[House Hearing, 117 Congress]
[From the U.S. Government Publishing Office]
A BIASED, BROKEN SYSTEM:
EXAMINING PROPOSALS TO OVERHAUL
CREDIT REPORTING TO ACHIEVE EQUITY
=======================================================================
HYBRID HEARING
BEFORE THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED SEVENTEENTH CONGRESS
FIRST SESSION
__________
JUNE 29, 2021
__________
Printed for the use of the Committee on Financial Services
Serial No. 117-33
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
__________
U.S. GOVERNMENT PUBLISHING OFFICE
45-358 PDF WASHINGTON : 2021
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HOUSE COMMITTEE ON FINANCIAL SERVICES
MAXINE WATERS, California, Chairwoman
CAROLYN B. MALONEY, New York PATRICK McHENRY, North Carolina,
NYDIA M. VELAZQUEZ, New York Ranking Member
BRAD SHERMAN, California FRANK D. LUCAS, Oklahoma
GREGORY W. MEEKS, New York PETE SESSIONS, Texas
DAVID SCOTT, Georgia BILL POSEY, Florida
AL GREEN, Texas BLAINE LUETKEMEYER, Missouri
EMANUEL CLEAVER, Missouri BILL HUIZENGA, Michigan
ED PERLMUTTER, Colorado ANN WAGNER, Missouri
JIM A. HIMES, Connecticut ANDY BARR, Kentucky
BILL FOSTER, Illinois ROGER WILLIAMS, Texas
JOYCE BEATTY, Ohio FRENCH HILL, Arkansas
JUAN VARGAS, California TOM EMMER, Minnesota
JOSH GOTTHEIMER, New Jersey LEE M. ZELDIN, New York
VICENTE GONZALEZ, Texas BARRY LOUDERMILK, Georgia
AL LAWSON, Florida ALEXANDER X. MOONEY, West Virginia
MICHAEL SAN NICOLAS, Guam WARREN DAVIDSON, Ohio
CINDY AXNE, Iowa TED BUDD, North Carolina
SEAN CASTEN, Illinois DAVID KUSTOFF, Tennessee
AYANNA PRESSLEY, Massachusetts TREY HOLLINGSWORTH, Indiana
RITCHIE TORRES, New York ANTHONY GONZALEZ, Ohio
STEPHEN F. LYNCH, Massachusetts JOHN ROSE, Tennessee
ALMA ADAMS, North Carolina BRYAN STEIL, Wisconsin
RASHIDA TLAIB, Michigan LANCE GOODEN, Texas
MADELEINE DEAN, Pennsylvania WILLIAM TIMMONS, South Carolina
ALEXANDRIA OCASIO-CORTEZ, New York VAN TAYLOR, Texas
JESUS ``CHUY'' GARCIA, Illinois
SYLVIA GARCIA, Texas
NIKEMA WILLIAMS, Georgia
JAKE AUCHINCLOSS, Massachusetts
Charla Ouertatani, Staff Director
C O N T E N T S
----------
Page
Hearing held on:
June 29, 2021................................................ 1
Appendix:
June 29, 2021................................................ 63
WITNESSES
Tuesday, June 29, 2021
Ejaz, Syed, Financial Policy Analyst, Consumer Reports........... 5
Greer, Jeremie, Co-Founder and Co-Executive Director, Liberation
in a Generation................................................ 7
Quan, Daniel J., Adjunct Scholar, Cato Institute Center for
Monetary and Financial Alternatives............................ 11
Traub, Amy M., Associate Director, Policy and Research, Demos.... 8
Wu, Chi Chi, Staff Attorney, National Consumer Law Center (NCLC). 10
APPENDIX
Prepared statements:
Ejaz, Syed................................................... 64
Greer, Jeremie............................................... 93
Quan, Dan.................................................... 100
Traub, Amy................................................... 109
Wu, Chi Chi.................................................. 116
Additional Material Submitted for the Record
Waters, Hon. Maxine:
Written statement of the National Association of Federally-
Insured Credit Unions...................................... 139
Written statement of the National Urban League............... 142
Written statement of UnidosUS................................ 144
McHenry, Hon. Patrick:
Written statement of the Consumer Data Industry Association.. 150
Written statement of the Credit Union National Association... 153
Written statement of the National Taxpayers Union............ 155
Wu, Chi Chi:
Written responses to questions for the record from
Representative William Timmons............................. 159
Written responses to questions for the record from
Representative Nikema Williams............................. 207
A BIASED, BROKEN SYSTEM:
EXAMINING PROPOSALS TO
OVERHAUL CREDIT REPORTING
TO ACHIEVE EQUITY
----------
Tuesday, June 29, 2021
U.S. House of Representatives,
Committee on Financial Services,
Washington, D.C.
The committee met, pursuant to notice, at 10:05 a.m., in
room 2128, Rayburn House Office Building, Hon. Maxine Waters
[chairwoman of the committee] presiding.
Members present: Representatives Waters, Velazquez,
Sherman, Scott, Green, Cleaver, Perlmutter, Foster, Beatty,
Vargas, Gottheimer, Lawson, San Nicolas, Axne, Pressley,
Torres, Lynch, Adams, Tlaib, Dean, Garcia of Illinois, Garcia
of Texas, Williams of Georgia, Auchincloss; McHenry, Lucas,
Posey, Luetkemeyer, Huizenga, Wagner, Barr, Williams of Texas,
Hill, Emmer, Loudermilk, Mooney, Davidson, Budd, Kustoff,
Hollingsworth, Gonzalez of Ohio, Steil, Gooden, Timmons, and
Taylor.
Chairwoman Waters. The Financial Services Committee will
come to order.
Without objection, the Chair is authorized to declare a
recess of the committee at any time.
Before I begin, I want to welcome Members to our first Full
Committee hearing this Congress that has been held in a hybrid
format. As I mentioned at last week's markup, I appreciate all
of the Members' patience these past months, and I am proud of
the work we have been able to achieve as a committee in the
midst of this pandemic.
Members will note that today we are joined in person by
three witnesses, while two of our witnesses will be testifying
virtually. The screen showing the virtual platform in the
hearing room has been formatted to ensure that the witnesses
participating virtually appear at the top of the screen. I
appreciate Members' flexibility, and I look forward to being
fully in person in the coming weeks.
As a reminder, I ask all Members participating remotely to
keep themselves muted when they are not being recognized by the
Chair. The staff has been instructed not to mute Members,
except when a Member is not being recognized by the Chair and
there is inadvertent background noise.
Members are also reminded that they may only participate in
one remote proceeding at a time. If you are participating
remotely today, please keep your camera on, and if you choose
to attend a different remote proceeding, please turn your
camera off.
Today, this committee convenes for a hearing entitled, ``A
Biased, Broken System: Examining Proposals to Overhaul Credit
Reporting to Achieve Equity.''
I now recognize myself for 5 minutes to give an opening
statement.
As the title of this hearing indicates, our current credit
reporting system is broken. Good credit is a gateway to wealth,
yet for far too long, our credit reporting system has kept
people of color and low-income persons from access to capital
to start a small business, access to mortgage loans to become
homeowners, and access to credit to meet financial emergencies.
That is why, even before the pandemic, the House passed two
bills out of this committee, the Comprehensive CREDIT Act, and
the Protecting Your Credit Score Act, that provide long-overdue
reforms to our credit reporting system. We are considering
those bills again with this hearing, but allow me to also
explain how the pandemic has exposed just how broken our credit
reporting system is.
Last week, I received a letter from a gentleman in Ohio. In
this letter, he explained how he had lost his job because of
the pandemic. Without his salary, and with no help from any of
his creditors, he couldn't afford to cover all of his bills.
Although he had never before missed a credit card payment, his
credit score has suffered so badly, he wrote that, ``I couldn't
get credit now if I paid someone to give me credit.'' He closed
his letter by asking what this committee was doing to protect
consumers like him.
As Chair of the Financial Services Committee, it is indeed
a priority of mine to protect consumers like him who are
unfairly penalized in their credit reports, and it is precisely
why we are holding this hearing today to ensure greater
transparency, accountability, and protections for customers and
consumers across the country.
We saw this coming. That is why Democrats worked to include
strong credit reporting protections in the Health and Economic
Recovery Omnibus Emergency Solutions (HEROES) Act and other
COVID legislation that Republicans rejected. This issue is not
a matter of personal failings. This is about a failed system.
This is a system that fails people with perfect credit who may
be victims of identity theft, this is a system that fails
people who get caught in a debt trap because of predatory
lending, and this is a system that fails people who don't have
the means to dispute errors that reporting agencies make.
As further proof of the need for reforms, in a ruling
issued last Friday the Supreme Court denied relief for
thousands of consumers whom TransUnion wrongly matched with the
names of those on a terrorist watch list. The credit bureaus
can now label Americans as terrorists with impunity.
The Consumer Financial Protection Bureau's (CFPB's)
complaints about credit reporting surged 50 percent in 2020,
receiving nearly 50,000 complaints in December alone. During
his campaign, President Biden supported a proposal for a public
credit reporting agency, and I directed staff to prepare the
discussion draft we are discussing today.
As some of today's witnesses will attest, creating a public
consumer credit reporting agency would be a major upgrade over
today's broken, biased credit reporting system. We need big,
bold legislative solutions to transform this broken system.
So, I encourage my colleagues to join me in reevaluating
how we determine creditworthiness, and in learning how we can
harness new technologies to build a more fair and equitable
credit system.
I yield back the remainder of my time, and I now recognize
the ranking member of the committee, the gentleman from North
Carolina, Mr. McHenry, for 4 minutes.
Mr. McHenry. Thank you, Madam Chairwoman. We can all agree
that the credit reporting industry is in need of reform. While
there are thousands of companies across the country that
operate within the credit reporting system, there are only
three nationwide credit reporting agencies. It is clear that it
is an oligopoly. That means there is less consumer choice and
competition to provide the best product. Reforms are certainly
needed to improve this system for all participants.
For example, we should be working together to eliminate
barriers to entry in this industry. We should be thinking
through ways to encourage more companies to compete with the
three credit reporting agencies. But instead of creating more
competition in the private sector, my colleagues on the left go
to the same playbook: a government-run bureau, based on
anecdotal evidence and faulty data, including slanted surveys.
This is part of their broader goal to dismantle the financial
system as we know it. If the idea of a government-run credit
reporting agency isn't bad enough, the Democrats want to house
it at the Consumer Financial Protection Bureau. This would be
disastrous. We should be promoting competition to create better
opportunities for consumers, not allowing a single government
entity to run the credit reporting process for all Americans.
We know that government-run programs are the least-
effective entities to deliver services. Can you imagine the
IRS, the Post Office, or the DMV compiling and maintaining your
credit report? It may not be great now, but, holy cow, that
would be awful.
Additionally, we know cyberattacks are on the rise.
Personal financial data is some of the most coveted information
by criminals. Add this to the fact that Democrats consistently
want consumers to use their full Social Security number to
identify themselves, it is a recipe for disaster, and more
identity theft. A massive new government-run database of
consumers' personal financial information would be a sitting
duck for bad actors.
Finally, a government-run credit bureau raises privacy
concerns. The government should not be the central repository
for all financial data available on its citizens. That is a
very dangerous precedent.
As my fellow Gastonian from North Carolina--a nice small
town in Western North Carolina--Thomas Sowell, who grew up in
my hometown, stated, ``It is hard to imagine a more stupid or
more dangerous way of making decisions than by putting those
decisions in the hands of people who pay no price for being
wrong.'' I agree. It is a terrible idea to give the government
the power to make credit allocation decisions potentially based
on political favorability. We have seen the IRS target
conservative groups. We have seen Federal regulators pressure
financial institutions that invest in whole industries. Why
would we take the risk with individual consumers' information?
Our free market system is the envy of the world. Our
choices are better than anywhere else on the globe. It
encourages competition that benefits consumers by yielding
solutions that better serve them. There is room for
improvement. Yes, that is indeed the case, but not with
government takeovers like what my Democrat colleagues are
pushing today.
And with that, I would ask unanimous consent to insert two
letters into the record expressing concern and opposition to
the bills attached to this hearing today, including one from
the Consumer Bankers Association and another from ACA
expressing concerns with attempts to alter the credit reporting
market, including a government-run bureau.
Chairwoman Waters. Without objection, it is so ordered.
Mr. McHenry. I yield back.
Chairwoman Waters. The gentleman yields back. Thank you,
Ranking Member McHenry. I now recognize the gentleman from
Missouri, Mr. Luetkemeyer, for 1 minute.
Mr. Luetkemeyer. Thank you, Madam Chairwoman. This hearing
marks yet another step taken by the Majority to move toward a
socialist financial services industry. Attached to this hearing
is legislation that would create a government-run credit bureau
within the CFPB. This proposal would mean the government is in
charge of determining if someone is creditworthy in the United
States, a terrifying thought. This proposal comes only weeks
after a hearing on the FinTech Task Force regarding central
bank digital currencies, where the Majority proposed numerous
ideas of public Fed accounts and postal banking. This is what
the slippery slope of socialism looks like, ladies and
gentlemen.
It is clear that the Majority is pushing for a world where
the Federal Government not only decides if you can get a loan,
but they are the ones who, in fact, lend you the money. I urge
my colleagues to go back to their districts and ask their
constituents if that is what they want for the American
financial system. My guess is they would be terrified that this
proposal would receive serious consideration before this
committee. With that, Madam Chairwoman, I yield back.
Chairwoman Waters. I now want to recognize today's
distinguished witnesses to the committee: Mr. Syed Ejaz, a
financial policy analyst with Consumer Reports; Mr. Jeremie
Greer, the co-founder and co-executive director of Liberation
in a Generation; Ms. Amy Traub, the associate director of
policy and research at Demos; Ms. Chi Chi Wu, a staff attorney
with the National Consumer Law Center; and Mr. Dan Quan, an
adjunct scholar with the Cato Institute's Center for Monetary
and Financial Alternatives.
Each of you will have 5 minutes to summarize your
testimony. You should be able to see a timer on your screen or
on the desk in front of you that will indicate how much time
you have left. When you have 1 minute remaining, a yellow light
will appear. I will ask you to be mindful of the time and, when
the red light appears, to quickly wrap up your testimony so
that we can be respectful of both the other witnesses' and the
committee members' time. And without objection, your written
statements will be made a part of the record.
Mr. Ejaz, you are now recognized for 5 minutes to present
your oral testimony.
STATEMENT OF SYED EJAZ, FINANCIAL POLICY ANALYST, CONSUMER
REPORTS
Mr. Ejaz. Thank you. Chairwoman Waters, Ranking Member
McHenry, and members of the committee, thank you for inviting
Consumer Reports to testify regarding Americans' experiences
with credit reporting and paths towards a better credit
reporting system for consumers.
The existing credit reporting system does not work for
consumers. Too frequently, consumers struggle to access their
credit reports, and when they do, too often, they find that
errors can limit their financial opportunities and can be
difficult to correct. Inaccuracies on credit reports are not a
new issue. In 2012, the Federal Trade Commission conducted a
study on credit reports in which 21 percent of participants
found one verified error on their credit report, and 5 percent
had errors so significant that they were put in a different
credit risk tier. Complaints to the Consumer Financial
Protection Bureau regarding credit reporting errors remain
among the most frequent submissions to their database and have
more than doubled since 2019.
In February of 2020, in Consumer Reports' own American
Experiences Survey, a nationally-representative survey
addressing a wide variety of consumer issues, 14 percent of
participants who said they had checked their credit reports,
also said that they had found errors. This is unacceptable.
Credit reporting agencies hold information that can be used to
make consequential lending, employment, and, in some States,
underwriting decisions about us. Credit report errors that
damage credit scores can keep people from affordable interest
rates as well as employment, and, again, in some States, auto
insurance.
During February and March of this year, Consumer Reports
asked volunteers to check their credit report and let us know
about their experiences in a project we called Credit Checkup.
Nearly 6,000 people responded to our survey and shared their
stories: 34 percent of participants who checked their credit
report told us that they found at least one error on their
report; 29 percent said they found an error relating to their
personal information, such as wrong name or address; and 11
percent found errors relating to account information, such as
mistakes about their account payment history.
One participant, Victoria Ross, shared her story, which
captures how much the credit reporting system can impact
consumers. Her TransUnion credit report mistakenly showed a
PayPal account balance of around $1,200 that she had paid off,
an error which led her to face unaffordably high interest rates
when trying to find a car loan. Victoria filed multiple
disputes, but was unable to get her credit report fixed until
after Consumer Reports contacted TransUnion. Victoria's story
is one of many that show how an inaccurate, unresponsive credit
reporting system can cause problems for consumers.
One in 10 consumers who took our survey found accessing
their credit reports to be difficult or very difficult. Many
consumers shared stories of being locked out of their credit
reports because of identity verification questions that they
simply couldn't answer, because those questions were based off
of inaccurate information.
Some consumers told us that while they were checking their
free credit report, they were pushed towards products and
services that they would have to pay for. Multiple people said
that they were asked for credit card information before seeing
their reports, and later were charged. One told us,
``TransUnion ran me through an exhausting series of questions,
sales offers, and ridiculous permutations until I was able to
get a credit report and score displayed. Then, I found that
they had signed me up for a monthly service and charged my
credit card $27-and-change for the first month, to be charged
monthly. I immediately canceled the subscription and had to
call the helpline to get this charge removed from my card.''
These stories highlight just some of the problems that
consumers encounter with the deeply-flawed credit reporting
system and are a fraction of the thousands of stories that
Consumer Reports has collected.
Consumers need a credit reporting system that works for
them, one where their reports are accessible and accurate, and
errors are easy to correct. The good news is that legislation
that is discussed here today can help address some of the most
glaring problems. For example, the Protecting Your Credit Score
Act requires all credit reporting agencies and data furnishers
to match first name, last name, date of birth, and all nine
digits of a consumer's Social Security number when placing
their information on the reports. This bill also creates a
secure portal where consumers can freeze their credit, file
disputes, and check their reports, for free, an unlimited
number of times.
The House can also pass the Comprehensive CREDIT Act once
more. This bill gives consumers the right to appeal the results
of disputed investigations, restrict the use of credit reports
for employment, and implements many other commonsense reforms
to the credit reporting system.
Credit reports play a central role in the lives of
consumers, and the industry should focus on the needs of
consumers first. A consumer-centric credit reporting system
would put consumers in control of their own credit information,
make it easy to access reports and scores for free, strengthen
standards to ensure reports are accurate, and simplify the
process for correcting errors. Congress can put consumers first
by passing the Comprehensive CREDIT Act, and the Protecting
Your Credit Score Act. Thank you.
[The prepared statement of Mr. Ejaz can be found on page 64
of the appendix.]
Chairwoman Waters. Thank you very much. Next, we will go to
Mr. Greer. You are now recognized for 5 minutes to present your
oral testimony.
STATEMENT OF JEREMIE GREER, CO-FOUNDER AND CO-EXECUTIVE
DIRECTOR, LIBERATION IN A GENERATION
Mr. Greer. Chairwoman Waters, Ranking Member McHenry, and
members of the committee, thank you for giving us the
opportunity to talk about racial bias and flaws in the current
credit reporting system. My name is Jeremie Greer, and I am the
co-founder and co-executive director of Liberation in a
Generation, which is a national racial justice movement support
organization working to dismantle what we call the,
``oppression economy,'' and looking to build a liberation
economy in its place.
