The top Democrat on the House Financial Services Committee is proposing an overhaul of credit reporting rules that would help consumers ensure their scores are accurate.
Rep. Maxine Waters (Calif.) is introducing legislation on Wednesday that provides more leeway to consumers to avoid and fix problems on their credit reports created by any wrong or outdated information.
“This proposal addresses many of the flaws with the existing consumer reporting system," she said, "by making common-sense changes that enhance consumers’ rights, create more transparency over the consumer reporting and credit scoring process, and increase the accountability of credit reporting agencies, furnishers, and companies that develop credit scoring models and formulas.”
Three major credit bureaus — Experian, Transunion and Equifax — use consumers' information to create a credit score that ranges from 300 to 850. The score measures the ability of consumers to manage their debts.
Waters's proposal would change the length of time that negative information is left on a report, from seven years to four years.
The measure also would remove any adverse information on a credit report on a fully paid or settled debt, including a medical debt, which is in line with the latest credit scoring models developed by FICO and Vantage Score.
Her bill also creates two narrow exemptions — when required by local, state or federal law and for security clearances — in which credit reports can be used for employment purposes, and would erase private student loan defaults for borrowers once they make nine consecutive on-time payments.
The panel has a 2 p.m. hearing planned to further delve into the issue.
Waters is introducing the bill following multiple reports of significant flaws in the current consumer reporting system.
About 20 percent, or 40 million, of consumers, have had an error on their reports, according to the Federal Trade Commission. About 10 million consumers have errors that could increase the cost of credit available to them.
The measure also sets a dollar amount that a consumer can be charged to buy their credit score.
“Over 10 years ago, Congress tried to strengthen consumer protections, but our consumer reporting system still has a number of systemic flaws,” Waters said.
“I believe we must take action to end the heartache that has plagued millions of consumers who have been unable to obtain a job, go to college, or buy a car because of their credit score."