The national system of credit rating and scoring is unquestionably in dire straights and needs reform. But exactly how shall we do it?
The Dodd-Frank Act went by Congress this year, guarantees that you're now qualified for a free copy of the credit reports if you're declined financing according to that score, or a rate of interest on the new loan that is drastically high. This really is an improvement. But what's the mantra of virtually every Republican candidate? Repeal Dodd-Frank! Meanwhile the federal government is under prepared to move on most consumer rights.
Warren conceived CFPB as a watchdog that would oversee credit scoring and reporting practices and function a recourse to consumers. The bureau released a valuable preliminary study in July 2011, which considered how scores purchased by consumers and those shown to lenders can vary, leaving consumers in darkness about their actual credit reliability. We can be thankful that the bureau is doing these continuous inspections. But without Warren at the helm, and given CFPB's positioning within the bank-centric Federal Reserve, its impact will be restricted. The industry, along the politicians it lavishes money upon, will attempt to stymie even its most modest efforts. The bottom line is that any of these types of reforms will be met with a tidal wave of money trying to undo them all.
The truth is that new rules are needed to truly get back out from underneath these credit rating giants. Walker Todd, who spent 20 years within the legal departments from the Fed Banks of NY and Cleveland, assures that to be able to even begin to handle the systemic and structural troubles of the industry, a complete congressional hearing is in order, ideally in three parts, as follows:
1) Job of regulators in the industry. Regulators will come in and confirm under oath just how they conceive their role. (You get a highest possible chance of embarrassment here.)
2) History of the industry. Center on how the purpose and design of the industry have changed from the pre-1990s to the present. This part would also address structural changes in the banking industry which make credit reporting a mess.
3) Testimony about misuses. Customers would retell of their accounts concerning the misuses of credit ratings and reporting.
The general reason for the hearing is to identify whether current plans and systems have helped the credit lending process, degraded it, or left it roughly exactly the same.
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