House consumer-credit bill offers many needed safeguards

THE MOST significant federal changes to the rules of consumer credit in decades - covering everything from your mortgage application to the scourge of identity theft - are now heading for passage on Capitol Hill.

If the bill is approved by the House next month, as expected, and the Senate later this fall, consumers in all 50 states and the District of Columbia will receive credit-related protections they've never enjoyed before.


Tops on the list: the right to obtain free copies of your credit reports, upon request once a year, from the three big national credit repositories - Equifax, Experian and Trans Union. Currently, only a handful of states provide their residents that right, and federal law doesn't require a free credit report unless an applicant is rejected for a loan.

But the bipartisan Fair and Accurate Credit Transactions Act of 2003 (H.R. 2622) would mandate annual free credit reports for anyone who wants them, anywhere in the country.


All they'd need to do is ask.

The bill also would require disclosure of credit scores used in connection with loan application decisions, much like the current requirement that exists under California law.

Better yet, if you forget to ask for your credit score when you request your free annual credit file, each credit repository would be required to notify you that you have the right to obtain your score, along with an explanation of any factors that are depressing your score.

Special notifications to consumers would be required whenever excessive "inquiries" - credit checks by potential creditors or others - are lowering their scores significantly.

Still another important new consumer protection that would be provided by the bill: Under an amendment by Democratic Rep. Gary L. Ackerman of New York, creditors would be required to notify you whenever they are sending derogatory information about your account to any of the national repositories. If retained in the final legislation, this could be a key tool in alerting borrowers to misinformation in their credit files.

To illustrate, say the bank that holds your home-equity line fouls up your records and believes it received your last three monthly payments 30 days late. In fact, however, the payments were all sent on time.

Under current credit-reporting rules, the bank would simply report its erroneous late-payment information to the big three credit repositories, instantly lowering your credit scores.

You would not have the slightest idea about the foul-up, at least not until you applied for credit, home or auto insurance. Or worse, your credit card companies might spot your plummeting score and jack up the interest rate on your monthly balances - all because of misinformation supplied by your bank behind your back.


Under the Ackerman amendment, you'd know early in the process that your home-equity lender messed up the facts. You'd be able to contact the bank and demand that it immediately correct your files at all three credit repositories.

You could also inform the repositories that the late payments were erroneous, and ask them to verify that with the bank and expunge them immediately.

The forthcoming bill would also give new support to one of the most helpful tools that mortgage applicants can use to correct erroneous credit files and artificially depressed scores - so-called "rapid re-scoring."

Say you apply for a mortgage to buy a new house. Your loan officer submits the application through an electronic underwriting system, such as those used by giant investors Fannie Mae and Freddie Mac.

Unknown to you, there is misinformation in your credit files - mixed-up names, mistaken accounts and non-payments. Your score is too low to obtain a standard market interest rate, and your loan officer suggests you apply for a high-rate "sub-prime" mortgage.

Under current rules, you can ask the loan officer to show you the credit file data he or she obtained. You can point out the inaccuracies. But you'd be hard-pressed to get the errors on your files corrected quickly enough to qualify for the market interest rate you want, especially in a rising-rate environment such as today's.


Enter rapid re-scoring: You can ask your loan officer to request a re-scoring of your file that will correct the underlying errors and raise your scores quickly enough - probably within 72 hours - to obtain the mortgage rate you deserve.

The loan officer merely has to contact any one of dozens of qualified local and regional credit bureaus around the country to re-score your files, based on documentary evidence of the mistakes confirmed by the creditors involved. (For information on participating bureaus, loan officers can contact the National Credit Reporting Association, Individual borrowers cannot contract with credit agencies to perform re-scorings.)

The new bill re-emphasizes federal support for the role of re-scoring bureaus like these, explicitly permitting them to conduct "their own reinvestigations of consumer disputes."

Ken Harney's e-mail address is kharney@winstar