CRAs differently. Inconsistent reporting practices result in variation of the timing with which unpaid debts appear on consumer reports. For example, medical providers may assign unpaid bills to debt collectors or sell outstanding debts to debt buyers. Some medical providers may assign or sell the debt after 60 days, but some may do so after 30 days (by comparison, most bank credit card delinquencies are assigned or sold after 180 days). Some firms may turn obligations over to collections as a tool to encourage consumers to settle unpaid balances, blurring the distinction between billing and collecting policies. Debt collectors or buyers subsequently furnish negative information to CRAs, causing tradeline accounts to appear on consumer reports.

The CFPB used a random sample of approximately 5 million consumers as of December 2012 to determine what types of tradeline accounts were reported most frequently and the amounts. The CFPB found that approximately 33% of credit reports surveyed had collection tradelines, and approximately 52% of those collection tradelines were related to medical collections. After medical obligations, the CFPB found that the remaining collection tradelines of significant relevance were associated with unclassified debts (17.3%), cable or cellular bills (8.2%), utilities (7.3%), and retail stores (7.2%). All other categories of collectible tradelines were approximately 2% or less of the survey. For 85% of the respondents, the amounts owed for medical debt were for less than $1,000. In short, more than half of collection tradelines were associated with medical debt, and they were for relatively small amounts. Specifically, the median amount owed for the medical collection tradelines was $207, and 75% of all medical collection tradelines were under $490.

One form of consumer debt—medical debt—is most often disputed by consumers and raises specific policy issues related to inconsistent billing and reporting practices. According to the CFPB study, consumers are unlikely to know when and how much various medical services cost in advance, particularly those associated with accidents and emergencies. People often have difficulty understanding co-pays and health insurance deductibles. Consequently, consumers may delay paying medical obligations as they either assume their insurance companies will pay or attempt to figure out why they have been billed, which often results in medical debt appearing unpaid on credit reports.

Regulators and industry have taken actions that may reduce medical tradelines and their associated negative effects on consumer credit data. On December 31, 2014, the Internal Revenue Service (IRS) announced a final rule requiring the separation of billing and collection policies of nonprofit hospitals. Under the rule, hospitals that have or are pursuing tax-exempt status are required to make reasonable efforts to determine whether their patients are eligible for financial assistance before engaging in "extraordinary collection actions," which may include turning a debt over to a collection agency (thus creating a medical tradeline) or garnishing wages. In short, tax-exempt hospitals must allow patients 120 days from the date of the first billing statement to pay the obligation before initiating collection procedures. The IRS rule only impacts nonprofit hospitals, but, on September 15, 2017, the three major credit reporting agencies—Experian, Equifax, and TransUnion—established a 180-day (6 month) waiting period before posting a medical collection of any type on a consumer credit report. In addition, P.L. 115-174 , Section 302, amends the FCRA to provide credit reporting protections for veterans as follows:

CRAs must exclude certain medical debt incurred by a veteran from his or her credit report if the hospital care or medical services relating to the debt predates the credit report by less than one year. CRAs must remove from the credit report a veteran's fully paid or settled medical debt previously characterized as delinquent, charged off, or in collection. CRAs must establish a dispute process and verification procedures for veterans' medical debt. Active duty military personnel receive free credit monitoring.

The CCRRA would impose restrictions on the appearance of medical collections on consumer credit reports, codifying the CRA's 2017 180-day rule. It would also require expedited removal of all fully repaid or settled debts, including medical collections.

Consumer Rights in the Credit Reporting System

Consumers sometimes find it difficult to advocate for themselves when credit reporting issues arise because they are not aware of their rights and how to exercise them. According to a CFPB report, some consumers are confused about what credit reports and scores are, find it challenging to obtain credit reports and scores, and struggle to understand the contents of their credit reports. The CFPB receives more credit reporting complaints than complaints in any other industry it regulates. Currently, the CFPB provides financial education resources on its website to help educate consumers about their rights regarding consumer reporting. The credit bureaus' websites also provide information about how to dispute inaccurate information, and consumers can contact them by phone or mail.

