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As Congress Debates Consumer Protection Bureau, New Report Highlights Urgent Need to Regulate Credit Reporting Industry
Troubling Lack of Fairness, Accuracy And Transparency Further Undermines Americans' Security and Opportunity in Struggling Economy, Finds Demos
NEW YORK - June 21 - Today, as Congressional battles threaten the future of the Consumer Financial Protection Bureau, the national policy center Demos published a new report that shows how failures of the credit reporting system -- and the increasing use of the system's credit reports and scores for non-lending purposes -- are having outsized and damaging effects on Americans' economic health.
According to "Discrediting America: The Urgent Need to Reform the Nation's Credit Reporting Industry," a range of new institutions -- such as insurance companies, employers, utilities and hospitals -- are looking to the credit rating system to determine how to provide services to American households. The report details how these companies, like traditional lenders, are basing decisions on credit reports and scores from a system that lacks accuracy, fairness and transparency.
"Credit reports and scores have a profound impact on our economic security and opportunity," said Demos Senior Policy Analyst and report co-author Amy Traub explained. "Having poor credit can be the deciding factor in securing car loans, a home, and even a job. The growing use of reports and scores in almost every area of a family's economic life means we need a credit reporting system that doesn't rely on an under-regulated, faulty industry."
"Discrediting America" reveals that:
-- More than 20 million Americans could have material errors on their credit reports.
-- 60 percent of employers now use credit reports to evaluate job candidates, despite a lack of evidence correlating credit history to job performance or likelihood to commit fraud.
-- Credit reports largely mirror racial and economic divides, with African Americans and Latinos disproportionately likely to have lower scores and to be offered high-priced loan products.
-- Individual consumers lack unrestricted access to relevant credit information and must often pay fees to obtain their own credit scores.
-- Utility companies, home and car insurers and hospitals are expanding their use of credit data, raising concerns that vulnerable consumers and patients will be pressured to rely on credit cards.
The report concludes with a policy discussion focused on how to reduce credit reporting errors and increase transparency; establish sensible limits on negative information included in credit reports; and rein in credit reporting 'mission creep.' Many policy recommendations could be carried out by the new Consumer Financial Protection Bureau.
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