Government shutdowns add new wrinkle to credit bureau reform
WASHINGTON — With House Democrats reviving their focus on the credit bureaus, protecting consumers’ financial data has been eclipsed by a new concern about the reporting agencies: the effects of shutdowns on government workers.
Data security remains on the agenda for top lawmakers, and Congress has done little legislatively in response to the massive 2017 Equifax data breach. But amid reports that the recent 35-day government shutdown hurt credit histories, and with a breakdown in budget talks increasing the odds of a second shutdown, the emphasis has shifted somewhat away from cyberthreats.
“We shouldn’t even have to have this discussion,” said Rep. Emanuel Cleaver, D-Mo., who chairs a House Financial Services subcommittee, in a recent interview. “Government employees who have been furloughed should not end up having a tag on their credit because they were unable to pay the bills because the federal government had a nervous breakdown. I’ve shared that with one of the credit rating agencies, but I think we are going to have them all in and have some good discussions.”
Last month, seven Senate Democrats led by Sen. Brian Schatz, D-Hawaii, called on the chief executives of the three major credit reporting agencies to “correct information related to the people impacted by the shutdown.” Their message was that federal employees shouldn’t be penalized on their credit reports for missing payments when they were furloughed.
The effects of the government shutdown — and the potential for another closing — present yet another layer in a broader effort by some policymakers to reform the credit bureaus. At the hearing later this month, the issue could overtake longer-running questions about the industry, including how much control consumers have over their data, expanding financial services options for “credit invisible” individuals and bolstering security regimes to prevent future breaches.
“The issue of the government shutdown’s potential impact on affected federal workers’ credit scores probably will dominate the hearing,” said Quyen Truong, a partner at Stroock & Stroock & Lavan and a former Consumer Financial Protection Bureau assistant director and deputy general counsel. “There is the potential for it to be even more dominant than the privacy and data security issues due to the recent shutdown and the possibility of another shutdown around the corner.”
But some argue that credit bureaus are not in the best position to know if a consumer’s financial struggles are related to the shutdown.
A source close to the credit reporting industry said the messaging toward the credit bureaus regarding federal employees affected by the shutdown should be aimed at banks, since the credit bureaus don’t have the same relationships with consumers that banks have.
“Making sure consumers aren’t harmed by the shutdown is really a bank issue — credit bureaus don’t know who was and who wasn’t impacted by the shutdown,” the industry source said. “Credit bureaus don’t have that kind of relationship with consumers.”
During and after the shutdown, which ended Jan. 25, financial institutions and the credit bureaus reached out to furloughed workers. Several banks announced low-interest loans, forbearance options and other steps to address the needs of affected government workers.
Earlier this month, Equifax announced it would be providing a free credit report service to consumers employed by the federal government who were impacted by the partial shutdown until April 25. This is on top of the free credit report consumers can obtain every 12 months. TransUnion had a dedicated government shutdown phone line and encouraged consumers to talk with their lenders. Experian also encouraged those affected to contact lenders.
Analysts said congressional Democrats may see a linkage between the credit bureaus and headlines about furloughed government workers as a way to bolster the case for reforming the consumer reporting agency.
“They will drive home a message that Republicans, when they controlled the Congress and the White House under Trump, haven’t cared enough about” the need for reform, said Charles Gabriel, an analyst at Capital Alpha partners. “There will be partisan point-scoring that will show the Democrats’ very strong messaging.”
But Gabriel added that that messaging may not have a practical result. “It will unlikely produce legislation,” he said.
Observers expect House Financial Services Committee Chairwoman Maxine Waters to push a broad credit bureau reform proposal that had been introduced in the last Congress.
The wide-ranging bill, the Comprehensive Consumer Credit Reporting Reform Act, would require the CFPB to issue regulations for the development of credit scoring models, require credit reporting agencies to disclose free credit scores to consumers with their free annual consumer reports. It would also establish requirements related to the sale of credit reports, credit bureau disclosures and credit freezes, among other things.
“The hearing will be an opportunity for a significant amount of messaging by various members and, as part of that, you might hear reference to ambitious potential legislative proposals,” Truong said. “But getting to a framework that would gain consensus on these big issues in a divided Congress is very difficult.”
Lawmakers may also push previously introduced proposals for federal data breach notification standards, legislation to give regulators such as the Federal Trade Commission more authority over the credit bureaus, or legislation that would impose mandatory penalties on companies over data breaches. Such proposed measures have failed to gain traction on the floor of the House and Senate.
Proposals to allow information such as rent and phone-bill payments to be included in credit reports could also come into play. But even those proposals, which are aimed at helping low-income individuals and minorities build credit histories, pose implementation challenges.
“A person could have a crappy credit report on their credit card payments, but they have actually made the last 120 rent payments on time,” said Jeff Naimon, a partner at Buckley. “But there are many millions of landlords. There is such an enormous number that getting any consistent data is going to be kind of difficult.”
After all the ill will directed at the credit bureaus after the Equifax breach, some observers say the work the agencies are doing for consumers affected by the shutdown shows them in a better light.
“It’s something that I would expect all three companies to proactively seize upon,” Gabriel said. “To talk about what they are trying to do to be proactive and helpful. I actually think that gives the companies an opportunity to show what they can do positively.”