The CCRRA proposes that CRAs provide free credit scores and explanations of those scores to consumers in their annual free credit report. In addition, consumers would be entitled to these free credit reports at other times, for example, whenever they apply for a new mortgage, auto loan, or student loan, or if a consumer's identity is stolen. The report and score used to make underwriting decisions in connection with these events would be provided to the consumer. The CCRRA also would direct the credit bureaus to give consumers more information on dispute rights, and it would require hard inquires to be limited for a longer 120-day shopping window for certain consumer credit products (as described in the box "Some Factors Frequently Used to Calculate Credit Scores" above).

Appropriate Purposes for Using Credit Bureau Data: Employment Decisions

Policy questions exist regarding the appropriate uses of credit bureau data, particularly for uses outside of extending credit to consumers. For example, credit information can be used for employment decisions. According to the Society for Human Resource Management (a human resources professional society), in 2012, almost half of surveyed organizations in their membership used credit background checks on some of their job applications. Employers report that they use this information to reduce the likelihood of employee theft or embezzlement and to reduce legal liability for negligent hiring. To comply with the FCRA, employers must inform an applicant that his or her credit report is a part of a hiring decision, and acquire the applicant's written permission to obtain the report. If an applicant is denied a job, or if the employer takes another adverse action due to information on a credit report, then the applicant must be given a copy of the report and a summary of their FCRA rights.

Whether the use of credit information in employment decisions unnecessarily harms prospective job applicants is debatable. For some occupations, past financial difficulties may increase the likelihood, for example, that the employee could be bribed or compromised in some way; however, this information may not be essential for success in all occupations. Currently, many states limit employers' use of credit information for employment decisions. The CCRRA would ban the use of credit information for employment decisions, unless required by law or for a national security investigation.

Consumers with Limited Credit Histories and Use of Alternative Scoring Methods

The CFPB estimates that credit scores cannot be generated for approximately 20% of the U.S. population due to their limited credit histories. The CFPB distinguishes between different types of consumers with limited credit histories. One category of consumers, referred to as credit invisibles , have no credit record at the three largest credit bureaus and, thus, do not exist for the purposes of credit reporting. According to the CFPB, this group represents 11.0% of the U.S. adult population, or 26 million consumers. Another category of consumers do exist (have a credit record), but they still cannot be scored or are considered non scorable . Nonscorable consumers either have insufficient (short) histories or outdated (stale) histories. The insufficient and stale unscored groups, each containing more than 9 million individuals, collectively represent 8.3% of the U.S. adult population, or approximately 19 million consumers according to the CFPB. Younger adults may be part of the credit invisible or nonscorable population because they lack a sufficient credit history. As consumers get older, however, the problem of being credit invisible or belonging to the insufficient part of the nonscorable group typically declines, but may begin to reoccur after the age of 60. Older adults, who may have considerably reduced their credit usage, perhaps as they prepare to enter retirement years, may encounter the problem of having stale credit records. Because credit scoring models vary by firms, consumers that cannot be scored by some models might still have the ability to be scored by other models; thus, the state of being nonscorable may depend upon the credit reporting data records and scoring models used.

Borrowers with missing or impaired credit histories may be able to improve their ability to get reliable credit scores by using credit building loans, such as secured credit cards that require either security deposits as collateral for the amount of the line of credit or links to checking or savings accounts, thereby allowing lenders to recover funds if payments are missed. The security deposit is refunded if borrowers do not miss payments. Secured credit card lending can help borrowers build or repair their credit histories, assuming that the more favorable customer payment activity is reported to credit bureaus. In addition, the use of alternative credit scores may also help the credit invisibles because other types of consumer payment activity (discussed below) may be predictive in regard to how borrowers would manage credit. In short, options that increase the ability to calculate scores for the invisible or currently nonscoreable consumer groups could allow lenders to better determine the quantity and scope of financial relationships they can establish with such groups.

