President Biden Wants the CFPB to Take Over Credit Reporting?

“Biden will create a new public credit reporting and scoring division within the Consumer Financial Protection Bureau to provide consumers with a government option that seeks to minimize racial disparities” – The Biden Plan To Build Back Better

Lost and unnoticed in the drama and vitriol of the 2020 Presidential campaign, was a deep buried campaign pledge. The elimination and eventual replacement of three of President Biden’s targets for whom much of America’s racial disparity is allegedly to blame; Equifax, TransUnion and Experian. If President Biden follows through with his pledge, he will create a public credit reporting agency to compete with and maybe one day replace them altogether.

In President Biden’s campaign platform catch phrase of; “Build Back Better”, is a section titled “The Biden Plan To Build Back Better By Advancing Racial Equity Across The American Economy.” Inside, they state their desire to take over credit reporting.

“Biden will create a new public credit reporting and scoring division within the Consumer Financial Protection Bureau to provide consumers with a government option that seeks to minimize racial disparities, for example by ensuring the algorithms used for credit scoring don’t have a discriminatory impact, and by accepting non-traditional sources of data like rental history and utility bills to establish credit.”

The Biden Plan to Build Back Better by Advancing Racial Equity Across the American Economy proposal suggests that a government-run credit reporting agency (CRA) could fix a credit reporting system that frequently holds consumers back from becoming homeowners due to problems like credit reporting errors and racial disparities.

This idea was first proposed by a progressive think tank called Demos in 2019. One major takeaway of that paper was the assertion that “decisions drawing on credit data reproduce and spread existing racial inequality, making it harder to achieve true economic equity.” Demos proposed the concept of a public credit reporting registry in the paper. “Replacing our failed for-profit credit reporting system with a public credit registry will benefit consumers and reduce racial wealth inequality.”

Amy Traub, associate director of policy and research at Dēmos, said that although credit scores never formally take race into account, that doesn’t mean they’re race-neutral. “[Credit scores] draw on data about personal borrowing and payment history that is shaped by generations of discriminatory public policies and corporate practices.”

While all of this is still far from actionable, acting CFPB director, Dave Uejio, posted in a January 28 blog that his two main priorities would be;

1. Relief for consumers facing hardship due to COVID-19 and the related economic crisis, and;  
2. Racial equity.

In all fairness, nowhere does his statement or the article specifically mention the idea of a public credit reporting agency, but when taken in context of President Biden’s campaign platform, it’s not too far of a stretch of the imagination.

Numerous credit and lending experts are wary of the new administration’s plan. While these experts don’t deny the existence of a racial wealth gap in this country, nor do they dispute that it needs to be fixed. But they do doubt that a public credit reporting agency is the answer. Instead, there is genuine concern that a federal credit reporting agency could make matters far worse for the struggling American consumer.

While lenders certainly have the right to determine the risk of a potential borrower, the problem is the lack of transparency in the process. The three bureaus have slightly different calculation methods and data sources, which can result in the same person having three very different credit scores. Even within these three bureaus, lenders are offered different product models for auto loans, credit cards and more.

To some, the criteria may seem unusual and open to be gamed. As an example, it is better to have a high-limit credit card and only charge part of it than to charge the same amount on a low-limit credit card, paying off a mortgage can reduce a credit score, it can be better to wait for bad collection account reporting to expire than to pay or settle it. etc.

The Biden proposal could hypothetically lead to a simplified standardized calculations process, but it could also become unreliable and lead to volatility if the criteria used shifted with the political weather at every change in presidential administration.