Congress Seems Poised to Make Credit Reporting Rules Permanent

The House Financial Services Committee has approved a bill that permanently extends the Fair Credit Reporting Act and requires lenders to disclose credit scores to mortgage applicants.

The committee approved the bill by a 61-3 vote and committee chairman Michael Oxley, R-Ohio, hailed it as a major achievement.

"This landmark legislation strikes the proper balance between consumers' access to vibrant credit markets and the protections they need to fight identity theft and ensure the accuracy of their credit reports," Rep. Oxley said.

To the great relief of the financial services industry, the bill (H.R. 2622), sponsored by Rep. Spencer Bachus, R-Ala., and Rep. Darlene Hooley, D-Ore., permanently bans the states from interfering with federal standards on consumer credit reporting.

However, the bill also includes an amendment, offered by Rep. Bernie Sanders, I-Vt., that requires mortgage originators to disclose the credit score they used in connection with an application - along with the reason codes. Reason codes explain whether a delinquency or too many open lines of credit, for example, affected the credit score.

The Sanders amendment is based on a California law and it is understood that the lender only has to provide general explanation of the credit score. If the prospective borrower wants a more detailed explanation, the lender can refer the applicant to the credit bureau.

But the Mortgage Bankers Association believes it would be much more burdensome and lenders would have to provide more credit counseling to keep customers happy.

"We are working with chairman Oxley and chairman Bachus to ensure that the particulars are worked out in a way to provide meaningful disclosure to consumers but, at the same time, does not overburden originators," MBA lobbyist Erick Gustafson said.

MBA also is concerned that the credit score disclosure section of the bill is not pre-empted and states could impose new disclosure requirements on lenders.

"If we are going to have to disclose credit scores and reason codes, we want to have one disclosure form for all 50 states," the MBA lobbyist said.

H.R. 2622, which is called the Fair and Accurate Credit Transactions Act, also provides consumers with free access to credit reports from each of the three national consumer credit reporting agencies.

Free access to credit reports each year is expected to encourage consumers to check their files for inaccurate information and the bill gives consumers new rights to get their credit reports corrected.

The Bush administration supports H.R. 2622 and after the August recess chairman Oxley is expected to take H.R. 2622 to the floor for a vote. The Senate Banking Committee is expected to markup a FCRA extension bill in September.

The Bush administration is backing the bipartisan bill in the House that would permanently ban states from interfering with federal standards on consumer credit reporting.

The bill would permanently extend a federal preemption contained in the FCRA that is due to expire at the end of the year.

The financial services industry is supporting a permanent extension, as well as the Treasury Department and the Federal Trade Commission.

Treasury secretary John Snow testified last month that the Bachus-Hooley bill contains many of the provisions the Bush administration supports to protect consumer financial data from fraud and abuse and to deal with the growing problem of identity theft.

"We look forward to working with this committee and the sponsors of the Bachus-Hooley bill to move a strong package of reforms forward, to ensure that the Fair Credit Reporting Act becomes an even more effective tool for meeting the financial interests of American consumers," secretary Snow said.

However, the credit reporting agencies and consumer groups are raising objections to provisions in the bill.

And Rep. Barney Frank, D-Mass., served notice that he will oppose the bill unless it improves the process for correcting inaccurate credit reports.

"The biggest weakness in the system is the accuracy of the credit reports," Rep. Frank said last month.

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