President Biden may still be new to his office but he has come in with big dreams for countless aspects of the country. While his COVID-19 strategies have been receiving most of the press time, there are many economical proposals and ideas he has on his desk as well which could also have a major impact on the US. One such proposal that has received little discussion is his public credit plan.
What is Biden’s Public Credit Plan?
As any of us knows, credit is one of the most instrumental aspects of our financial lives, impacting our ability to buy a home, accommodate financial emergencies, secure loans to attend college, and more.
As an effort to improve the low 65.8% homeownership rates and to work toward other goals, Biden wants to establish a public credit reporting bureau. The ultimate aim would be to replace the three current, commercial credit bureaus (Equifax, Experian, and TransUnion) with a non-profit public credit bureau that is more consumer-friendly, transparent, and trustworthy.
Why Our Current Credit System is Broken
As the saying goes, “if it isn’t broken, don’t fix it,” but recent years have exposed several ways in which our current credit system is broken.
Throughout the US, Black and Latinx people have less credit on average compared to white people. There are several reasons for this. First, people of color are more often denied new credit compared to white people, and without a record of credit accounts, building good credit is nearly impossible.
In addition to this, families of color on average have far less wealth than white families. As a result, they are less likely to have cash available for financial emergencies and are more likely to need short-term lending from predatory or expensive lenders when those emergencies arise. Those types of loans have a particularly negative impact on a person’s credit report.
A study by the FTC found that about one in five Americans had at least one credit report error. In some cases, those errors were critical enough to affect the victim’s ability to get a mortgage.
The problem is that the credit bureaus are private, for-profit businesses, and when a consumer reports an error, it costs money for the bureau to investigate. All too often, the bureau does little or no investigation before turning down the correction request. Because the credit bureau is a private organization without real regulation, if they turn down the request, the consumer is generally out of luck.
There is an inherent conflict of interest in the fact that the current credit bureaus provide both credit reporting and credit monitoring. If people worry about credit inaccuracies, they’re more likely to pay for credit monitoring. This means that credit bureaus benefit financially from having a lack of accuracy.
A similar example of this is the Equifax data breach. Because Equifax was reckless with critical information and failed to adequately maintain their security, they compromised the essential information of 147 million people.
That breach included people’s social security numbers and the only way to protect yourself if someone has your SSN is by freezing your credit. Until they received a harsh social backlash, Equifax was charging consumers to freeze their credit. They were trying to financially benefit from their own mistake and the risk that it placed on consumers.
How Biden’s Public Credit Plan Aims to Help
How does Biden plan to improve our credit system by implementing a public credit reporting bureau? There are several key goals he has in mind.
Adding Transparency to Credit Reporting
Biden’s public credit bureau would implement better transparency for consumers. It would give them more information about what does and does not affect their credit, what they can do to improve their credit, where they get their data, and so on.
Identify and Remove Bias
This public credit bureau would aim to remove credit inequity from our financial system as much as possible. Because credit is used for so many aspects of our lives today, this could improve people of color’s access to mortgages and rental homes, student loans, business loans, and even jobs.
Provide a Service Rather Than Boosting Profits
Biden’s public credit bureau would be operating as a service, not a business. It would have a singular goal: to serve the American public and US businesses. This would eliminate the conflict of interest that our private credit bureaus have.
Of course, it’s worth noting that student loans were originally meant to serve as a service as well, but they have been turned into a revenue source by raising interest rates. Therefore, it would require ongoing regulation to make sure that the public credit bureau continues to be operated as a non-profit endeavor.
What Biden’s Public Credit Plan is Lacking
While Biden’s public credit plan could hold great potential for improving our country’s financial equity and overall economy, there are some pieces that the plan is missing as well.
Biden’s plan has strong goals for ending bias and being more consumer friendly. Its methods for accomplishing those goals are vague, though. There are few details about how it would improve racial equity and create strong economic opportunity, and it would need a more distinct plan of action before it could be implemented.
Accounting for the Causes of Inaccuracies
It’s important to note that credit report inaccuracies aren’t only caused by credit bureaus. It is the responsibility of businesses like credit card companies and collection agencies to report their data accurately. Biden’s credit plan does not include details about how it would promote more accuracy from those companies.
Understandably, managing the US credit system is a big job. Biden’s plan doesn’t detail how the government will be able to stay on top of it. While the plan does indicate that the Consumer Financial Protection Bureau will operate the credit bureau, it’s clear that the current CFPB cannot handle the added workload. It would take a large logistical shift to accommodate this new public credit bureau.
Biden’s Public Credit Plan: We’ll Wait and See
Biden’s plan for a public credit bureau is still in its early stages. While it’s clear that our credit system is full of problems, there are many details missing about how Biden’s public bureau would be able to address those problems. We look forward to watching this plan take shape and seeing whether it has the potential to create the change our system needs.