Magazine article American Banker

Urging State Rules, Group Cites Skewed Credit Report Scores

Magazine article American Banker

Urging State Rules, Group Cites Skewed Credit Report Scores

Article excerpt

Some new fighters emerged Tuesday for next year's Capitol Hill battle over whether to continue preventing states from adopting their own rules on credit reporting.

The current preemption, part of the Fair Credit Reporting Act, is set to expire on Jan. 1, 2004. The issue is expected to be the linchpin in a broader debate next year in Congress over how best to protect consumers' financial information.

Advocates of tougher privacy laws are expected to use the deadline as a lever to get lenders to commit to tighter restrictions on the sharing of customer data.

But the industry has warned that without federal preemption, states could enact different definitions, restrictions, and penalties, making it impossible for credit reporting agencies to continue producing reports based on uniform inputs. In turn, credit-scoring models and banks' risk management tools would not function properly, they claim.

On Tuesday, lenders found out that their opponents plan to focus on state-law preemption.

The Consumer Federation of America issued a 51-page report on credit reporting and scoring that concludes that states should be allowed to determine what is in the reports and how that information is handled. Travis Plunkett, the group's lobbyist, said that could make credit reports and scores more accurate.

For example, the reliability of the system would be improved if states required lenders to grant immediate access to a credit report used to deny a loan or raise a borrower's interest rate, he said. That is because the easier it is for consumers to see their credit reports, the faster errors in those reports will be fixed, Mr. Plunkett argued.

According to the Consumer Federation report, consumers credit scores vary widely and often are based on inaccurate or incomplete data.

After analyzing 500,000 consumer credit scores based on information provided by the three main credit bureaus -- Equifax, Experian, and Trans Union LLC -- the study concluded that an individual's scores from the three companies varied by 41 points on average. …

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