Bob Sullivan at MSNBC writes:
A second storm surge may soon start slamming into Gulf coast residents hit by hurricanes Katrina and Rita. Mounting unpaid bills will lead to a surge of black marks on victims’ credit reports, say consumer advocates, sinking their credit scores. And now, they say, efforts to convince the nation’s credit bureaus to develop new systems to account for victims’ temporary bill-paying troubles have hit a major snag.
Consumers who can’t make their house payments any more – even if that house has been completely swept away by the storm – may face the ultimate penalty in America’s credit-driven society: A credit score so low they won’t qualify for the loans they need to start rebuilding.
Consumer groups, anticipating the coming surge of late payments and account defaults, have asked credit bureaus to help. The consumer groups proposed that the bureaus take a pre-Katrina credit score snapshot of all residents in the affected areas. Later, when victims apply for loans, the pre-Katrina score could be used to identify whether victims were good credit risks before the storm.
This sounds like a sensible proposal, something that will help the survivors of the hurricane rebuild their lives. After all, without good credit, it is much more costly to take out a loan, and sometimes nearly impossible to get a loan or credit.
Fair Issac, the company that creates the formula for generating credit scores supports this proposal. The credit reporting agencies, however, won’t have any of it:
But on Thursday, consumer groups revealed that the nation’s three bureaus – Experian, Trans Union, and Equifax – have declined to participate in the plan.
The reasons are:
A second score likely wouldn’t comply with parts of the Fair and Accurate Credit Transaction Act, the firm indicated in a letter sent to Consumers Union.
Equifax’s David Rubinger said the presence of a second score could create confusion both for lenders and consumers. Also, credit bureaus and lenders sometimes use alternate scoring systems, he said, so a snapshot FICO score would be of little use to those lenders.
First of all, I’m not familiar with a provision of the Fair Credit Reporting Act (FCRA) that would prohibit reporting a second score. If there is something in the law that prohibits reporting another score, then Congress should make an exception for victims of certain sudden catastrophes.