Within the oppression economy, credit reporting agencies
such as Experian, TransUnion, and others have anointed
themselves as the gatekeepers with the power to determine who
can and cannot access financial products, services, and the
capital necessary to navigate the economy. They are the
gatekeepers to a dual financial system that, on one hand,
builds the wealth of households through products and services
like affordable mortgages and low-cost credit cards, but, on
the other hand, preys upon the financially-insecure through
products such as subprime mortgages, payday loans, auto title
loans, and predatory credit-building products and services.
Our current credit reporting system both reinforces and
exacerbates the dual financial system. Far too many people of
color find themselves on the wrong side of this system because
they are credit invisible. According to the Consumer Financial
Protection Bureau (CFPB), 15 percent of Black and Latinx
consumers are considered credit invisible, meaning that they
have no credit record at all, while about 13 percent are deemed
to have thin or unscorable credit files.
Also, other racial and economic disparities such as income
and neighborhood segregation have a huge impact on someone's
credit score. For example, take income. Black and Latinx median
income is about $40,000, and the median White income is about
$70,000. A study by Experian and WalletHub shows that these
levels of income mean that Black and Latinx households would
have an average credit score of 643 and 681, respectively,
which is deemed a bad or risky credit score, while the average
White household would have an average credit score of 700 or
737, which is considered a good credit score.
So, what creates these disparities? A major contributor is
the biased data that goes into calculating the score, for
example, on-time payments, which favors things like mortgages
and credit cards, but often completely disregards other forms
of payments like a cellphone, rental payments, or utility
payments that are more likely to be made by low-income
consumers of color.
Another example is credit history. In this case, you need
credit to get credit, and historic barriers towards Black and
Latinx communities have held back credit from those communities
for a long time and made them unable to access credit. For
example, think of a child going to college, where a parent is
able to open a credit card account for their child. That
creates credit for the child. Many Black and Latinx households
are not able to do that. They are not able to pay off their
child's student loan debt. They are not able to co-sign an auto
loan because of the lack of access to credit in Black and Brown
communities.
Sadly, research from the CFPB shows that the reality of
being credit invisible or having an unscorable account at an
early age makes people suffer for both a long time and in the
near term. To end this dual financial system, we must reform
these credit reporting agencies, and efforts like the bills
that passed out of this committee that Chairwoman Waters
referenced, including a public agency responsible for
protecting consumers, having accountability and transparency in
the system is also critically important.
We look forward to efforts that improve our credit scoring
system, and we look forward to working with the committee to
create those. Thank you for allowing me the time to address
you.
[The prepared statement of Mr. Greer can be found on page
93 of the appendix.]
Chairwoman Waters. Thank you, Mr. Greer. Ms. Traub, you are
now recognized for 5 minutes to present your oral testimony.
STATEMENT OF AMY M. TRAUB, ASSOCIATE DIRECTOR OF POLICY AND
RESEARCH, DEMOS
Ms. Traub. Thank you, Chairwoman Waters, Ranking Member
McHenry, and members of the committee. My name is Amy Traub,
and I am associate director of policy and research at Demos.
Demos is a dynamic think tank that powers the movement for a
just, inclusive, multiracial democracy and economy. One of our
core principles is economic democracy, the idea that we the
people must be able to exercise real power over the economic
decisions that shape our lives. We focus on Black and Brown
communities, that have been largely excluded from economic
decision-making.
In my testimony this morning, I will make the case that
credit reporting is part of our nation's financial
infrastructure, and is necessary for full economic
participation and thriving. I will share evidence of systemic
racial inequity in credit reporting and will show that the many
failures of the system arise from the structure of the
industry, and, thus, require structural change. Finally, I will
argue that publicly-controlled credit reporting offers the best
opportunity to rebuild the system and ensure that it operates
in the public interest and promotes racial equity.
Demos welcomes the introduction of the National Credit
Reporting Agency Act, which would shift power to consumers by
enabling them, for the first time, to opt out of the flawed
private credit reporting system and choose a fair public
option. We look forward to continuing to work with the
committee to further strengthen this bill. We also support the
Comprehensive CREDIT Act, which would directly reform private
credit reporting, and I urge Congress to enact this
legislation.
Credit reports and scores play a large role in determining
Americans' access to economic security and opportunity,
including access to housing, transportation, employment, and
entrepreneurship. The credit reporting system is the gatekeeper
to such a broad range of economic opportunities, that it forms
a core part of our nation's financial infrastructure.
Yet, this privately-controlled infrastructure is failing
consumers. My fellow witnesses described the outrageous
inaccuracy of credit reports, the nightmare process of getting
errors corrected, and numerous other failings of the system.
The most devastating failure is the way that credit
reporting reproduces and spreads racial inequality. Although
credit scores never formally take race into account, they draw
on data about personal borrowing and payment history that is
shaped by generations of discriminatory public policies and
corporate practices that limit access to wealth for Black and
Latinx families. Discrimination in employment, lending,
housing, and education has produced significant racial
disparities in credit history, so that today, credit scores
disproportionately represent Black and Latinx consumers as
riskier than White consumers. As a result of this disparity,
whenever credit data is used in decision-making, it multiplies
inequality.
Transforming credit reporting is very far from the only
step needed to address racial economic inequality, but it is a
powerful tool to disrupt that cycle of disadvantage. Although
the vast majority of American consumers rely on credit
reporting to access economic opportunity of all kinds, the
credit reports of more than 200 million Americans are
controlled by just three private companies: Equifax; Experian;
and TransUnion. As private corporations, the aim of the credit
reporting agencies is to generate profit, which they do by
extracting packaging and selling data about consumers' personal
borrowing and payment activity.
Since consumers are not the customers of the private credit
reporting agencies, they have no market mechanism to demand
accountability or fairness. Consumers cannot opt out of the
system or choose to work with a competing company. In effect,
by controlling credit data, the three credit reporting agencies
have consumers at their mercy. They have arbitrary,
unaccountable power over all of our financial destinies. The
oligopolistic structure of the credit reporting industry is the
reason that it is failing American consumers.
The many problems we are discussing today all stem from the
fact that credit reporting is a part of our public
infrastructure that is under a private stranglehold by three
companies. Congress can and should continue to regulate the
industry, yet without tackling the flawed structure of the
industry itself, Congress and the regulatory agencies will
always be playing a game of catch-up with a private industry
that has no built-in incentives for accountability to the
consumers whose financial fates it shapes.
This is why Demos has proposed a public credit registry
designed to be responsive to consumer needs and equity concerns
rather than the corporate bottom line. My written testimony
describes why a public credit registry is needed to serve the
public interest and how it will develop algorithms that
diminish the impact of past discrimination, deliver transparent
credit scoring, improve accuracy, and offer a publicly-
accountable way to address disputes. Thank you.
[The prepared statement of Ms. Traub can be found on page
109 of the appendix.]
Chairwoman Waters. Thank you, Ms. Traub. Ms. Wu, you are
now recognized for 5 minutes to present your oral testimony.
STATEMENT OF CHI CHI WU, STAFF ATTORNEY, NATIONAL CONSUMER LAW
CENTER (NCLC)
Ms. Wu. Thank you. Madam Chairwoman, Ranking Member
McHenry, and members of the committee, thank you for inviting
me to testify today. I am testifying on behalf of the low-
income clients of the National Consumer Law Center.
Members of the committee, the Fair Credit Reporting Act
(FCRA) is 50-years-old, half-a-century, and in those 50 years,
the credit reporting system has been broken and biased. It
remains broken despite multiple enforcement attempts by the
Federal Trade Commission (FTC), nearly 10 years' of supervision
by the CFPB, and two multi-State settlements by State attorneys
general. It remains broken after 50 years of private litigation
with tens of thousands of lawsuits by injured consumers,
including several eye-popping multi-million dollar jury
verdicts. It remains broken after two rewrites of the FCRA in
1996 and 2003 to attempt to address credit reporting abuses. It
has consistently favored the interests of creditors, debt
collectors, and the like over the rights and interests of
consumers.
The result has been unacceptable levels of errors, a
biased, Kafka-esque system that automatically rules in favor of
industry during disputes, and stark racial disparities that
perpetuate systemic racism. We can see how broken it is from
the over 300,000 complaints to the CFPB in 2020 about consumer
credit reporting. That is a lot of complaints, twice as many as
2019, and nearly two-thirds of the total complaints to the CFPB
last year.
And, of course, you have the FTC's 2012 study which shows
that 20 percent of consumers have a credit report with a
confirmed error, with 5 percent having a serious error. That is
10 million Americans who have errors so serious on their credit
reports that it could deny them credit, a job, or an apartment,
literally a roof over their heads. And without firm action by
Congress, it is only going to get worse.
Just this past Friday, the Supreme Court issued a ruling in
a case called, Ramirez v. TransUnion that will make it even
harder for consumers to vindicate their rights under the FCRA.
The Supreme Court held that a credit bureau can wrongfully
accuse a consumer of being a terrorist, a drug dealer, or
worse, and the consumer can't even bring a lawsuit because that
alone doesn't constitute concrete harm. Imagine that. They have
to first have a creditor, landlord, or employer see the
falsehood and suffer having their reputation besmirched and
ruined in the eyes of a complete stranger before the courthouse
doors will open.
As Justice Clarence Thomas said in a fiery dissent: ``If
this sort of confusing and frustrating communication is
insufficient to establish a real industry, one wonders what
could rise to that level. If, instead of falsely identifying
Ramirez as a potential drug trafficker or terrorist, TransUnion
had flagged him as a potential child molester, would that alone
be insufficient to open the courthouse doors? What about
falsely labeling someone a racist, including a slur on the
report? What about openly reducing a person's credit score by
several points because of his race? If none of these
constitutes an injury, how can that possibly square with our
past cases?''
So, Congress needs to act. Only Congress can fix this, and
Congress must fix this because it hasn't gotten better in 50
years, and it is only going to get worse. Make no mistake: The
Supreme Court's Ramirez decision will most certainly embolden
the credit bureaus to act with even more impunity, favoring the
interests of banks and debt collectors even more and be even
more blithe about abusing and mistreating consumers, knowing
that there are even fewer checks on their behavior. We need a
public credit registry now so the financial reputations of
consumers aren't held hostage to the profit-making interests of
Equifax, Experian, and TransUnion, to fatten their bottom line.
Thus, we support the proposal in the National Credit Reporting
Agency Act to establish a public option credit registry so that
consumers have a choice.
A key reason for the abuses of the credit bureaus is that
consumers can't walk with their feet. We are captives. A public
credit registry should and would allow us to walk with our
feet, walk away if we are unhappy with the credit bureaus. And
if the credit bureaus are allowed to continue, we need
wholesale reform. We need laws, like the Comprehensive CREDIT
Act, and the Protecting Your Credit Score Act.
To address the awful Ramirez opinion, we need injunctive
relief under the FCRA, which the majority opinion in Ramirez
specifically noted could reopen the courthouse doors. But a
number of courts have held that the FCRA doesn't provide for
injunctive relief, the ability to simply ask a court to order a
credit bureau to fix that report.
Fifty years of abuse is enough. We need a public credit
registry and wholesale reform now. Thank you for the
opportunity to testify, and I look forward to your questions.
[The prepared statement of Ms. Wu can be found on page 116
of the appendix.]
Chairwoman Waters. Thank you very much, Ms. Wu. As a
reminder, all witnesses who are participating virtually should
keep their cameras on for the duration of the hearing, even
when they are not speaking.
With that, we will go to our next witness. Mr. Quan, you
are now recognized for 5 minutes to present your oral
testimony.
STATEMENT OF DANIEL J. QUAN, ADJUNCT SCHOLAR, CATO INSTITUTE
CENTER FOR MONETARY AND FINANCIAL ALTERNATIVES
Mr. Quan. Thank you. Chairwoman Waters, Ranking Member
McHenry, and distinguished committee members, my name is Dan
Quan, and I am an adjunct scholar at the Cato Institute Center
for Monetary and Financial Alternatives. I am also a venture
capitalist and an adviser to Fintech startups. I am honored to
be here today. It is not just my titles or expertise that makes
my testimony unique. It is also because, as a new immigrant to
this land of opportunity, I know personally what it is like to
be credit invisible, to build credit from scratch, and to
dispute an error. I also know how empowering access to credit
can be. My wife and I once had to choose between groceries and
prescriptions. Thanks to access to credit scores, we were able
to get low-cost loans to overcome those tough times.
My testimony will focus on the public credit bureau
proposal. Before I begin, we should acknowledge that our
consumer credit market, the largest and the most competitive in
the world, depends on a functioning credit reporting industry.
The other witnesses have correctly pointed out that the credit
reporting industry has many issues, but the industry is not
fundamentally broken. What it needs is appropriate policy
interventions and more private-sector innovations to improve
credit access, and also improve accuracy, security,
transparency, and accountability.
There has been a sea change in the credit reporting
industry in the last 10 years. Credit bureaus have been subject
to CFPB supervision since 2012, and improving accuracy has been
a top priority for them. The industry is also evolving as
technology advances. New credit score models, such as Experian
Boost and UltraFICO, allow consumers to use their on-time bill
payment history to increase their FICO scores. Some lenders are
also using cash-flow data to expand access to credit. Ten years
ago, consumers could only obtain one copy of a free credit
report every 12 months. Today, consumers who have an internet
connection or a smartphone can get free credit reports and free
credit scores easily. All of the policy goals outlined in the
public credit bureau proposal can be adequately and effectively
achieved by improving the existing system.
In addition, I am also very concerned about the negative
consequences of such a government-run credit bureau. First, the
public credit bureau may pose a significant threat to
consumers' privacy. The Federal Government will score everyone
and maintain a huge database that monitors every aspect of our
financial lives: how much we owe; from whom we can borrow; how
much we pay; where we live; and for whom we work. Putting so
much sensitive personal information in the hands of the
government, especially when consumers have no way of opting
out, should be a concern big enough to override any potential
merits.
Second, the cost of setting up and running the public
credit bureau needs to be seriously considered. The CFPB has a
workforce of about 1,500 employees and an annual budget of
around $600 million. The smallest national credit bureau
employs over 8,000 people and has an annual operating cost of
more than $2 billion. Those are not apples-to-apples
comparisons, but they give us a sense of how much the Federal
Government needs to be expanded to run the public credit
bureau.
Finally, the public credit bureau will crowd out private
investment and ultimately monopolize credit reporting.
Competition will be reduced to zero, and innovation in
expanding access to credit will cease to exist.
I have the following recommendations. First, refresh the
FTC Accuracy Study. The landmark FTC Accuracy Study was done
over 10 years ago. Much has changed, and a new study is long
overdue.
Second, impose Federal supervision of data security. Credit
bureaus should be held to the same standard as financial
institutions when it comes to data security. Congress needs to
act quickly.
Third, reform the dispute process. The dispute process
should be made easy for consumers. Consumers should have the
right to dispute directly with furnishers.
Finally, protect consumers' data rights under the Dodd-
Frank Act, Section 1033. Consumer-permission data access is key
to reducing racial disparities in credit. Unfortunately, many
large financial institutions have too often illegally created
obstacles to data access. It is imperative for the CFPB to
write a pro-consumer, pro-competition, and pro-innovation rule.
Thank you for the opportunity to provide this information,
and I welcome any questions that you may have.
[The prepared statement of Mr. Quan can be found on page
100 of the appendix.]
Chairwoman Waters. Thank you very much. Ms. Wu, I am deeply
concerned about the effects of this devastating pandemic on
homeowners and other consumers, especially those who are not
able to dispute inaccuracies and errors on their credit
reports. In my opening statement, I discussed the letter I
received from a man in Ohio who lost his job, couldn't keep
paying his bills, and, as a result, saw his credit score drop.
But it is not just him. Let me give two more examples from
consumers from my home State of California, who recently
submitted complaints to the CFPB about these issues. The first
is a homeowner whose mortgage showed up on credit reports as,
``deferred,'' because of COVID. The consumer said they did not
sign up for payment assistance, and their bank confirmed that
the account was current.
Another person complained about the lack of response from
the credit reporting agency, saying, ``I have been filing
disputes with all of the credit bureaus, and I am getting
nowhere. With COVID going on, I understand that things are
taking longer, but this is not right. I am trying to clean up
my credit, and I am getting the runaround from the bureau.''
Ms. Wu, in your experience, how do these types of errors
and inaccuracies affect a consumer's ability to access credit?
Ms. Wu. Thank you, Madam Chairwoman. These types of errors
you describe can be devastating to a consumer's ability to
access credit. They can cost thousands, if not deny them the
ability to get credit or even a job or an apartment. There are
a lot of them. The reason I think you see a doubling of
complaints about credit reporting to the CFPB is because of
these very issues caused by the pandemic--consumers getting
forbearances, but being wrongfully reported or not even getting
them and being reported for a forbearance.
That is why we had advocated for a moratorium on negative
reporting during the pandemic, just recognizing the devastating
economic consequences. The House passed that in the HEROES Act,
but unfortunately, the Senate didn't. On a long-term basis, we
need the ability for consumers to dispute errors, and then, if
they can't get them fixed because the credit bureaus
automatically defer to the information providers, the
furnishers, we need a right of appeal or an ombuds function and
a right of injunctive relief to fix those credit reports.
Chairwoman Waters. Thank you. Mr. Greer, in your testimony,
you describe the current credit reporting system as a tool for
social gatekeeping, used not only as the basis for credit and
lending decisions, but a system that also is used by companies
making employment decisions, landlords considering prospective
tenants, and insurance companies practicing their policies,
while individuals are held to account every time they miss a
payment, and even see their credit score drop when they shop
for credit.
The big credit reporting agencies have skirted
responsibility time and time again for their misdeeds, as
recently shown by increasing complaints to the Consumer
Financial Protection Bureau in litigation during the pandemic.
Mr. Greer, given the system's impact, do you think Congress
really needs to consider bold reforms, such as creating a
public credit reporting agency that consumers could choose to
use as an alternative to the private credit bureaus who profit
off the use of their data? You heard what the opposite side was
saying about how the government should not be in this business
at all. Tell me what you think?
Mr. Greer. Thank you, Chairwoman Waters. I think the credit
score and our credit record has become much more than a tool to
use to determine whether you can purchase a mortgage or whether
you can get a credit card. It has become a tool that is used to
decide whether to offer employment, or to rent a car, or
whether you can get a cellphone. If you are a domestic violence
victim, could you get a cellphone to protect yourself from your
batterer? It has taken a huge, important, and central piece of
our daily lives. And because of that, entrusting it in the
hands of private-sector people who are responsible to their
shareholders and to their customers, and the customers are not
us--e are not the customers; we are the product. The data that
we provide is the product that they sell, and they sell it to
financial institutions, which is why it is so important that we
have a customer-centric institution.
And I think the idea around putting it in the Federal
Government's hands is a good one to protect consumers, and to
protect us so that we can operate within society, in the credit
markets, in the employment markets, and in the rental markets.
So, I think that this is critically important. Thank you.
Chairwoman Waters. Thank you very much. A few more seconds
are left here. I think one of the most egregious problems with
this is deciding whether or not someone is employable, and who
is impacted by that?
Mr. Greer. It is Black and Brown communities. It is
communities of color. It exacerbates the barriers that
communities of color already face in the employment market,
whether it is criminal history backgrounds, whether it is the
neighborhoods they live in, ability to get transportation to
work, but then you add this on top of it. And with all of the
disparities that Ms. Wu and Ms. Traub have talked about, it
really drives those disparities.
Chairwoman Waters. Thank you so very much. The gentleman
from North Carolina, Mr. McHenry, who is the ranking member of
the committee, is now recognized for 5 minutes.
