Expanded reporting for ‘credit invisibles’ could do more harm than good

Recently, the CEO of Experian urged the Senate to take up the Credit Access and Inclusion Act to help the tens of millions of so-called credit invisibles get affordable loans.

Similarly, the sponsors of the House version of this bill have touted it as a way to help consumers with little or no credit history, sometimes called “no files” or “thin files.”

This is a well-intentioned goal, but there is a massive problem: The bill tries to achieve it by nullifying state and federal privacy protections when it comes to reporting utilities or rental housing payment information.

Whatever its ostensible purpose, the actual language of the bill has one objective — to preempt state and federal laws that protect consumers. Some states, for instance, require consumers’ consent when electric or gas utility companies, telephone companies and public housing authorities want to send their payment information to credit bureaus. This kind of payment information can already be reported under the Fair Credit Reporting Act, but it is the individual’s choice in several states.

Of course, Experian’s CEO, Craig Boundy, fails to mention that his company, as well as Equifax and TransUnion, will benefit greatly from this bill. All three credit bureaus would be happy to vacuum up more data without having to comply with state laws that prevent certain gas, electric or telephone companies from sharing customer data without the customer’s permission. The credit bureaus would also be happy to override federal privacy protections for subsidized housing tenants that require similar consumer consent.

Limited-income families struggle to make ends meet. It is far from clear that more credit reporting will assist vulnerable households obtain credit. In particular, gas and electric companies reporting payments may result in negative marks for millions of families — disproportionately families of color — who struggle to pay huge winter heating or summer cooling bills, but catch up on their debts in subsequent months. At present, gas and electric utility companies typically only report accounts that are seriously late, such as those that are written off or sent to collection agencies. These accounts are a small fraction of the total number of accounts with late payments.

Supporters of the bill claim monthly reporting of utility payments will help improve credit reports and have a negative impact on very few consumers. But their claims cannot be reconciled with data actually reported by utility companies. For example, in 2016, in Pennsylvania more than 25% of confirmed low-income electric customers and more than 16% of confirmed low-income gas customers owed debt to their utility company. The average amount of this debt was $620 for electric and $441 for gas accounts. Thus, consumers who get scores from utility companies reporting payment data may, in fact, get negative credit scores. For many low-income consumers who already have a credit score, utility reporting could harm their existing credit histories.

Very seldom do low- to moderate-income families benefit when the credit industry desires to have more information about their financial lives. We should all be skeptical when one of the biggest industry beneficiaries touts the bill in the name of helping those who have the most at stake.