Your credit score is a critical element of your financial profile. How you manage your budget and control your debt can make all the difference in getting the best interest rates and credit terms.
But not everything is in control of the consumer when it
comes to achieving and maintaining a good credit score. The heavy influence of
credit reporting bureaus on the financial lives of Americans means it is
critical that you closely monitor what those bureaus are telling creditors
about you.
A recent survey of 152 budget-conscious consumers by
American Consumer Credit Counseling found more than 87 percent said their
credit reports have errors. The accuracy of information being compiled by the
major credit bureaus – Trans Union, Equifax and Experian – is constantly being
questioned. With such huge volumes of data to be processed for tens of millions
of people, it’s inevitable that mistakes – and sometimes very costly ones –
will find their way into your credit file.
That’s why the Consumer Financial Protection Bureau has
stepped in to provide additional protections and resources for American
consumers as they manage their credit reports and scores. In July 2012, the
CFPB adopted new rules to establish the first-ever federal program to supervise
all consumer reporting agencies – including the three major credit bureaus.
The program covers about 30 agencies altogether –
representing more than 90 percent of all annual revenue from consumer reporting
activities, including credit reporting. This new oversight establishes
benchmarks for compliance with federal consumer finance laws, and a process for
detecting and assessing additional risks to consumers. Credit bureaus and other reporting agencies
may be called upon to file regular reports and to comply with CFPB examinations
and monitoring.
And the CFPB will not be toothless. Under the Dodd-Frank Act
and Fair Credit Reporting Act, the CFPB has the authority to write rules
impacting the consumer reporting industry and also to take enforcement actions.
New debt collection rules are already on the way this fall.
This marks the first time consumer reporting agencies have
been subject to federal oversight and supervision, with the new rules taking
effect September 30, 2012.
What does this mean for you?
Above all it means the CFPB is committed to being a real
watchdog for consumers when it comes to credit bureau and other consumer
reporting activities. That’s important. The three major credit bureaus alone
maintain files on more than 200 million Americans: information they share with
banks, credit card companies, department stores, mortgage lenders, landlords,
employers and others.
Last year, close to 113 million new credit card, auto loan,
personal loan, mortgage and home equity credit accounts were originated. Nearly
every one of them used information from consumer reporting agencies to make
decisions on approval, interest rates and terms.
That’s a tremendous amount of power and influence over our
financial lives.
Finally, the CFPB is an important consumer resource for
education and information on credit reporting, credit scoring and the rights of
consumers under the law. The Bureau has already released an initial Consumer
Advisory on credit reports, and is creating an “Ask CFPB” database to answer
common consumer questions.
Credit reporting is a necessary function to maintain
stability in the American economy. It allows creditors to make correct
decisions when underwriting mortgages, car loans, personal loans and other major
financial obligations. Proper underwriting prevents credit issuers from taking
on too much risk – a condition that, unfortunately, has been all too real as
evidenced by the mortgage crisis of the past half dozen years.
But consumers have a right to know their financial
histories, payment records and risk profiles are being represented accurately
and fairly. As a newly established federal agency with a charge to protect
American consumers, the CFPB has the chance to be an important ally for
Americans in this very critical area of their financial lives.
Steve Trumble is
President and CEO of American Consumer Credit Counseling in Newton, Mass. He is
a member of the AICCCA Board of Trustees.