SUPPORTING GREATER FINANCIAL LITERACY AND HELP FOR CONSUMERS TO IMPROVE THEIR CREDIT REPORT AND SCORES

WHEREAS, credit scores are widely used by financial institutions to assess eligibility for mortgages, credit cards, student loans, personal loans, retail credit, and other consumer credit;

WHEREAS, the National Black Caucus of State Legislators (NBCSL) and its members believe all consumers, and particularly African American consumers, need free access to financial information that can help them better understand how they can improve their creditworthiness and obtain greater access to credit on better terms;

WHEREAS, Resolution 06-62 expressed the NBCSL’s support for legislation that would assist financially underserved consumers so that they may build or rebuild their credit and obtain greater access to affordable credit;

WHEREAS, Resolution BFI-09-22 established the policy of the NBCSL to support a “credit card holders’ Bill of Rights” where consumers would be protected from overcharging and undue practices of financial institutions to take advantage of financial illiteracy among challenged populations;

WHEREAS, Resolution BFI-10-02 instituted detailed policy for the NBCSL supporting greater credit rehabilitation and financial literacy resources for consumers, including mainstream financial instrument transition services and the creation of a strong consumer financial protection agency;

WHEREAS, over 7.2 million families in the United States held subprime home mortgage loans (“subprime mortgages”) in 2008, which totaled over $1.3 trillion;

WHEREAS, African American and Hispanic/Latino borrowers are overrepresented among consumers in the subprime mortgage market and often targeted for risky loan products, and, therefore, particularly vulnerable to an increase in foreclosure rates;

WHEREAS, over 40 percent of Americans are estimated to have low credit scores and are thereby considered financially underserved borrowers;

WHEREAS, the United States Congress has repeatedly stressed the importance of increasing transparency of credit reports and credit scores through amendments to the Fair Credit Reporting Act (FCRA), the Fair and Accurate Credit Transactions Act of 2003 (the FACT Act), the Credit CARD Act of 2009, and the Dodd/Frank Wall Street Reform and Consumer Protection Act of 2010;

WHEREAS, the FACT Act amended the FCRA and provided consumers with several new rights, among them the ability to do the following: 1) request a free copy of their credit report every 12 months from each of the nationwide credit reporting agencies; 2) purchase a credit score from a credit reporting agency for a reasonable fee; and, 3) receive a disclosure of a credit score from a mortgage lender after applying for a mortgage loan;

WHEREAS, the FACT Act also required the Federal Reserve Board (FRB) and Federal Trade Commission (FTC) to issue a “risk-based pricing” (RBP) rule to require notice when a creditor uses a credit report to set the credit terms and offers credit to a consumer on material terms. The final rule, which took effect January 1, 2011, also allows a creditor, in lieu of an RBP notice, to provide a credit score disclosure to all its credit applicants. The RBP rule may create millions of notices to consumers every year, and each notice will provide the name, address, and phone number of the nationwide credit reporting agency that provided the credit report and score;

WHEREAS, amendments to the FCRA in 2010, added a requirement that a credit score disclosure be included in all adverse action and RBP notices whenever a credit score is used in making the adverse action or RBP decision beginning July 21, 2011;

WHEREAS, amendments to the FCRA may result in millions of score disclosures to consumers annually, with each disclosure telling consumers how to contact the specific nationwide credit reporting agency that provided the score;

WHEREAS, many consumers who read these disclosures and contact the nationwide credit reporting agencies to ask questions about how their credit scores are determined and/or what actions they can take to improve their particular credit scores may find that these agencies are limited by the Credit Repair Organizations Act (CROA) from providing some individualized assistance to consumers;

WHEREAS, some of the provisions contained in CROA prevent deceptive practices of credit repair organizations that promise consumers they can remove negative, but accurate, information from a credit report;

WHEREAS, consumers should be able to request from nationwide credit reporting agencies information and specific recommendations about what legitimate actions they can take to improve their individual credit reports and credit scores;

WHEREAS, according to the Pew Research Center study in 2009, the typical net worth was $5,677 for African Americans, $6,325 for Latinos, and $113,149 for Caucasians; further, the study showed that one-third of African American and Latino households had zero or negative net worth that year, while the same was true for only 15 percent of Caucasian households; and

WHEREAS, another 2009 study conducted by the Pew Charitable Trust Economic Mobility Project showed that a person was 21 percent more likely to move out of poverty if he or she had a savings account at a young age.

THEREFORE BE IT RESOLVED, that the National Black Caucus of State Legislators (NBCSL) calls upon the United States Congress to enact legislation affirming the following:

1. nationwide consumer reporting agencies can create, promote, and maintain a resource whereby consumers can be provided information and specific recommendations about what legitimate actions they can take to improve their individual credit reports and credit scores;
2. such a resource to help financially underserved consumers improve their credit report and scores would not violate Credit Repair Organizations Act; and
3. some resources, aids, and reports should be provided to consumers at no charge and at no detriment to their credit rating;

BE IT FURTHER RESOLVED, that the NBCSL applauds the creation of the Consumer Financial Protection Bureau that was created under the Wall Street Reform and Consumer Protection Act and opposes any attempts to weaken this new agency;

BE IT FURTHER RESOLVED, that the NBCSL supports efforts both privately and publicly that would aid young children in establishing savings accounts and provide greater financial education at a young age to help educate the next generation on financial management; and

BE IT FINALLY RESOLVED, that a copy of this resolution be transmitted to the President of the United States, the Vice President of the United States, members of the United States House of Representatives and the United States Senate, and other federal and state government officials as appropriate.

SPONSOR: Representative George Flaggs, Jr. (MS)
Committee of Jurisdiction: Business, Financial Services, and Insurance Policy Committee
Certified by Committee Chair: Representative George Flaggs, Jr. (MS)
Ratified in Plenary Session: Ratification Date is December 9, 2011
Ratification is certified by: Representative Barbara W. Ballard (KS), President