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CBA Letter for the Record for HFSC Markup 7.11.19
July 11, 2019
The Honorable Maxine Waters
Committee on Financial Services
2129 Rayburn House Office Building
U.S. House of Representatives
Washington, D.C. 20515
The Honorable Patrick McHenry
Committee on Financial Services
4340 O’Neill House Office Building
U.S. House of Representatives
Washington, D.C. 20515
Dear Chairwoman Waters and Ranking Member McHenry:
On behalf of the Consumer Bankers Association (CBA), I write to share our comments on the following bills for July 11, 2019 House Financial Services Committee markup: The Student Borrower Credit Improvement Act, The Restoring Unfairly Impaired Credit and Protecting Consumers Act, The Clarity in Credit Score Formation Act, The Improving Credit Reporting for All Consumers Act, and The Restricting Credit Checks for Employment Decisions Act. We appreciate the committee’s attention to ensuring the credit reporting system works well for American consumers, we are concerned these bills will have unintended effects on the availability of consumer credit and have cited our position on individual bills below.
CBA is the voice of the retail banking industry whose products and services provide access to credit for consumers and small businesses. Our members operate in all 50 states, serve more than 150 million Americans, and collectively hold two-thirds of the country’s total depository assets.
Student Borrower Credit Improvement Act
CBA opposes the Student Borrower Credit Improvement Act as the private student loan rehabilitation process it creates is unnecessary given the very strong performance of private student loans (less than 2% charge off) and duplicative of the process created by the recently enacted the Economic Growth, Regulatory Relief and Consumer Protection Act (Pub. L. 115-174). This bill would layer new student loan rehabilitation provisions over the existing framework, while granting broad new authority to the CFPB to implement the programs and determine the amount of borrower payments.
Student loan debt in America stands at $1.6 trillion – 92% of that total is held by the federal government and the remaining 8% is held by private lenders. Ninety-eight percent of private student loans are being successfully repaid due to strong upfront disclosures and underwriting as well as targeted repayment assistance tools that effectively help the very small subset of private loan customers experiencing financial distress avoid default. While well intended, this legislation could in fact work to undermine existing repayment assistance tools as lenders might have to divert financial and organizational resources to manage the mandatory loan rehabilitation programs. It would be unfortunate if private student loan borrowers were steered into programs that reverse default at the price of access to programs that prevent default in the first place. Federal student loan borrowers, on the other hand, are struggling – collectively experiencing double-digit delinquency and default rates. The fact is there is a federal student loan crisis and this legislation diverts attention away from addressing the roots of the problem.
Furthermore, this bill would drastically limit the information available to lenders regarding student loan accounts, thereby making student lending riskier and reducing access to credit for higher education. When lenders cannot accurately assess the credit risk associated with consumers seeking a student loan, they will ultimately underwrite fewer loans, and those loans will likely have higher interest rates to compensate for the increased risk.
Restoring Unfairly Impaired Credit and Protecting Consumers Act
CBA opposes provisions in the Restoring Unfairly Impaired Credit and Protecting Consumers Act which seek to remove legitimate information from consumer credit reports. It is important that a consumer’s credit report be an up-to-date, accurate, and complete credit history for lenders to determine a consumer’s ability to repay a loan. Lenders consider many factors when determining credit risk and may weigh credit data differently depending on their individual underwriting models. However, lenders are unable to properly identify and manage risk when the use of certain data is restricted. For instance, the bill’s reduction in the amount of time adverse information can stay on reports and the ability to clear certain adverse information harms lenders’ ability to make informed credit decisions. Lenders constantly update credit models to paint the most complete picture of a consumer’s creditworthiness, and overly restrictive limits on the data lenders may use to make credit decisions will harm both lenders and consumers throughout the credit process.
Additionally, there could be safety and soundness implications of this bill, as lenders make loans with less information, leading to loans that may be at greater risk for default. Lending involves risk; sound underwriting practices insulate financial institutions from excessive risks that lead to increased credit losses. Reduced credit losses lead to safer and better-priced products for those consumers who can truly manage them.
Furthermore, the bill provides new authority to the Consumer Financial Protection Bureau (CFPB) to determine the validity of cases of student loan borrowers claiming they have been defrauded by their institutions of higher education. CBA strongly supports efforts to eliminate fraudulent practices by institutions of higher education and to correct inaccurate credit reports. However, the approach taken grants the CFPB new authority to determine fraudulent claims despite the courts’ current authority to do so. As a result, this legislation would create a confusing and conflicting set of rules for borrowers, schools, and lenders alike. A greater understanding of the impact this language would have on stakeholders and the need for the Bureau to be granted this new authority should be studied by policymakers before the passage of this legislation.
