A legislative proposal has surfaced in Congress that seeks to disrupt much of the U.S. system of reporting and using credit information, including potentially major changes in the credit scores that lenders use to evaluate most home mortgage applications. 

Rep. Maxine Waters, D-Calif., House Financial Services Committee’s ranking member, sponsored the Comprehensive Consumer Credit Reporting Reform Act (H.R. 5282). It covers a wide array of hot-button issues, including shifting much of the burden of proof to creditors when they report negative items about consumers who later dispute them and limiting the use of credit information in most hiring decisions.

The 202-page bill would force credit bureaus to remove all paid or settled debt accounts from consumers’ files within 45 days of payment or settlement, rather than leaving them on file for years. It also would require them to contact consumers the first time a creditor reports negative information about them and it would cut the maximum time for retention of adverse information in bureau files to four years instead of seven in most cases and to seven years from 10 years for bankruptcies.

The bill would require the credit bureaus to remove negative information related to mortgages that the Consumer Financial Protection Bureau or courts have found to be connected with deceptive or predatory lending or servicing. This provision alone "should be particularly helpful because it applies to" large numbers of homeowners covered by legal settlements from allegedly abusive practices by lenders and servicers, said Ruth Susswein, deputy director of national priorities at the nonprofit group Consumer Action.

Many changes would have impacts on home purchases and mortgages. 

The credit reporting industry states that procedures to handle disputed items in consumer files at the three national credit bureaus are improving but complaints about credit reporting continue to rank among the highest the CFPB receives every month. People apparently are frustrated by the lack of a workable appeals process over disputed items and the fact that consumers — not creditors — bear the burden to prove the accuracy of credit information.Millions of Americans face credit and employment issues because their bureau files include problems left over from the recession - such as delinquencies, short sales and bankruptcies often caused by deceptive or predatory lending or loan-servicing practices. 

The bill also seeks to reform credit scoring. It would mandate that when consumers obtain their free annual credit reports from the three national bureaus, they get their credit scores simultaneously at no cost. It would also modernize the types of scores acceptable at the two dominant players in the home mortgage field, Fannie Mae and Freddie Mac. 

Credit industry experts note that some of these efforts to improve scoring already are underway at Fannie and Freddie. Stuart Pratt, president and chief executive officer of the Consumer Data Industry Association, which represents the three national bureaus, argues that many of the proposed changes in dispute resolution are being put in place under a 2015 national settlement agreement, and therefore they question the need for another law.

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