Would proposed changes to the FCRA impact the US Economy, and for the better?
This month’s post will not address a legal question but rather will comment on some FCRA news. It appears that a California congresswoman, Rep. Maxine Waters, has proposed significant changes to the FCRA. One of the proposed changes is a reduction in how long it takes for adverse information to “age off” your credit report. Right now, adverse information is removed from one’s credit report after a Biblically sanctioned seven year period. If Ms. Waters has her way, it will be removed after a four year period.
Putting aside the question of how likely Ms. Waters is to get her way (as a Democrat in a majority-Republican House of Representatives, not very), this news raises the question of what effect removing adverse information from consumers’ credit reports has on the broader economy, and whether the economy would benefit if adverse information came off more quickly than it currently does.
Businessweek puts the question this way:
Say you had a hard time keeping up with your credit card or mortgage payments during the last recession and subsequently defaulted, went delinquent or went bankrupt. Now, thanks to the magic of the Fair Credit Reporting Act, those problems are washed from your credit report and your FICO score rises faster than Vladimir Putin’s blood pressure during an OPEC meeting.
Here’s the hypothetical question: You just got your first credit card in seven years, so what will you do with it? Are you going to tuck it away safely in your wallet and vow only to use it in an absolute emergency or if The Hooters get back together for a tour? Or are you going to head out and ding up some charges in, say, the electronics aisle of the local Wal-Mart and the 12-year-old Scotch aisle of the local liquor store and the Ding Dongs aisle of the local convenience store and the…well, you catch the drift.
In other words, if X has a “bad” credit report with adverse information that limits his ability to borrow money, and if X’s credit report then improves after seven (or four) years, will X go out and borrow and spend money, driving the US economy?
I don’t know the answer to this question. But I like the fact that the question exists, if only because it suggests that the FCRA has repercussions that extend beyond the lawsuits that I typically handle.