Mr. McHenry. Well, let's go fix the problem. Let's not
create a new problem. Mr. Quan, my question for you is, this is
all about creating a government-run credit reporting bureau.
That is exactly what this hearing is about. You want a
government-run agency. Instead of seeing three large credit
information furnishers operating as an oligopoly, you are going
have a monopoly with a government agency. And rather than
having three different sets to compare, as imperfect and in
need of reform as it is, the idea that you are going to say, we
have a problem because we have three different credit reporting
agencies, and now we are going to have one, and it is going to
be the government, who are you going to sue when the government
puts the screws to you? Good luck with that, right? I see this
as a problem, not that the challenges outlined by this panel
aren't, in fact, the things that we need to address.
I think addressing it by just shoving it into a government
agency is going to make things worse, not better, for my
constituents and for my colleagues' constituents, regardless of
what you look like. A credit score if you are poor is a bad
thing across-the-board, so we need to get at the root causes of
this, and we need better data provided. We have heard from the
panel, and they said, let's use alternative data. I agree. We
can do that in a bipartisan way. We can, in fact, make it law.
But instead, if you want this to be a government takeover,
and that is what the whole debate is about, and you are not
going to have any discussion about what Republicans have
offered as a solution, then we are going to have a standstill
here. Nothing got done last Congress on this. Nothing is going
to get done this Congress on it because there is no willingness
to have a bipartisan conversation about the things that are
achievable in a bipartisan way.
Mr. Quan, your written testimony outlines major flaws in
the concept of a government bureau being the arbiter of credit.
Highlight your primary concern with that, if you would?
Mr. Quan. Thank you, Congressman. As I have outlined in my
written testimony, all of the notable policy goals in the
public credit bureau proposal can be effectively achieved by
reforming the industry today. We have the most competitive
credit market in the world, and this industry is not broken. It
has many issues. And in addition to failing to achieve these
goals or, to put it another way, by more effectively achieving
these goals by reforming the existing industry, I think the
public credit bureau proposal has the following major problems.
First, intrusion of privacy. So, we now have a government
that can really monitor every aspect of our financial lives.
That is a huge concern. And if we think the government already
knows too much or enough about us, I think this bureau is going
to make things even worse.
When we talk about the cost and the potential waste of
spending--I already mentioned some big numbers in my oral
statement. Let me give you a few more numbers. According to a
research firm, Standish Group, they found out between 2003 and
the end of 2012, only 6.4 percent of the large Federal IT
projects succeeded. Fifty-two percent were over budget,
delayed, or didn't meet expectations. The other 41.4 percent
were complete failures. And we have learned enough from the
recent rollout of the vaccine appointment system, which the
Federal Government spent $44 million on, and it never even
worked, not to mention the continuously poor quality in Federal
student loan servicing, and more than 10 years ago, the botched
rollout of Healthcare.gov.
Mr. McHenry. Okay. Mr. Quan, to that point, cyberattacks
are also a major issue with Federal databases. We have seen
this as Federal employees, and former government employees who
may be on the panel, or employees of Executive Branch agencies
have had their data stolen. So, the idea that a government
agency doing this will be a better steward of our data is quite
questionable given the track record the Federal Government.
Additionally, I think we all can agree the procurement process
for IT and technology for the Federal Government needs reform
as well.
So, we have a whole set of issues that are quite
challenging to create a database like this before you even talk
about the question of its level of security, before you talk
about the cost. And I think there are enough questions here
that--what I would offer to my Democrat colleagues is what I
offered last Congress. Let's try to do the work that is
bipartisan, that we can achieve in this sphere and make things
better. Even if you still have your goal of a public credit
registry, which I completely disagree with, let's do the things
that are a modest improvement or a significant improvement for
our constituents, that are achievable today. And I think we
have some ideas put forward to the panel and I would love to
have that bipartisan cooperation here in this committee.
And with that, I yield back.
Chairwoman Waters. Thank you very much. The gentlewoman
from New York, Ms. Velazquez, who is also the Chair of the
House Committee on Small Business, is now recognized for 5
minutes.
Ms. Velazquez. Thank you, Madam Chairwoman. Ms. Wu, the
CFPB began handling consumer complaints about the credit
reporting agencies (CRAs) in 2012. Since that time, complaints
about the CRAs continue to be one of the largest categories of
complaints handled by the CFPB. For example, in 2020, the CFPB
handled about 532,000 complaints, approximately 58 percent of
which were regarding the CRAs, which was the largest category
of complaints reviewed by the CFPB. What do you think such a
consistently high number of complaints, year over year, says
about the state of this industry?
Ms. Wu. Thank you, Congresswoman. I think it says exactly
what the title of this hearing says, which is that the credit
reporting system is broken, and it is biased, and it needs
fundamental reform. I think that is why we need a public credit
registry option. The bill discussion draft makes it an option
so that consumers have true, meaningful choices. If they don't
like the credit bureaus because they commit so many errors and
have for decades, they have the choice of a public option.
To address some of the points before about cybersecurity,
are we forgetting about the Equifax data breach 4 years ago,
how one of these credit bureaus lost or let hackers take the
personal information of half of the American adult population?
In terms of privacy, our data is with three private
corporations that monetize and exploit it and don't do a very
good job of making sure it is accurate, as seen by all of those
complaints.
Ms. Velazquez. Thank you. I have other questions.
Ms. Wu. Okay. Sorry.
Ms. Velazquez. Ms. Wu and Ms. Traub, one of my biggest
frustrations with the CRAs is that they have developed a system
where the consumer has little to no control. Consumers never
directly sign up as a customer. They have no control over
whether a furnisher provides their information to a CRA, and
they cannot stop doing business with the CRA if they are
dissatisfied or simply choose to opt out. Both of your
organizations have supported the idea of a public CRA. Can each
of you explain why you favor such a proposal and how a public
CRA will provide more accountability and transparency, and
provide the customer with a fairer and more beneficial system?
Ms. Traub. Thank you, Congresswoman. It is absolutely true
that the private system is failing us, and Demos has proposed a
public credit registry. Since consumers are not the customers
of the private credit reporting agencies, we have no way to
demand fairness or accountability through the market. Consumers
can't opt out of the system. So, the three private credit
reporting agencies really have consumers at their mercy. They
have this arbitrary, unaccountable power over our financial
destinies. A public credit registry, why we support it, is
because it is a way to take that power for consumers, and make
sure the credit reporting operates in the public interest with
a lot of mechanisms for public accountability, not government
control.
A transparent process for credit scoring is one important
element of that. That doesn't mean everyone knows your credit
score. It means everyone knows how credit scores are
determined, a dispute resolution process that actually enables
consumers to present evidence and see the evidence on the other
side, and, as a last resort, the right to take the public
registry to court over errors, as well as enhanced
accountability from companies that furnish the data to the
public credit registry.
Ms. Velazquez. Thank you. Ms. Traub, as you know, many low-
or moderate-income (LMI) communities and communities of color
access credit from alternative financial servic providers.
Unfortunately, however, many alternative financial services
providers do not report positive credit payments to the credit
reporting agencies. Can you explain how consumers who access
credit from these markets fail to gain the benefit of making
positive payments, and how this can hurt them in the long run?
Ms. Traub. Absolutely. Thank you, Congresswoman. Right now,
many types of alternative credit sources do not report, and,
therefore, when people are paying their cellphone bill on time,
or a payday loan on time, that doesn't turn into positive
credit in the way that paying a mortgage on time would. Our
proposal for a public credit registry allows consumers to opt
into other types of reporting, other types of payment history.
We think it is important that consumers be able to opt in
because there are cases when--
Mr. Perlmutter. [presiding]. The gentlewoman's time has
expired. We will let you either answer that in writing or
somebody else will let you finish your answer.
Ms. Traub. Thank you.
Mr. Perlmutter. The Chair will now recognize the
gentlewoman from Missouri, Mrs. Wagner.
Mrs. Wagner. I thank the Chair.
Mr. Quan, what would happen to the availability and the
cost of credit if we eliminated entire categories of debt from
credit scores?
Mr. Quan. Thank you, Congresswoman. That is an excellent
question.
The way and the reason we have the most competitive
consumer credit market is because the lenders have as much
information, as accurate as possible, about the consumer. If we
eliminate accurate information--while some information may be
negative, may be detrimental to individual consumers, depending
on the circumstances, but regardless, it is accurate--lenders
would not be able to make the best lending decisions. As a
result, the cost of credit will increase for everybody, and
availability of credit will decrease for everyone.
Mrs. Wagner. Thank you. Should the goal of reform be to
increase the number of qualified borrowers or to lower the bar
so low that it jeopardizes the system for others?
Mr. Quan. Of course, it has to be the former, not the
latter.
Mrs. Wagner. Generally speaking, do you believe that
competition creates better products and generates better
outcomes for consumers?
Mr. Quan. Of course. Without competition, lenders will have
no interest in improving their products or lowering the cost.
With competition, we have more expanded access to credit. More
consumers can qualify for credit.
Mrs. Wagner. Now, knowing that competition benefits the
consumer, which is what is very important to my constituents in
the Second District--again, cost and access--tell me, how does
a one-size-fits-all, government-run credit bureau benefit the
credit system or the consumer?
Mr. Quan. Since we are talking about competition, we have
heard the words, ``opt in,'' right? So, if the consumer doesn't
like how they are treated by the private credit bureau, they
can opt into the government's credit bureau, which supposedly
is better.
But here's the thing: A government credit bureau is backed
by unlimited taxpayers' money, revenue. Private bureaus have to
answer to shareholders. They don't have unlimited financial
resources. So, at the end of the day, this is not an opt-in
system.
If we are not happy with the current situation of the three
major national credit bureaus dominating the credit reporting
industry, and we have a government-run bureau, at the end of
the day, there will be only one bureau, which is a public
bureau, and there will be no competition whatsoever.
Mrs. Wagner. I agree wholeheartedly. What would you
recommend as an alternative to the bills being proposed today,
that would improve cybersecurity, reduce data errors, and bring
about a more inclusive credit system?
Mr. Quan. I do think regarding accuracy--we have heard all
these stories from consumer groups and from the industry. And
frankly, the most authoritative study on accuracy was done over
10 years ago. Many things have changed.
It is imperative that we have another study be done, either
by the CFPB or by the FTC. Without evidence, we cannot make the
policy. So, that is number one.
Number two, I think we should increase competition. I
mentioned that technology innovation can help. I mentioned that
in my last recommendation, which is that the CFPB should write
a pro-consumer 1033 rule. That rule will open up the
opportunity for consumers to furnish their own payments data,
which is not allowed currently in most cases in credit bureau
furnishing. So, if that data can be used in credit
underwriting, we will see more consumers potentially qualify
for credit and for affordable credit.
Mrs. Wagner. Thank you, Mr. Quan, for your very specific
analysis and the alternatives that you have offered here today.
I agree that if the government takes this over, we will have
just a one-size-fits-all, government-run system. Competition is
needed in this space, and I thank you very much for your input
here today.
And I yield back. Thank you.
Mr. Quan. Thank you.
Mr. Perlmutter. The gentlelady yields back. The gentleman
from Georgia, Mr. Scott, who is also the Chair of the House
Agriculture Committee, is now recognized for 5 minutes.
Mr. Scott. Thank you very much.
Perhaps the most paralyzing issue in this that we can
address quickly, coming up with some answers, deals with
student loan debt. And Mr. Greer, I have looked at recent data
from the Student Borrower Protection Center. You may be
familiar with that. It shows a widening gap between private
student loan usage and outcomes between Black and White
borrowers.
Black students, it says, are 4 times as likely to struggle
with repayment of private student debt in comparison to their
White peers, despite being less than half as likely to take out
a private student loan. That is why I say the student loan
issue is one--and I might just refer to some of the comments
from the other side--but this is a very serious racial issue.
The impact this has on a young borrower's credit score can--and
does--have long-term consequences, such as making it more
difficult to get a job, buy a car, or own a home. This is a
paralyzing issue.
Mr. Greer, I found it interesting in your testimony--here
is what you said. You said that the current system overlooks
many in our community because their monthly expenses do not go
toward a more traditional credit product like a home or a
credit card. They don't have them. And it penalizes consumers
for holding less traditional credit products or bad debt, such
as unpaid student loan debt.
So, Mr. Greer, can you explain why unpaid student loans,
particularly private student loan debt, even when a borrower is
current on that loan, is viewed by creditors as bad, and
continues to be used as a driving factor in limiting
creditworthiness, especially for Black borrowers?
Mr. Greer. Thank you, Mr. Scott, for that question. It is
such an important issue, and I do want to acknowledge the work
that Demos has done on student loan debt and raising up those
racial disparities that you talked about, Mr. Scott. It all
comes down to, the credit bureaus treat student loan debt,
because it can't be offloaded through bankruptcy in the worst
case, as more harmful in their algorithms.
And I will give you a little anecdote of my own. My wife
and I wanted to buy our first home, and this was about 15 years
ago. We were working with our mortgage lender, and they said,
``I could get you a better rate if you make a huge payment on
your student loans.''
Well, we didn't have a lot of money. That came out of our
savings. We had to pull that money out of our savings. And so,
we had to make a choice between pulling money out of savings
that would have went into the home equity of the house versus
making a payment to a student loan company in order to get a
better interest rate.
Those are the types of difficult decisions that these
credit bureaus place on consumers, that actually cut at the
wealth of people who are in the housing market or people who
are looking to start a business or many of the other wealth-
building activities for which people need access to credit.
So, thank you very much, Mr. Scott, for raising this
because it is such a critical issue and a huge problem within
the system.
Mr. Scott. Thank you very much.
Mr. Perlmutter. The gentleman yields back. The gentleman
from Florida, Mr. Posey, is now recognized for 5 minutes.
Mr. Posey. Thank you very much, Mr. Chairman.
Mr. Quan, can you please explain why the information
provided by credit reporting agencies is essential to the
efficient functioning of lending markets?
Mr. Quan. Thank you, Congressman Posey, for the question.
Lenders need information to underwrite consumers. The
information housed in the three credit bureaus, in any credit
bureau, is essential for lenders to make the right decision.
All of these decisions are based on the risks that they
perceive. Or in other words, they have to project the
likelihood of the consumer's ability or willingness to pay the
debt once they loan the money.
So, the information is essential. That is why it is
important to have accurate information in the database, and it
is also as important to have complete information in those
databases. And when I say, ``accurate,'' it means both positive
and negative. Negative information is bad for the consumer in
terms of getting credit or getting an affordable interest rate.
But for the entire system, negative information, if it is
accurate, is very important.
Mr. Posey. Thank you. Mr. Quan, the title of this hearing
is, ``A Biased, Broken System: Examining Proposals to Overhaul
Credit Reporting to Achieve Equity.'' Does this make sense as a
policy criteria for objectives for regulating the credit
reporting system? What should the objectives be?
Mr. Quan. I think both the Democrats and the Republicans
have the same objective, which is, we want to make sure we have
a fair system for everybody, regardless of your gender, your
color, or your religion. Everyone, if they can qualify for
credit, should be able to get credit.
But obviously, we are taking different approaches here. We
believe, and I believe, the current system is flawed, but it is
not broken. And it will be far more effective and more cost-
effective to improve, to reform the current system than to tear
it down and build a new one.
Mr. Posey. Thank you. Last year, you wrote an article
commenting on the President's proposal to create a public
option at the Consumer Financial Protection Bureau for credit
reporting. Would you share your views on that topic with us,
please?
Mr. Quan. Yes. As I have already shared in my written
testimony, as well as in my oral statement, I think that is a
proposal that is going to be very, very costly to taxpayers,
and more importantly, it is not going to effectively fix the
problems.
And frankly, this is not an opinion of more market-driven
people like me. Even Georgetown Professor Adam Levitin, who is
a very well-known scholar in the legal field on consumer
finance issues, wrote a blog post earlier this year questioning
the viability of a public credit bureau. All of the problems we
have today will not be fixed by a public credit bureau.
Mr. Posey. Thank you. Do you think the current credit
reporting system operates with intentional bias to exclude
certain groups from accessing credit?
Mr. Quan. I would not say they have this intention to
exclude people of color. We do have a problem, which is that 45
million Americans, many of them probably disproportionately
Blacks and Hispanics and people of color, don't have access to
credit because they don't even have a file in these databases.
That is why it is important for all of us to have a very
conducive environment to promote and to facilitate innovation.
And innovation is already happening. In my written statement, I
already mentioned UltraFICO and Experian Boost. They are
allowing consumers to furnish their payments data from utility
bills and streaming subscriptions to credit bureaus to be
factored into their FICO scores. And we have seen from Experian
Boost that 69 million points have been boosted.
Mr. Posey. You have advocated for innovation in financial
markets, including Federal reporting, especially the
incorporation into credit files of new data sources to help
the, ``credit invisibles,'' get access to credit. Could you
please tell us how the private sector is responding to this
challenge and what could be done to encourage even greater
innovation?
Mr. Quan. Sure, yes. I just mentioned there is UltraFICO.
There is Experian Boost. And this innovation would not take
place if we didn't have open banking or open finance in the
United States. Or more specifically, consumers must have the
right to permit third parties to have access to the bank
account data, such that the data can be used in a credit
scoring system.
And we have seen other innovations here. I can give you two
more examples--
Mr. Posey. I am going to thank you. My time has run out,
Mr. Quan. Thank you very much.
Mr. Quan. Yes, thank you.
Mr. Perlmutter. Mr. Posey's time has expired. The gentleman
from Texas, Mr. Green, who is also the Chair of our
Subcommittee on Oversight and Investigations, is recognized for
5 minutes.
Mr. Green. Thank you very much, Mr. Chairman. I greatly
appreciate the opportunity to be heard, and I greatly
appreciate the staff for what they have done to assist with
what I am about to bring to the attention of our committee.
H.R. 123, the Alternative Data for Additional Credit FHA
Pilot Program Reauthorization Act, is something with which we
were successful. It became Section 2124 of the Housing and
Economic Recovery Act of 2008. It did not get funded, and as a
result, we are bringing this back, because we believe this is
something that should be funded, and it will be of great
benefit.
And I am appealing to all of my Republican friends across
the aisle from me, all of them, I am willing to work with all
or anyone who would like to work with me on this. I am very
much interested in being bipartisan, very much interested in
working with people, regardless of who they are. So if someone
would like to work with me on this project, I would greatly
appreciate your making yourself known to me.
More specifically, we know that in this country, depending
on who is counting and how you count, we have about 45 million
people who are credit invisible or unscorable. And as a result,
they don't get the opportunity to make the purchases that many
of us take for granted.
This piece of legislation would allow your utilities--light
bill, gas bill, water bill, phone bill, cable bill--to be
scored. Mr. Greer, you have spoken of this, of these utilities
being scored. This bill allows you to opt in and score these
utilities. And if they benefit you, then you can take advantage
of that benefit and have the credit that most of us take for
granted.
Mr. Greer, H.R. 123, give me your thoughts on what I am
sharing with you at this time in terms of doing this, making
this change such that we can do this with HUD. HUD would have
the pilot program, and we would use a commercially-available
credit reporting model. Your thoughts, Mr. Greer?
Mr. Greer. Thank you, Mr. Green, for raising that, and for
your work on this important issue.
I say, one, you emphasize the importance of opting in. I
think that is a big, important point and that consumers should
have the choice around what data is being used to assess their
credit score. The second point I would like to make is that
this conversation about alternative data is already a part of
the system. It is just that the negative stuff is what is being
reported. If you don't pay your utility bill, it gets reported.
