House banking panel bemoans credit bureaus' 'oligopoly'
WASHINGTON — Nearly two years after the massive Equifax data breach, lawmakers made clear their criticism of the credit bureau industry has not abated.
But at a hearing Tuesday where House members grilled CEOs of the largest bureaus and discussed possible reforms, lawmakers from both parties went beyond concerns about the companies' security protocols, suggesting that root of their problems is the sector's dominance by just three giant firms.
"What I see here is an oligopoly,” said Rep. Patrick McHenry, R-N.C., the ranking member of the House Financial Services Committee, speaking to a witness panel including the chiefs of Equifax, Experian and TransUnion.
Both McHenry and Chairwoman Maxine Waters, D-Calif., lamented the lack of competition in the credit reporting industry, leaving consumers with limited options.
“If a consumer is dissatisfied with one credit bureau, they can’t take their business to a competitor. To credit reporting bureaus, consumers aren’t consumers,” said Waters. “They are commodities. This commodification of consumers and their personal data is the core reason why our nation’s consumer credit reporting system is broken.”
McHenry noted that none of the witnesses — Mark Begor of Equifax, Craig Boundy of Experian North America and James Peck of TransUnion — "discussed in your testimony increased competition in the industry.”
“You don’t even reference competition with one another," he said.
The Equifax breach, which came to light in September 2017 but began the previous March, amplified criticism of the bureaus that had already been building before roughly 148 million consumers had their information compromise.
Congress has been unable to mount any kind of legislative response since the breach. But on the eve of Tuesday's hearing, the committee's Democratic majority released a bill proposing significant reforms for the credit reporting sector and legislation to protect credit files of government workers affected by the recent shutdown.
Despite the constant criticism of the bureaus, the three CEOs defended their corporate culture. They argued that the different technologies and products offered to consumers by the three credit reporting agencies makes them competitive.
“Our culture is shifting. We’ve always been strongly focused on the consumer,” said Begor, who joined Equifax in April 2018, after the breach. “We are really enhancing the processes and the focus around helping a consumer.”
Begor noted "a lot of differences between the three credit bureaus” in terms of technology and "tools that we are using with consumers."
"That’s what really makes my view as a very competitive industry — because we are investing to provide more tools for consumers and for our customers with the financial institutions in order to be an integral part of the U.S. economy,” he said.
Begor said Equifax is investing $50 million in new technology to help consumers access their credit information more easily and improve the dispute resolution process. He also highlighted a product launched in January 2018 to allow consumers to quickly lock and unlock their Equifax credit reports for free, using a mobile application.
Peck added that “there are actually hundreds” of specialized credit reporting agencies outside of the three national bureaus. He defended the industry’s competitiveness.
“I think having more than one creates substantial competition between us,” Peck said. “We are competing for the ability to actually provide the best information on a consumer as possible both to the consumer and to the businesses that are trying to lend to the consumer.”
The comments come after Waters unveiled a 199-page bill to revamp the credit reporting industry. Despite bipartisan agreement that the industry is currently broken, Republican lawmakers and the credit bureau CEOs raised concerns about proposals to eliminate certain information from consumers’ credit files.
Waters’ bill would expand access to free consumer reports and credit scores, and reform the dispute process to shift the burden from consumers to the credit bureaus and furnishers. It also reduces the time period that most adverse credit information stays on reports from seven to four years, and from ten to seven years for bankruptcies.
“I am a bit concerned that the reforms that the chair has put forward may go a little far afield on that in specifically the draft suggests eliminating entire categories of debt from credit scores,” said Rep. Bill Huizenga, R-Mich., who is the ranking member of a Financial Services subcommittee.
Other lawmakers expressed specific concern that eliminating negative information from credit reports could present an inaccurate picture of a consumer's creditworthiness.
“A deal is a deal in America, and people need to pay their debts,” said Rep. Roger Williams, R-Texas. “I’m worried about this committee is going to go down a path where lenders are receiving credit reports that have been scrubbed of all negative credit information.”
Peck admitted that there could be “unintended consequences” with eliminating certain data from credit reports and scores and that the elimination and addition of new information should be studied.
“You need to prove that it statistically and empirically will do that job that it’s intended to do,” Peck said.
Boundy said eliminating certain categories of debt from credit scores could potentially increase costs for consumers.
“It could negatively impact a lender’s ability to assess risk,” Boundy said. “And the second is that it has the risk of increasing the cost of consumers’ access to credit.”
Boundy added that Experian has a program aimed at helping consumers improve their credit. The free program, called Experian Boost, gives consumers the ability to opt in to share utility and telephone payment information directly for their credit files and improve their scores.
In response to a question from Rep. Sean Duffy, R-Wis., the three credit bureau CEOs said they would work together to provide a service to enable consumers to lock all three of their credit reports at once.
“It’s wonderful that we can lock our credit. It’s a great service that you provide. But it would be even a better service if you could collaborate together and just give us one app where I can lock all three of you on,” Duffy said.