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FINANCE--Study: Loan Costs Would Rise Without Federal Pre-Emption

Tuesday, June 17, 2003

If the federal pre-emption of several elements of the Fair Credit Reporting Act were allowed to lapse at the end of this year, the cost of mortgages and rates on credit card loans would increase, according to a 120-page study set to be released today by the U.S. Chamber of Commerce's National Chamber Foundation.

The study said that the rising costs were attributable to three key developments in credit markets that would be lost if the pre-emption lapsed: automated underwriting; uniform national standards governing complete credit files; and pre-screening, when credit card companies extend credit without an individual applying for it.

"If the framework of pre-emption created in 1996 is permitted to sunset, it is likely that the benefits arising from automated underwriting would be placed at risk," reads the study, prepared for the foundation by the Information Policy Institute.

In examining the national standards governing credit files, the study created four model scenarios based on differing state legislative proposals, all four of which would cause credit acceptance rates to decline or delinquencies to increase.

"In the 'most severe' scenario, delinquencies would increase by about 70 percent, costing consumers about $22 billion a year," the study says.

The other alternative -- denying access to credits to maintain current delinquency rates -- would cost 41 million people from receiving new credit card accounts, the study said.