If you don't pay your cell phone bill, it gets reported.
What I would like to see is if we are going to use
alternative data, let's make sure that we are bringing in the
positive payments. Because if I miss a payment on my utility
bill, my utility gets cut off, I am going to get dinged for
that. But what is not going to show up is the many months
beforehand that I paid my utility bill on time.
And I think that it is important that we opt in and that we
make sure that we are reporting the positive activity that is
happening with people, in addition to the negative activity
that is already being reported.
Mr. Green. And let me add something. We would also want to
make sure that people understand that this is additional
credit, not just alternative, meaning we will take this in lieu
of other things. This is additional credit that can be added to
your credit score to help you.
Ms. Traub, would you comment on this as well, because you
did bring up the need for this type of credit score?
Ms. Traub. Yes, I think it is important that consumers be
able to opt in to using alternative types of data, as Mr. Greer
said. I also think that a public credit registry could look
into which types of data it is inappropriate to include.
For example, medical debt has been shown--and we should do
more studies to show this more conclusively--not to be
predictive of people's ability to pay other types of debt. When
someone takes on a mortgage or a credit card, they have a
chance to think about, what are the terms, do I want to take on
this debt?
When you are sick or your child is sick and needs medical
care, needs to go into the hospital, you don't how much it is
going to cost. You may not care how much it is going to cost at
that point; you just want your loved one to get the care they
need and be okay. And then, you are saddled with hundreds,
thousands, maybe even millions of dollars in medical debt.
Should that go on your credit report?
Mr. Green. My time is about to expire, ma'am. Let me just
ask you, without question, reservation, or hesitation, do you
agree that additional credit scoring is important, what you
call an alternative credit scoring?
Ms. Traub. Yes. I think we need to look at different things
that should be included and excluded from credit scores to make
them more fair and predictive.
Mr. Green. Okay. Thank you very much.
I yield back the balance of my time. I believe my time is
over.
Mr. Perlmutter. The gentleman's time has expired, and he
yields back. The gentleman from Missouri, Mr. Luetkemeyer, is
now recognized for 5 minutes.
Mr. Luetkemeyer. Thank you, Mr. Chairman.
It is interesting that we believe that the government can
do something better than the private sector. I heard several of
the witnesses today talk about all of the errors that are made
by the private sector credit bureaus, and I am not defending
them. They are not perfect. They are human. They make errors.
But if you believe the government is going to make less
errors than the private sector, which has to be responsible for
being able to have good information and can be sued for it,
which the government cannot, you are either naive or
misinformed or worse. And I can tell you right now, as the
ranking member on the House Small Business Committee, the
Paycheck Protection Program (PPP), which was administered
through the banks, had huge, huge advantages over the Economic
Injury Disaster Loan (EIDL) program. With the EIDL program,
which is completely administered by the SBA, almost a third, a
third of the loans are fraudulent.
If you expect the government to be able to put together a
program that is going to be error-free, you are on the wrong
planet. Along that line, the government is going to have more
errors, I believe.
Mr. Quan, I have a question for you on this. Listen very
carefully. I believe the information you are going to get is
very poor information because it is not going to be complete.
Government delays everything. Think IRS. Do they do anything in
a timely fashion? No.
This is another agency that is going to be rife with fraud,
rife with delays, with incompetent and incomplete information,
old data, delays in getting it fixed. And what does that mean?
That means if you are a lender, are you going to rely on this
information? I don't think so.
If you are a lender, if you rely on just this agency alone,
because it is poor information, I would think you are going to
increase the cost of the loans you make on this information and
probably have less access to credit.
Mr. Quan, am I wrong?
Mr. Quan. You are absolutely right, Congressman.
Mr. Luetkemeyer. Thank you for that.
Along the lines of, why would anybody want to do this, why
would we want the government to get into having more
information like this, Ms. Traub gave us the answer. She said
it is about control. Control of what? Control of information.
Control of who gets loans, who gets financed.
Guess what? Again, think IRS. You are using and weaponizing
another agency here against people whom they disagree with
either politically or for any other reason.
Think Operation Choke Point. Here we go again. The
government is picking winners and losers and picking out people
who may be doing nothing wrong. They have a legal business,
have a legal right to access to credit, and yet the government
is getting in the middle of this and scoring them in a way that
is detrimental to their ability to get loans and whatever.
Am I wrong on that, Mr. Quan?
Mr. Quan. You are also absolutely right.
Mr. Luetkemeyer. Thank you very much for that.
The other thing I want to talk about here a little bit is
lenders. We are talking about credit scores this morning. Why?
Because people need access to credit. The lenders need this
information to be able to judge accordingly whether somebody is
worthy of loaning money, be it for a home, a car, a business,
or whatever. They assess risk. The interest rate is always
reflective of risk. And the more information they have, the
better they can assess the risk.
If the lenders have an incomplete amount of information,
this is why you see the private sector credit bureaus trying to
find more ways right now, even though they are not required to
take some of these different things like rent payments, utility
payments, telecom payments, service streaming payments. Those
are all being used right now by a lot of the different private-
sector folks to assess risk, to be able to assess an
individual's ability to get credit.
Those are important things. I support those. We had a bill
out of here not too long ago, a year or two ago, that actually
increased that. I supported that. I think it is a good idea.
The more information you have, the better the lenders can look
at an individual and assess that risk and give people more
access to credit. It is very important.
So, at the end of the day, it is behooving to the lenders
to be able to get as much information as possible, and it is
behooving to the private sector folks because they are in
competition against each other--believe it or not, they are in
competition because lenders pick and choose which one of these
they want--to be able to get as much information as possible,
and who can be more predictive about the ability of somebody to
pay back that loan.
That is a really, really important thing, and I think we
are missing the point when we are sitting here looking at the
individual. The reason the individual wants this information
out there is so they have access to credit, and we have
forgotten all about that.
When you give that information to the government to allow
them to oversee all this, you have just opened a whole other
can of worms, and I think you really have denigrated the
individual's ability to get access to credit.
With that, I see my time is up, so I yield back.
Mr. Perlmutter. The gentleman yields back. The gentleman
from California, Mr. Sherman, who is also the Chair of our
Subcommittee on Investor Protection, Entrepreneurship, and
Capital Markets, is now recognized for 5 minutes.
Mr. Sherman. Thank you, Mr. Chairman.
I join with Mr. Luetkemeyer at least in being a bit
concerned about a Federal credit reporting agency. That concern
is borne in part by my former chairmanship of the Asia
Subcommittee, where we see the Communist government of China
creating a social credit score based on politics. As much as I
fear and I am concerned about what the credit rating agencies
can do to consumers, I am even more concerned about what the
government can do. I am also concerned about any bill that
would take a system where the banks pay and instead provide the
service for free or at the cost of taxpayers.
We in Congress and the Federal Government have had an
eviction moratorium, so people who couldn't pay their rent
didn't, and thank God, they are not homeless.
Mr. Ejaz, are these people going to have terrible credit
reports because landlords are reporting their failure to pay
rent in a way that hurts their credit score?
Mr. Ejaz. Thank you so much for your question.
For part of my answer, I will defer to Chi Chi Wu, but we
at Consumer Reports are concerned that when the relief that was
passed with the Coronavirus Aid, Relief, and Economic Security
(CARES) Act and all of the policies that were passed in order
to address consumer concerns during COVID-19, when those
expire, consumers' credit reports may be affected
significantly.
Ms. Wu actually--and I will pass it to her--called this
the, ``pandemic paradox,'' where scores have somewhat stayed
afloat throughout COVID-19, but once relief expires for folks,
we will start seeing the impact on folks' credit reports, and
it is best to get as ahead of that as we can.
Mr. Sherman. I have put forward proposed revisions that we
have not passed to say that those who couldn't pay because of
COVID should not have their credit scores reduced, and I think
that we do need to revisit that if--but I want to go on to
another question.
And that is, we have this recent lawsuit against TransUnion
for inaccurately reporting that certain individuals are on the
Office of Foreign Assets Control's (OFAC's) Specially
Designated Nationals and Blocked Persons List. It is usually
called the, ``terrorist watchlist.''
Now, it is one thing when a credit rating agency says that
someone didn't pay a medical bill. Okay, they may get confused.
They may make a mistake. Things happen. But when you
incorrectly report that they are on the terrorist watchlist,
that is a much bigger deal.
Unfortunately, the court, throughout the lawsuit, claimed
that only plaintiffs concretely harmed by the defendant's
statutory violation have Article III standing. And of course,
many in the class did have that concrete harm, but many others
that were in the class did not.
Ms. Wu, did TransUnion violate the Fair Credit Reporting
Act by stating that Mr. Ramirez was on the terrorist watchlist?
Ms. Wu. Absolutely, TransUnion did. They failed to use
reasonable procedures by tagging an innocent man as a potential
terrorist. But the Supreme Court said that even though
TransUnion violated the Fair Credit Reporting Act, those
consumers for whom the information wasn't shown to a third
party, couldn't even get through the courthouse doors, and this
was a California lawsuit. That is why we think Congress needs
to provide for injunctive relief, ecause the court did say if
there is injunctive relief, that might be a way to get through
the courthouse doors.
Mr. Sherman. So, the court said that if they had added
something erroneous to your report, but nobody had seen it,
then, you couldn't have a day in court?
Ms. Wu. That is correct. You could get it, and you could
panic, and say, ``Oh, my God. They think I am a terrorist.''
Mr. Sherman. Right.
Ms. Wu. But there was no remedy.
Mr. Sherman. No remedy for the psychological harm unless
there is, in fact, defamation communicated to a third party?
Ms. Wu. That is correct.
Mr. Sherman. Again, if this was accusing people of not
paying a medical bill, that is one thing. With the terrorist
list, you have to be a lot more careful. And I should point out
that people of certain ethnic and religious groups are the ones
who are going to have the names that are going to be on the
list. So, this did not affect people randomly in our society.
This affected anybody who has a name that is similar to another
name.
Mr. Perlmutter. The gentleman's time has expired.
Mr. Sherman. I yield back.
Mr. Perlmutter. The gentleman yields back. The gentleman
from Michigan, Mr. Huizenga, is recognized for 5 minutes.
Mr. Huizenga. Thank you, Mr. Chairman. I appreciate it.
Mr. Quan, I am just wondering, can you give us a sense of
the overall trend of credit scores, especially during the
pandemic?
Mr. Quan. Thank you, Congressman.
Overall, I think that Experian has reported that during the
pandemic, because of the CARES Act interventions, consumers'
credit scores actually have increased slightly by, I think 7
points.
Mr. Huizenga. Okay. So, we didn't see them erode. We
actually potentially saw them increase a bit, correct?
Mr. Quan. Correct. And also, we are seeing some kind of
deleveraging, especially in credit card debt. So, people are
paying off their debt because of the government assistance.
Mr. Huizenga. And somewhat, it may be argued and pointed
out, limited opportunities to go out and actually spend money
on anything. I think a lot of us were a little frustrated with
that as well.
So, obviously, there are lots of calls for a government-run
credit reporting bureau that somehow would increase competition
and accountability. What is your take on that? Does it actually
increase accountability and increase competition? I think that
is one of the more bizarre claims.
Mr. Quan. No. In terms of competition, no. There is not
going to be an increase in competition, and it is actually more
likely that competition will be reduced to zero. Again, as I
said in my written testimony and also in my oral statement, the
private sector has problems, of course, but they actually have
this profit motive so that if they don't treat customers
better, someone else may do a better job. The customers will go
somewhere else.
And lenders need accurate information. So, it is not in
anyone's interest to have inaccurate information. When you have
a government bureau, there will be no competition, because they
are backed by unlimited tax revenue, and the private sector
cannot compete.
Mr. Huizenga. Yes, and obviously, nobody wants inaccurate
information. I find it fascinating, my predecessor's
questioning about the no-fly list and the terrorist watchlist.
Apparently, those on the other side had no qualms about having
people on that when it was time to, oh, go purchase a weapon,
for example. That seemed to go out the window. But as long as
it was dealing with credit, now suddenly, they are very
interested about who is falsely getting on that watchlist.
But, Mr. Quan, predictive data assists lenders in providing
borrowers with access to affordable credit, and I am curious if
you had discussed the consequences to consumers if a risk-based
pricing system was rejected?
Mr. Quan. Oh, there will be a disastrous outcome for every
consumer, not just the low-income consumers who have difficulty
in accessing credit. Risk-based pricing, basically what it
means is the lenders allocate or make decisions on credit based
on the risks they perceive. And this is how the private sector
works. If you have a higher risk, that means you probably have
a lower chance of paying me back. That is why as an investor,
as a lender, I am going to have to charge you a higher rate to
compensate for the risk I am taking.
And if we get rid of risk-based pricing, what is going to
happen is lenders will have no incentive or interest in
treating anyone who has more means to pay back or more
willingness to pay back, and everyone will get charged the same
price. At the end of the day, what we see is low availability
of credit and higher cost of credit for everybody.
Mr. Huizenga. And let's take it one more step, okay? What
about the regulators who go in to those lenders and have to
look at the quality of their lending to determine whether they
are in compliance or not? Has anybody looked at the effects
that might have?
Mr. Quan. That is a great point. I look at student loan
lending, and the Federal Government hands out loans to anyone
without even questioning whether they will have the ability to
pay it back. So, the Federal Government essentially is the
biggest subprime lender in this country.
If the Federal Government was supervised by the OCC or the
FDIC or the Fed, it would fail the safety and soundness exam.
Mr. Huizenga. In my last 30 seconds here, do you have any
confidence that the Federal Government is going to be able to
keep all of this data secure? We saw that the Securities and
Exchange Commission had a breach. They are now building the
consolidated audit trail, which is going to hold all of our
personally identifiable information.
There are a lot of people on both the left and the right,
who have previously expressed doubt about the security of this
information all being in one spot, basically one giant vault,
which becomes a target. So, do you have any confidence about
that?
Mr. Quan. You said it very well. I have no confidence
whatsoever.
Mr. Huizenga. Okay. My time has expired, and I yield back.
Mr. Perlmutter. The gentleman yields back. The gentleman
from Missouri, Mr. Cleaver, who is also the Chair of our
Subcommittee on Housing, Community Development, and Insurance,
is now recognized for 5 minutes.
Mr. Cleaver. Thank you very much, Mr. Chairman.
Mr. Ejaz, if given the choice, would you choose the
University of Kansas (KU), or the University of Missouri (MU)?
Mr. Ejaz. Excellent question. I would choose MU any day.
Mr. Cleaver. I know it is a difficult question, but I had
to ask it.
Mr. Ejaz. Thank you.
Mr. Cleaver. There are a lot of scoring models that use
statistical analysis to assign a score to a person. One
particular company used 50 versions, 50 versions of a score for
a person that can be sent to lenders.
Does that make any sense at all, 50 different versions?
Mr. Ejaz. Thank you for your question.
It is true. There are so many different credit scores that
any one person can have. The reason for this is because lending
product categories can differ, and the private sector believes
that different scores should be applied for different types of
products. But it is true that the ``credit score'' that I think
is in most people's head is more of an approximation of what
the variety of your credit scores say, as opposed to being your
true credit score.
Mr. Cleaver. So what is the logical reason--this is to any
of you--that we don't have a uniform system of
creditworthiness?
Ms. Wu. That is a great question, if I may, Congressman? It
for sure confuses consumers that there are so many different
kinds of scores out there. You have FICO. You have Vantage. You
have different generations, different product types.
One thing a public credit registry option could do is give
a standard score so that consumers know where they stand. And
it gets even worse because the credit bureaus also sell these,
``Fake-O scores,'' that no lenders use, and people get
confused. They think they have one score, they go to buy a car,
and their car loan rate is different.
So, certainly something a public credit registry could do
is to standardize it so there is more clarity.
Mr. Cleaver. Anybody else?
[No response.]
Mr. Cleaver. Okay. That's fine. I wanted to move over to
the credit invisibility to find out if there is anything that
you would recommend to this committee that we need to do to
help bring credit-invisible individuals into the scoring
system, although it is messed up, too. But what would you
recommend? Does anyone have any recommendations?
Mr. Quan. Congressman Cleaver--
Ms. Wu. If I may, Congressman? I think the thing that has
been hammered on is consumer choice. One of the most important
things about credit invisibility is consumers should have the
choice to be able to supply their rental, cell phone payments,
and bank account histories because the system for too long has
stripped consumers of the ability to make the decision. The
consumer should have the choice.
Alternative data can be helpful, but it can also be
harmful. We have to proceed with caution. Some of the most
promising data--and here is where, for example, Mr. Quan and I
agree--is bank transaction data, because it can show ability-
to-repay. It has a shorter timeframe, so you are not locked
into that 7 years for bad credit information.
And one important thing is to give consumers control and
the ability to share that when they want to, but turn it off
when they don't.
Mr. Quan. Congressman Cleaver, if I may jump in here, I,
100 percent, agree with Chi Chi on this issue. I think it is
really about consumers' control. That is why I think it is very
important that we have a functional open banking system in the
United States, where consumers are in the center of the data
flow, so they can consent, they can permit any third party that
wants to have access to their data. So, they know exactly who
is using their data, how long it is going to be there, and for
what purposes.
All of the innovations in the private sector regarding
using cash-flow data, using bank transaction data, is already
happening. But the key thing is really about having a good rule
of the road, which, again, I am mentioning the CFPB here, but
you have them write a pro-consumer, pro-innovation, open access
1033 rule.
Thank you.
Mr. Cleaver. Thank you. I yield back, Mr. Chairman.
Mr. Perlmutter. The gentleman's time has expired. The
gentleman from Kentucky, Mr. Barr, is now recognized for 5
minutes.
Mr. Barr. Thank you, Mr. Chairman.
Mr. Quan, I think you stated it well that the impact of
eliminating risk-based pricing would have a very negative
impact on low- and middle-income borrowers. It would eliminate
access to credit and drive up the cost of credit. A recent
study from the United States Chamber of Commerce corroborates
your testimony and found that eliminating risk-based pricing
and replacing it with a uniform pricing model would raise
prices on consumers and limit the availability of credit and
other financial services, especially to low- and middle-income
borrowers.
And that makes sense, right? If lenders can't accurately
predict a borrower's ability to repay, they need to raise
prices or limit options to account for the increased
uncertainty. A prohibition on using predictive data would not
make the system more equitable but would instead dramatically
exacerbate inequalities that the authors of these bills say
that they want to fix.
Speaking of inequalities, Mr. Quan, are you aware of any of
the three major private credit reporting bureaus using race-
conscious criteria?
Mr. Quan. No, I am not aware of that.
Mr. Barr. To your knowledge, is there any evidence to the
contrary that these credit reporting bureaus use only race-
neutral criteria, payment history and the like?
Mr. Quan. That is my understanding, sir.
Mr. Barr. And yet, one of the Majority's witnesses says
that the current system of private credit reporting bureaus is
plagued with, ``systemic racial inequity.''
Let me ask you this question, Mr. Quan. How would excluding
certain predictive credit data from credit reports harm a low-
income, but financially responsible, African-American consumer
with a high credit score?
Mr. Quan. You really touch on a very important point. And I
think I will also give the credit to the other witnesses, who
are really highlighting the important fact that a lot of
Americans, especially people of color, have challenges getting
into the mainstream credit system. That is because you have to
have credit in order to build credit. So, if you don't have
credit, how can you build credit?
That is why it is important to have this new source of
data, payment data, alternative data--rent payments, utility
payments--for the lenders, available to lenders to use to bring
access of credit to these people.
