Maintaining Uniform Standards In Credit Reporting System

Published on

Tampa Tribune (Florida)

A little-noticed bill with potentially big repercussions passed out of the House Financial Services Committee last month that would make permanent the uniform national consumer protection standards embodied in the Fair Credit Reporting Act.

The provisions, passed into law in 1996 and set to expire next Jan. 1, prevent states from imposing limits on the reporting and sharing of consumer credit information and reserve that responsibility to the federal government.

The bill (H.R. 2622), which is co-sponsored by U.S. Rep. Jim Davis, D-Tampa, and backed by President Bush, passed out of committee by a huge bipartisan margin (61-3) and is expected to pass the House, but some consumer advocacy groups plan a determined effort to defeat it.

Pressure On The Administration

Last week, on the same day California Gov. Gray Davis signed into law a bill that allows consumers to stop the broad trade of private financial information between corporations and their affiliates in California, the Foundation for Taxpayer and Consumer Rights began putting pressure on the Bush administration.

The group revealed it had purchased the Social Security numbers of CIA Director George Tenet and Attorney General John Ashcroft over the Internet for as little as $26.

The point, of course, is that it is all too easy to receive what should be private information. They would frame the debate as between the commercial interests of corporations and the privacy rights of citizens.

Indeed, the exchange of Social Security numbers and other identifiers by banks, insurers and other lending institutions has led to too many instances of identity theft and the common notion that the free flow of personal information leaves people vulnerable.

But doing away with the uniform credit reporting system and allowing states to go their own way would cause more problems than it would solve.

Consumers with easy – and generally safe – access to credit have helped sustain an otherwise sluggish economy.

“It is clearly in the interest of consumers to have information continuously flowing into [credit] markets,” said Alan Greenspan, testifying in April before the House Financial Services Committee.

“It keeps credit available to everybody, including the most marginal buyers. It keeps interest rates lower than they would otherwise be because the uncertainties which would be required otherwise will not be there.”

The financial services industry’s lobbyists argue persuasively that they need uniform standards in order to properly assess risks.

Without such an assessment, uncertainty would force companies to reduce access to credit, increase the price of credit or both.

Opponents say that these claims are without merit, that they are scare tactics concocted by companies.

But uniformity makes sense, and there are measures in the bill designed specifically to help consumers.

For example, the bill would require financial institutions to develop procedures to “red flag” identity theft and to cut off credit and debit card information.

There are also provisions to limit disclosure of some medical information in preparing and issuing credit reports.

Unfortunately, plans to strengthen consumers’ rights to opt out of receiving unsolicited credit card applications and to restrict the use of Social Security numbers are not included in the bill. But they could be.

An Imperfect Setup That Works

Senate Banking Committee Chairman Richard Shelby of Alabama, known for having an independent streak, is writing the Senate’s bill and has not said what he wants from the industry.

The national reporting system that has developed under the Fair Credit Reporting Act is not perfect, but it works. An article in the July issue of Business Economics magazine compares the system to the public telephone network and the national power grid – facilities essential to America’s economic infrastructure.

And uniform standards are necessary to efficiently maintain the national credit reporting system. Congress should continue the pre-emption provisions of the Fair Credit Reporting Act.

Consumer Watchdog
Consumer Watchdog
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