Executives from the trio that has come to dominate credit reporting — Equifax, Experian and TransUnion, of course — appeared on Capitol Hill and gave testimony before the U.S. House Committee of Financial Services to defend current practices, and even offer a few suggested changes in the system.
The Committee sought the input from Equifax CEO Mark Begor, Experian CEO Craig Boundy and TransUnion CEO James Peck.
Setting The Stage
Per the memorandum offered by the Committee: “Our nation’s credit reporting system has an impact on almost every American. Credit scores and credit reports are increasingly relied upon by creditors, employers, insurers and even law enforcement. Yet, it has been more than 15 years since Congress enacted comprehensive reform of the consumer reporting system, and there are numerous shortcomings with the current system that need to be addressed.”
That statement seemingly set the stage for a discussion on reform — and, not surprisingly, the Committee mentioned the infamous Equifax breach disclosed in 2017, which exposed data tied to at least half of all Americans. Equifax’s Begor noted in his own testimony that, while he was not at the firm when the breach occurred, he recognized the impact to consumers.
“I also understand that our regulators and lawmakers undoubtedly felt, and continue to feel, a strong duty to ensure that the financial ecosystem is functioning in a way that benefits consumers, safeguards their personal data, and is fueled by accurate and complete information,” he said.
He noted that under the Fair Credit Reporting Act and the recently enacted S.2155, Equifax is — and will be — able to meet customer needs when applying for mortgages and car loans, among other financial events. He also noted the structural changes at the company, which included the development of a cyber audit framework, and the hiring of 1,000 full-time risk and IT professionals to its workforce in 2018.
In a testimony centered on credit risk scoring, the Equifax CEO stated that “we recognize that millions of American consumers do not have ready access to affordable credit.” He cited research conducted by the Consumer Financial Protection Bureau (CFPB), and supported by Equifax, that approximately 26 million American consumers are credit invisible, and an additional 19 million consumers are not able to be scored because of “a lack of data or lack of recently reported information.”
Begor said his firm has been managing a database — on behalf of a consortium of telecommunication, cable and utility companies — that includes payment information on over 30 million consumers who are either “not found in our traditional credit files or do not have sufficient information to be scored. We estimate that the data provided by this consortium could enable nearly 8 million consumers to enter the regulated credit market.”
Experian’s Boundy said, “Credit bureaus accurately compile individuals’ payment histories from creditors so that lenders can use this data to make better lending risk decisions. Good lending decisions for credit cards, autos and mortgages mean fewer defaults. Fewer defaults mean lower costs of credit for consumers, and greater availability of consumer credit.”
Salvos From Lawmakers And Proposals From A CRA
Maxine Waters, chairwoman of the Committee, said that the national credit reporting system “is broken,” and had debuted legislation heading into the hearing that would, in part, ease the dispute process for consumers, and shorten the amount of time adverse events remain on reports. “We need to start thinking about how we reimagine [the system], and rebuild it,” she stated.
In comments from the top Republican on the Committee, Representative Patrick McHenry said there should be more competition in the credit system — necessary against what he called an “oligopoly” among the three credit reporting agencies (CRAs).
In his own remarks, Equifax’s Begor stated that the complaints and publicity tied to breaches and report accuracy “do not mean the current system is broken,” because there is now stringent oversight in place from a number of bureaus, the CFPB among them. He added that his firm has established a machine-learning credit scoring methodology that boosts data accuracy and, all in all, has spent an additional $1.2 billion in efforts tied to technology.
Separately, TransUnion offered half a dozen recommendations to revamp reporting efforts. In CEO Peck’s testimony, he outlined the ways CRAs collect data and create credit reports. TransUnion, he said, “defer[s] to policymakers’ judgement regarding the permissible purposes for use of credit reports.”
Among the recommendations contained in Peck’s testimony: more timely updates of critical credit events, such as loan payoffs, which can improve accuracy. He also recommended streamlining the student loan reporting process and boosting the number of Americans able to access credit — where rental and utility payment data is “increasingly necessary to provide lenders with a full picture of potential borrowers.”