A landmark consumer protection law called the Fair Credit Reporting Act may get a makeover this summer. But the news isn't all good.
Though consumers are likely to get some new safeguards--victims of identity theft may find it easier to clear their names, for example--the law could supplant much stronger state laws, leaving residents of many states with less protection, consumer advocates complain.
At particular risk are residents of states whose governments have provided stronger credit protections than those provided in both the existing and the proposed federal laws, said Ed Mierzwinski, consumer program director for the U.S. Public Interest Research Group in Washington, D.C.
The proposed federal law could preempt these state protections, which range from greater privacy rights to the requirement that credit agencies provide free credit reports. And that rankles consumer advocates.
"We don't think Congress should be in the business of stopping state legislatures from protecting their citizens," said Travis Plunkett, legislative director at Consumer Federation of America. "If nothing is done to grandfather the state laws, we could see a weak federal law displace better state laws. That doesn't protect consumers anywhere."
Retailers, banks and credit card companies say federal law should take precedence to keep requirements uniform and make it easier for companies to operate across state lines.
But consumer advocates contend that state laws should not be preempted unless federal law provides greater protection for consumers.
Thanks to a bill passed by the California legislature, for instance, Californians recently won the right to be promptly notified if the security of their credit data has been breached. California residents also have some of the strongest opt-out laws in the country, allowing consumers to block pre-approved credit offers, among other things.
Residents of six states--Massachusetts, New Jersey, Maryland, Vermont, Georgia and Colorado--have the right to receive a free credit report once a year, Plunkett said. And in Massachusetts, creditors must adhere to tougher reporting standards.
The debate is complicated by the fact that much has happened in the world of credit since the Fair Credit Reporting Act was adopted in 1970. Among other things:
- Identity theft, in which a criminal steals personal and financial information about a person and obtains credit in his or her name, has burgeoned and is now believed to strike as many as 7 million people a year.
- "Tiered" interest rates, which provide low rates to the best credit risks and sky-high rates to people with poor credit, have become common.
All sides agree that something must be done about identity theft. The most recent Fair Credit Reporting Act proposal would address identity theft by blocking credit scars caused by an identity thief from reappearing on a consumer's credit report. It also would mandate that creditors establish some "red flag" guidelines to stop them from issuing credit likely to be fraudulent.
Although consumers nationwide also would gain access to a free credit report once a year under the proposal--something consumer advocates long have sought--Mierzwinski complains that the proposal does not require that the report include the consumer's credit score, even though the score is pivotal to understanding the effect of the data on a person's borrowing power.
But what really has industry and consumer advocates at each other's throats are the issues of privacy and the completeness of data reported to and by credit bureaus.
Advocates believe that consumers should be given broad discretion over the sharing of their personal information, including the right to bar access to their credit files. Retailers and credit providers, who have formed an advocacy group called Partnership to Protect Consumer Credit, say this would hamper their ability to do business, stopping them from sending consumer data to affiliates to process transactions, not to mention to sell related goods and services.
The other bone of contention is whether creditors should be compelled to report complete information about every consumer. Increasingly, creditors are omitting positive credit data, Mierzwinski said.