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The development and regulation of consumer credit reporting in America

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  • Robert M. Hunt

Abstract

In the United States today, there is at least one credit bureau file, and probably three, for every credit-using individual in the country. Over 2 billion items of information are added to these files every month, and over 2 million credit reports are issued every day. Real-time access to credit bureau information has reduced the time required to approve a loan from a few weeks to just a few minutes. But credit bureaus have also been criticized for furnishing erroneous information and for compromising privacy. The result has been 30 years of regulation at the state and federal levels. ; This paper describes how the consumer credit reporting industry evolved from a few joint ventures of local retailers around 1900 to a high technology industry that plays a supporting role in America's trillion dollar consumer credit market. In many ways the development of the industry reflects the intuition developed in the theoretical literature on information-sharing arrangements. But the story is richer than the models. Credit bureaus have changed as retail and lending markets changed, and the impressive gains in productivity at credit bureaus are the result of their substantial investments in technology. ; Credit bureaus obviously benefit when their data are more reliable, but should we expect them to attain the socially efficient degree of accuracy? There are plausible reasons to think not, and this is the principal economic rationale for regulating the industry. An examination of the requirements of the Fair Credit Reporting Act reveals an attempt to attain an appropriate economic balancing of the benefits of a voluntary information sharing arrangement against the cost of any resulting mistakes.

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Paper provided by Federal Reserve Bank of Philadelphia in its series Working Papers with number 02-21.

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Date of creation: 2002
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Handle: RePEc:fip:fedpwp:02-21

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Keywords: Consumer credit;

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Cited by:
  1. Meta Brown & Andrew Haughwout & Donghoon Lee & Wilbert van der Klaauw, 2013. "The financial crisis at the kitchen table: trends in household debt and credit," Current Issues in Economics and Finance, Federal Reserve Bank of New York, Federal Reserve Bank of New York, vol. 19(April).
  2. Heski Bar-Isaac & Vicente Cuñat, 2005. "Long term debt with Hidden Borrowing," Working Papers, New York University, Leonard N. Stern School of Business, Department of Economics 05-04, New York University, Leonard N. Stern School of Business, Department of Economics.
  3. Robert M. Hunt, 2003. "An introduction to the economics of payment card networks," Working Papers, Federal Reserve Bank of Philadelphia 03-10, Federal Reserve Bank of Philadelphia.
  4. Federico Ferretti, 2007. "Consumer credit information systems: a critical review of the literature. Too little attention paid by Lawyers?," European Journal of Law and Economics, Springer, Springer, vol. 23(1), pages 71-88, February.
  5. Jonathan Spader, 2010. "Beyond Disparate Impact: Risk-based Pricing and Disparity in Consumer Credit History Scores," The Review of Black Political Economy, Springer, Springer, vol. 37(2), pages 61-78, June.
  6. Robert B. Avery & Paul S. Calem & Glenn B. Canner, 2004. "Consumer credit scoring: do situational circumstances matter?," BIS Working Papers, Bank for International Settlements 146, Bank for International Settlements.
  7. Avery, Robert B. & Calem, Paul S. & Canner, Glenn B., 2004. "Consumer credit scoring: Do situational circumstances matter?," Journal of Banking & Finance, Elsevier, Elsevier, vol. 28(4), pages 835-856, April.

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