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CFPB Eyeing National Credit Registry: Should Landlords Worry?

Apr 16, 2021 by Marc Rapport
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The Biden campaign's platform included the idea of creating a public registry for consumer credit that would reside within the Consumer Financial Protection Bureau (CFPB).

Now that it's the Biden administration and the CFPB is re-arming itself after being defanged by the Trump team, is the idea of, what some might say is in effect, nationalizing Equifax (NYSE: EFX), Experian (OTC: EXPGY) and TransUnion (NYSE: TRU) likely to become a reality?

The Biden campaign apparently got the idea of a public consumer credit registry from the Demos think tank, which posted an April 2019 policy brief that argued, "Replacing our failed for-profit credit reporting system with a public credit registry will benefit consumers and reduce racial wealth inequality."

The idea is now being discussed at the bureau, the author of the policy brief, Demos associate director Amy Traub told The Balance, which added that CFPB new director Dave Uejio declined to say whether the bureau was pursuing plans to establish a national public credit registry.

Eliminating built-in bias while lowering barriers

The idea would be to eliminate bias and lower barriers to access to auto and home loans, jobs, and housing options that often include a person's credit score as a critical component in the final decision, including by investment property owners over whether to offer a lease.

The reliance on credit scores for such vital access has drawn scrutiny for years, including research that shows that credit bias creates a cascading effect that can go on for years, negatively affecting families and communities in a kind of self-fulfilling prophecy.

Errors in credit scores are also notoriously hard to correct, it's argued, and the CFPB says that's one of the most frequent complaints the bureau receives from the public. During pandemic-plagued 2020, the number of such complaints went up 54% in a year.

So, advocates for a public registry would argue, let the computers crunch their way to a solution.

"A public credit registry will develop algorithms that diminish the impact of past discrimination, deliver transparent credit scoring, provide greater data security, and offer a publicly accountable way to resolve disputes," the Demos report says.

That sounds great, but a cynic would point out here that an algorithm is no more or less biased or objective than the data that's put in it. There's no shortage of research on that point. Here's but one example: "Algorithm Bias in Credit Scoring: What's Inside the Black Box?"

The Millionacres bottom line

No one is discussing eliminating credit scores altogether, for starters. Plus, there are alternative credit scorers that creditors can turn to besides the ubiquitous big three, and lenders and landlords themselves also can use alternative ways to assess the creditworthiness of a potential borrower or tenant.

For instance, someone's record for paying their utility bills might say more about how they're keeping up with medical bills (the latter is, of course, a prime cause of personal bankruptcy in this country).

Fierce pushback to the idea comes from, not surprisingly, the Consumer Data Industry Association, which said back in September, "A government-owned credit bureau would create a volatile and unstable lending environment, riddled with inconsistent policies, swing back and forth from election to election, leaving consumers with higher prices and limited options for credit."

My hunch is they don't need to fret too much about that happening -- at least not anytime soon.

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