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Business Economics: Forum on Emerging Issues

Congress Faces Critical Decision About Consumer Credit Legislation (The Fair Credit Reporting Act of 1970 and 1996)

By Joseph W. Duncan

Joseph W. Duncan is a Fellow at the Information Policy Institute, a former president of NABE, and was VP and Chief Economist of Dun & Bradstreet Corp. from 1981 to 1995

Consumers have been the one bright spot in an otherwise sluggish American economy. Much of their ability to drive economic growth stems from relatively broad access to affordable credit. Growth in the availability of credit is a result of sophisticated risk modeling techniques that, in turn, rely heavily on access to robust data contained in the national full-file credit reporting system. One law –the Fair Credit Reporting Act (FCRA)—has largely governed this system of data exchange since 1970. The preemptive status of the single amendment to this law—the inclusion of strengthened consumer protections in 1996— expires at the end of the year and is currently the subject of substantial attention from both federal and state lawmakers. This article presents the findings of a recent study (Turner, 2003) designed to quantify the likely consequences of a failure to reauthorize the FCRA’s strengthened preemptive provisions. Using existing state legislative proposals, it models the impact on the predictive power of commercial scoring models as well as credit card models from a variety of data restrictions. Further, the subsequent impact on both access to credit, and the price of credit are measured and appended with socio-demographic data. Finally, this article reports findings from an analysis of restrictions on two uses of credit scores— prescreened offers of credit and automated underwriting of consumer mortgage loans.

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Reprinted with permission from the National Association for Business Economics, 1233 20th St NW, Ste 505, Washington, DC 20036, www.nabe.com.