Mr. Barr. My point is that whether you are White, Black, or
Hispanic, whatever your racial minority is, if these credit
bureaus are using race-neutral criteria, and maybe you are a
low-income individual, but if you pay your bills, and you have
a positive credit score, a positive credit history, your credit
score is going to be higher. And if you eliminate the risk-
based pricing, the cost of credit is going to go up, and that
is going to harm that borrower regardless of their racial
profile. Isn't that correct?
Mr. Quan. That is absolutely correct. It doesn't really
matter what color your skin is, or what religion you believe
in, if you can pay back the loans, your score will go up, if
you pay back the loans on time.
Mr. Barr. Thank you, Mr. Quan. Let me ask you about this
national credit bureau idea. We have talked about it ad nauseam
here. But what incentives does a private credit reporting
agency have in competition with other private credit reporting
agencies to get credit data accurate and get it right?
Mr. Quan. If the credit bureau cannot provide accurate data
to lenders, lenders will stop using their services, period.
Because what lenders want is really accurate data for them to
make better lending decisions. So, there is a natural
competition among the three bureaus to make sure the data is
accurate.
Mr. Barr. And Mr. Quan, what incentives would a single
government bureaucracy have to fix errors?
Mr. Quan. I wouldn't even call it an incentive. It is just
their ability. I am not a technologist here. So, whatever best
method is available to the private sector, the government can
use that, too. There is no reason for me to believe the
government is able to do a better job in improving accuracy
while the--if we believe accuracy is a big issue today.
Mr. Barr. And just one final question on this alternative
data issue. Obviously, utilization of alternative data by these
private credit reporting agencies is helping Americans gain
access to credit. But I think I heard one of the other
witnesses say that positive data should be reported, but not
negative data reported. How would that impact the cost of
credit if the data was only selected in that way?
Mr. Quan. If we believe accuracy is important, accuracy
means complete data, whether it is positive or negative. If you
specifically ignore negative data, that is not accurate. So, we
have to make sure we have accurate and complete data available
for lenders.
Mr. Barr. Thank you. I yield back.
Mr. Perlmutter. The gentleman's time has expired. The
gentlewoman from Ohio, Mrs. Beatty, who is also the Chair of
our Subcommittee on Diversity and Inclusion, is recognized for
5 minutes. I think she just exited. We will go to Mrs. Beatty
in a few minutes.
The gentleman from Illinois, Mr. Foster, is now recognized
for 5 minutes.
Mr. Foster. Thank you, Mr. Chairman.
Your credit score is often one of the most important
metrics affecting how you interact with the financial services
industry. Particularly with respect to housing, which is a
basic human need, your credit score affects your ability to
rent or own a home. It determines whether or not you can
finance a car or a home, and it is even examined by the State
bar associations when law school graduates apply to become
attorneys.
So despite the obvious great importance of your credit
scores, a Consumer Reports survey indicates that 34 percent of
Americans report finding errors in their credit profile. The
Consumer Data Industry Association (CDIA), however, claims that
figure to be false and boasts a 98 percent accuracy rate.
However, the studies cited by the CDIA, conducted by the
FTC, and the Policy and Economic Research Council (PERC), seem
to indicate t23.9 percent, and 19.1 percent error rates,
respectively. And so, there are some significant disagreements
over these accuracy figures. And I was wondering if anyone
could speak on what really is the best knowledge on that?
Mr. Ejaz. I am happy to take that. I can start with it. And
thank you for your question.
The PERC study was done in 2011. As well, the FTC study
that we cited today, or the panel cited today, was done in
2012. And I absolutely join Mr. Quan in asking the FTC to take
another look at this.
At Consumer Reports, we put out a survey that volunteers
could fill out. And yes, 34 percent found at least one type of
error. I still think that despite those other two studies being
done almost 10 years ago, that there is still an indication of
many, many problems, and I am sure Chi Chi can say more.
Ms. Wu. Yes, if I could just make two points about these
accuracy studies? Number one, whether it be 2 percent or 20
percent, when you talk about 200 million files, that is
millions of people affected, so, even 2 percent would be 4
million people. The FTC found 5 percent, or 10 million people.
I agree that another study done by the FTC would be
helpful, but we need reform now. The FTC study actually took
almost 10 years because it was so complicated, and they wanted
to do it right and systematically and rigorously. We can't wait
10 years for reform. American consumers can't spend the next 10
years continuing to be abused by the credit bureaus.
Mr. Foster. Thank you.
And now, when you look over the different types of errors
that happen, one of the most common seems to be simply identity
errors, where you are getting the wrong information about the--
or the right information about the wrong person. For example,
the Equifax website has a FAQ page called, ``What can I do if I
believe my credit file is mixed up with someone else's?'' That
leads me to believe, as well as hearing from my constituents,
that there are identity errors.
Now, some States are rolling out something that many people
feel will be transformative to eliminating not only identity
errors, but also identify fraud, which is these mobile IDs,
mobile driver's licenses sometimes, which allow you to download
the information on your REAL ID-compliant driver's license onto
your cell phone, and authenticate yourself online for any
transaction.
And if we had a high-quality way of authenticating yourself
when you enter into a contract, when you successfully pay, when
you start a bank account, what fraction of the errors would go
away if we had a high-quality digital ID in this country? Does
anyone have a feeling for that?
Ms. Wu. The issue with the credit bureaus and mixed files
isn't just about what kind of identity. It is matching. It is
how you make sure A matches to B. And the problem with the
credit bureaus is that their matching criteria is overly loose.
Social Security numbers are unique identifier numbers, but the
credit bureaus use only 7 out of 9 digits, and they use a
partial match of a name and a partial match of address.
So, that is how they have any two different people mixed
up. You can have the most rigorous identification, but if you
make your criteria too loose, you are going to mix people up.
And they make the criteria too loose deliberately, because that
is what lenders want. They would rather have false positives
than false negatives. It is all about the incentives, and that
is why it is important to have reform and a public credit
registry option.
Mr. Foster. Yes. I think that what you really want here is
accuracy. And if you look at countries like Estonia that have a
high-quality, secure, privacy-preserving digital ID, these
problems largely disappear. And I think that we should join the
States that are rolling out these advanced identity products
which were also rolled out recently by Apple and Google Android
as something that they will support, and this could be
transformative at least in eliminating this class of identity
errors from messing up a person's credit rating.
I hear the gavel, so I yield back.
Mr. Perlmutter. The gentleman's time has expired.
The gentleman from Texas, Mr. Williams, is recognized for 5
minutes.
Mr. Williams of Texas. Thank you, Mr. Chairman.
I have bad news for everybody in here. I am a car dealer, I
am a borrower, and I am also a lender. And I use risk-based
pricing every single day. Making sure that we have a complete
and accurate picture of an individual credit history allows us
to offer the best rates possible to our customers.
If we begin to hide information, like we are talking about
today, lenders like myself will be forced to price in this
additional uncertainty that we might not get a return on
capital, and the price of credit will go up for everybody.
The bottom line is, if you pay your bills, you have a good
credit rating. If you don't pay your bills, you don't have a
good credit rating.
I listened to Ms. Wu. She said that people have been abused
for 50 years. I have been in business for 51 years, and I have
never abused anybody.
I thank everybody for coming here today. Now, the response
of my Democratic colleagues to problems within the big three
credit reporting bureaus is to centralize power and to create a
public option within the CFPB.
This belief that the Federal Government can somehow run a
credit reporting agency more effectively and efficiently than
the private sector is garbage. It is ridiculous. It is the Post
Office. It is Amtrak. It is the Small Business Administration
(SBA).
Not only will you force consumers to hand over all their
data to the Federal Government, but it will also remove all
incentives for the private sector to innovate and come up with
new models that will better predict the creditworthiness of
borrowers.
So Mr. Quan, quickly, can you discuss how the incentive
structure we talked about today to compete and innovate would
change for the private credit bureaus if a public option is
created?
Mr. Quan. Thank you, Congressman Williams. You are
absolutely right. When the government takes over, there will be
no incentive whatsoever for the private sector to compete with
the government. They cannot compete and come up with better
ways, and more innovations, because the government, again,
would monopolize credit reporting, and there would be no
competition. There would be no innovation whatsoever.
Mr. Williams of Texas. And with no competition, the
consumer is--
Mr. Quan. Worse off.
Mr. Williams of Texas. --put in a bad position.
If making it harder for the private sector to compete
wasn't bad enough, placing this new public credit reporting
agency within the CFPB is also extremely problematic, and it is
just a ridiculous idea. Since its inception, my Republican
colleagues and I have been pushing to reform this rogue agency
and make it more accountable, whether by creating a bipartisan
board so the CFPB is not run by a single director, providing
greater clarity to their enforcement capabilities so that
businesses are not penalized for practices that were never
previously identified as illegal, or bringing the agency under
the normal appropriations process.
All of these reforms have been blocked by the Democrats,
which ensures that this agency will operate on a partisan basis
for the foreseeable future. If the Democrats' proposal were to
be signed into law and public options created within the CFPB,
I am concerned that the new agency would be hijacked for
partisan political objectives, such as removing all student
loan information or unpaid medical debt from credit reports.
You borrow the money, so shouldn't you pay it back, for
crying out loud? You tell the person, I am going to pay you
back, but you don't want to pay it back.
So, Mr. Quan, given the discretion that the CFPB currently
operates under, how would it be possible to ensure that this
new public option would not be used for political purposes
rather than working to ensure that lenders are provided with
the best information available as they attempt to accurately
price risk and give the customer the best price?
Mr. Quan. Thank you, Congressman, for the question. I think
it is best in the current system that lenders make the choice,
make the decision of who they want to lend money to and at what
cost, assuming, of course, that they follow the Equal Credit
Opportunity Act (ECOA).
If we let the government dictate whom they should lend to,
at best, the criteria for underwriting will be influenced by
the Administration, whether it is Republican or Democrat. And
at worst, the Federal Government will be deciding who is
creditworthy.
I think this is the worst outcome. We have government
decide who is worth credit, and the private market is the best
way to advocate credit, not the government.
Thank you.
Mr. Williams of Texas. In the end, the private sector will
get it done better. The government will pick winners and
losers. They do every single day, and it will trickle down into
less product, higher prices for the consumer, and it will also
go to less employees, and, again, the government control will
be putting a stick in the economy. So, the private sector is
much better.
I yield back. Thank you.
Chairwoman Waters. Thank you.
The gentlewoman from Ohio, Mrs. Beatty, who is also the
Chair of our Subcommittee on Diversity and Inclusion, is now
recognized for 5 minutes.
Mrs. Beatty. Thank you, Madam Chairwoman, and thank you to
the witnesses and to my colleagues.
We have heard a lot today about credit unions and who is
affected by credit reports and the data that is collected. The
Consumer Financial Protection Bureau issued a report in 2014
entitled, ``Consumer credit reports: A study of medical and
non-medical collections.''
In that report, the CFPB found that over 50 percent of
credit reports that had collections were related to medical
collections. We have also heard that most of those dollar
amounts were somewhere around $200, and the highest were all
under $490.
We also noticed that a company called NerdWallet compiled
data from all of the Medicare compliance reviews of U.S.
hospitals conducted by the Office of the Inspector General.
We found that almost 50 percent of Medicare medical claims
contained medical errors that resulted in an overpayment of
something like 26 to 27 percent. We have also heard that some
individuals have said those numbers were closer to 70 or 80
percent.
So, Ms. Wu, with a system with error rates for medical debt
so high, could the argument be made that it is not beneficial
to include these debts at all in credit scores?
Ms. Wu. Thank you for the question, Congresswoman, and
absolutely, yes. The argument could be made that medical debt
for medically-necessary services should not mess up anyone's
credit report. People get sick. It is not under their control.
It is bad enough that we have a health care system where people
go into unmanageable debt just to stay alive and stay healthy.
For it to mess up their credit reports is unconscionable.
Mrs. Beatty. Thank you. I am also Chair of the Subcommittee
on Diversity and Inclusion, and I spent the last 2 years
advocating for companies to diversify their workforces and
their senior leadership.
When I look at the three credit reporting agencies, they
are a perfect example of why this work is so important.
So, Mr. Greer and Ms. Traub, I am going to ask you this
question. When I look at TransUnion, only 9 percent of their
senior leaders and 10 percent of their board are
underrepresented minorities, and 30 percent are women, and we
can keep going with Equifax and Experian, all the same. Even
with Experian, astonishingly, they have virtually no racial
diversity on their boards or in their senior leadership.
Several of our witnesses have discussed the inherent
inequities that exist in the current credit reporting system.
Do you believe that the makeup of the leaders of these
companies has a direct effect on the inherent inequities in the
credit reporting system?
Mr. Greer?
Mr. Greer. Yes. Thank you, Congresswoman Beatty.
I absolutely do. All of this conversation about
accountability has been, who is more accountable to whom? I
will say this, and I have been called naive many times; my wife
and my son call me naive all the time.
But I would rather have this body hold some institution
accountable, the folks on this dais up here, because the folks
on this dais more accurately reflect the population of the
people who are consumers in our marketplace than the
shareholders and the people who run these companies. Nearly 90
percent of shareholders across our economy are White. And I
haven't looked at Equifax, TransUnion, and Experian's
shareholders but my guess is that it reflects that number.
Like I said, when we talk about accountability, the folks
in this room are more accountable to the consumers who are
impacted by these companies than the companies are themselves.
Mrs. Beatty. Thank you. I think I only have 30 seconds
left. Ms. Wu, can you explain to this committee why it is
important to include a credit score with the annual credit
report?
Ms. Wu. Yes. Consumers should have access to free annual
credit scores so they can see their standing, so that if they
want to get a credit card, buy a car, get a mortgage, or even
rent an apartment, because landlords use them, they know where
they stand.
Mrs. Beatty. Thank you. I have introduced a free credit
score and consumer act. It is also in this comprehensive
credit. So thank you, and I yield back.
Chairwoman Waters. Thank you very much.
The gentleman from Arkansas, Mr. Hill, is now recognized
for 5 minutes.
Mr. Hill. Thank you, Chairwoman Waters. Thanks for
convening this hearing. And thank you for our panel's
participation, both in person--and I'm delighted to be here in
person--and online as well, and thanks for talking about the
importance of the credit system and how that has enabled
millions and millions of Americans over the past several
decades to have more access to credit, and more opportunity to
fulfill their lives with a home or a car or something that they
need to benefit themselves.
So, our credit system is fundamental to our households
having access to the credit they need for their future.
Mr. Quan, have credit reports helped more families have
access to credit?
Mr. Quan. The answer is, yes.
Mr. Hill. Have credit reports helped community banks avoid
credit losses by adding them into their underwriting process?
Mr. Quan. The answer is, absolutely, yes.
Mr. Hill. Do you support the concept of consumers offering
additional data? I don't ever use the words--I am like Mr.
Green of Texas--``alternative data.'' I like the words,
``additional data.''
So, Mr. Quan, do you support the concept of consumers
offering additional data in order to strengthen their credit
report, say, their telecommunications or cable or rent or
utility bills?
Mr. Quan. Absolutely, yes.
Mr. Hill. In the past two Congresses, Keith Ellison--now
the great consumer advocate and attorney general for Minnesota,
and a former member of this committee--and I had that exact
bill for Congress. It was a bipartisan bill that was called the
Credit Access and Inclusion Act, and I still promote it. I
still introduce it. I still support it. It has no bipartisan
support like it did in previous Congresses.
In fact, it passed on the House Floor, I think, on the
suspension calendar, and it allows a consumer to add their
utility payments or rental payments as a way to boost their
credit score.
Have you had a chance to look at that bill in the past, Mr.
Quan?
Mr. Quan. Yes, I have.
Mr. Hill. Is that headed in the right direction?
Mr. Quan. I think from a policies perspective, the answer
is, yes.
However, Congressman Hill, I also want to remind you that
the private sector is already innovating. Some lenders, mostly
venture-backed, are incorporating on-time payments, streaming
services, rent, et cetera, into their underwriting systems so
that more consumers can qualify for better rates.
Mr. Hill. So, you are saying the private sector is
innovating and actually offering that as a way for people to
have higher credit scores and more credit availability?
Mr. Quan. That is correct.
Mr. Hill. Gosh, that is good to hear. Well, I think it is a
good idea. It was a bipartisan idea, and I hope it will be a
bipartisan idea in this Congress as we proceed.
The flip side of this is, some of my friends on the other
side of the aisle in this Congress, while they like the idea of
additional data helping consumers, they have argued quite
vociferously what I think is an economically illiterate
concept, that actually, the government should prohibit negative
history on credit reports. Should the government say that CRAs
cannot give us negative credit information, Mr. Quan?
Mr. Quan. Maybe, I will answer your question another way.
We have all heard of this term GPA inflation, right, so, if
everybody gets a 4.0 in their GPA, and everybody gets a perfect
honors SAT score, how will schools decide whom they should
admit?
And it is the same thing here. If we suppress all of the
negative information in consumer reports, and everybody gets an
850 FICO score, the FICO score will be useless. No lender will
use the information whatsoever.
Mr. Hill. In the long run, it strikes me that that would
mean lenders would make mistakes and lend money to people who
possibly couldn't pay it back, and then they would have a
credit default, and their credit score would go down if people
had misleading credit scores. Isn't that a possibility?
Mr. Quan. Absolutely. You are absolutely right.
Mr. Hill. So in the long run, I think an idea like that
really hurts consumers and households. It reduces access to
credit, and possibly raises the cost of credit.
Could it also harm community banks that don't have fancy
upscale consumer underwriting systems like JPMorgan Chase?
Could that hurt the banks if they had a false reading on a
credit score when they offer consumers credit?
Mr. Quan. Not only for consumers, but also this is going to
have safety and soundness concerns. The banks cannot really
issue or loan out high-quality loans. Then the OCC, the
prudential regulator, will have concerns.
Mr. Hill. Thank you. I appreciate your time. We are for
safety and soundness of our banks on this committee. I yield
back.
Chairwoman Waters. Thank you.
The gentleman from California, Mr. Vargas, is now
recognized for 5 minutes.
Mr. Vargas. Thank you very much, Madam Chairwoman. I really
appreciate you bringing this issue before us. I especially
appreciate all of the witnesses today.
Consumers have to have more control over their data because
consumers are not the customers. As been said here today, the
interests are not really aligned with the credit reporting
industry.
Mr. Quan said that you need to treat the customers better,
or they are going to go elsewhere. The problem is that the
consumers are not the customers of the credit reporting
agencies. That is not the case here. That is why these
interests are not aligned.
Now, I wish we could get to a bipartisan solution. I do
think that this begs for a bipartisan solution. It has been
very difficult, I think, because so many of my colleagues and
friends on the other side have really been radicalized over
these last few years.
They attack the government and they point out every wrong
thing that the government does. And of course, everyone makes
mistakes. The government does, too. But they attack it
vociferously and anxiously and, really, sometimes heartlessly.
But it is interesting, the Social Security Administration
has all of our Social Security numbers. In fact, it has had
mine since birth. And to my understanding, they have never had
a breach, and they have held it very securely for years.
Now, I could be wrong about that, and there has been a
breach, but I don't think there has been, not that I am aware
of.
So it is sad that we can't get to a bipartisan solution,
and I do think that this begs for it. But again, the
radicalization that I see on the other side--they keep calling
everything socialism, communism, or whatever.
In fact, recently, one of the saddest things I have seen in
politics was, we had a very well-decorated military officer,
the Chairman of the Joint Chiefs of Staff, General Milley,
called, by the leading political commentator on the right, ``a
pig,'' and, ``stupid,'' just because he is an intellectual.
