2020 Democratic U.S. presidential candidate and U.S. Senator Bernie Sanders speaks at a campaign event in West Branch, Iowa on August 19, 2019.
Al Drago | Reuters
There might be a new factor in your credit rating: the President of the United States.
Democratic candidate Bernie Sanders wants to eliminate private credit reporting companies and replace them with a government-run credit registry. The proposal was released over the weekend and, at the same time, Sanders announced plans to write off $ 81 billion in overdue medical debt, one of the main issues plaguing Americans’ credit reports. today.
Senator Sanders, I-Vt., Said the public credit registry will be hosted by the Consumer Financial Protection Bureau, the agency established in 2011 to protect Americans from predatory lenders in the wake of the financial crisis. According to Sanders’ campaign, the new system would use a “transparent algorithm to determine creditworthiness that eliminates racial bias in credit scores” and allow Americans to access their credit scores for free. Medical debts would be excluded from people’s reports.
“We must and will remove the profit motive from the assessment of the creditworthiness of US consumers,” said the Sanders announcement.
There are three major private credit reporting companies: Equifax, Experian, and TransUnion. These companies collect data on people’s borrowing habits, including their payment history and any potential bankruptcy or tax lien.
Critics of the current system point to how Equifax’s poor data security practices allowed it to suffer a massive hack in 2017 that led more than 140 million Americans to have their personal information exposed and studies that show the People’s credit reports, which can determine whether they’re hired for a job or how much they’ll pay for a car, are riddled with errors.
“Credit reporting companies have no financial incentive to improve accuracy,” said Amy Traub, associate director of policy and research at liberal-leaning political group Demos, which has advocated for a public registry credit. Sanders’ version, she said, “would serve consumers as its core mission and have a mandate to invest in accurate data.”
Our current credit reporting system also intensifies racial inequalities, Traub said.
For example, credit reports track the time it takes for a borrower to repay a loan, but, Traub said, “the time it takes to repay a loan is based to a large extent on access to family wealth, which is the result of generations of discrimination in employment, loans, education and housing that has produced a huge racial wealth gap. “
(The median family wealth for whites is $ 171,000, compared to $ 17,600 for blacks.)
Half of whites say they are “very confident” that they would be approved for credit, while only 20% of black Americans feel the same. Meanwhile, about 7% of whites with bad credit report that there are errors in their report, compared to 40% of African Americans.
Credit reports on a public ledger could reduce racial bias by relying on new sources of data, such as income, and excluding others, such as late payments on predatory loans, on which people of color rely disproportionately, Traub said.
While he’s not advocating removing medical debt from credit scores entirely, credit expert Ted Rossman said it makes sense to reduce the role it plays.
“This is because the health insurance system is complex and paying off doctor’s bills can take a long time,” Rossman said.
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Overall, Rossman said he was not in favor of dropping the current credit reporting system. “I believe that competition and the free market are good things,” he said.
Supporters of a public credit registry say it will finally bring transparency to credit scores. “Credit reporting companies never reveal exactly how scores are created,” Traub said. “The algorithm is a black box.”
As part of a public registry, she said, “the algorithms used to determine creditworthiness will be publicly available with clear explanations of what consumers can do to improve their credit.”
Traub estimates that it could take seven years to move from a private credit reporting system to a public one, but that the effort would be well worth it.
“I think there is huge frustration in this country with a credit reporting system that is downright hostile to consumers,” she said.
CORRECTION: This article has been updated to show that Bernie Sanders is a Democratic candidate for President of the United States.