Is the Consumer Financial Protection Bureau (CFPB) doing enough to ensure consumers get a fair crack at credit? Occupy Wall Street doesn’t think so, and they’re stepping their game up to do something about it. While the movement has been criticized by the media in the past for not having specific demands, this time around the Occupy Wall Street Alternative Banking (OWSAB) group has got a list of them, and they recently sent it in as a formal letter to the CFPB. Though the protesters’ intentions may be honorable, there are a few nuances that need to be examined before you can bridge the gap between what you can draw in marker on a posterboard and what’s going to really work for consumers. Our Credit Expert Gerri Detweiler explains, responding to OWS’s letter, bullet point by bullet point.
[Credit Check Tool: Try Credit.com’s Free Credit Report Card]
“Credit scores should be calculated using a model that is public and freely available.”
The biggest problem with this approach is the fact that there is no single credit scoring model. Even FICO scores are calculated using various models of the FICO score. But even if there were just one model available, keep in mind that these are very sophisticated algorithms. Every factor is interdependent with other factors, and consumers are grouped into different score cards which adds another dimension. That’s not to say we can’t do a better job of helping consumers understand how their credit scores are calculated and what they can do to improve them.
“Credit reports sent to consumers, including those sent pursuant to the free annual credit report available to consumers under current law, should always contain the consumers numeric credit score.”
This was one of the approaches that was considered when Sen. Udall proposed his free credit score amendment to the Dodd Frank Act. The problem with that approach, again, is which model will you use to calculate the credit score? There’s currently over 30 different “credit scores” out there. It’s not an insurmountable problem, but it is one that does create some logistical headaches.
“There should be a way for an individual to forecast how his or her credit score would change under various circumstances – e.g., if he/she paid their electric bill late, had a different credit card balance, etc.”
Some of the credit score tools available to consumers do allow for this kind of simulation. It’s tricky, though, because of the sophistication of the algorithms that are used to calculate credit scores.
“Credit bureaus should provide free, unlimited digital credit reports if requested by the consumer.”
It would be great for consumers to get regular free access to their online credit reports more than once a year. We believe strongly that when consumers are informed are about what’s in their credit reports, and how it impacts them, they are more likely to make better decisions about credit. In fact, that’s what Credit.com does every day with our free Credit Report Card, no listening to catchy jingles required!
“There should be due process for disputes over negative credit information.”
The process could definitely be improved. It’s so automated that it doesn’t always work in situations where consumers have unusual circumstances.
[Featured Products: Compare credit score, report, and monitoring plans at Credit.com]
“Credit reports should limit the ability of outdated data from before a certain period to affect a consumer’s score.”
Currently there are federal limits on how long negative information can appear on credit reports. If that information is not in your credit report it shouldn’t be used to calculate the credit score.
“Credit bureaus should be banned from having certain conflicts of interest (e.g., credit bureaus should not be permitted to engage in or serve as affiliates of companies that requires credit reports)” &“Stricter penalties should be imposed for abuse of credit reports.”
It’s not certain what abuses OWS is referring to here in these two comments. We would need to hear more about what the issues are.
“Credit scores should be tied to individuals and should not be imputed to spouses.”
An individual’s information should not appear on his or her spouse’s credit reports and should not influence their spouses credit scores. Only in the case of joint accounts or accounts on which someone is an authorized user should this information affect both spouses’ credit reports.
“The underlying models should be tested for inherent racism, under a disparate impact standard similar to that utilized in anti-discrimination law. For instance, rating decisions could approximate race through the use of correlated input points such as zip code.”
It’s no secret that the poor, immigrants, the elderly and other disadvantaged groups are particularly vulnerable to credit fraud and predatory loans. We urge the CFPB to fulfill its statutory mandate by implementing bold new measures that help make sure that everyone has the information and tools they need to make the best decisions with their credit. In the meantime, our goal at Credit.com is to empower consumers directly.
[Related Article: Want to Switch Banks? Here’s How to Do It.]