And what do I hear from my friends on the other side about
this? Nothing. Silence. This would have never happened 10 years
ago, and it certainly wouldn't have happened when Ronald Reagan
was in office, I can tell you. That is why it is harder and
harder to get to bipartisan. They think we are radicalized. We
are not. They are, and they have to change, and I hope they do.
Now, they also seem to overlook some of the data breaches.
I looked up--with just a very quick Google search, the biggest
data breaches of the 21st Century: Zynga, 218 million users'
accounts were breached; Yahoo, over 3 billion; NetEase, 235
million user accounts; MySpace, 360 million; My FitnessPal, 150
million; Marriott International, 500 million; LinkedIn, 165
million; Heartland Payment Systems, 134 million; Dubsmash, 162
million; and, of course, Equifax, 147 million customers.
You seem to overlook that and say the Federal Government is
terrible. They can't do this. They overlook the facts of all
these breaches.
So I wish, again, that we could get to a bipartisan
solution. Maybe we can. It shouldn't be so radicalized.
Mr. Greer, you previously stated that according to the
Consumer Financial Protection Bureau, about 15 percent of Black
and Latino customers are considered credit invisible, with no
trackable credit record.
So what additional information or alternative data or
additional data should be collected for these individuals to
have a more ample report, a better report, that really treats
them holistically?
Mr. Greer?
Mr. Greer. Thank you for that, Congressman Vargas.
Yes, and some of it I talked about in the testimony were
things that are painting the fuller picture of their financial
lives, things that they pay bills on regularly. And we are not
talking about taking data out. We are talking about adding data
like cell phone payments, utility payments, rental payments,
and again, the ability to opt in to doing that.
The other thing is I think we need to recognize that people
of color, Black and Latino, particularly immigrant populations,
cannot access credit markets, and if the credit bureaus
continue to weight current credit held as something that drives
credit decisions, the Black and Brown communities are always
going to be behind because we have been systematically held out
of accessing credit, which this committee has dealt with for a
long time and continues to deal with.
Mr. Vargas. Thank you. And again, I hope we do get to a
bipartisan solution. But the fever has to break on the other
side, and I hope it happens soon.
I yield back.
Chairwoman Waters. Thank you.
The gentleman from Georgia, Mr. Loudermilk, is now
recognized for 5 minutes.
Mr. Loudermilk. Thank you, Madam Chairwoman. I appreciate
everybody on the panel being here for this discussion. It seems
that this is a discussion that we quite often have, and it is
something for which I think we do need a bipartisan solution.
What my good friend, Representative Hill, proposed in the
past, I think, is a good starting point, if we could get some
buy-in from some of the members on the other side of the aisle
here as we once did.
One of the bills included for discussion in this hearing,
to me, is incredibly troubling, and it is the one that has been
discussed here of creating another government entity, one that
would be a government-run credit bureau.
The problem is I think this is based on the false
assumption that the government would do a better job of
handling consumer data and credit reports than the private
sector does.
We are in a period right now where the approval and trust
of government is at an all-time low. The American people do not
trust their government. They do not think the government
operates in their best interest and, in fact, a record number
of people believe that the government already has too much
control over their lives.
Now, adding another entity of government with even more
control over their lives would be counterproductive, in my
opinion, and in the opinion of many Americans.
If you think the consumers are frustrated with credit
bureaus now, I can only imagine what would happen if every
American had to deal with a bureaucracy equivalent to the IRS,
which has the lowest approval rating of all government. In
fact, if you remember, the IRS, while it does have some
accountability, supposedly, to this Chamber, to Congress,
engaged in targeting a certain group of people with audits just
a few years ago.
So, clearly, government doesn't always operate in this
vacuum where it doesn't consider politics. In fact, politics
becomes a very important part of government.
Every time someone would need to borrow money, apply for a
job, or rent an apartment, they would have to wait on the
Federal Government to respond. If you think that is a good
solution, look at the Veterans Administration right now and how
well they service our veterans with the backlog that they have.
I think this is a ridiculous solution to a problem. I think
that it has been brought up with the cybersecurity issues and,
yes, virtually every Federal agency has experienced a
significant data breach.
If you look at how much of our data is spread out across
various government agencies, we don't even have Federal
standards for data privacy. But yet, we want to expand the
operation of government. I think that is a bad situation.
Mr. Quan, can you elaborate on why the private sector,
while not perfect, is so much better-equipped to handle and
improve consumer credit reports than the government is?
Mr. Quan. Thank you, Congressman, for the question. As I
mentioned before, the best way to achieve equity in credit
access is through innovation and also a conducive environment
where innovation can flourish.
The private sector is already coming up with solutions to
address the problem. The public credit bureau doesn't add any
value to it because everything in the proposal about allowing
consumers to use more data in the credit scoring system is
already happening. We do not need the government to do the job
that the private sector is already doing. The private sector is
already innovating to allow more consumers to get access to
credit.
Mr. Loudermilk. I am going to ask another question that has
been asked in a different way. But, Mr. Quan, would removing
negative but accurate information from consumer credit reports
increase costs and reduce access to credit across-the-board?
Mr. Quan. That is absolutely right, because at the end of
the day, what we want is accurate and complete information.
``Accurate'' means that if it is positive, it should be there,
and if it is negative, it should also be there.
When we have that kind of information it is best for the
lenders to make the right decisions. And at the end of the day,
the cost of credit won't go down and the availability of credit
will go up.
Mr. Loudermilk. Mr. Quan, I do think that some improvements
should be made to the system such as adopting alternative data
and updating credit files more promptly. Can you comment on
those proposals?
Mr. Quan. Absolutely. I think sometimes consumers see an
error in a report where they already paid off the debt but it
has not been reflected in their credit score or credit report.
That is because furnishers are not sending out their real-time
information as frequently as they should be. So, again, I will
say that innovation can play a role here. If furnishers can
more frequently report the data, then the information for the
consumer can be more real-time, or as close to real-time as
possible.
Mr. Loudermilk. Thank you. I yield back.
Chairwoman Waters. The gentleman from Florida, Mr. Lawson,
is now recognized for 5 minutes.
Mr. Lawson. Thank you, Madam Chairwoman, and I would like
to welcome everyone who is testifying here on the committee.
This is a very important subject that we are discussing,
especially in dealing with consumer credit and how it affects
people who apply for jobs for their--in order for them to get a
job.
Ms. Traub, in your testimony before the Colorado Senate
Judiciary Committee in 2012, you stated that 6 out of every 10
American employers now look at job application credit reports
when hiring for some or all positions.
Employment credit checks have become commonplace among
employers who are looking for ways to predict if a candidate is
honest, if they have the ability to manage money responsibly,
and if they are likely to steal.
In your research, have you found any evidence of the
validity of this practice before the prevalence of using credit
reports in a hiring decision? If not, what is the harm in the
continued use of credit checks in employment?
Ms. Traub. Thank you, Congressman. I am aware of no proven
link between personal credit reports and either someone's
performance of a specific job or criminal behavior.
In fact, a spokesperson from TransUnion admitted, ``We
don't have any research to show any statistical correlation
between what is in somebody's credit report and their job
performance or their likelihood to commit fraud.'' And yet, we
still see a lot of employers, many employers across the
country, using credit checks as part of their hiring screening
process.
To answer your question about the harm of this practice,
the harm is that job applicants can be rejected for jobs that
they are very highly qualified for, and this is a loss for
employers who might be missing out on really excellent
employees because they are screening for a factor that is
irrelevant, and also, a huge loss for job seekers who might be
able to pay off their bills if, in fact, they were able to
secure work.
In the study you referenced that I conducted for Demos, we
found that one in 10 survey respondents who were unemployed had
been informed they would not be hired for a job because of
information in their credit report.
And we know that as a result of discriminatory policy,
Black and Latinx consumers are more likely to have poor credit,
as we have been discussing, than White consumers. So, checking
credit history can become just another covert, and perhaps
unintentional, means of racial discrimination in hiring,
compounding discrimination that happens in lending.
There is also harm, actually, when employers sometimes will
say, ``Oh, well, we ask people to explain the source of the bad
credit. We let them explain that.''
Medical debt is a major cause of flawed credit, as we have
heard today. No one should have to explain the details of their
cancer treatment or their child's struggle with drug abuse to
get a job. That is not relevant.
Similarly, divorce and domestic abuse are closely connected
with flawed credit. These are also matters that job seekers
shouldn't have to expose to a potential employer just to get a
job.
Mr. Lawson. It is very interesting, and the bill that I
filed deals with these restrictions and, really, I think it is
a bipartisan bill, because what you just said is not beneficial
to determine whether it is going to affect a person's job
performance.
As a little bit of follow-up, this restricting credit check
for employment decision, as a part of Ms. Pressley's
comprehensive package, the bill simply cracks down on a company
using credit reports when they hire a new employee. There are
two exemptions for national security purposes in instances
where credit checks are required by local, State, and Federal
law.
Bad credit does not always correlate, as you say in your
statement, to proof of job performance. We have all made a poor
financial decision. I know I have before, and we need to stop
punishing people and start helping people move forward.
And I really think that this is a great thing to do, and I
represent a community in which a lot of students get out of
school and try to get jobs and so forth, and run into these
types of situation, and it really keeps them from doing what
is--well, my time is running out, so I yield back.
Mr. Auchincloss. [presiding]. The gentleman from Ohio, Mr.
Davidson, is now recognized for 5 minutes.
Mr. Davidson. I thank the chairman. And I thank our
witnesses. I appreciate your attention to this matter, and
frankly, I appreciate the Majority for calling attention to the
power that credit reporting agencies have over our lives, and,
I think, rightly recognize that there are problems when a
credit reporting agency can effectively block people from
access to banking, access to credit, all kinds of things.
And I think that is really why we should be especially
cautious about giving even more power to the Federal
Government. The Federal Government has not been a trustworthy
wielder of its power.
Historically, the government has used its power to engage
in practices that are abusive, things like redlining, where
bank regulators have done that. Most recently, Operation Choke
Point was kind of a different version of that.
But, sadly, there is a long history in our country of
somebody saying, effectively, you are not going to bank those
people, are you?
Now, who those people are has changed over time, but we
should be using the power of government to stop that, not
enable it, and that is, I think, what would happen here.
In fact, that is the goal of China's effort to use their
power of their government to decide who gets credit, and in the
opinion of their government, they are just making sure the
right people get credit.
But the reality is that they are using it as a means of
control. They are using their whole financial system as a means
of control, particularly with what they are doing to Uighur
populations.
But they are doing it to anyone who would speak ill of the
government or any of their leaders, or who wouldn't comply with
other norms.
In fact, if they cross China's version of their woke heresy
code, they are, effectively, canceled. And we read this in all
sorts of dystopian futures where people who are on the wrong
side of the power structure are denied access to the financial
sector.
And, thankfully, Fintech is offering alternatives to more
power for more government. Fintech is truly creating this with
payment systems, with crypto currencies, and with distributed
ledger technology, in particular. It is also more secure.
Ms. Traub, in your testimony, you lay out the case for a
public credit registry. You break your argument down into seven
supposed benefits this social system would bring.
One of them, you claim, is that the government would offer
enhanced data security. You go on to state that, ``Americans
already trust their government with extensive personal
financial information through the Internal Revenue System,
which has a strong record of data security.''
First of all, Americans don't really trust the IRS. I think
that is a gross mischaracterization. In fact, if you don't
trust them, you go to jail. So, that is a bad system. And
second, they have also been breached.
So Mr. Vargas, yes, they have been breached, most recently
for 720,000 taxpayers who had their Social Security numbers
stolen by hackers. And that is without accounting for what has
been compromised but hasn't even yet been measured by the
SolarWinds hack.
What we know is that true blockchain enables a much more
secure architecture. We know that our current cybersecurity
systems are broken at the government level, and at the private-
sector level, and reinforcing the same failed systems with more
power for those that keep implementing them is inherently
flawed.
Mr. Quan, I am curious if you could comment on the dangers
of this consolidation of reporting, maybe with respect to what
China seeks to do and how Fintech today offers alternatives?
And before you answer, could you also comment on how the
current system, in a way, is rightly criticized because we have
privatized profits and have socialized risks, so some of the
reforms on liability are important?
Mr. Quan. Thank you, Congressman.
I think you are absolutely right in your statement that
when we have a government-run credit bureau, consumers will
surrender their rights to the government to decide who is
creditworthy, who can get access to credit.
So, this is another bad situation for anyone. The best way
is, as flawed as we think the credit system is today, it is
still best handled by the private sector.
And I also want to mention that our system is not
fundamentally broken. Otherwise, we would not have the most
competitive and the largest credit market in the world. So,
let's reform the system.
Mr. Davidson. Good points. My time has expired. I think
that your point is well-taken, and I yield back.
Mr. Auchincloss. The gentlewoman from North Carolina, Ms.
Adams, is now recognized for 5 minutes.
Ms. Adams. Thank you, Mr. Chairman, and to Chairwoman
Waters and the ranking member, thank you for hosting the
hearing. Thank you to the witnesses as well.
One of the common themes that we heard today is the
incredible damage that inaccurate information can wreak on an
individual's life and that is why the TransUnion case that we
heard so much about is so disconcerting.
Mr. Ejaz, according to the study that you conducted for
Consumer Reports, 34 percent of volunteers identified at least
one error on their credit report, and per the CFPB, of the
nearly 300,000 credit reporting complaints they received in
2020, over two-thirds involved incorrect information on their
credit report.
So, Mr. Ejaz, and then Mr. Greer, can each of you briefly
describe the impact of inaccurate information on consumers'
credit reports?
Mr. Ejaz. Sure thing, and thank you for your question.
Inaccurate information on credit reports can do a variety of
things for consumers. First, if it is inaccurate personal
information, while it may or may not impact their credit score,
it can make it difficult for consumers to verify their identity
with credit reports.
And in our survey, this is actually what we found. Around
10 percent of folks who filled out our survey said they found
it to be difficult or very difficult to access their credit
report and that is because when you go to check your credit
report, you have to verify your identity with the credit
bureaus. And if the bureaus' design security verification
questions based off of the information that is on your report,
and if that information is inaccurate, those questions can be
unanswerable, and that is what some folks had found.
But even more serious than that are the 11 percent of
folks, of volunteers who filled out our survey, who found
account-related errors. These are errors that can impact your
credit score.
And as we have discussed at length today at the hearing, a
low credit score can keep you not just from affordable credit
but also access to employment, affordable homeowners and auto
insurance rates in some States, and housing. And I am sure Mr.
Greer can follow up.
Ms. Adams. Mr. Greer, do you want to add to that?
Mr. Greer. Sure. Before I do, I want to mention that I do
want to thank Congressman Davidson for acknowledging the harms
that the Federal Government has done to Black and Brown
communities. He referenced redlining.
But what I do want to note, and it is a difficult thing
that we cope with, but what the government also did was it
passed the Fair Housing Act, because it has a role in
protecting the rights of people. And I think the conversation
today about the bureau is a perspective that people have on the
government's role in also protecting people's rights.
As it relates to inaccurate information, I agree. I don't
have a lot more to add to what the other witnesses said, other
than that when these--one thing I think it is important to note
is that communities of color often have fewer resources
available to them to fight back against powerful corporations
when it comes to setting the record straight on what is in
their credit report.
I just want to acknowledge that, and that if we are talking
about a system that is truly equitable, we are addressing the
capacity challenges that communities of color face compared to
others when disputing inaccurate information.
Ms. Adams. Okay. Thank you. I thank both of you. And that
is why I proudly introduced H.R. 4113, the Improving Credit
Reporting for All Consumers Act. I think it would really,
really help.
So, Mr. Greer, what do you think should be done to ensure
that consumers receive a resolution to errors or inaccuracies
that they dispute?
Mr. Greer. I am not going to spend a lot of time on this,
because I think Chi Chi has some really good ideas, and Amy as
well. But I do think that some accountability for a real
answer--it was referenced how long people might have to wait if
the government were in charge.
Well, people are waiting today, a long time, to get
resolution on their credit disputes. So, I will just leave it
at that, and leave it to other witnesses who may want to weigh
in on that.
Ms. Adams. Okay. Ms. Wu?
Ms. Wu. Thank you, Congresswoman. Thank you for the
question. The credit reporting dispute system is broken. It is
biased. It automatically rules in favor of creditors and debt
collectors when there is a dispute.
Consumers need a right of appeal. They need a higher power
to go to when they can't get relief for errors. What your bill
does would be a wonderful idea of creating a right of appeal
within the credit bureaus, an independent unit so that
consumers, when they are not satisfied, it also provides for
injunctive relief, as I said earlier. That would allow them to
go through the courthouse doors and ask a judge to please order
the credit bureau to fix their report.
Ms. Adams. Thank you very much. And, Mr. Chairman, I am
going to yield back about 10 seconds, and I will just pass that
on to the next person. Thank you.
Mr. Auchincloss. The gentleman from West Virginia, Mr.
Mooney, is now recognized for 5 minutes.
Mr. Mooney. Thank you, Mr. Chairman.
Mr. Quan, I would like to address the proposal from the
Democrats to create this government-run consumer credit agency
under the Consumer Financial Protection Bureau (CFPB), an
organization which has many challenges of its own including its
very existence.
I have a long list of concerns with a government-run
consumer credit agency. If this proposal were enacted, the
Federal Government would be responsible for keeping records of
billions of consumer transactions. That is an enormous
responsibility.
So, Mr. Quan, you outlined concerns with putting so much
sensitive personal information in the hands of one government
entity in your testimony. Can you talk about the risk of cyber
attacks associated with having one sole public credit reporting
agency?
Mr. Quan. Thank you, Congressman, for the question.
You are absolutely right. TransUnion has about 3.1 billion
tradelines in their database, and the other two agencies
probably have a similar number of tradelines. So, this new
government agency will house all of these tradelines, trillions
of bits of information, and they are inviting cyber attacks.
If consumers are not convinced that the private sector is
doing a good job in protecting their data, there is no reason
for us to believe the government is going to do a better job of
protecting their data.
Mr. Mooney. Okay. Thank you, Mr. Quan.
A centralized credit reporting agency would be a target for
cyber attacks that could jeopardize sensitive information for
our constituents.
Additionally, hackers and criminals will use any
technological advantage they can to steal sensitive
information. There is no way that a government agency would be
better equipped than the free market to use the latest
technology and stay ahead of cyber incursions.
Furthermore, putting consumer credit reporting solely in
the hands of the Federal Government has far-reaching
implications. Credit reports contain sensitive personal
information, and credit scores have tangible power over our
lives as consumers.
I am very concerned that creating a public consumer credit
bureau would be an enormous concentration of power in the hands
of the Federal Government.
That kind of power could be mismanaged by a reactionary
bureaucracy, whereas free market competition incentivizes
looking forward, anticipating the needs for consumers in
advance.
So, I agree with Ranking Member McHenry in his earlier
comments where he mentioned that competition and choice for all
consumers offers the best path forward. We do not need another
government takeover of an industry.
That is reminiscent of a socialist-run country, not
America. I know that is an agenda for many on the other side of
the aisle to socialize this country. That does not work well.
That has been shown.
Rather, I would actually quote Ronald Reagan, who once
said, ``Government is not the solution to our problems.
Government is the problem.''
And with that, I yield back.
Mr. Auchincloss. The gentleman from New Jersey, Mr.
Gottheimer, is now recognized for 5 minutes.
Mr. Gottheimer. Thank you, Mr. Chairman, and thank you to
our witnesses for being here today.
