Congress Considers Changes to FCRA to Expand Consumer Credit Files and Limit Use of Credit Reports for Employment Decisions

by Carlton Fields
Contact

Two bills amending the Fair Credit Reporting Act (FCRA) intended to benefit consumers are making their way through Congress. H.R. 4172, "The Credit Access and Inclusion Act of 2015," has bipartisan support, although it is opposed by certain consumer groups. H.R. 3524, the "Equal Employment for All Act of 2015," is a Democratic-supported bill with far less chance of becoming law.

H.R. 4172 – "The Credit Access and Inclusion Act of 2015"

H.R. 4172,1 introduced by Representative Keith Ellison (D-MN) along with 20 bipartisan cosponsors, has the stated purpose of amending the FCRA "to clarify Federal law with respect to reporting certain positive consumer credit information to consumer reporting agencies (CRAs), and for other purposes."2 According to the sponsors, H.R. 4172 "would allow utility and telecom companies and landlords to report on-time payment data to [CRAs] – helping those with little to no credit build their credit scores based on a full picture of their payment history."3

Supporters argue consumers will benefit from increased reporting of credit information.

Furnishing all payment data, both positive and negative, to CRAs is known as "full-file reporting."4 While utility and telecom companies are major consumers of credit reports, most either report to CRAs "only negative information (delinquencies, defaults, and collections,) or do not report at all.5" Regulatory uncertainty on the legality of furnishing data to CRAs was identified as "the primary policy barrier to sharing energy utility and telecommunications data with CRAs."6 H.R. 4172 addresses that uncertainty by affirmatively allowing full-file reporting.

Supporters of full-file reporting for telecom and utility providers, or whose research supports the expanded use of "alternative" or "nontraditional" data like recurring payments for rent, utilities, and telecom service,7 as would be allowed under H.R. 4172, believe furnishing positive and negative payment history will increase the amount of credit history reported for millions of Americans, allowing for more affordable access to credit.8 The CFPB estimated that as of 2010, roughly 26 million Americans are without a credit history, and roughly 18 million more have credit history that is too thin or too old to be scored.9 Players in the credit reporting industry, whose support is highlighted on one of the bill sponsor's website, believe H.R. 4172 will improve the credit history of those Americans who have been termed "credit invisibles."10 

Increased reporting from utility and telecom companies could help expand consumer credit histories, as these industries' concentration makes widespread data collection by CRAs feasible, and the vast majority of Americans, including those without much credit history, have utility and telecom services.11 Supporters claim full-file reporting from utilities and telecom services can increase access to credit for, as of 2011, the "as many as 75 million Americans who are excluded from the mainstream credit system not because of bad credit history, but rather due to a lack of information."12 H.R. 4172's sponsors believe "nearly 100 million Americans would be able to establish a credit score, or raise their existing score" if H.R. 4172 was implemented.13 

H.R. 4172 states in relevant part:

"(f) Full-File Credit Reporting. –

(1) IN GENERAL. – . . . notwithstanding any other provision of law, a person or the Secretary of Housing and Urban Development may furnish to a consumer reporting agency information relating to the performance of a consumer in making payments –

(A) under a lease agreement with respect to a dwelling, including such a lease in which [HUD] provides subsidized payments for occupancy in a dwelling; or

(B) pursuant to a contract for a utility or telecommunications service."

. . .

"(3) PAYMENT PLAN – An energy utility firm may not report payment information to a [CRA] with respect to an outstanding balance of a consumer as late if –

(A) the energy utility firm and the consumer have entered into a payment plan . . . with respect to such outstanding balance; and

(B) the consumer is meeting the obligations of the payment plan, as determined by the energy utility firm."

Opponents argue consumers will be harmed by increased reporting of credit information.

The bill's opponents, including consumer groups like the National Consumer Law Center (NCLC), believe this increased reporting will actually harm consumers instead of helping them.14 Currently, at least three states prohibit utility or telecom providers from sharing a customer's payment history or financial information to CRAs without the customer's consent.15 The bill will preempt those laws by permitting utility and telecom providers to furnish such information to CRAs. 

The NCLC outlined its concerns with H.R. 4172 in a letter of opposition written to Congress on September 8, 2015. It is noteworthy that the NCLC does "not oppose permitting consumers to voluntarily opt-in to utility credit reporting or efforts to include certain other types of 'alternative data,' such as rental data if reported appropriately."16

The NCLC's first concern is that H.R. 4172 will preempt state privacy laws prohibiting the furnishing of payment information from utility customers, as well as set a "dangerous precedent by encroaching on long-standing state jurisdictional authority over gas and electric utilities."

Next, the NCLC believes the data that proponents cite to show how few consumers have late utility payments, and therefore how few consumers will see their credit score lowered by H.R. 4172, is inaccurate. Moreover, the NCLC disagrees with proponents' assertions that a low credit score is better than no score, as a negative credit report can hurt employment chances and a low credit score makes consumers vulnerable to predatory lending.

