In-Depth: Sen. Amy Klobuchar (D-MN) reintroduced this bill from the 115th Congress to help consumers take proactive steps to correct errors on their credit reports:
"A small mistake on a credit report can have devastating consequences—from higher interest rates to being denied a mortgage, inaccurate credit reports can be incredibly damaging. Our bipartisan legislation will give consumers the tools they need to correct errors on their credit reports so that they can continue their lives and protect their financial futures.”
Original cosponsor Sen. Steve Daines (R-MT) adds:
“A simple error on a credit report can lead to unwarranted trouble for Montana families trying to obtain a mortgage or a loan. We need common sense solutions to streamline the dispute resolution process when an error is made to ensure Montanans have access to affordable credit.”
Writing for CNBC, Aaron Klein, a fellow of Economic Studies and policy director of the Center on Regulations and Markets at the Brookings Institute, argues that three solutions would improve credit reports’ accuracy: 1) changing the liability structure for inaccurate data to impose penalties on chronic misreporters of information; 2) making free credit reports available to all consumers on an annual basis; and 3) using big data and financial technology to lower barriers to entry and increase competition in the credit reporting industry.
This legislation has one cosponsor, Sen. Steve Daines (R-MT), in the 116th Congress. Last Congress, Sen. Klobuchar introduced this bill with Sen. Daines’ support (and no other cosponsors) and it didn’t receive a committee vote.
Of Note: The Federal Trade Commission (FTC) reports that over 25% of consumers’ credit reports contain major errors. That works out to millions of affected consumers left to deal with errors that can lead to affected consumers to receiving less favorable loan terms or even outright denials of credit.
Resolving erroneous credit reports can be time-consuming, and many consumers are forced to live with inaccurate information on their credit reports as they go through the dispute process. Additionally, credit reporting agencies have been criticized for performing lackluster investigations in these cases and providing little additional documentation to parties seeking a consumer’s credit score.
A December 2012 FTC report examining credit reports’ accuracy found that, in many cases, changes to consumers’ credit reports made in response to disputes didn’t have any effect on their credit scores. In the FTC’s study, only 13% of consumers saw a change in their credit scores after resolving their disputes; the other 87% of consumers saw no change in their scores after their disputes were resolved. Additionally, the study found that only 5% of consumers in the study had errors that could affect the likelihood of receiving credit or the credit terms offered to them on their credit reports.
Summary by Lorelei Yang
(Photo Credit: iStockphoto.com / SpiffyJ)