PERC Calls for Non-Financial Lenders to be Recognized as Creditors Under ECOA & Regulation B

In comments to the Consumer Financial Protection Bureau’s request for information, the Policy & Economic Research Council (PERC) called for certain non-financial lenders—including but not limited to mobile network operators or MNOs—to be explicitly recognized in the definition of “creditors.” The CFPB had requested information to identify opportunities to prevent credit discrimination, promote fair, equitable, and nondiscriminatory access to credit, and address potential regulatory uncertainty under the Equal Credit Opportunity Act (ECOA) and Regulation B.

Explicitly including non-financial institutions in the definition of “creditor” would result in the reporting of positive payment data from non-financial institutions. These institutions already report negative data to credit bureaus and use credit reports for eligibility determination. The CFPB found that between mid-2013 and the beginning of 2018, approximately between 2 and 4 million new distinct telecom collections per quarter were reported to the CRAs. Credit reports currently serve as a blacklist, as consumers are “punished” for paying their telecommunications bills late but are not “rewarded” for paying them on-time. Including positive data would make the credit reporting system more balanced and forgiving.

PERC’s almost two decades of research has focused on the responsible use of data to expand financial inclusion. The comments summarized past PERC research that has shown the reporting of non-financial data disproportionately benefits those under-served by traditional financial institutions. Members of minority communities and lower-income households saw above average increases in acceptance. By allowing lenders to more accurately assess borrowers’ credit risk, the inclusion of this data also makes the system fairer.

COVID-19 has only made the situation more urgent. The healthcare crisis has created an economic crisis, and many Americans are struggling to ensure their basic needs are met, let alone pay existing credit obligations, through no fault of their own. In this context, PERC amended their call for a mandate to the mandated reporting of positive telecommunication data. This would help consumers begin rebuilding their credit by including data from some of the first bills consumers are likely to start repaying once they get back on their feet. It floods the system with positive data at a time it is being overwhelmed with negative data. It preserves the safety and soundness of the national credit reporting system, which is integral to post-pandemic economic recovery.

Co-author and PERC president Dr. Turner said, “It’s crazy that wireless telecoms service providers aren’t reporting as creditors. They lend over $150 billion annually to people buying expensive smart phones—and tether the installment loan terms and conditions to a two-year contract. They use credit reports, they report late payment data to credit bureaus, and they lend billions. If they waddle like a duck and quack like a duck, they need to be regulated like a duck.”

A recent PERC report found that one proposed solution, the suppression/deletion of negative payment data such as late payments or defaults, would actually harm the most vulnerable consumers instead of helping them. Another report simulating the impacts of the proposed suppression/deletion measures and our alternative data solution is forthcoming.

“They will never voluntarily report timely and late payment data because they are a profitable oligopoly,” Dr. Turner added. “They fear competition will reduce their fat margins and generate endless excuses not to report—privacy, technology, and other red-herrings. The real reason they don’t report is fat profits. Congress can help tens of millions of hard working Americans improve their credit scores by mandating wireless telecoms firms report positive payment data.”