In a world of Big Data analytics, debate continues to heat up around the potential of “alternative data” to benefit both businesses and consumers. This hot-button issue has caught the attention of leaders on Capitol Hill. Two congressmen in particular are actively pursuing new legislation that would expand the payment data found in credit reports.
Congressmen Keith Ellison (D-MN) and Mike Fitzpatrick (R-PA) have re-introduced the Credit Access and Inclusion Act. It adds a provision to the Fair Credit Reporting Act (FCRA) intended to encourage utility and telecommunications companies to report their customers’ payment information (both late and on-time payments) to the credit bureaus. According to the bill sponsors, this will remove regulatory uncertainty (e.g., privacy restrictions imposed by state regulatory commissions) that has prevented many businesses from voluntary reporting this payment data.
So what’s the big fuss? The sponsors believe this data will make credit available for millions of consumers who had previously been unable to gain access to credit markets as a result of having insufficient payment activity on their credit reports. The bill sponsors cite extensive research by non-profit think tank Policy Economic Research Council (PERC) that suggests the bill will help raise the credit scores of tens of millions of consumers, including low and moderate income (LMI) individuals. According to PERC, adding one utility account to the credit file would enable the generation of a credit score for 74% of consumers who previously did not have enough credit history to generate one.
PERC asserts that the bill will help consumers across the demographic spectrum. For example, if complete utility and telecommunications payment history was reported to the credit bureaus, PERC found that 15% of 18-25 year-old consumers would go from no credit score to being eligible for a prime rate. The same would occur for 11% of adults over 66 years of age, 15% of Latinos, 10% of African Americans and 7% of renters.
In a Congress that has seen few bills gain the bipartisan support needed for passage, both Congressmen Ellison and Fitzpatrick believe that their legislation will appeal to both parties. In fact, a group of House Democrats and Republicans have already co-sponsored the bill.
However, there are several hurdles still to be cleared. Will the crowded House legislative agenda enable the bill to come up for a vote? If the bill passes in the House, who will champion it in the Senate? And while the bill has a diverse group of supporters, a few consumer groups have raised concerns. They worry that reporting utility payment data may have a negative impact on LMI consumers who might, for example, make late payments during high-cost months or at times of illness or financial hardship.
The bill sponsors are confident that any perceived challenges can be worked out, and that ultimately this legislation will be a “win-win” for everyone, including LMI consumers.
We at FICO always have a keen interest in examining new forms of consumer payment data to determine whether it can provide added predictive value to the FICO® Score and help expand the overall scorable universe. Will a change in the FCRA spark more full-file reporting by utility and telecom companies? Some congressional and industry leaders think so, and as a result, we will follow activities on Capitol Hill closely, and provide an update if there are significant developments with this legislation.
