The House of Representatives is poised to vote on a package of credit reporting reforms this week that includes banning the inclusion of mortgage delinquencies if it’s determined lenders engaged in discriminatory or abusive practices.
The package also gives the Consumer Financial Protection Bureau the authority to test and regulate credit scoring models for accuracy and predictive value. Other changes include: Reducing the time late payments stay on reports; barring the inclusion of medical debts for procedures deemed medically necessary; removing citations of student debt within 45 days if the CFPB or a court finds the lender engaged in fraud.
The House Rules Committee meets on Monday at 5 p.m. to set the terms of debate, and the full House could pass the bill as soon as Tuesday.
While a Republican-controlled Senate isn’t likely to debate the bill, it’s a harbinger of what’s in store if voters hand majority control of both chambers of Congress to Democrats in November’s election.
More than 100 bills passed by the House have died at the door of the Senate. In April, Majority Leader Mitch McConnell (R-KY) said: “If I’m still the majority leader of the Senate, think of me as the Grim Reaper. None of that stuff is going to pass. None of it.”
If Democrats win big in the next election, the credit reforms outlined in the House package could become law next year, said Jaret Seiberg, managing director of Cowen Washington Research Group.
“These measures are all negative for the bureaus and credit score producers, though we don’t see a path for them in the Senate,” Seiberg said. “The risk would be if Democrats sweep Capitol Hill in November.”
Last week, Fair Isaac said it is updating the secret formula for FICO scores in a way that will make it tougher for some consumers to get credit. The new formula scores consumers more strictly for things like late payments and rising debt levels.
It won’t have an immediate effect on the mortgage industry because most lenders using the Fair Isaac score use an older FICO model required by Fannie Mae and Freddie Mac. That can’t change without approval from the Federal Housing Finance Agency, which can take years.
