US says banks should give consumers credit scores for free
The nation's top financial consumer protection regulator called on banks to give people free access to their credit scores, a move that would shake up the entire credit reporting industry.
Richard Cordray, head of the Consumer Financial Protection Bureau, called for free sharing of credit scores after the CFPB released a report on the prevalence of errors in credit reports and scores.
Consumers are allowed one free look at their credit reports annually at AnnualCreditReport.com, but credit scores generally cost money. And while the scores are based on the data contained in credit reports, few consumers take advantage of the free offer. Only one-fifth of U.S. adults look at their credit reports every year, the bureau said.
Cordray said that disclosing credit scores to consumers would make them more likely to spend time examining their credit report, particularly if the scores are low. In a letter dated Feb. 10 and released Thursday, he called on credit card issuers to make scores available to consumers, potentially as part of monthly bills.
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"We need to get more Americans to pay closer attention to their credit standing, which would benefit lenders, consumers, and the national economy. You can now, relatively easily, help us achieve this goal," Cordray wrote to the banks.
"Although credit scores provide just a partial picture of one's finances, this could raise awareness of credit issues and prompt busy Americans to review their credit standing. If scores are lower than expected, more consumers may take the initiative to request their credit reports, address concerns, investigate errors or fraud-related entries, and improve negative aspects of their credit usage," he said.
The request comes as the CFPB released the latest in a long string of government and private reports calling attention to credit report errors. The agency said it received 31,000 complaints about credit reporting agencies between October 2012 and February 2014, with three-quarters of them related to incorrect information.
Many consumers confuse credit reports and credit scores, and they are equally confused about what they are entitled to see and when. Consumers can see their credit scores in a number of ways. For example, when they apply for a mortgage, lenders must reveal the scores they used in their credit determination.
Consumers also can buy scores through a variety of companies, such as credit monitoring services. A few websites, including Credit.com and Credit Karma, offer free credit scores in exchange for an email address. Discover Card has just began sharing scores with consumers.
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Making free credit scores a reality poses many challenges. For one, short of a new federal law, the banking industry would have to sign on to the idea, and the immediate reaction from the American Bankers Association was not positive.
"There are a variety of ways banks work to educate their customers and help them make the right choices," Ken Clayton, the ABA's chief counsel, wrote in response to an inquiry. "It seems inappropriate for a government agency to endorse one 'good idea' as a best practice and seek to impose it on everyone. ... Attempts to dictate one result once again opens the bureau to criticism that it is picking winners and losers, and is overreaching in its efforts to micromanage the marketplace."
John Ulzheimer, a credit expert at Credit Sesame, said though he admires the CFPB for trying, credit card issuers are not in the best position to offer the scores to the public.
"It certainly would increase their costs," said Ulzheimer, who was previously with Fair Issac, the firm that invented the credit score. "There would be programming costs, and they'd have to deal with the customer service issues when consumers have questions about the scores."
The banking industry will also fight the idea, Ulzheimer said.
"I think they are not terribly pleased with that letter and that press release today," he said. "The bureaus will not be very happy about this."
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Giving away scores would ruin a lot of business models. Free scores are the most attractive part of many $10-per-month credit monitoring services.
Credit card issuers cannot just give away scores, which are generally governed by nondisclosure agreements. New agreements would have to be signed.
There's also the important point that consumers may have dozens of scores, which are not all created equal. Many banks, insurers and other entities create their own score. Which would the CFPB require banks to provide?
Cordray said the rewards outweigh the disadvantages, howerver, and that consumers need full access to scores to have a fuller picture of their financial standing.
"Credit reports and scores can determine the terms of people's mortgages, whether they qualify for auto loans or if they are eligible for different credit cards," Cordray said. "Making consumers' credit scores freely available on their monthly statement or online makes it easier for them to spot problems with their credit report."