Posted on 18 May 2010
Anyone rejected for a credit card, car loan or department store charge account has most likely discovered a frustrating aspect of the government-mandated, free credit reports: the glaring absence of the numerical credit score that lenders rely on to make their decisions.
That now stands to change as a result of an amendment adopted by the Senate on Monday as it moved closer toward completing a sweeping financial regulatory bill.
The Senate, by a voice vote, approved a proposal by Senator Mark Udall, Democrat of Colorado, to require that credit reports include the numerical score, which by the most common measure ranges from 300 to 850. Obtaining a score from the major credit reporting bureaus that calculate them typically costs up to $15.95 for each score.
“This I believe will empower consumers, it will increase the financial literacy in our country,” Mr. Udall said. “It’s a win-win.” His proposal would require the score to be provided if it was used to deny credit, required a higher interest rate on a loan, or prevented an applicant from being hired for a job.
Mr. Udall’s proposal was one of several amendments addressed Monday in the financial regulations bill, which may be wrapped up later this week.
By voice vote, the Senate also approved an amendment to ease proposed restrictions that critics said would cut off so-called angel investing — in which individual investors provide start-up capital to small businesses that typically do not have access to more traditional financing.
The original bill included provisions intended to root out fraud, including a 120-day waiting period for certain investors to allow for a review by the Securities and Exchange Commission, but supporters of the amendment said the restrictions would block crucial start-up capital.
By voice vote, the Senate also approved an amendment by Senator John D. Rockefeller IV, Democrat of West Virginia and chairman of the Commerce Committee, that preserves the existing authority of the Federal Trade Commission in enforcing consumer protection laws and requires the commission to coordinate with a new consumer financial protection bureau that would be created by the regulatory legislation.
By a vote of 94-0, the Senate also approved a largely symbolic amendment by Senator John Cornyn, Republican of Texas, seeking to prevent federal money from being used by the International Monetary Fund to bail out foreign governments.
Mr. Cornyn’s proposal may not survive when the Senate bill is reconciled with the version of the financial regulation legislation approved by the House in December. But it is part of an overall Republican political strategy to keep attention focused on unpopular government bailouts, which are helping to foster an anti-incumbent mood.
The Senate majority leader, Harry Reid of Nevada, is intent on finishing the financial regulatory legislation this week. And in a speech on Monday he warned about the consequences of delay, a message clearly intended for Republicans who have worked to draw out the debate even though they agree with the bill and expect it to be adopted.
“The end must come,” Mr. Reid said. “The time has come to begin work sending this to conference so we can have a bill go to the president.”
Mr. Reid also emphasized other bills awaiting work by the Senate including a jobs measure, supplemental spending bills, federal emergencies like the oil spill in the Gulf of Mexico, and a long list of presidential nominees awaiting confirmation.
The requirement that credit reports include a numerical score has little to do with the broader regulatory legislation, which is intended to address the causes of the 2008 financial crisis. But its adoption, by an overwhelming margin, underscored the keen desire by lawmakers to support pro-consumer initiatives in an election year.
Currently, the free, government-mandated credit reports show the status and payment history of outstanding loans and other obligations, including credit cards, charge accounts, mortgages and car loans, as well as delinquencies like unpaid medical bills, that have been referred to a collection agency. Such information is used by the credit reporting bureaus to devise a credit score, but the score is not disclosed in the free report.
The broader legislation would impose the most far-reaching overhaul of the nation’s financial regulatory since the aftermath of the Great Depression.
It would bring new transparency and tight rules to the trading of derivatives, the complex instruments at the center of the 2008 collapse. It would require hedge funds to register for regulation by the Securities and Exchange Commission. And it would create a consumer protection bureau to police lenders and their business practices.
But most of the more than 1,400 pages of legislation offer little that is tangible to regular consumers — a point that was highlighted by Senator Sheldon Whitehouse, Democrat of Rhode Island, in pushing for another amendment that would gave states the right to limit credit card interest rates, regardless of where the issuing bank is located.
“This bill that we’re looking at right now is very esoteric and technical,” Mr. Whitehouse said in a speech on Monday. “It engages in things like trying to rebuild the Glass-Steagall firewall, trying to properly regulate collateralized debt obligations, trying to put the appropriate leverage limitations on banks.”
Glass-Steagall, the Depression-era bill that prohibited commercial banks from engaging in the investment business, had largely been dismantled by legislation in 1999.
Mr. Whitehouse added, “Here’s a deliverable that they can take right home, that they will see a difference as soon as their states respond. They can be protected from these outrageous 30 percent interest rates as a result of this bill.”
Mr. Whitehouse’s proposal, to be voted on this week, effectively seeks to overturn a 1978 Supreme Court decision allowing credit card companies to charge interest rates allowed in the state where they are located, regardless of where cardholders live. As a result, cardholders often do not benefit from state limits on interest rates.