By Laura Alix
While federal lawmakers debate the merits of a consumer credit reporting overhaul, lenders continue to value the consumer credit report as an important tool.
U.S. Rep. Maxine Waters, D-Calif., introduced the Fair Credit Reporting Improvement Act earlier this month, which, if passed, would be the most aggressive overhaul of the Fair Credit Reporting Act in more than a decade.
Among the many changes Waters is proposing, the bill would remove from a consumer’s credit report all bankruptcies after seven years, instead of 10 years; all judgments after four years, instead of seven years; all adverse real estate loans determined to have been caused by shady lending practices and any negative private student loan information if the borrower has made nine consecutive payments on time.
Testifying on behalf of the American Bankers Association before a House subcommittee considering Waters’ proposal, Chairman-Elect John Ikard testified not to the substance of the proposed bill, but to the importance of accurate consumer credit reporting for banks. He also pointed to the multiple avenues consumers already have for disputing inaccuracies on their credit reports.
Others have expressed trepidation that the bill’s provision for removing adverse debt within 45 days of settlement could have the effect of making flaky borrowers look like a better credit risk than they actually are.
A spokesman for the Consumer Bankers Association said the group had no position on the bill, though it may not need one. Given the bill’s timing, coinciding with fast-approaching mid-term elections, it may not amount to much.
A Valuable Tool
The consumer credit report has evolved over the years, said Stephen King, director of the Regulatory Compliance Services Group at Wolf & Co., from strictly an underwriting tool to a critical component to proactive fraud prevention – for both the bank and the consumer.
What banks can or cannot share with a client from his or her credit report, though, largely comes back to the bank’s own policy.
Once upon a time, consumer reporting agencies might not have wanted a bank to share the credit report because it would then eliminate that consumer’s incentive to purchase the credit report from said agency, but as King points out, that’s now a bit of a moot point since consumers are entitled to one free credit report per year.
And the Fair Credit Reporting Act, in its current iteration, does not prohibit banks from sharing information from a credit report with a customer. Specifically, the act reads, “A consumer reporting agency may not prohibit a user of a consumer report furnished by the agency on a consumer from disclosing the contents of the report to the consumer, if adverse action against the consumer has been taken by the user based in whole or in part on the report.”
But that still leaves a lot of judgment up to the bank in question – and banks may very well have sound reasons for not sharing the credit report with a customer anyway.
For instance, Mutual Bank in Whitman does not share the consumer credit report it pulls on mortgage applicants, and President Bill Morse gives a fairly practical reason why.
“One of the reasons why we don’t give the credit report is that in many cases, you have a couple, for example, applying jointly, so you get their joint credit, but also on the report is any individual credit each of them may have in their own names,” he said. “In giving that credit report, you might be giving the wife’s credit information to the husband or the husband’s credit information to the wife.”
“You have families who have separate incomes, separate bank accounts, separate loans, and what the domestic situation is, we have no idea, so it’s up to them how they want to handle that,” he said.
That doesn’t mean totally keeping a customer in the dark, though, and certainly ought not to conjure up mental images of hapless Joe Mortgage Applicant trying to sneak a peek across the desk at his credit report.
Like pretty much every other bank out there, Mutual Bank does explain its decision when an applicant has been denied credit due to something on the report, Morse said.
That also means informing its customers as to their rights under the Fair Credit Reporting Act and telling them how they can obtain a free copy of their credit report.
He said, “We encourage them, if they have any questions on the credit report, to get a copy and bring it back to us if they want to explore it further.”
Laura Alix is a staff writer for The Warren Group.