Each year, 15.4 million Americans are victims of credit
card fraud, around 42,000 people every day. The FTC has found
that one in five consumers have verified errors in their credit
reports, and one in 20 consumers have errors so serious they
will be denied credit or forced to pay higher interest rates.
That adds up to 42 million Americans with errors in their
credit, and another 10 million with errors that can be life-
altering. As the nation continues our economic recovery, and
Americans get back to work, and our lives return to normal, I
think we can all agree that it is more important than ever that
all Americans have access to credit. Crucial to this access is
accuracy in credit reporting.
Ms. Wu, one of the most common errors in credit reporting
is data being mixed up between consumers. What do you believe
drives these errors and what steps should credit bureaus be
taking to lower them?
Ms. Wu. Thank you for the question, Congressman.
The problem with mixed files stems from matching criteria--
how you match a consumer to a file at a credit bureau. A lot of
people have the same names--John Smith, Jane Doe.
The unique identifier is the Social Security number, but
the credit bureaus match based on seven out of nine digits or
they do partial name matches, or, in the case of Ramirez v.
TransUnion that we have been talking about today, they used
name only. They matched based on name, and you can imagine that
a lot of people have the same name, especially minority
consumers.
So, what you want to do is tighten up that criteria. Match
based on all nine digits of the Social Security number. Make
sure you match on something like Social Security number and
date of birth, and that is what you need to do and that is what
your bill does.
Mr. Gottheimer. Thank you, Ms. Wu.
I believe that fixing these errors is less about someone
with an incorrect report receiving a monetary reward and more
about actually fixing the reputation and whether the financial
system views them as trustworthy or not. However, the FCRA does
not give consumers the right to injunctive relief to fix errors
to their credit reports.
Ms. Wu, do you believe that consumers should have access to
injunctive relief to remedy errors in their credit reporting
file to increase accuracy? And how might we convince more
stakeholders to support access to injunctive relief so
consumers can fix these errors?
Ms. Wu. Absolutely, Congressman. That is an important
insight. Injunctive relief is critical. Because at the end of
the day, what consumers want is they want their credit reports
fixed and they want it done right, and because of the Ramirez
v. TransUnion decision, they can't even get through the
courthouse door unless the information is hanging out there and
complete strangers see it.
But injunctive relief could get them the right to go
through a courthouse door and ask the judge, to ask the credit
bureau to, ``Fix my credit report, please.'' Because basically,
at the end of the day, that is what they want.
Mr. Gottheimer. Thank you. One year ago today, as you
brought up, in the last Congress, the House passed bipartisan
legislation, the Protecting Your Credit Score Act.
This legislation would create an online portal to provide
consumers with unlimited free access to their credit reports
and credit scores, the ability to freeze their credit, the
ability to easily dispute errors and fraud, and the ability to
secure and track their data, all to boost transparency and to
help Americans secure their financial health.
This legislation was needed then and it is clear it is
still needed now.
I just want to thank all of the witnesses for being here
today. I appreciate your work. I yield back.
Mr. Auchincloss. The gentleman from Tennessee, Mr. Kustoff,
is now recognized for 5 minutes.
Mr. Kustoff. Thank you, Mr. Chairman, and thank you to the
witnesses for appearing today.
Mr. Quan, I ask this in part because my district is partly
rural. In 2018, the CFPB published a report entitled, ``The
geography of credit invisibility.'' It examined the
relationship between geographic location and credit
invisibility.
I am summarizing but, essentially, the report found that
rural areas had the highest proportional rate of credit
invisibility compared to other geographic areas.
Could you give me your opinion, Mr. Quan, on what are the
primary reasons for the high level of credit invisibility in
rural areas?
Mr. Quan. Thank you, Congressman.
I think you are absolutely right about these findings. I
think it is very unfortunate that people living in rural areas
have challenges accessing mainstream credit as a result, and
this is really a catch-22. You have to have credit in order to
build credit. If you don't have credit, you cannot build
credit.
So, how do you start? One way the private sector comes up
with is a system or a new algorithm that allows lenders to use
nontraditional data sources such as rent payments, utility
payments, and teleco payments.
If that information can be used, we have seen some early
evidence that consumers' credit scores can get a boost from the
addition of this new information. So if more lenders are using
this new source of data, I believe this problem will be--I am
not sure it will be 100-percent addressed, but it will be
addressed.
Mr. Greer. Mr. Kustoff, could I address that question?
Mr. Kustoff. Let me follow my train of thought. If I could,
Mr. Quan, and maybe you just said this, but in your written
testimony, you talked about the potential of new algorithms,
also known as alternative data, and how that could benefit
customers. Do you think that the use of that alternative data
can help increase credit visibility in, specifically, rural
communities?
Mr. Quan. The answer is absolutely, yes. We have seen some
early evidence that the newer scoring algorithm, whether it is
from Experian Boost or UltraFICO, is exactly doing what you are
hoping these new algorithms are doing.
But also lenders, especially those venture-backed lenders,
are using cash-flow data without even going through FICO scores
to really factor into these new data sources to help increase
the chances of consumers to qualify for credit.
Mr. Kustoff. Thank you, Mr. Quan.
Mr. Ejaz, first of all, I want to tell you that I rely on
Consumer Reports often for my product reviews for cars, and I
cite it often. So, I appreciate the work that you all do at
Consumer Reports.
As a general rule, under the current system, does Consumer
Reports recommend credit freezes for individuals?
Mr. Ejaz. We recommend that consumers take advantage of
credit freezes when they fear that their identity may have been
stolen.
Mr. Kustoff. Would you recommend it or does Consumer
Reports recommend it as a general rule to people?
Mr. Ejaz. Yes. They should take advantage of credit
freezes.
Mr. Kustoff. And if I can maybe follow up and take it one
step further, does Consumer Reports have a position about
credit freezes for minors, in other words, those under the age
of 18 who may or may not have credit files? I suppose they have
some profile with the credit reporting agencies.
Mr. Ejaz. I can get back to you in writing about
specifically that part. We do recommend that consumers,
especially after the Equifax hack, check their credit report
and also assess their financial life, and if they fear that
their identity has been stolen and, people have been opening
credit accounts in their name, to take advantage of security
freezes.
Mr. Kustoff. And taking that one step further, and this may
be something else you need to get back to me on, is whether
Consumer Reports has any thoughts, under the current system if
somebody 18 years or older wanted to get a credit freeze, is
there a process through the three credit agencies, their
websites, where they can enact a credit freeze online.
That is not true for those who are minors. There are
additional steps, and I would be interested whether--again,
under the current system, whether Consumer Reports has any
guidance or any recommendations for parents of minors who want
to try to get credit freezes. Is there an easier way to do it,
or should there be an easier way to do it with the three
agencies?
And with that, I will yield back. Thank you.
Mr. Ejaz. Thank you.
Mr. Auchincloss. The gentlewoman from Massachusetts, Ms.
Pressley, is now recognized for 5 minutes.
Ms. Pressley. Thank you very much, Mr. Chairman, and thank
you to all of our witnesses for sharing your expertise today.
In this country, our credit reports are our reputations.
They determine where you can live, where you can work, and how
much it will cost you to finance everything from a car to a
college degree.
But our credit reporting systems are fundamentally flawed.
They are rife with inequities and disparities which stifle the
upward mobility of millions of workers and families. The
pandemic and the economic hurt it has wrought has only further
shed light on the ways in which our credit reporting systems
are a flawed measure of financial health.
In fact, despite the devastating financial hardship that
families and communities have faced over the past year-and-a-
half, national credit score averages have increased to record
highs.
Ms. Wu, can you speak to this paradox, and why it
underscores the need for Congress to extend payment pauses and
other financial protections established throughout the course
of this pandemic?
Ms. Wu. Thank you, Congresswoman, for the question. It has
been an interesting paradox. Despite the economic devastation
of COVID-19, credit scores have not plunged, and there are
several reasons for that.
Number one, of course, is the stimulus and Federal
unemployment benefits. You give people money, they are able to
pay their bills. Their credit scores stay high, which shows
that credit scores are really about economics, and not moral
responsibility, as some may put it.
Another reason credit scores have held up is the
protections in the CARES Act for things like forbearances,
student loan pauses, and credit reporting protections when
creditors do agree to accommodations.
Again, these are very important, but they are about to
expire. Like the eviction moratorium, they are about to expire,
and millions of consumers will no longer have their
protections.
And so, it is really important for consumers to come out--
coming out of forbearance is to have the right to have loan
modifications so that this doesn't hurt their credit profile
and put them at risk of foreclosure.
Student loan protections are about to expire. Millions and
millions of consumers are going to have to start paying that
again. It is going to be a problem and a struggle, which is why
student loan forgiveness is so important.
Ms. Pressley. Thank you, Ms. Wu.
So, how much financial damage would you say we avoided
because of these protections?
Ms. Wu. I think we avoided a great deal of financial
disaster, especially for low- and moderate-income persons. This
has been a K-shaped recovery. The folks here have done okay. It
is the folks there that we need to protect.
We need to protect renters because they still owe the back
rent. The moratorium kept them from being evicted, but they owe
the back rent, and eventually that will show up in the form of
debt collection items.
Ms. Pressley. Thank you. There is no doubt that these
protections did help prevent many from being pushed further
towards the brink. So we must act to extend these protections
to ensure an equitable and just economic recovery.
But we also have to work to advance bold, sweeping, and
systemic reforms to our credit reporting system. Reforming our
credit system is, I think, an issue of both racial and economic
justice, which is why I was so proud to reintroduce the
Comprehensive CREDIT Act, a package of reforms that will
overhaul the credit reporting system and provide much-needed
relief to workers and families across our country.
This bill would restrict the use of credit scores for most
hiring decisions. It would ban the reporting of any debt as a
result of medically-necessary procedures, and establish a
credit rehabilitation process for private student loan
borrowers facing hardship.
Ms. Wu, in light of the ongoing economic challenges facing
our families as a result of the pandemic, why are these reforms
particularly timely?
Ms. Wu. Thank you, Congresswoman, and thank you for
reintroducing the Comprehensive CREDIT Act. It is bsolutely
critical and important, and the COVID-19 pandemic shows that
because it is average credit scores that have stayed afloat,
but there are going to be people in that downward slope of the
K who have had their credit profiles hurt, and those folks
should not be shut out of jobs because of this credit damage.
The time limits for this negative information should be
shortened from 7 years to 4 years, which is something else your
bill does. And for people who got COVID and are left with these
huge medical bills--the New York Times has documented all of
these patients with huge medical bills. Those medical bills
should not impair their credit reports and hurt them
economically for years to come.
Ms. Pressley. It is absolutely clear that our workers and
our families can no longer afford inaction with our broken
credit reporting system.
Thank you, and I yield back.
Mr. Auchincloss. The gentleman from Indiana, Mr.
Hollingsworth, is now recognized for 5 minutes.
Mr. Hollingsworth. Good afternoon. I appreciate all of our
witnesses being here. We have a lot to get through, so I hope
everybody can keep their answers relatively short.
Ms. Wu, I have certainly appreciated many of your
responses. Your passion for these issues can be seen even by a
casual observer.
You mentioned in your written testimony that we should, and
I think I am quoting here, ``restrict the use of credit
reporting information in rental housing and ban it for
insurance.'' I wondered if you might expand on that. I know
that is not the main point of your testimony, but certainly,
that sentence stuck out to me.
Do you think that credit report information for insurance
is not predictive or why would we want to ban that?
Ms. Wu. Thank you for the question.
The use of credit scores in insurance is just simply
illogical. What does your credit record have to do with your
driving record? There is really just no causation.
Now, there is a correlation, but correlation does not make
causation. And we also know, as the other witnesses have
pointed out, that there are massive racial disparities in
credit scores. So, the use of credit scores in insurance also
results in Black and Brown drivers having to pay a lot more for
insurance.
Mr. Hollingsworth. Ms. Wu, is it your assertion that credit
reporting has no predictive power and is simply a proxy for
race, because an abundance of research indicates the exact
opposite of that. And I would imagine these insurance companies
are interested in getting the most predictive power possible
for the risks that they are taking, but not including these,
just by virtue of being proxies for race, but instead, because
they are valuable indicators in potential risk, going forward.
Ms. Wu. Again, it is about correlation. People with
impaired credit, for example, their finances may be more
constrained, so they may be filing claims more often. People
with more resources, maybe if they get into a fender-bender,
they don't put in a claim, because they can pay a few hundred
dollars out-of-pocket. But people with more constraints on
their finances, who may have lower credit scores, may need to
file a claim, because they can't afford to do that. It is
correlation.
Mr. Hollingsworth. Ms. Wu, I guess just to summarize there,
because I was trying to understand the argument, your statement
is that they may cost the insurance company more, but the
insurance company should be prohibited from underwriting the
potential risks that they are going to have higher payouts on
account of writing that policy?
Ms. Wu. The way insurance works is that consumers should be
able to file claims when they have an accident.
Mr. Hollingsworth. For sure. No one doubts that.
Ms. Wu. And so, they shouldn't be penalized for that, and
there is also this idea that credit is supposed to be some
measure of moral responsibility.
Mr. Hollingsworth. No one talked about that.
Ms. Wu. We know from the pandemic that is not true.
Mr. Hollingsworth. Ms. Wu, I did not say that. I have never
said that.
Just for clarity, I absolutely agree with you that people
should be able to file claims. But I disagree with the notion
that somehow the potential loss for the writ insurer should not
be a part of the risk that they are underwriting in doing that
policy, correct or incorrect?
If there are going to be higher claims in the future for
whatever motive or reason there may be, they should be able to
charge more for the premium for writing that particular
insurance; that is how insurance works.
Ms. Wu. But these are folks who haven't filed a claim yet.
By that logic, insurance should be rated on income, because
people who have less income might be more likely to file
claims.
Mr. Hollingsworth. For clarity, that is why it has
predictive power, because they are trying to predict what their
potential losses might be and, thus, match the risk with the
price that they are charging. The FTC and Georgetown University
have done their own research into this and found that credit
scores actually are predictive, and not a proxy for race, as I
mentioned.
I know that this hearing and other hearings have mentioned
the University of Michigan study, which is entitled, ``Auto
Insurance and Economic Mobility in Michigan: A Cycle of
Poverty,'' and have used that as a rationale for banning credit
score data in auto insurance underwriting. Frequently, what is
referred to is Detroit being at a much higher cost to insure
cars than other States, however, all of the other States that
are compared also use credit scoring. So, there is nothing
unique about the use of credit scores in Michigan versus other
States that would lead us to believe that is the problem in
Michigan, where insurance costs are much higher.
Instead, what study after study has found is that it is
predictive in the potential loss for insurance, and insurance
companies are charging for the risks that they are taking, and
in taking more risks, they have to charge more.
And with that, I will yield back my time.
Mr. Auchincloss. The gentleman from New York, Mr. Torres,
is now recognized for 5 minutes.
Mr. Torres. Thank you, Mr. Chairman.
In TransUnion v. Ramirez, the Supreme Court, in an act of
judicial usurpation, held that the courts, rather than
Congress, ought to decide which legal rights are enforceable in
Federal court and which harms are concrete enough to establish
Article III standing.
My first question is for Ms. Wu. To what extent does the
Court's recent decision in TransUnion v. Ramirez undermine the
enforceability of the Fair Credit Reporting Act?
Ms. Wu. Thank you for that question, Congressman.
The Supreme Court's decision in TransUnion v. Ramirez
really undermines the ability of consumers to seek redress in a
court for credit reporting errors. It basically says that the
fact that there is an error, no matter how bad--and being
accused of being a terrorist is a pretty bad error--you can't
go to court unless a creditor, or an employer, or someone else
has actually seen it, and your reputation has already been
besmirched by the error.
Mr. Torres. And what can and should Congress do to
strengthen the Fair Credit Reporting Act in light of the
Supreme Court's decision weakening it?
Ms. Wu. Congress can and should act to address Ramirez by
passing the right to seek injunctive relief under the Fair
Credit Reporting Act. Even though the Ramirez decision rested
on constitutional grounds, it left open the possibility that if
you are asking a court for injunctive relief, you may be able
to show standing, because you are trying to prevent the risk of
harm of having a credit report with this terrible error in it
being shown to third parties.
Mr. Torres. I am one of four Representatives of the Bronx,
where 30 percent of residents have no credit history. I have
constituents who have been paying their bills in full and on
time for decades, constituents who have shown themselves to be
objectively creditworthy, but none of that is captured in
traditional credit scoring models.
If we had credit scoring models that consistently captured
alternative data, do we have a sense of how much more of the
population would have a credit history and a credit score?
Mr. Ejaz?
Mr. Ejaz. I am not aware of what that difference would be.
I am happy to look into it and follow-up in writing. But it is
definitely a significant issue.
Mr. Torres. And Ms. Wu, I know the National Consumer Law
Center has concerns that alternative data, if applied
improperly, can do more harm than good. Can you share your
thoughts on how to harness the power of alternative data to
produce greater access to credit, without doing more harm than
good?
Ms. Wu. Yes. Thank you, Congressman.
It depends on what data you are using and how it is used.
Rental data, as you pointed out, can be helpful, can be
promising, as long as there is consumer choice; again, consumer
choice is key, because there are 10 million Americans who are
behind on their rent, and they may not want their rental
information put into the system. But tenants who have been
paying regularly on time and don't have that concern should be
able to opt-in.
We do have concerns about gas and electric, utility-payment
data, because I am from Massachusetts, and you are from the
Bronx, and those winter bills can get pretty high and people
can get 30 or 60 days behind, so that could hurt them. But,
again, consumers can have the choice if they want to opt-in,
because if they don't have those negative marks, they should be
able to opt-in to the system.
So, it is always about consumer choice, as well as having
alternative scores that are sort of second chance, instead of
feeding the information into the credit bureaus wholesale,
where it might hurt some people.
Mr. Torres. And in addition to an opt-in requirement, could
there be a requirement that only favorable alternative data be
reported, because obviously, a bad credit history would be
worse than none at all.
Ms. Wu. Yes. Positive data certainly would be helpful. And
as some of the other speakers, witnesses have pointed out, the
negative data shows up in the form of debt-collection items
already. So, mandating the positive data would be helpful and
would balance that out.
Mr. Torres. And what do you think is the single, most-
important thing we can do in Congress to ensure that everyone
has a credit score and a credit history?
Ms. Wu. I think giving consumers the choice to have it
included would be the single, most-important thing.
Mr. Torres. I see my time has expired. Thank you.
Mr. Auchincloss. Does the gentleman yield back?
Mr. Torres. I yield back. I surrender.
[laughter]
Mr. Auchincloss. The gentleman from Ohio, Mr. Gonzalez, is
now recognized for 5 minutes.
Mr. Gonzalez of Ohio. Thank you, Mr. Chairman, and thank
you to the witnesses for their testimony.
First off, let me start by saying I think we do need to,
more critically, look throughout our committee about how to
expand access to credit and banking services; without each, it
is difficult for low-income Americans to achieve financial
success. I have said that, I think, since one of our first
hearings last Congress, when we had the agencies here.
And I do think that we need more innovation, and we need
more competition, and we need a healthier credit space, for
sure. That said, the bill that we are being asked to consider,
I am hard-pressed to find a worse idea, frankly, than to
federalize and, ultimately, socialize credit reporting in this
country.
Unfortunately, it is sort of part and parcel for our
friends on the other side of the aisle who like to solve a lot
of pressing issues, which is, if you don't like what is
happening, just have the Federal Government take it over and
see what happens. We know that typically doesn't work very
well. It is less secure, with far less innovation, and
ultimately, I would argue, lead to worse outcomes economically.