Lastly, the NCLC is concerned that full-file utility credit reporting will harm the credit scores of consumers "retaining service and paying late under terms of state-sanctioned protections." Reporting "threatens consumers with black marks on their credit reports even when state law provides for protection against disconnection of service." Moreover, although H.R. 4172 prevents utilities from reporting late payments when a consumer is making payments according to a payment plan, the utility is given full discretion over whether the consumer is meeting the obligations of the payment plan. NCLC opposes what it considers "broad utility discretion," and notes a "lack of consumer[] ability to dispute a utility's determination."

Concluding thoughts on H.R. 4172 and its effects on CRAs and financial institutions.

H.R. 4172 stands to help consumers with little credit history but a record of paying their utility, telecom, and rental payments on time. Consumer groups like the NCLC highlight the negative effects of a low credit score or poor credit report, whereas proponents cite the benefits of a more complete credit history, including increased access to affordable credit markets. In addition, a Brookings Institute study showed how lenders can benefit from a more complete credit history available due to full-filing reporting, which in turn has a positive effect on the whole economy.17 The study concluded that incorporating full-file utility and telecom payments in traditional consumer credit reports would significantly lower a lender's default rate. Finally, CRAs will have more data to sell, and their reports will be even more predictive, as the Brookings Institute study showed. As various industries clamor to use Big Data to better serve their clients, be it through underwriting by insurers or lending by financial services companies, CRAs will find opportunities to generate value by receiving full-file reporting under H.R. 4172.

H.R. 3524 – "Equal Employment for All Act of 2015"

H.R. 3524, introduced by Representative Steve Cohen (D-TN) with only Democratic support, would "amend the Fair Credit Reporting Act to prohibit the use of consumer credit checks against prospective and current employees for the purposes of making adverse employment decisions."19 H.R. 3524 will, with limited exceptions, prohibit CRAs from furnishing a consumer report to an employer "if the employer seeks to use such information in a denial of employment or any other decision made for employment purposes."20 Supporters argue credit reports are "often inaccurate and bear little to no correlation to job performance or ability to succeed in the workplace."21 Opponents argue the use of credit reports is limited, and is especially important for employees who are in charge of financial assets. At least one study showed living beyond one's means and experiencing financial difficulties are the two biggest indicators of employee fraud,22 and companies lose a median of 5 percent of their annual revenue due to employee fraud.23

Currently, employers may request and use a credit report from a CRA "for employment purposes," which is a statutorily "permissible purpose" under the FCRA.24 "Employment purposes" include using a consumer report to evaluate a consumer for employment, promotion, reassignment or retention as an employee.25 Employers and CRAs must follow detailed procedures under the FCRA to use credit reports in such a manner.26 Even when all procedures are followed, the EEOC has filed suit under Title VII of the Civil Rights Act of 1964 when adverse employment decisions based on consumer reports have a disparate impact on minorities.27

While this bill has little chance of passing in the current Congress, and similar legislation stalled in Congress in 2010,28 states are increasingly limiting employers' ability to use credit reports for employment purposes.29 Because of the minefield of technical FCRA procedures and new state legislation, it is prudent for employers to consult a well-versed attorney to develop a systematic approach to requesting consumer reports and making employment decisions based on them.

 

[1] H.R. 4172, 114th Cong. (2015).

[2] A nearly identical bill, H.R. 3035, 114th Cong. (2015), was introduced by Rep. Ellison on July 14, 2015. On December 3, 2015, the bill was reintroduced as H.R. 4172, and referred to the House Committee on Financial Services. Its Senate companion, S 2355, was introduced by Sen. Mark Kirk (R-IL) and is cosponsored by Sen. Joe Manchin (D-WV), and was referred to the Committee on Banking, Housing, and Urban Affairs. In 2013 a similar bill, H.R. 2538, 111th Cong. (2013), was introduced in the House, but failed to make it out of the House Committee on Financial Services. https://www.congress.gov/bill/113th-congress/house-bill/2538/all-actions   

[3] Reps. Ellison, Fitzpatrick introduce bipartisan Credit Access and Inclusion Act. July 14, 2015. https://ellison.house.gov/media-center/press-releases/reps-ellison-fitzpatrick-introduce-bipartisan-credit-access-and

[4] See Katherine Lucas McKay, Policy Update: Full-file Credit Reporting. Corporation for Enterprise Development. July 13, 2011. http://cfed.org/blog/inclusiveeconomy/policy_update_full-file_credit_reporting/#; Terry W. Clemans, Pending Credit Legislation Shows Congressional Extremes with Regard to Credit Knowledge. December 22, 2015. http://nationalmortgageprofessional.com/news/56977/pending-credit-legislation-shows-congressional-extremes-regard-credit-knowledge.

[5] The Brookings Institute, Give Credit Where Credit is Due – Increasing Access to Affordable Credit Using Alternative Data, at 37. December 18, 2006.    http://www.brookings.edu/~/media/research/files/reports/2006/12/communitydevelopment-turner/20061218_givecredit.pdfSee also Katherine Lucas McKay, Policy Update: Full-file Credit Reporting; Terry W. Clemans, Pending Credit Legislation Shows Congressional Extremes with Regard to Credit Knowledge.

