A bill introduced Wednesday by U.S. Rep. Maxine Waters, D-Calif., could loosen mortgage lending restrictions, opening the door to homeownership for millions of Americans.
The draft proposal, titled “Fair Credit Reporting Improvement Act of 2014,” would eliminate medical debt from credit reporting, a move that mirrors a recent shift by FICO to discount medical debt when considering a borrower’s creditworthiness.
In August, FICO (NYSE: FICO) updated its credit score formula to lessen the impact that medical debt has on a person’s credit score, and to help lenders better assess consumers’ credit risk.
Previously, the Consumer Financial Protection Bureau (CFPB) issued a report detailing the impact medical debt can have on a person’s ability to access credit and, in turn, their ability to get a mortgage.
Waters’ bill seeks to enhance requirements on consumer reporting agencies and furnishers that provide them information to ensure credit reports are accurate and complete.
“Credit reports are no longer just used exclusively by lenders in making a credit decision. More and more, credit reports are used in a variety of ways, from employment decisions, to determining a consumer’s ability to rent a home, buy a car, or purchase insurance,” said Waters, ranking member of the House Financial Services Committee. “A person’s credit report is too important in determining access to a wide array of opportunities for these reports to contain inaccurate and incomplete information.”
Along with eliminating medical debt — which has been found to be an unreliable predictor of a person’s creditworthiness — the bill would remove settled debts, shorten the length of time adverse information can remain on a person’s credit report, and remove private student loan defaults after the borrower makes consecutive on-time monthly payments for a certain period of time.
The draft proposal also restricts the use of credit reports for employment purposes, which employers are increasingly using to screen qualified job applicants despite a lack of adequate data to show that a person’s credit is predictive of their job performance, the bill states.
“Over 10 years ago, Congress tried to strengthen consumer protections, but our consumer reporting system still has a number of systemic flaws,” Waters said. “This draft proposal attempts to meet our obligation to ensure that consumers who have fallen victim — or fallen on hard times — are not deprived of the chance to achieve the American Dream.”
Text of the draft proposal can be found here.
Written by Emily Study