Thank you John for your kind words. I am glad to be back in Atlanta for the HOPE Global Forum. It is great to be here with you and to know you share similar goals and ideals for our society. The thread that links the Consumer Financial Protection Bureau to Operation HOPE is the hard and important mission of empowering the economically vulnerable among us.
We are all aware that it is expensive to be poor. Even those who do have a job can work long hours for low wages and still not make enough to get by. And those shut out of the mainstream financial system may have to pay a big chunk of their income before they can even have the use of their own money.
Many of these same people are also blocked from access to credit. Our research shows that 45 million people do not have credit records that can be scored, and thus can be regarded as “credit invisibles.” Together, they make up almost one in five adults in this country, and are more likely to be African-American or Hispanic and to live in low-income neighborhoods.
A limited credit history also makes it harder to withstand financial shocks and achieve financial stability. When people face an emergency and have to borrow without access to traditional credit products, they may use higher cost alternatives to bridge the gap.
These things weigh heavily on people’s lives. The emotional cost is unknowable, but it no doubt produces mounting feelings of frustration and helplessness. The doctrines of equality that mark the aspirations of our political life in America can ring quite hollow in the economic realm.
Our country is founded on the principle of equal opportunity and the right to “life, liberty, and the pursuit of happiness.” We are nurtured by the promise of upward mobility and the notion that our society has done away with any formal class or caste system. We like to suppose that anyone, regardless of their beginnings in life, can climb the economic ladder through merit and hard work. As Horatio Alger described it in his “rags to riches” stories, we want to believe that with some “luck and pluck,” we can all hope to “strive and succeed.”
But in the non-fiction world, for too many people the concept of upward mobility is more of a tantalizing taunt than a tangible prospect. Economic injustices too often deny opportunity, drain wealth, and damage communities. They prolong and heighten the racial disparities that already exist in America. For white households, median income is $60,000; for African-American households, it is $35,000. White households in America have an average net worth of $134,000, but African-American households average just $11,000. Home ownership and home values show similar patterns. We know how much Operation HOPE does to empower underserved communities across the country, and we thank you for your work.
At the Consumer Bureau, we too are working on behalf of the economically vulnerable and the financially disempowered. We embrace the principle of individual responsibility, yet we know it is not easy to climb the economic ladder if you have to start near the bottom. It helps greatly to have someone who is willing to hold the ladder steady. We can take on that important role, and help make sure it is as safe as possible to undertake that climb.
Today, I want to talk to you about the credit reporting market, which exerts a tremendous influence over people’s financial lives. Credit reports, also known as consumer reports, can make or break whether someone gets a car loan, a credit card, a bank account, or a mortgage – and the interest rate they have to pay. They can also affect whether someone can rent an apartment or get a job.
Credit reports and credit scores form a key foundation of people’s financial options, but they are not very transparent and often are poorly understood. We do not control our own fates, since we cannot vote with our feet by choosing another credit reporting company. Instead, it is mostly a business-to-business ecosystem where people have had little power to insist on better practices or fair treatment. Because of how credit reports affect our lives, we all need this industry to operate at the highest levels of quality and performance.
Five years ago, the Consumer Bureau became the first government agency to supervise the nationwide credit reporting companies. This means we can oversee all sides of the market, from the companies that collect our information to those that furnish it to them. So now we can hold the key parties responsible for their performance and ignore any finger pointing among them.
We are focused on improving data accuracy and the handling of consumer disputes. In the past, despite a statutory duty to produce accurate credit reports, industry practices produced an unacceptable number of errors. A Federal Trade Commission study found that millions of people had an error on at least one of their credit reports that was serious enough to materially affect their credit score.
Consumers also find it hard to get errors corrected, and may have little recourse if things go wrong. I recall the stories I heard in Ohio when we were working on credit freeze legislation. People told us it took them a long time to get any help, and some got none. They brought in shoeboxes full of records documenting the efforts they had made to seek help. Of course, some errors may be unavoidable even in the best of systems, but consumers should not have to jump through hoops to get their problems fixed.
When we first started supervising the credit reporting companies, we held a public field hearing in Detroit, and we set aside time to hear from witnesses about their own experiences. An elderly woman stood up and told us she had a problem. What was her problem? She told us, “the credit reporting companies think I am dead.” Although she had tried and tried to convince them otherwise, making repeated calls and sending in documentation, they continued to write her off.
Aside from the obvious absurdity of the situation, the basic “moral” of her story was striking: the whole situation was a profound affront to her dignity. As she spoke, she made clear her thought that if she were viewed as “somebody,” this would not be happening. Only by assuming that the companies viewed her as “nobody,” and as counting for nothing, could she explain to herself their stubborn indifference to her plight.
Let me tell you another story to show the kinds of problems people have with their credit reports. Jorge, in New York, submitted a complaint with our consumer response team. He had owned a small business in Miami, suffered unexpected financial setbacks, and filed for bankruptcy. He knew the bankruptcy would stay on his credit report for 10 years. But when the time was up, and he tried to rent an apartment, the information was still on his credit report. When he contacted the company, they gave him the runaround and told him he had to wait yet another year to get it changed. Like the elderly woman from Detroit, he felt invisible, as if he did not matter. These stories are keen reminders of why the work we are doing is so crucial.
