The system of credit scoring and reporting is definitely in dire need for reform. But just how are we possibly going to get it?
The Dodd-Frank Wall Street Reform and Consumer Protection Act, passed by Congress in 2010, helps to ensure that you are now entitled to a free copy of your credit score if you are refused a loan dependant on that score, and also if you get a high interest rate on a new loan. This is a positive improvement. But what is the motto of nearly every Republican candidate for president? Repeal Dodd-Frank! Meanwhile the Obama administration is less than eager to push on some consumer rights.
Warren conceived CFPB as a watchdog that would oversee credit scoring and reporting practices and function a recourse to consumers. The bureau released a valuable preliminary study in July 2011, which considered how scores purchased by consumers and those shown to lenders can vary, leaving consumers in darkness about their actual credit reliability. We can be thankful that the bureau is doing these continuous inspections. But without Warren at the helm, and given CFPB's positioning within the bank-centric Federal Reserve, its impact will be restricted. The industry, along the politicians it lavishes money upon, will attempt to stymie even its most modest efforts. The bottom line is that any of these types of reforms will be met with a tidal wave of money trying to undo them all.
The truth is that new rules are needed to truly get back out from underneath these credit rating giants. Walker Todd, who spent 20 years within the legal departments from the Fed Banks of NY and Cleveland, assures that to be able to even begin to handle the systemic and structural troubles of the industry, a complete congressional hearing is in order, ideally in three parts, as follows:
1) What do regulators do? Government regulators should declare under oath precisely how they conceive their unique role. (That would be fun to hear)
2) History of the profession. Focus on the way the goal and style of the profession have transformed from the past to the present. This could also address structural adjustments to the banking industry which have resulted in credit reporting chaos.
3) Testimony on misuses. Consumers would get to tell their experiences about the misuses of credit scoring and reporting.
The purpose of the hearing should be to evaluate if current preparations and systems have improved the availability and condition of credit, deteriorated it, or left it approximately the same.
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