For many people, a credit report is the most important document in their financial life. It helps determine everything from whether they can get a loan, lease a car, find a job, purchase insurance, or even buy monthly cable television or cell phone service.
Despite these far-reaching impacts, credit reports are sometimes riddled with errors. And those errors can have a real effect on your financial future. Something as simple as having the same name as another individual who failed to pay their bills on time can prevent you from receiving a loan or the lower interest rate for which you’re eligible.
Unfortunately, trying to correct those errors can often become a bureaucratic nightmare. Many consumers complain that they cannot get credit report mistakes fixed, or that errors are removed only to reappear later, sometimes when credit portfolios are sold.
This isn’t a small problem. Consumers have filed almost 150,000 complaints about their credit reports in the last four years, and even conservative estimates suggest that 6 million Americans have errors on their reports serious enough to result in a denial of credit.
The Dodd-Frank financial reform bill seeks to empower consumers and address these issues through stronger oversight and regulations. Under this legislation:
- The new Consumer Financial Protection Bureau that the Dodd-Frank bill creates would have authority to conduct regular examinations of large credit bureaus to evaluate their compliance with basic federal laws such as the Fair Credit Reporting Act.
- Consumers will have the right to get their credit scores for free if they are turned down or charged a significantly higher price for credit than most other consumers because of their scores. This is on top of existing federal law that allows consumers to obtain their detailed consumer reports for free each year to check for inaccurate items and to purchase their credit scores at a reasonable price.
- The Consumer Financial Protection Bureau is required to perform a study and report to Congress on variations in the credit scores that are sold to creditors and to consumers by the three large national consumer reporting agencies to determine whether such variations disadvantage consumers.
These common sense reforms will help protect and empower consumers. Given the important role that credit reports play in all of our financial futures, these initiatives have the capacity to make a real, positive impact in the lives of everyday Americans.
Michael Barr is Assistant Secretary of the Treasury for Financial Institutions