Missed your electricity bill last month? You can rest easy, for now.
Most utility companies don’t report your payment data to the credit bureaus (unless, of course, you’re seriously late on a bill and it has been turned over to a collections agency). However, that could change if a bipartisan group of congressmen get its way.
Over the summer, Republican Congressman Mike Fitzpatrick of Pennsylvania and Democratic Congressman Keith Ellison of Minnesota reintroduced the “Credit Access and Inclusion Act,” which is designed to encourage the use of nontraditional data, such as utility, phone and cable bill payments, in credit scores.
This is the second time in less than a year that the bill has been introduced to Congress. (The first time, the bill was introduced in September 2012 and died in committee.) Now, according to MarketWatch’s AnnaMaria Androitis, H.R. 2538 is “gaining momentum” in the House — which could mean that it stands a slightly better chance this time around of actually getting past the House Financial Services Committee.
The bipartisan bill doesn’t force utility, phone, cable or rental companies to report monthly payment data to the credit bureaus. Nor does it require credit score companies such as FICO to factor in the nontraditional information. Instead, the bill simply makes clear that, under the Fair Credit Reporting Act, monthly service providers are free to report both positive and negative payment information if they wish to do so.
The purpose of the bill, say proponents, is to encourage monthly service providers to report whatever payment information they have on file — especially if it’s positive. That way, consumers who regularly repay their everyday bills can financially benefit from on-time payments.
“Reporting utility and telecom payments to credit reporting agencies provides a simple, universal solution that builds credit scores without federal funds or mandates,” said Congressman Fitzpatrick in a statement. “This easy-to-support legislation works for those who need access to crucial loans the most and levels the playing field in the credit market.”
Full-file credit reporting is a hot — and controversial — topic in the credit world. Proponents say that including nontraditional information in credit reports can help consumers with limited (or nonexistent) credit histories qualify for lower cost loans. “This bill makes it easier for students and working families to build their credit simply by reporting the on-time payments they already make,” said Ellison in a statement.
Lenders are especially interested in nontraditional information because it could help them identify lower risk customers who are otherwise invisible under the traditional credit reporting system.
That’s particularly attractive these days since competition for low-risk borrowers is intensifying, say analysts. Five years after the 2008 credit crisis, many lenders are still skittish about extending credit to consumers who have burned them in the past with late or missing payments. However, they are eager to expand their credit portfolios and are actively searching for ways to identify and attract new borrowers with spotless records.
Detractors, however, say that incorporating nontraditional information such as utility payments could wind up unintentionally harming low-income consumers who sometimes struggle to pay bills that frequently vary, depending on seasonal weather changes or fluctuating gas prices.
“Sporadic late payments are especially common in states that have weather extremes,” testified the National Consumer Law Center’s Chi Chi Wu in a 2012 statement before Congress. “Consumers who see their utility bill spike in the winter or summer may not be able to pay those bills in full during that season, but will over time.”
Wu testified that additional factors could also unintentionally harm some consumers, particularly those with lower incomes. Renters who legally withhold rent from a crooked landlord, for example, may be unfairly punished for the late payment, says Wu. Meanwhile, consumers who don’t use credit but are applying for a new job or for auto insurance may also be penalized if the new system causes them to have black marks they didn’t already have.
“The premise that reporting utility payments will build a positive, useful credit report is highly uncertain,” testified Wu. “The credit reporting industry and the prepaid card industry have been exploring for years the ability of payment data to help consumers build credit. Yet under current circumstances, few have confidence in the ability to use payment data to create a mainstream credit score useful for building credit.”
Uncertain path for H.R. 2538
Regardless of whether incorporating nontraditional data is a good deal for most consumers, it could be awhile before a large number of service providers actually get around to changing their practices.
The latest bill before Congress currently has a 27 percent chance of getting past the House Financial Services Committee and a measly 7 percent chance of being enacted, according to the transparency site govtrack.us.
Like a number of financial bills that have lived and died before it, the Credit Access and Inclusion Act may be reintroduced a number of times before it ever comes down to a vote. Until then, you can rest assured that if you accidentally miss a payment on a utility or cell phone bill, it probably won’t wind up on your credit report — at least for now.