Consumer Credit Reporting, Credit Bureaus, Credit Scoring, and Related Policy Issues (CRS R44125)

The consumer data industry—generally referred to as credit reporting agencies or credit bureaus—collects and subsequently provides information to firms about the behavior of consumers when they participate in various financial transactions. Firms use consumer information to screen for consumer risks. For example, lenders rely upon credit reports and scores to determine the likelihood that prospective borrowers will repay their loans.

Insured depository institutions (i.e., banks and credit unions) rely on consumer data service providers to determine whether to make available checking accounts or loans to individuals. Some insurance companies use consumer data to determine what insurance products to make available and to set policy premiums. Some payday lenders use data regarding the management of checking accounts and payment of telecommunications and utility bills to determine the likelihood of failure to repay small-dollar cash advances. Merchants rely on the consumer data industry to determine whether to approve payment by check or electronic payment card. Employers may use consumer data information to screen prospective employees to determine the likelihood of fraudulent behavior. In short, numerous firms rely upon consumer data to identify and evaluate potential risks a consumer may pose before entering into a financial relationship with that consumer.

Greater reliance by firms on consumer data significantly affects—and potentially limits—consumer access to financial products or opportunities. Specifically, negative or derogatory information, such as late payments, loan defaults, and multiple overdrafts, may stay on consumer reports for several years and lead firms to deny a consumer access to credit, a financial product, or a job opportunity. Having a nonexistent, insufficient, or stale credit history may also prevent credit access.

Accordingly, various policy issues have been raised about the consumer data industry, including the following:

  • How to address inaccurate or disputed consumer data provided in consumer data reports;
  • How long negative or derogatory information should remain in consumer data reports;
  • How to address differences in billing and collection practices that can adversely affect consumer data reports, an issue of particular concern with medical billing practices;
  • How to ensure that consumers are aware of their rights and how to exercise them in the event of a consumer data dispute;
  • Whether uses of consumer data reports outside of the financial services, such as for employment decisions, adversely affect consumers and should be limited;
  • Whether the use of alternative consumer data or newer versions of credit scores may increase accuracy and credit access; and
    How to address data protection and security issues in consumer data reporting.

Congress has shown continuing interest in these and other policy questions surrounding the consumer data industry. In the 116th Congress, the House passed H.R. 3621, the Comprehensive Credit Reporting Enhancement, Disclosure, Innovation, and Transparency Act of 2020 (Comprehensive CREDIT Act). This bill includes legislation from other bills marked up by the House Financial Services Committee: H.R. 3614, H.R. 3618, H.R. 3622, H.R. 3629, H.R. 3642. In the 116th Congress, the House Financial Services Committee marked up two other bills: H.R. 5332 and H.R. 5330. On March 27, in response to the coronavirus (COVID-19) pandemic, the President signed the CARES Act (P.L. 116-136). Section 4021 of the CARES Act addresses credit reporting during the pandemic. The House also passed two versions of Heroes Act (H.R. 6800 and H.R. 925). Both bills would create a moratorium on furnishing adverse information to credit bureaus during the COVID-19 pandemic period, as well as for other future major natural disasters.

Consumer Credit Reporting, Credit Bureaus, Credit Scoring, and Related Policy Issues,” CRS Report R44125, October 15, 2020 (30-page PDFPDF)

Also seeCredit Freezes are Free: Let the Ice Age Begin,” by Brian Krebs

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