Feb 15, 2013 Quinn Thomas
The Fair Credit Reporting Act (FCRA) influences a variety of business functions in virtually every industry, ranging from the hiring process to debt collections. Following the financial crisis, the standard forms of credit reporting that were once deemed accurate came under fire, especially because of allegations of inaccurate ratings that led to the economic fallout.
Now, businesses and consumers are increasingly turning to alternative credit scoring as a method of improving their knowledge related to their financial histories. Creditors should be especially thorough when researching consumer and business credit reports, using a variety of resources to acquire the most accurate image of a potential borrower's score.
Drawbacks of traditional credit histories
The Philadelphia Inquirer recently reported that the biggest credit scoring agencies might not be operating within the confines of privacy protection laws. According to the news provider, the collections and distribution of consumer credit and employee histories has been particularly profitable for some of the most traditional credit scoring agencies, and this has come under fire by certain background screening agencies.
There is now a debate of sorts regarding these activities, which has been polarizing for businesses, advocacy groups and the legal sector.
The source quoted one person who was outraged by the collection and distribution of such information without the consent of individuals.
"It's the biggest privacy breach in our time, and it's legal and no one knows it's going on," the individual explained, according to the Philadelphia Inquirer. "It's like a secret CIA."
Others, however, did not feel the same sentiment.
"They could include shoe-size information, or astrological signs, and use that to evaluate credit," Chi Chi Wu, a lawyer at Boston's National Consumer Law Center, told the news provider. "The FCRA doesn't require predictiveness, it doesn't require relevance. All it requires is that credit-reporting agencies have reasonable procedures for ensuring accuracy."
The Philadelphia Inquirer explained that each side of the argument could be viewed as in the right, but there needs to be better guidance regarding privacy protection and consent.
Enter alternative scoring
Just as alternative financial services experienced growth following the biggest banks' involvement in the economic fallout, so too has alternative credit scoring increased following the suspected poor judgments of major domestic and international reporting agencies. Businesses should always ensure their on-boarding process adheres to the FCRA, while creditors may want to consider using alternative credit scoring in their screening processes.