But I will ask Mr. Quan for his thoughts on some of those
things. Mr. Quan, what sort of impact do you believe creating a
Federal reporting agency would have on innovation and
investments into new technology by the private sector to
promote access to credit?
Mr. Quan. Thank you, Congressman, for the question.
You already hit the nail on the head. When the government
gets involved, the new credit bureau, backed by the government,
will be backed by unlimited taxpayer revenue. So, the private
sector cannot compete; as a result, innovation will disappear
naturally.
And as we all know--this is Economics 101--government
involvement will crowd out private investment and all of the
innovations we are seeing today, the innovations I have
mentioned, whether it is the UltraFICO score or Experian Boost
or the cash flow based on underwriting, will disappear. And
there is no evidence the government is doing a better job or
can do a better job in adopting or developing new technologies
to improve access to credit.
Mr. Gonzalez of Ohio. Thank you. I couldn't agree more.
Based on the conversations that I have had with my
constituents, customer service across the different Federal
agencies isn't necessarily a strong suit of the Federal
Government. I think today, right now, for example, those who
are waiting for passports are completely out of luck because of
the backlog. We have been solving passport issues for a long
time and this is the worst that our office has ever seen it.
That is just passports.
But what is your assessment of the ability of the Federal
Government to operate a credit reporting agency and the likely
customer service implications for such a project?
Mr. Ejaz. Again, you have already given a very good
example, using passports. The CFPB's customer complaints
portal, I think the witnesses have mentioned, is in the range
of 300,000 to 400,000 customer complaints related to credit
reporting. But in reality, the CRA is receiving far more than
that; they are receiving millions, not just complaints, but
disputes.
And there is no reason for me to believe the government,
which has no expertise or any kind of experience to handle that
kind of complaints volume, what we are going to end up having
is a system that is probably going to be worse than what we
already have now.
Mr. Gonzalez of Ohio. So, less innovation, less
competition, worse service. Sounds great, guys. I am really,
really excited about this bill.
Final question, in your testimony, you mentioned concern
over future data breaches at the credit reporting bureaus. I
agree, we have seen that in a lot of different sectors of the
economy. And there is no reason to believe that this isn't
going to continue, unfortunately.
In your estimation, what more should Congress be doing to
prevent another significant breach of a credit bureau?
Mr. Ejaz. I believe that credit bureaus should be held to
the same standard as financial institutions. For example, if
you are a critical service provider to financial institutions,
you are examined by the credential agencies under the Bank
Service Company Act. We should have a similar regime that
applies to the credit bureaus.
I am not saying having Federal supervision will permanently
fix the cybersecurity issue; the cyber risks will always be
there. But without appropriate Federal supervision, I am just
not confident that consumers will feel confident that their
data is secure with private sector bureaus.
Mr. Gonzalez of Ohio. Thank you.
I see my time is up, and I yield back.
Mr. Auchincloss. The gentlewoman from Pennsylvania, Ms.
Dean, is now recognized for 5 minutes.
Ms. Dean. Thank you, Mr. Chairman, and I thank our
witnesses for your important information today.
I would like to follow up on Mr. Scott's questioning
earlier during this hearing about student loan debt,
particularly, private student loan debt. Many borrowers remain
trapped in abusive or predatory lending arrangements and credit
agencies still view this as bad debt, hurting the future
economic horizons for those borrowers. I am a former professor,
so I care an awful lot about student debt.
Ms. Wu, in your testimony, you speak about consumers being
unfairly penalized in their credit reports when they are
victims of student loan abuses. Can you describe that situation
more specifically to us, and provide us with an example of how
that has long-term consequences?
Ms. Wu. Thank you for the question, Congresswoman.
Yes. So, private student loan debt is certainly a problem
and it is a problem that affects Black and Brown borrowers
disproportionately. Unfortunately, it is also tied to the issue
of for-profit schools and other institutions that take
advantage of Black and Brown students, promise them the sun and
the moon, give them substandard educations, and then saddle
them with private student loan debt, which ends up on their
credit reports, maybe as defaults and delinquencies or just a
lot of unmanageable debt. And, unfortunately, the student loan
pause from the CARES Act also didn't help private student loan
borrowers.
The Comprehensive CREDIT Act does have some provisions to
help with private student loan debt in terms of rehabilitating
those, but certainly, the credit reporting consequences are
only one part of that.
Ms. Dean. That is what I was going to follow up with, Ms.
Wu. We know that during COVID-19, the pandemic, many private
student loan borrowers did not get any relief. So, I do lift up
Ms. Pressley's Comprehensive CREDIT Act.
Could you describe how the lack of that economic relief has
impacted private student loan borrowers?
Ms. Wu. Unlike borrowers for Federal student loans, private
student loan borrowers have had to keep paying those loans.
Federal student loan borrowers have had a pause and suspension
of their obligations. So, those private student loan borrowers
who have suffered economically during the COVID-19 pandemic,
either still have to pay their loans or have negative items on
their credit report from not being able to pay because of the
economic fallout of COVID-19. And this could follow them for
another 7 years.
Ms. Dean. Exactly. It is such an obvious inequity. We treat
one set of student borrowers one way and another set, in an
economic collapse, another way.
Ms. Traub, I am going to try to fit in a question, if I
may, with you. I appreciate your testimony that credit
reporting is part of infrastructure. It is a resource needed to
fully participate in society.
And while credit reporting does not take race into account,
can you describe how systemic racial inequities fail to allow
equitable access in this essential infrastructure? Can you give
us a little more on that topic that you offered us in your
testimony?
Ms. Traub. Thank you, Congresswoman.
We can look at where credit discrimination comes from,
because you are right that credit scores and credit reports
never, explicitly and directly, take race into account. But we
know for decades we had economic policies in this country that
enabled White families to build wealth but excluded Black and
Brown families.
Wealth is passed down over generations, and access to that
generational wealth shapes our behavior. It shapes people's
borrowing and payment behavior today. And so, people without
access to generational wealth need to borrow more to go to
college, to buy a home, sometimes, just to make ends meet. And
then, there is also ongoing discrimination. So, it is not a
surprise, really, that we see racial disparities turn up in
credit reports.
And I want to be clear that we need to fix a lot more than
credit reporting to achieve racial equity, but fixing credit
reporting, I believe, would improve one system that spreads
inequality every time that it is used.
Ms. Dean. I appreciate that.
Would anybody else like to speak to that issue of systemic
racism in the credit reporting system, as we say, not
explicitly, but implicitly?
Mr. Greer. Yes. Thanks for that.
I would just like to emphasize the point that she made that
there are systemic and historical barriers that have been baked
into our current lending systems and our lending structures.
And it was referenced earlier, things like redlining that have
held credit away from Black and Brown communities.
And we would be, and I guess this is another term we have
been using a lot today, naive to believe that is not making its
way into our credit reporting system.
Mr. Auchincloss. The gentlewoman's time has expired.
Ms. Dean. Thank you. I yield back.
Mr. Auchincloss. The gentleman from Wisconsin, Mr. Steil,
is now recognized for 5 minutes.
Mr. Steil. Thank you very much, Mr. Chairman.
Some of my colleagues today have argued for the removal of
predictive information from credit reports. I see this really
as an attack on risk-based pricing, in which lenders attempt to
assess the creditworthiness of a prospective borrower and
adjust prices to compensate for that risk. Risk-based pricing
is a foundational concept in our financial system and
undermining the practice will increase the level of risk across
the financial system and reduce credit access.
Mr. Quan, would you agree that making it harder for lenders
to assess risk will effectively socialize that risk, and then,
how would that impact lower-income and marginal borrowers,
specifically?
Mr. Quan. Thank you, Congressman, for the question.
I have repeatedly said that we need accurate and complete
information in customers' credit files. ``Accurate'' means that
whether the information is positive or negative, the
information should be there.
So, if we remove or if we intentionally suppress negative
information--our service helps consumers who have negative
information, but by and large, lenders who do not have the best
information available when they make decisions to credit--
Mr. Steil. Let me dive in, because I think we have hit the
point a handful of times here today. But let me shift gears
ever so slightly for you, Mr. Quan, if I can.
People with low credit scores, thin credit files, young
people, recent immigrants, members of underserved communities
can all benefit from improved access to credit. And,
unfortunately, I think much of today's hearing is focused on
ways to weaken the credit scores and obscure the risk, when, to
me, these ideas would increase costs and reduce access,
especially for today's underserved borrowers.
Hollowing out credit reports won't help a single mom in
Janesville, Wisconsin, get a mortgage. It won't help a family
business in Racine, Wisconsin, get a small business loan.
So, instead of excluding data from credit reports, should
we look at ways to include more predictive data that may help
bring more Americans into the financial services system?
Mr. Quan, let me put a pin on it here. My colleagues on the
other side of the aisle have argued that we need to get a
government-run credit bureau to come up with new algorithms to
address credit access.
Do you agree with that assertion, or is the private sector
unwilling or unable to specifically innovate in this area?
Could you comment on that?
Mr. Quan. Congressman, you are absolutely right. The
private sector has already come up with new algorithms, and
they are so-called new. There is nothing new there; it has been
around for a number of years now, and, frankly, those
innovations are happening mainly because of: number one, there
are mission-driven companies that are trying to solve the
problem; and number two, and more importantly, this is a
capitalistic society and there is a profit motive behind it.
This is a market that is unaddressed and now it is being
addressed by innovation. And lenders can make money and now,
also, they can fulfill their social mission. So, the
government--
Mr. Steil. Mr. Quan, these hybrid hearings are challenging.
I look forward to all of us being together in person, but I
appreciate you being here. I think you hit the nail on the
head. The private sector is looking at this.
Let's do some concrete examples. Experian Boost, UltraFICO,
some of these opt-in alternatives, if these models and
businesses expanded, would it improve credit access for
individuals, in particular, some of those who are currently
underserved?
Mr. Quan. The answer is absolutely, yes.
We are still in the very early stages. Experian Boost has
boosted 69 million points in FICO, and this is not
VantageScore, this is the FICO Score, this is especially in
FICO 8.0, which is the score that most vendors use today. So,
there is a clear evidence that this innovation is driving
access to credit, to expand access to credit.
The low-income consumers, new immigrants, people like me
who wouldn't be able to get access to credit early in my days
in the United States, now, we have a chance to get credit.
Mr. Steil. I appreciate that.
Let me just sum it up like this. One of my takeaways from
today's hearing is that credit reporting can easily be
politicized, and with that in mind, I am concerned about
proposals to centralize credit reporting in a government-run
agency.
I am not sure my colleagues have fully considered the
implications of providing a government agency with even more of
our personal financial information, and then granting that
agency the power to effectively withhold access to credit. A
government-run system raises the prospect of politicized
credit-access decisions, a loss of financial privacy, and
heightened cybersecurity risks. Many Americans don't want the
government to exercise this power, especially if it is based on
what they buy and which bills they prioritize.
Our credit reporting agencies are not perfect, but American
consumers stand to benefit far more if we improve our existing,
competitive, private-sector system, than if we centralize the
financial data at a government bureaucracy.
I urge my colleagues to reject the proposal, and I yield
back.
Mr. Auchincloss. The gentlewoman from Michigan, Ms. Tlaib,
is now recognized for 5 minutes.
Ms. Tlaib. Thank you so much, Mr. Chairman.
I so appreciate this hearing because credit scoring has
been something that impacts my community directly, as the
third-poorest congressional district in the country.
Mr. Greer, would you agree that racism is profitable?
Mr. Greer. Yes.
Ms. Tlaib. Thank you. I would like to submit for the
record, Mr. Chairman, a great op-ed from Rashad Robinson,
``Corporations profit off of racism.''
Mr. Auchincloss. Without objection, it is so ordered.
Ms. Tlaib. Thank you.
Mr. Greer, you talk about oppression economy in your
testimony, and I think that is really powerful, because what we
are hearing are words that corporations use: risk-based
pricing; assessments. We all continue to hear these kinds of
really interesting terminologies, but I can tell you,
personally, with auto insurance, for example, rates in my State
are the highest in the nation. People will say it is all of
these different factors, but credit scores are actually used to
calculate whether or not a person is a safe driver: Credit
scores.
So, when we talk about structural racism and we talk about
this hearing, we have to really talk about the human impacts of
what this means. They are selling our data, the credit scoring
agencies, for profit, to auto insurance agencies which are
using non-driving factors as proxies: marriage, whether or not
you are married; your education level. All of these things,
again, have nothing to do whether or not you are a safe driver.
But they use words like risk-based pricing or assessments.
Mr. Greer, when you think about those kinds of measures of
using these as proxies, and I am talking specifically about the
auto insurance industry, the use of credit scores, how has that
really impacted communities of color?
Mr. Greer. Right. I am really thankful for all of the work
that you do, Ms. Tlaib. Not just for the people in your
district, but for the people of color across the country.
But this idea is to create a class of people who can be
exploited, who can have their auto insurance be much larger
than it would be in another part of the country, or if they
were another type of person. So, the reason why, and I think
this has been documented, that auto insurance is higher in your
community is because it is largely Black, Latino, and Arab-
American people who are living in your community, and because
our economy has been built on a system that exploits racism as
a way to draw profits, this is how that plays out in that
sector.
Ms. Tlaib. Mr. Ejaz, do you know what credit scoring has to
do with driving records?
Mr. Ejaz. It has nothing to do with driving records. Credit
scores and reports, in my view, should only be used to assess
creditworthiness and, as a general rule, should not be expanded
beyond that.
Ms. Tlaib. Ms. Traub, it is interesting, when somebody's
credit score is lower and they use it towards calculating their
auto insurance. Do you know that auto insurance rates actually
go higher, so if you are poor, you are paying higher rates,
even though you are a safer driver.
Did you know, Ms. Traub, that if you had a DUI, but a
better credit score, you are paying less in auto insurance than
somebody who has no DUI record, but a lower credit score, did
you know that?
Ms. Traub. That is correct, Congresswoman, and it is
terribly unfair.
Ms. Tlaib. That is a form of structural racism. If you look
at who is impacted, it is low-income communities.
So, I want to get to your next thing, which is medical
debt. Ms. Wu, you know how passionate I am about this. I don't
want medical debt to be used similar to, if you buy a car and
you miss a payment. Medical debt is basically, you are sick,
you have to get treatment, and this is medically-necessary
debt, and it ends up on your credit report for years.
Given the credit reporting agencies' poor track record,
what kinds of things is your organization doing to expose the
fact that medical debt in our credit reports actually impacts
or expands economic disparities in communities like mine?
Ms. Wu. Thank you, Congresswoman, and thank you for your
passion on this particular topic.
The proposal you had that medically necessary debt should
not show up on credit reports is one of the most important
aspects of the Comprehensive CREDIT Act. The CFPB has found
that over half--it is up to 58 percent--of debt-collection
items, third-party debt-collection items on credit reports are
for medical debt. It is a massive amount.
And COVID-19 really exposes how not only this is just a
terrible, unjust problem, but it also runs along racial lines,
because we know that Black and Brown Americans have suffered
more under COVID-19. And The New York Times has documented how
COVID-19 has resulted in these huge medical bills for some of
the patients, and then this stuff ends up on their credit
reports.
It is just wrong.
Ms. Tlaib. Yes. Mr. Chairman, if I may?
We are pushing for legislation, hopefully, and you all can
take a look at it, of reducing markings on credit reports from
7 to 4 years. I know it is a good compromise. I, of course,
don't want the credit reports being used, but I think moving it
from 7 to 4 years can directly, dramatically, help our
communities.
But right now, I think this hearing was critically
important to expose at least--
Mr. Auchincloss. The gentlewoman's time has expired.
Ms. Tlaib. Thank you.
Mr. Auchincloss. The gentleman from South Carolina, Mr.
Timmons, is recognized for 5 minutes.
Mr. Timmons. Thank you, Mr. Chairman.
I am opposed to the bill to create a public credit
registry, and I believe it is a big government solution in
search of a problem.
Mr. Quan, picking up where my friend from Wisconsin, Mr.
Steil, just left off, risk-based pricing helps to make credit
affordable for all. As our economy is recovering from the
pandemic, do you believe transitioning away from risk-based
pricing would help consumers?
Mr. Quan. Think about what happened 10 years ago, the last
financial crisis this country experienced. Lenders took more
risks. They lent money to people who couldn't afford to pay it
back. That is because of the lack of risk-based pricing that
caused the last financial crisis. So, risk-based pricing is
very critical to have today as we recover from this pandemic.
Mr. Timmons. Sir, thank you for that.
As a follow-up, could you discuss the impact that
suppressing or keeping negative information out of credit
reports has on the safety and soundness of our financial
system?
Mr. Quan. Lenders need accurate and complete information to
make lending decisions. If we intentionally suppress accurate,
but negative, information from customers' credit files, lenders
will not be able to make the best decision they can; as a
result, there will be an increase in defaults and we will have
an unsafe and unsecure financial system.
Mr. Timmons. And that would likely result in everyone's
premiums going up for the insurance they are currently paying
for; is that correct?
Mr. Quan. Absolutely. Everyone's price will go up, as a
result.
Mr. Timmons. Okay. Thank you.
Moving on, I know cybersecurity has been a popular topic of
conversation today, but I would be remiss if I did not chime in
as well, especially, given that today we received news of
another mass breach, this time at LinkedIn.
We have seen several government agencies hacked in the
past, putting Americans' data in the hands of cyber criminals
as well. Creating a one-stop shop of consumer credit
information and a brand new Federal agency that has no
experience in this particular area is just asking for trouble.
Congress has always had challenges, as well.
Mr. Quan, what level of risk to the average consumer would
the public credit rating agency, as proposed by the Majority,
pose to the American people?
Mr. Quan. The risk would be unthinkable, because all of a
sudden, all of the information would be concentrated,
centralized by one government agency which has no experience
and no expertise in safeguarding that information. And as you
mentioned, there are so many government agency breaches.
My data, when I was working for the government, was
breached because of the OPM data breach. So, there is no
evidence that the government is able to do a better job than
the private sector in safeguarding our information.
Mr. Timmons. Sure. But I would imagine suing the Federal
Government and getting a few trillion dollars for the breached,
the parties that had their data breached, would be a good
solution.
Mr. Quan. That would be--
Mr. Timmons. So much money to give away.
Mr. Quan. Congressman, absolutely, I agree with you. Look
at the Equifax settlement, $575 million, up to $700 million.
But who is going to pay for it? Shareholders.
So, if you are investing in Equifax, bad luck. But if the
government was responsible for that $700 million--that is how
much the Troubled Asset Relief Program (TARP) was originally
for. So, of course, today we are handing out trillions of
dollars--$700 million may be something like a drop in the
bucket, but still, that is taxpayers' money.
Mr. Timmons. I have a feeling that the government would
settle for far more than the Equifax breach. So, it's a bad
idea. Thank you.
Mr. Chairman, I yield back.
Mr. Auchincloss. This committee is going to adjourn in
order to make votes; unfortunately, that means we will have to
curtail questions.
I would like to thank our distinguished witnesses for their
testimony today.
The Chair notes that some Members may have additional
questions for this panel, which they may wish to submit in
writing. Without objection, the hearing record will remain open
for 5 legislative days for Members to submit written questions
to these witnesses and to place their responses in the record.
Also, without objection, Members will have 5 legislative days
to submit extraneous materials to the Chair for inclusion in
the record.
This hearing is now adjourned.
[Whereupon, at 1:32 p.m. the hearing was adjourned.]
A P P E N D I X
June 29, 2021
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