New credit-reporting standard isn’t the change we needby Peter Miller
The government is going to try to remake the mortgage business with new rules to govern major credit reporting agencies–the 30 or so companies that issue 94 percent of all credit reports. This sounds like a good thing until you hear what the Consumer Financial Protection Bureau (CFPB) is actually proposing.
Credit reporting agencies, said the CFPB, “will be subject to review of compliance systems and procedures, on-site examinations, discussions with relevant personnel, and they will be required to produce relevant reports.”
The CFPB also said that the government’s oversight of credit reporting agencies should be within the domain of a single federal agency and not scattered around a variety of regulators.
The new regulation produced by the government is unlikely to create any consumer product which is clearer than the credit score information now given out when one applies for a mortgage. (I recently refinanced my mortgage. One of the side benefits, besides the lower rate, was that my wife and I received our credit scores. We did not just receive a raw number; we saw the source of the credit score and the date it was pulled. They also have to show the range used by the credit reporting bureau because different bureaus can use different ranges. One of the clearest features of the new form is that it has a bar graph which shows how your score compares to other consumers. Another nice feature is that there is a list of key factors that can negatively impact your score.)
However, the CFPB might be able to get at some issues which impact scores and are very important to borrowers and the mortgage rates they pay.
For example, consider the recent effort by the FHA to create a new credit standard for borrowers.
“If the borrower has individual or multiple disputed credit accounts or collections with singular or cumulative balances equal to or greater than $1,000, the accounts must be resolved (e.g. payment arrangements with a minimum three months of verified payments made as agreed) or paid in full, prior to, or at the time of closing,” said HUD.
This proposal, which has now been withdrawn, would have given enormous power to debt buyers who purchase old obligations for pennies on the dollar. In some cases, such debts are too old to be collectible or lack sufficient documentation to be enforceable. Unfortunately, some consumers don’t understand the debt-collection process and actually pay such bills. A good explanation of the debt-collection process–and how to defend against unfair collections–has been written by attorney Jed Berliner at the Bankruptcy Law Network site.
So, if the CFPB wants to do something that would help borrowers with their credit reports, one place to start isn’t with the credit reporting agencies but rather the debt collectors who seek to collect bills which are neither do nor payable. Such regulation would give the public greater faith in the credit reporting system and hamper unscrupulous bill collectors.
As for the credit score information required under Dodd-Frank, it’s a very good deal because it is absolutely clear, it costs the consumer nothing and it gives some sense of what can be done to improve the score you receive.