Will the New Dodd-Frank Rollback Bill Help Your Credit?

A bill that would roll back some of the regulations placed on the banking industry by the post-financial crisis Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 is all over the news right now.

The actual name of the bill – which has passed Congress and awaits the president’s likely signature — is the Economic Growth, Regulatory Relief, and Consumer Protection Act. It would also amend the Fair Credit Reporting Act (FCRA), which is the federal statute that sets forth the rules – or most of them, anyway – under which the credit bureaus and their customers must operate.

The FCRA, which was initially passed in the very early 1970s, has been amended a number of times over the past four decades. The soon-to-be signed Dodd-Frank rollback bill will be just the latest piece of legislation to amend the FCRA. Here are some of the changes you can expect.

Credit Fraud

The “effective date” of the following changes will be 120 days after President Trump signs the bill into law:

Fraud alerts: Initial fraud alerts used to last for 90 days. Now they will last for one year, and anyone can add an initial fraud alert to their credit reports, even if they’ve never been the victim of fraud. Victims of fraud can still place an extended fraud alert, which lasts seven years. Fraud alerts put users of credit reports (normally banks) on notice that they must take reasonable steps to verify that you are, in fact, the one applying for credit legitimately.

Free credit freezes: Security freezes or “credit freezes” will be free at a national level. Prior to the amendment, freezes were only free for victims of fraud. Everyone else had to pay a fee to set and remove a freeze. Once you set a freeze, the credit bureaus will have to confirm said security freeze and give you instructions on how to lift it. Freezing your credit reports, thawing your credit reports, and re-freezing your credit reports will now be free of charge.

Child credit protections: Children under the age of 16 will be given protections as well. Representatives of children 16 and under (aka, their parents or guardians) will be allowed to freeze the minor’s credit reports. If the minor does not yet have a credit file, the credit bureaus will be required to create a credit file and then freeze it, again for free.

Debt Protections for Veterans

These changes will take effect one year after the bill is signed into law:

  • Medical debt incurred by a veteran cannot be reported to the credit bureaus for at least one year from the date the medical services were rendered. The current rule is 180 days from the date of the default of medical debt.
  • Medical debt incurred by a veteran that is in collections must be removed from their credit reports once the debt has been paid or settled. The current rule requires removal after seven years, or immediately after the collection has been paid by an insurance policy.
  • Medical debt incurred by a veteran that is in collections must be removed from credit reports if the debt is or has been assumed by the Department of Veteran Affairs. No such requirement exists under the current rules. This one will take some time to implement, because the Secretary of Veteran Affairs will have to set up a database so the credit bureaus can verify whether or not a debt reported to them is, in fact, a veteran’s medical debt. The Secretary of Veteran Affairs will have one year to build the database.
  • Active duty military personnel will be able to sign up for free credit monitoring services from the credit reporting agencies. Currently, there is no requirement for free credit monitoring for military members, although there are a number of websites that already give it away for free to their registered users.

Student Loans & Mortgages

Regarding private student loans that are in default: A debtor can request that the lender furnishing information to the credit bureaus remove any record of the default if the lender offers loan rehabilitation programs and the debtor makes enough consecutive on-time payments to demonstrate a renewed ability and willingness to pay the loan on time.

And finally, the bill would also allow Fannie Mae and Freddie Mac to use newer-generation credit scores to underwrite residential mortgage loans if the newer score is determined to be reliable and accurate.

Today, Fannie Mae and Freddie Mac are required to use much older generations of FICO scores, and have not been allowed to upgrade to newer credit-scoring models like FICO 8, FICO 9, VantageScore 3, or VantageScore 4.

This is a big deal for mortgage loan applicants, because the credit scores of lower-risk borrowers trend higher on newer credit score versions, meaning some applicants could qualify for better rates and terms on their mortgages.

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John Ulzheimer is an expert on credit reporting, credit scoring, and identity theft. He has written four books on the topic and has been interviewed and quoted thousands of times over the past 10 years. With time spent at Equifax and FICO, Ulzheimer is the only credit expert who actually comes from the credit industry. He has been an expert witness in over 230 credit related lawsuits and has been qualified to testify in both federal and state courts on the topic of consumer credit.

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