Biden wants to shut down credit bureaus – what would that mean for you?
One of the most fascinating platform elements of Biden’s presidential campaign was the idea of transferring the consumer credit scores Equifax (NYSE: EFX), Experian PLC (OTC: EXPGY) and TransUnion (NYSE: TRU) to a public ledger under the Consumer Financial Protection Bureau.
As Libra reports, this idea was examined in depth in an article published by a think tank called Demos in 2019. One of the main lessons of this article was that “decisions based on credit data reproduce and propagate existing racial inequalities, making it more difficult to achieve ‘true economic equity’. Demos proposed the idea of a public credit registry in this article.
The CFPB has a new interim director, Dave Uejio, who recently replaced Trump-appointed Kathleen Kraninger. In a CFPB blog post dated Jan. 28, Uejio said his top two priorities would be “(1) relieving consumers facing hardship due to COVID-19 and the related economic crisis, and (2) racial equity ”. But nowhere does his statement specifically mention the idea of a public credit bureau.
The three main rating agencies analyze how consumers borrow and reimburse. They assign scores which are then used to assess a person’s creditworthiness. This can affect their access to an apartment and their ability to do certain jobs in addition to the amount they can borrow and the interest rates they are charged. It’s a big deal – enough to support three SOEs (although they also have other businesses).
While lenders certainly have the right to determine a potential borrower’s risk, 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. Some of the criteria seem unusual and can be played. For example, it is better to have a high limit credit card and charge only part of it than to charge the same amount on a low limit credit card. Paying off a mortgage can reduce a credit score.
In addition, errors are common but difficult to correct. There is also evidence of racial prejudice, which in turn affects access to housing, certain jobs and credit. People have the right to get free copies of their credit report once a year, but have to pay beyond that.
The Biden proposal would improve people’s access to their credit and could lead to standardized calculations. It could also lead to volatility if the criteria used changed with each presidential administration. There are also other credit bureaus that use different scoring criteria, often used by lenders who work with clients who have bad credit. It is not known how this proposal would affect them.
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Katie wudel contributed to the writing of this article. This article has been updated to remove unnecessary language.
This article originally appeared on GOBankingRates.com: Biden wants to shut down credit bureaus – what would that mean for you?