Clarity in Credit Score Formation Act
CBA is concerned legislation granting the CFPB oversight of the credit modeling process could weaken the credibility of credit reports on which lenders rely. Credit scores are used by lenders to determine the risk of a borrower by considering a variety of historical and current financial data points. Sound underwriting principles rely on the accuracy of credit score data and the models the credit reporting bureaus have perfected over time to predict risk. Granting the CFPB broad control over the modeling process with the ability to change how credit scores are calculated, with little to no input from stakeholders, could potentially erode lender trust in credit scores for underwriting purposes and increase consumers’ loan costs due to increased risk across the system. We encourage the committee to reevaluate the need for this legislation and its impact on underwriting.
Improving Credit Reporting for All Consumers Act
CBA opposes the Improving Credit Reporting for All Consumers Act. Section 110 of the bill, “Injunctive Relief for Victims,” is particularly concerning because it undermines the primary authority of the CFPB and Federal Trade Commission (FTC) to enforce the Fair Credit Reporting Act (FCRA) in a manner consistent with maintaining a nationwide credit reporting system that benefits businesses and consumers. Congress enacted FCRA in 1970 with emphasis on ensuring fairness, accuracy, and efficiency within the banking system, and in doing so specifically granted the federal regulators alone the right to pursue injunctive relief for violations, thus avoiding the possibility of multiple courts issuing conflicting orders. Adding this authority to existing remedies for FCRA violations, including fines and other serious penalties, is unnecessary and will have no impact on improving credit reporting for consumers. As depository institutions supervised by prudential federal regulators with deep expertise and experience in financial markets, CBA members are concerned with the potential this legislation creates for unlimited injunctive authority to impair nationwide financial systems.
CBA is also troubled by Section 104(d) of the bill, “Eliminating Furnishers’ Authority To Dismiss Disputes As Frivolous or Irrelevant.” This section would entirely remove a cost effective and efficient process by which furnishers can follow steps mandated under federal law to distinguish false or illegitimate disputes from actual consumer problems that should draw focus and proper inquiry. For disputes in which no new information is provided, or the same information is provided multiple times, furnishers may follow this well-established and regulated process to reasonably determine there is no merit to the dispute, and then provide a timely notification (no more 5 business days) providing their reasoning along with supporting documentation. Eliminating this process will require all future frivolous or irrelevant disputes to go through a full investigation and appeals process, drawing significant resources away from legitimate concerns and significantly raising costs, while ultimately generating the same result in these disputes.
Restricting Credit Checks for Employment Decisions Act
Financial depository institutions offer a variety of products to help consumers and businesses gain access to credit and fulfill their financial goals. In order to help our customers reach these goals, bank employees may need access to funds, confidential company information and sensitive customer data. The protection of customer information and funds is of the highest importance at our member institutions, which is why it is imperative bank employees undergo a thorough vetting process. During this process, it may be necessary for an employer to view a credit report to evaluate the financial stability of a future employee for the purpose of preventing fraud. H.R. 3614 raises serious concerns because it would diminish a bank’s ability to review a potential employee’s credit history, limiting insight to their financial stability and restricting a bank from making an informed hiring decision.
The Free Credit Scores for Consumers Act
CBA is concerned the Free Credit Scores for Consumers Act could require massive reworking of loan origination processes at our member institutions. Today, consumers can apply for a loan online and enter into a loan agreement in the same day via online decisioning models. Inserting a new requirement to disclose credit reports within a specific time frame or even before a loan agreement is made would disrupt these automated origination processing systems and add considerable new process and coding costs. Additionally, this legislation would grant the CFPB new authority to regulate the development of credit scores, which has the potential to compromise the accuracy of the reports and our lenders’ reliance on them. CBA urges the committee to take these views into consideration and reexamine the necessity for imposing on lenders this new and significant burden to supply credit reports when they are already made available via the credit reporting agencies.
On behalf of our members, I would like to thank you for your consideration of our concerns. We look forward to working with you to foster a vibrant lending market which promotes consumer access to credit.
President and CEO
Consumer Bankers Association