At a time of heightened public awareness and concern about Big Data and cyber security, it’s important to clearly understand the historical roles and socio-economic benefits of consumer credit reporting agencies (CRAs). CRAs are part of a highly regulated industry that creates democratic freedom and broad consumer engagement with the modern economy.
Enacted nearly 50 years ago, and enforced by the U.S. Federal Trade Commission, the Fair Credit Reporting Act (FCRA) promotes the accuracy, integrity, and privacy of information contained in consumer credit reporting agency files.
Since 1971, the U.S. credit reporting system has operated under the terms of the Act, although there have been several key amendments since that time. In 1996 for example, Congress reevaluated the FCRA in an effort to balance evolving national, local and personal interests. Key to achieving that balance was the preemption of state laws affecting provisions of the FCRA considered critical for maintaining a voluntary, market-driven credit reporting system that offers widespread, objective access to credit and the opportunities it provides.
The national credit reporting system regulated by the FCRA has worked well through the decades, functioning so seamlessly behind the scenes that credit reporting agencies are sometimes taken for granted, or viewed as dispensable. However, they create significant benefits for millions that should not be overlooked. Let’s take a look, for example, at the vital role CRAs play in consumer mobility.
CRAs Support Freedom of Movement
In the earliest days of credit reporting, before the advent of the big three CRAs – Equifax, Experian and TransUnion – and the national regulations enforced by the FCRA, moving across the country was no small undertaking. Let’s say an individual or family decided to relocate to be closer to loved ones, to take advantage of employment opportunities, or out of a simple desire for adventure. Along with furniture, personal items and other necessities, relocation required the organization and availability of reams of paperwork: receipts, bank statements, cancelled checks, letters of introduction, tax returns, pay stubs. All of these documents and more could be required for the establishment of identity and creditworthiness in a new community.
Movement between the states once involved lengthy, irregular processes for obtaining local identification, housing, employment and more. While the CRAs and the terms of the FCRA do not fully eliminate regional differences and requirements, the nationalization and regulation of consumer credit reporting saves consumers significant and often repetitive work and time. In today’s economy, which is increasingly borderless - and paperless - a streamlined, objective national system for verifying identity and creditworthiness is a necessity.
CRAs Open Doors to Critical Consumer Financial Opportunities
Once upon a time, credit bureaus were localized and little information was shared beyond a consumer’s immediate area. This made it hard for those consumers, homeowners, job seekers and entrepreneurs to think nationally, and served to limit applications nationwide for credit opportunities that could bring greater economic success.
And without national, regulated standards, subjective regional decisioning further limited the options of women, ethnic minorities and other groups. Inconsistency was rampant, resulting in application delays, higher costs and a reduction in empowering personal choices. In many cases, individuals and families were literally rooted in place. The heavily regulated credit reporting agencies promote relatively unrestricted financial opportunities available to consumers - from sea to shining sea.
The national CRAs – and the provisions of the FCRA which regulate their operations – have been a boon to the global consumer, the businesses that employ and serve them, and the nation’s economy. A unified, national credit reporting system maintains the efficiency, accuracy, competitiveness – and mobility - of today’s market-driven credit world.