WASHINGTON — The credit bureaus' cybersecurity and breach notification procedures have caught the most public attention following the massive hack at Equifax last month, but lawmakers are also taking an interest in the accuracy of credit reports.
At a Senate Banking Committee hearing Tuesday, the members seized on the lack of incentives for credit bureaus to fix credit reporting errors.
"We know the credit bureaus have a long history of consumer complaints and inaccurate reporting that has long term effects on people’s ability to get a job or a house," said Sen. Sherrod Brown, D-Ohio, the panel's top Democrat. "Rather than addressing these problems, the credit bureaus have spent millions acquiring other data collection companies and branching out into new lines of business."
During the hearing, Brown broached the idea of an accuracy standard for credit reporting agencies, suggesting that credit bureaus that do not meet such a standard should be prevented from “collecting new personal data or providing other services until they have met accuracy metric in their consumer reporting.”
The Equifax breach, which potentially affected over 145 million consumers, has prompted legislative proposals from both Democrats and Republicans to reform the industry. But the hack also seemed to exacerbate longstanding criticism of how private companies handle consumers' financial data.
“Credit reporting agencies which provide personal data to others should be held to an accuracy standard because of course when they provide information that is inaccurate ... people are wrongfully denied credit and people are wrongfully denied jobs,” said Marc Rotenberg, president of the Electronic Privacy Information Center, during the hearing.
The Consumer Financial Protection Bureau has started to crack down on the credit reporting industry in light of a spike in consumer complaints about errors. As of February 2017, the bureau has handled roughly 185,700 complaints about credit reports. The complaints ranged from challenges remediating errors to confusion about how they are being scored.
“Your clients basically take my data, personal information about me without my permission, and as a business model they sell it to businesses," said Sen. John Kennedy, R-La., a member of the committee. He was addressing Andrew Smith, a partner at Covington & Burling, who was representing the Consumer Data Industry Association.
"I am not compensated," Kennedy continued. "If they lose my data as Equifax did or if someone submits to them data that is an error, that undermines my credit score. The bureaus have no obligation or interest right now to work with me to try and get the credit score correct.”
Sen. Elizabeth Warren, D-Mass., pointed to a 2012 Federal Trade Commission study that found 20% of consumers have an error in their credit report.
“The big three credit reporting agencies are now the three most complained about companies in the entire financial services industry,” said Warren. She added, “This market is clearly broken and fixing it starts with giving customers more control over their own data.”
However, Smith said the credit bureaus “are subject to a pervasive regulatory scheme and … the Fair Credit Reporting Act requires us to ensure the accuracy of credit reports.”
He also said giving consumers too much control over their own data could present other challenges.
“What happens if the consumer selectively deletes information?” said Smith. He used an example of a consumer who has three credit cards and decides not to pay off one of them, but then deletes that information.
“How will a bank manage that credit risk?” said Smith.
The Equifax breach has also focused attention on the credit bureaus' policies dealing with freezing credit reports.
Kennedy suggested that the bureaus should create a mechanism that would allow consumers to easily freeze and unfreeze access their credit files on their phones. But Smith said such a process would be difficult to implement, could lead to access concerns if certain consumers didn’t have smartphones and could still be penetrated by fraudsters.
Smith repeatedly told the lawmakers the industry wants to work with Congress but warned about potential unintended consequences.
“We think to the extent there are gaps of supervision … we want to talk to you about that. We want to get the right result,” said Smith.
But Kennedy said the industry response so far has been lackluster.
“Your clients need to step up to the plate here and suggest some meaningful reforms or some reforms are going to be suggested to them,” said Kennedy.