For tens of millions of Americans thrown out of work in the Covid-19 economic shutdown, it’s not clear where money to pay the rent or the mortgage, the electric bill or the car loan will come from. While the stimulus checks and expanded unemployment benefits Congress has offered so far are a lifeline for struggling families, these measures are not enough to address the ongoing shock to household finances. As they continue to comply with stay-at-home orders that are vital to public health, families across the country find themselves falling behind on bills, putting groceries on credit cards or turning to payday and other lenders.
Even a short-term economic disruption can quickly turn into long-term debt for American families, with the potential to ruin a household’s credit for many years to come. While Congress recently mandated changes to credit reporting rules in the wake of Covid-19, hard-hit consumers will still get little relief. The three companies that dominate credit reporting in the United States — Equifax, Experian and Transunion — treat most missed payments resulting from lost income during the pandemic the same way they treat any other late or unpaid bills: They downgrade consumers’ credit, saddling families with more costly monthly payments for car loans, home mortgages, credit cards and insurance far into the future. Flawed credit can even harm laid-off workers’ prospects of landing a new job.
In response to the economic fallout from Covid-19, the credit reporting agencies announced that they will give consumers free weekly access to their credit reports until April of next year. But free access to credit reports can only help a consumer identify when fraud has occurred. It does not change how late payments are evaluated.
We must call on private credit reporting agencies like Equifax, Experian and Transunion to change their policies and treat consumers fairly in the face of a global health crisis. Congress has already introduced legislation along these lines. But the private credit reporting industry is already failing American consumers in numerous ways, from lax data security procedures to sky-high error rates to the Kafkaesque process of trying to get mistakes corrected.
At a time of widespread financial upheaval, it’s time to think bigger: Since credit reporting determines access to economic opportunity for every American household, it should be treated as a public utility. Private credit reporting companies should be replaced by a publicly run credit registry that operates in the public interest and that automatically corrects for events like natural disasters and global health crises.
By changing how credit flaws like overdue medical debt or missed bills accumulated during the Covid-19 emergency are reflected on credit reports and scores, a public credit registry would ensure that consumers are not penalized for events that are beyond their control, and that do not accurately reflect their likelihood to repay a future loan.
By prioritizing accuracy, accountability and fairness to consumers rather than the corporate bottom line of Equifax, Experian or Transunion, a public credit registry would move nimbly to suspend negative credit reporting for all Americans during major disasters. The public credit registry would also develop new formulas for predicting creditworthiness that minimize the impact of past discrimination, so that Black and Latino households would no longer see historic economic disadvantages magnified by poor credit. For example, the public credit registry could exclude certain negative credit data from credit reports and scores, such as medical debt or payment delinquencies on predatory loans that disproportionately target low-income communities and neighborhoods of color. The public credit registry could also enable consumers to opt into reporting bank account data, rental payments or utility data, providing evidence of a positive payment history for those with little access to conventional credit products.
At a time of widespread economic insecurity, political candidates are beginning to warm to the idea of a public credit registry. Bernie Sanders featured the proposal as part of his plan for relieving medical debt, and Joe Biden now touts the same policy (renamed the Public Credit Reporting Agency) as an element of his homeownership plan. Because credit reporting touches all aspects of Americans’ financial lives, the public credit registry speaks to the full scope of kitchen table concerns.
An ambitious overhaul of our system of credit and debt can ensure that a temporary emergency does not become a source of long-term disadvantage. Elected leaders must step up to help create a system that is more fair, more racially equitable and more resilient to face the next crisis.