The ranking democrat on the House Financial Services Committee wants to fundamentally change the rules on how lenders report consumer payments and debts to the credit bureaus, which could create a path to homeownership for millions of Americans currently shut out by mortgage lending restrictions.
U.S. Rep. Maxine Waters, D-Calif., is introducing a bill that would eliminate medical debt from credit reporting, which accounts for more than half of all unpaid debts in collection, and which the Consumer Financial Protection Bureau found in a report issued in May is not a good indicator of people’s likelihood of repaying normal debts, because of the unusual, unexpected and high-dollar amounts involved.
The changes are part of a large shift in mortgage finance reform to open the credit box wider for potential homeowners. Federal Housing Finance Agency director Mel Watt first announced the move to support such reforms in an exclusive magazine interview with HousingWire. Fannie Mae updated the policy related to the minimum waiting periods following a preforeclosure sale or deed-in-lieu of foreclosure, making it easier for distressed borrowers to jump back into the market sooner, according to a new fact sheet.
Other changes in the Waters legislation would remove settled debts, remove negative reports after four years instead of seven, and would extend the removal of student debt defaults in private debts after a consumer makes nine consecutive, on-time payments.
The House Financial Services Committee will discuss Waters’ bill, the Fair Credit Reporting Improvement Act of 2014, on Wednesday afternoon at 2 p.m. ET.
Consumer attorneys, academic experts and credit and lending industry representatives will appear before the committee.
“Credit reports are no longer just used exclusively by lenders in making a credit decision. More and more, credit reports are used in a variety of ways, from employment decisions, to determining a consumer’s ability to rent a home, buy a car, or purchase insurance,” Waters said. “A person’s credit report is too important in determining access to a wide array of opportunities for these reports to contain inaccurate and incomplete information. This proposal addresses many of the flaws with the existing consumer reporting system, by making common-sense changes that enhance consumers’ rights, create more transparency over the consumer reporting and credit scoring process, and increase the accountability of credit reporting agencies, furnishers, and companies that develop credit scoring models and formulas.”
According to the Federal Trade Commission, one in five, or roughly 40 million consumers, have had an error on one of their credit reports.
About 10 million consumers have errors that could increase the cost of credit available to them.
The draft proposal makes vital reforms to the Fair Credit Reporting Act to protect consumers. Key provisions aside from those mentioned above include:
- Providing relief to millions of borrowers who were victimized by predatory mortgage lenders and servicers, by removing adverse information about these residential loans that are found to be unfair, deceptive, abusive, fraudulent or illegal.
- Ending the unreasonably long time periods that most adverse information can remain on a person’s credit report, shortening such periods by three years.
- Giving consumers the tools to truly verify the accuracy and completeness of their credit reports, by mandating that furnishers retain all records for as long as adverse information about these accounts remains on a person’s credit report.
Today's witnesses at the House committee include:
- Stuart Pratt, President and CEO, Consumer Data Industry Association
- J. Howard Beales, Professor of Strategic Management and Public Policy, George Washington University
- John A. Ikard, President and CEO, FirstBank Holding Company, on behalf of the American Bankers Association
- Chi Chi Wu, Staff Attorney, National Consumer Law Center