A lternative credit scoring models could potentially increase accuracy by including additional information beyond that which is traditionally included in a credit report. For example, some credit score models do not distinguish between unpaid and paid (resolved) tradelines. Most credit scores are calculated without utility and rent payments information. Arguably, including this information would benefit the credit scores for some individuals with limited or no credit histories, potentially increasing their access to—and lowering their costs of—credit. Conversely, information about medical debts has often been included in credit scores, but the unevenness in medical reporting, as previously discussed, and possibly the consumers' lack of choice in incurring medical debt raises questions about whether medical debt tradelines should be considered reliable predictors of creditworthiness or credit performance. For this reason, some newer versions of credit scoring apply less weight to medical debt. In short, developing credit scores with new information might allow lenders to find new creditworthy consumers.

Regulators and Congress have considered the potential for alternative credit scoring. In 2014, the Federal Housing Finance Agency (FHFA) directed Fannie Mae and Freddie Mac—the government-sponsored enterprises (GSEs) that purchase mortgages in the secondary market—to consider using more updated credit scoring models in their mortgage underwriting. Under P.L. 115-174 , FHFA is required to define, through rulemaking, the standards and criteria the GSEs will use for validating credit score models used when evaluating whether to purchase a residential mortgage. If enacted, the CCRRA would direct the CFPB to report to Congress on the impact of using nontraditional data on credit scoring.

Full implementation of newer versions of credit scoring models, however, may not occur quickly. In the mortgage market, upgrading automated underwriting systems is costly for the GSEs, FHA, and loan originators. Not all originators will choose to update their automated underwriting systems. Even if alternative credit scoring models were widely adopted, the credit score is not the only variable considered during the underwriting process. Just as several factors are included in the development of a credit score, a credit score is only one of several factors included in an automated underwriting model (also referred to as an underwriting scorecard). The debt-to-income ratio, for example, may still be an important variable for mortgage underwriting. Higher levels of medical and student loan debts may still affect mortgage underwriting decisions. Hence, the use of alternative credit scores may help some borrowers close to a threshold or borderline, yet still not translate into significant changes in credit access across the board.

Data Protection and Security Issues

Congressional interest in data protection and security in the consumer data industry has increased following the announcement, on September 7, 2017, of the Equifax cybersecurity breach that potentially revealed sensitive consumer data information for 143 million U.S. consumers. CRAs are subject to the data protection requirements of Section 501(b) of the Gramm-Leach-Bliley Act (GLBA). Section 501(b) requires the federal financial institution regulators to "establish appropriate standards for the financial institutions subject to their jurisdiction relating to administrative, technical, and physical safeguard—(1) to insure the security and confidentiality of consumer records and information; (2) to protect against any anticipated threats or hazards to the security or integrity of such records; and (3) to protect against unauthorized access or use of such records or information which could result in substantial harm or inconvenience to any customer."

The CFPB does not have the authority to prescribe regulations with regard to safeguarding the security and confidentiality of customer records. Instead, the FTC has the authority to enforce Section 501(b) as the federal functional regulator of nonbank financial institutions, including CRAs. The FTC has promulgated rules implementing the GLBA requirement. Because the FTC has little upfront supervisory or enforcement authority, the agency typically must rely upon its enforcement authority after an incident has occurred. In the 116 th Congress, bills such as H.R. 331 and H.R. 1282 would direct the FTC to ensure sufficient standards for safeguarding consumer information, including for the credit bureaus and data furnishers. In addition, in March 2019, a Government Accountability Office report became public that recommended actions for the FTC, the CFPB, and Congress to strengthen oversight of credit bureaus' data security.

Meanwhile, P.L. 115-174 , Section 301, requires credit bureaus to provide fraud alerts for consumer files for at least a year under certain circumstances. In addition, credit bureaus must provide consumers with one free freeze alert and one free unfreeze alert per year. The law also established further requirements to protect minors. Currently, many credit bureaus provide consumers services such as credit monitoring for identity theft victims. In general, credit bureaus charge fees for these services, paid for by either a consumer or private company after a data breach incident. The CCRRA would expand protections for identity theft victims, including the right to free credit monitoring and identity theft services. It would require the CFPB to create new regulations to define the parameters for these new consumer benefits, including how long they should be provided and what services should be included.