Congress Considers Changes to FCRA to Expand Consumer Credit Files and Limit Use of Credit Reports for Employment Decisions
By: Eline Declerck
This article written by Jeffrey Rood of Carltonfields discusses two bills amending the Fair Credit Reporting Act that are currently making their way through Congress: “the Credit Access and Inclusion Act,” introduced on December 12, 2015, and “the Equal Employment for All Act,” introduced on September 16, 2015. Both bills are intended to benefit consumers.
The purpose of the Credit Access and Inclusion Act is to encourage utility and telecom companies and landlords to furnish all payment data, both positive and negative, to Credit Reporting Agencies (“full-file reporting”). Research has shown that most utility and telecom companies either report only negative information (delinquencies, defaults, and collections), or do not report at all. This is mainly caused by regulatory uncertainty on the legality of furnishing data to Credit Reporting Agencies. The amendment aims to address that uncertainty by affirmatively allowing full-file reporting.
Supporters of the bill argue that the increased reporting will help consumers with little credit history but who have a record of paying their utility, telecom, and rent payments on time. A more complete credit history will increase their access to affordable credit markets. Opponents however believe that the supporters are underestimating the number of consumers that will see their credit score lowered by this increased reporting. They disagree with the assertion that a low credit score would be better than no score, especially given the impact on employment chances and loans.
Given that both arguments have merit, a compromise could consist of permitting consumers to voluntary opt-in to full-file reporting – an option also mentioned in the article and which the opponents are not opposing. A voluntary opt-in would put consumers in control rather than giving utility and telecom providers a too broad discretion. It would allow consumers to benefit from full-file reporting while protecting those consumers who would be worse off. It would also be consistent with existing legislation in certain States that are prohibiting utility and telecom providers from sharing payment data without the customer’s consent.
The Equal Employment for All Act is intended to limit employers’ ability to use credit reports for “employment purposes,” one of the statutorily permissible purposes under the Fair Credit Reporting Act. The amendment would prohibit the use of consumer credit checks against prospective and current employees for the purposes of making adverse employment decisions. The bill follows the trend of State legislations that are increasingly limiting employers’ ability to use credit reports for employment purposes.
Support of the bill argue that credit reports are often inaccurate and claim that they bear little to no correlation to job performance or ability to succeed in the workplace. Opponents say that use of credit reports for employment purposes is limited and underline their importance for employees who are in charge of financial assets. Also, at least one study shows that living beyond one’s means and experiencing financial difficulties are the two biggest indicators of employee fraud.
Again, both sides seem to have valid arguments. A possible compromise could be to include limited exceptions to the prohibition for employee positions in charge of financial assets or especially vulnerable to employee fraud. But according to the article, this bill has little change of passing in the current Congress. Unlike the Credit Access and Inclusion Act, this bill does not have bipartisan support and similar legislation stalled in Congress in 2010.
The discussions regarding these amendments show the difficulties in regulating consumer data flows, especially in the context of credit reports. Credit reports are of significant importance for consumers as they directly impact their ability to loan money, find employment and rent an apartment. Credit reports should be accurate and consumers prefer having control over which data is reported and for which purposes they are used. Banks, employers and landlords on the other hand want to receive as much information as possible in order to be able to take informed decisions and limit their risks. Finding common ground and establishing rules suitable for all situations is not an easy task.