Industry Update: Fair Credit Reporting Improvement Act
by Amy Ward on February 19, 2015
Recently, Maxine Waters (D-CA) has introduced a bill in the House called the Fair Credit Reporting Improvement Act of 2014. The bill proposes changes to all aspects of credit scoring and credit reporting. This new bill seeks to overhaul the consumer credit reporting system by adding several new provisions.
The most noticeable change the act proposes is to shorten the amount of time negative information remains on a consumer’s credit report. For example, this would mean removing all fully paid or settled debt from the report, including the removal of certain foreclosures and short sales. It would also require erasing private student loan defaults for borrowers after nine consecutive, on-time monthly payments. Under the current system, late payments can remain on a credit report for up to seven years.
Currently, federal law governs what information can be included on a credit report and for how long. However, if this act should become law, then judgments, collections, and tax liens would only remain on credit reports for four years instead of seven, and bankruptcies would be removed after seven years instead of ten.
The bill also has a requirement for the credit reporting agencies to delete any adverse item within 45 days of it being paid or settled. That means if a consumer settles a defaulted credit card debt, it would be wiped from their credit report 45 days after the item was updated to show a zero balance, as if it never existed. Typically if the item is not wiped from a consumer’s account, they can dispute it through the credit bureau.
While these may sound like good changes for the consumer, they might make collections more difficult for businesses. Wiping old debt history from credit reports makes it trickier for a business to know what to expect when entering a new client relationship. Being unable to see a potential client’s entire credit history means that your business will have to be more thorough when establishing business relationships. By establishing a thorough process for collecting contact information and reviewing credit policies with new clients, your business can mitigate risk of taking on new clients in the wake of this new bill.