[6] The Brookings Institute, Give Credit Where Credit is Due at 37.

[7] Id. at 2.

[8] Id. at 3; Reps. Ellison, Fitzpatrick introduce bipartisan Credit Access and Inclusion Act; Katherine Lucas McKay, Policy Update: Full-file Credit Reporting; Terry W. Clemans, Pending Credit Legislation Shows Congressional Extremes with Regard to Credit Knowledge.

[9] The CFPB Office of Research, Data Point: Credit Invisibles, May 2015, at 6. http://files.consumerfinance.gov/f/201505_cfpb_data-point-credit-invisibles.pdf

[10] Senators Kirk, Manchin, and Representatives Ellison, Fitzpatrick introduce Bipartisan, Bicameral Bill to Expand Access to Credit, December 8, 2015. http://www.kirk.senate.gov/?p=press_release&id=1583#.

[11] The Brookings Institute, Give Credit Where Credit is Due at 9.

[12] Katherine Lucas McKay, Policy Update: Full-file Credit Reporting.  In its 2006 publication, The Brookings Institute reported 35 million to 54 million Americans were outside the mainstream national credit system due to little or no credit information in their credit files. The Brookings Institute, Give Credit Where Credit is Due at 6.

[13] Reps. Ellison, Fitzpatrick introduce bipartisan Credit Access and Inclusion Act.

[14] See National Consumer Law Center, Re: H.R. 3035, Credit Access and Inclusion Act (oppose), September 8, 2015. http://www.consumer-action.org/downloads/coalition/OpposeHR3035HFSCletter.pdf

[15] Cal. Pub Util. Code § 2891 (prohibiting telephone company from making available its customer's credit or other personal financial information without customer's consent); N.J. Stat. Ann. § 48:3-85(b)(1) (prohibiting electric or gas utility disclosure, sale or transfer of customer’s proprietary information, including, but not limited to, customer's name, address, telephone number, energy usage, and electric power payment history, to a third party without the consent of the customer); Wis. Stat. § 196.137 (prohibiting municipal utilities from releasing "customer information" without the customer's consent except in specific situations).

[16] National Consumer Law Center, Re: H.R. 3035, Credit Access and Inclusion Act (oppose).

[17] The Brookings Institute, Give Credit Where Credit is Due at 3.

[18] H.R. 3524, 114th Cong. (2015).

[19] Id.

[20] Id.

[21] Cohen-Warren Bill to Protect Job Seekers from Credit-Based Discrimination Introduced in the House, September 16, 2015. http://cohen.house.gov/press-release/cohen-warren-bill-protect-job-seekers-credit-based-discrimination-introduced-house. See also Remarks of Sarah Crawford, Lawyers Committee for Civil Rights Under Law, and Statement of Chi Chi Wu, National Consumer Law Center. U.S. E.E.O.C. Meeting of October 20, 2010 – Employer Use of Credit History as a Screening Tool. http://www.eeoc.gov/eeoc/meetings/10-20-10/.

[22] Association of Certified Fraud Examiners, 2008 Report to the Nation on Occupational Fraud and Abuse, at 5. http://www.acfe.com/uploadedfiles/acfe_website/content/documents/2008-rttn.pdf.

[23] Lester Rosen and Thomas Ahearn, Credit Reports: Is it Discriminatory for Employers to Use Credit Reports for Employment Screening?, Employment Screening Resources (ESR), November 7, 2013. http://www.esrcheck.com/Articles/States-with-Laws-Regulating-Credit-Reports-for-Employment/186/.

[24] 15 U.S.C. § 1681b(a)(3)(B).

[25] § 1681a(h).

[26] Statement of Maneesha Mithal, FTC Bureau of Consumer Protection, U.S. EEOC Meeting of October 20, 2010 – Employer Use of Credit History as a Screening Tool. http://www.eeoc.gov/eeoc/meetings/10-20-10/.

[27] See E.E.O.C. V. Freeman, 778 F.3d 463 (4th Cir. 2015).

[28] See S.A. 3795, 111th Cong. (2010). https://www.congress.gov/amendment/111th-congress/senate-amendment/3795/text.   See Federal Bill Seeks to Ban Credit Report Checks for Most Employment Screening, Employment Screening Resources (ESR), May 12, 2010. http://www.esrcheck.com/wordpress/2010/05/12/federal-bill-seeks-to-ban-credit-report-checks-for-most-employment-screening/.

[29] Representative Cohen's office reported that eleven states and the City of New York already have laws similar to H.R. 3524. September 16, 2015. http://cohen.house.gov/press-release/cohen-warren-bill-protect-job-seekers-credit-based-discrimination-introduced-houseSee also Credit Reports: States with Laws Regulating Credit Reports for Employment, Employment Screening Resources (ESR), December 1, 2015. http://www.esrcheck.com/Articles/States-with-Laws-Regulating-Credit-Reports-for-Employment/186/.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Carlton Fields | Attorney Advertising

Written by:

Carlton Fields
Contact
more
less

Carlton Fields on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.