Over the last five years, we have been scrutinizing the credit reporting companies to make sure they are obeying the law and to assess whether their practices pose risks to consumers. We have learned a great deal, but most importantly, we are working to correct the many problems we have found and to resolve matters that harmed consumers. We monitor and examine them the same ways we monitor and examine the biggest banks. This is a much more systematic approach than they have ever experienced before.
Our approach is comprehensive, also covering those that supply the credit reporting companies with people’s financial information. Disputes about the accuracy of information have gotten our attention. So we published a bulletin emphasizing that we will hold furnishers accountable for their duty to investigate disputes. We also made clear that they must review all relevant information they have about the dispute, including documents from consumers. This may sound obvious, but we published the bulletin because we found it was not the normal practice.
Recently, we released a report on how our work is moving the needle in a positive direction. It describes how we are pushing the credit reporting companies and the furnishers to fix data accuracy and dispute handling. Let me describe some of the work we have been doing.
First, we have pressed the companies to improve their quality control systems, which we found were either rudimentary or non-existent. Improvements include testing to identify whether credit reports are being produced for the wrong consumers or contain mixed-up files. Companies are also taking more systematic approaches to correct errors, to prevent them from happening again.
Second, we have made it easier for consumers to dispute errors on their credit reports. We had found some serious failures in this process. Although the law requires companies to notify consumers about the results of dispute investigations, the notification letters did not clearly explain the changes made as a result of the dispute. That is totally unacceptable. We also found, shockingly, that companies were failing to consider the documentation people provided to support their side of the story. Our directives are making them do a better job of investigating disputes and providing more complete responses to consumers.
Third, we are cleaning up the information the credit reporting companies receive in the first place. Our examinations found widespread problems with the ways that banks and financial companies furnish this information, including errors and inadequate processes for fixing errors when they are disputed. The companies are making specific changes and devoting more resources to address these issues.
When our examiners find violations of law, they direct the companies to fix things for the consumers by correcting the errors and getting back money they lost. They also direct the companies to change things for the future. In some cases, as appropriate, this leads to enforcement actions. Recently, for example, we brought enforcement actions against each of the three largest credit reporting companies for deceiving consumers about the actual cost and the uses made of the credit scores sold to them. We also took an enforcement action against Wells Fargo for failing to update or correct inaccurate, negative information reported to the credit reporting companies about student loans.
So we are closely focused on the important issues of data accuracy and dispute handling. Our work here is far from done, but the importance of what we are doing for consumers is enormous.
Another way to help improve the credit reporting market is to get consumers more directly involved. People are generally in the best position to know whether the information that is collected and sold about them is accurate and complete. So we are working to improve the market by working to empower consumers. We continue to educate people about the importance of checking their credit reports, their right to a free annual report, and how to dispute errors in their reports. If people are better able to monitor their information for accuracy, then both the credit reporting companies and the furnishers will become more responsive and responsible to the public. This means turning the established “business-to-business model” of credit reporting to focus more squarely on the needs and rights of consumers.
To help people access their credit scores, we have championed the Open Credit Score initiative and related measures that are making credit scores more readily available to consumers at no cost. More than a decade ago, people were given the legal right to a free credit report from each of the three largest credit reporting companies and others every year, but usually they still had to pay to get their credit scores. The Open Credit Score initiative is now making free credit scores regularly available to tens of millions of Americans, and the number is growing fast. And when people notice an unexpected change in their score, they are likely to try to find out why and to learn more about what steps they can take to improve their score, including disputing any errors. This puts consumers in a better position to stand up for themselves in all of these ways.
We are also informing consumers about the availability of free credit scores. We are doing this by publishing a list of companies that have informed the Bureau that they offer their credit card customers free and ready access to one or more of their credit scores. Some have gone further and now offer this same service to all consumers, whether or not they are existing customers. The Open Credit Score Company List is available on our website at consumerfinance.gov. If other companies are providing this service and wish to be added to the list, we will do so.
We recognize that consumers who do not have credit cards also need better access to their credit scores. So we have worked to ensure that nonprofit financial and credit counseling agencies can share the credit reports they purchase on behalf of their clients directly with their clients as well.
Our ultimate vision is a credit reporting market based on highly accurate information, where consumers who dispute erroneous information can get their disputes resolved timely and effectively. Making it easier for people to monitor their own credit reports and credit scores to strengthen their financial foundation is a key part of that vision, as is making sure they are treated fairly when they seek credit to improve their lives. We and you share this vision.
As John Hope Bryant has told me many times, these goals help people achieve the American dream of prosperity for themselves and their families and give a leg up to the next generation. Access to affordable, responsible credit is essential to put us on the pathway to success.
We are helping Americans climb the economic ladder by working to fix the systems that make it unsteady. Government has a vital role in making sure these systems are working properly, where individual citizens cannot do so on their own. People who are underserved or having financial problems deserve fair opportunities to move forward in life. Our ultimate goal is to recognize the dignity and worth of every American and make sure every consumer counts. This is entirely in harmony with the important work that Operation HOPE does each day to help people improve their credit reports and raise their credit scores. Much more remains to be done, but now we can do it together, which makes a very big difference. Thank you.
The Consumer Financial Protection Bureau (CFPB) is a 21st century agency that helps consumer finance markets work by making rules more effective, by consistently and fairly enforcing those rules, and by empowering consumers to take more control over their economic lives. For more information, visit www.consumerfinance.gov.