The only newsletter that scans and analyzes the full breadth of regulatory developments every day. Written and curated by Rob Garver for SourceMedia.

10.5.17 - “Equifax and this whole industry should be completely transformed,” Elizabeth Warren said Wednesday, as a series of contentious hearings about the troubled credit bureau’s massive data breach continued.

The Massachusetts senator, known for her tough stance on the regulation of large financial institutions, is frequently a lonely voice on the Senate Banking Committee, taking positions that are mostly out of step with other members of the panel.

“The incentives in this industry are completely out of whack,” she said, according to American Banker’s Ian McKendry. “Because of this breach, consumers will spend the rest of their lives worrying about identity theft. Small banks and credit unions will have to pay to issue new credit cards. Businesses will lose money to thieves, but Equifax will be just fine.”

But on Wednesday, she had unusual company in calling for major changes to the credit reporting industry.

“It just seems incongruent to me that you have my information. You don’t pay for it, you don’t have my permission. You make money collecting that information, selling it to business … and you also offer me a premium service to make sure the information you collect on me is accurate,” said Louisiana Republican John Kennedy. “I don’t pay extra at a restaurant to prevent a waiter from spitting in my food.”

Mike Crapo, the Idaho Republican who chairs the committee, was also up in arms.

“[The] interest you saw on a bipartisan basis here will generate further discussion and I would expect that legislation would be generated,” he said.

The sense that the Equifax hack was a watershed moment for the regulation of consumers’ personal data in the US was echoed in the Wall Street Journal’s coverage of the hearing on Thursday and across the financial press. So it’s worth asking the question: What comes next?

Some of the solutions that lawmakers are considering, including opt-in requirements for data collection and selective disclosure of financial information would, indeed, give consumers a lot more control over their personal data. At least to the extent that it isn’t already in the possession of hackers.

However, as intrusive, aggravating and opaque as the three major credit bureaus are (in addition to Equifax, extensive records on most consumers are kept by TransUnion and Experian) they are an integral part of a system that, for most Americans, offers relatively easy access to credit when they need it.

Allowing consumers to opt out of having their information collected by credit reporting agencies would likely make it much, much more difficult for those individuals to qualify for everything from a store credit card to a home mortgage. In some cases, credit reports are even used by prospective employers to assess job applicants, so the impact of such a choice on a consumer’s personal life could be significant.

At the individual level, people concerned about their personal privacy would be confronted by a choice that could amount to deciding between increased information security and full participation in the economy. But if enough Americans decided that privacy trumps easy access to credit, the effects could become systemic, as people borrow and spend less.

A more insidious problem would arise from proposals to allow selective disclosures. While there is so far no legislative language to go along with the idea of allowing consumers to block credit bureaus from disclosing specific information, one can imagine it playing out in two possible ways.

The first would be a credit report that notes the existence of a customer-requested omission. Obviously, such an entry in a credit report would be a red flag for lenders, who would need to satisfy themselves that it isn’t obscuring some sort of disqualifying derogatory information. Obviously, under those circumstances, demanding an entry be left out of a credit report would slow the underwriting process for people who took advantage of it.

The second possibility: allowing people to omit certain reports from their credit histories without flagging the omission for users of the reports, would have enormous implications. If lenders had no way of knowing which borrowers might have hidden derogatory information, their default assumption will have to be that ALL borrowers have done so. At that point, credit reports become largely useless, and underwriting slows down for everyone.

It’s a thorny problem, and one that lawmakers and consumers shouldn’t rush to address without a complete understanding of the trade-offs some solutions would require.

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Today’s Key Reads

IRS offers tax relief to hurricane victims in Puerto Rico and Virgin Islands
Accounting Today - The Internal Revenue Service released guidance Wednesday to give tax relief to residents of Puerto Rico and the U.S. Virgin Islands who have evacuated the islands or were unable to return because of Hurricanes Irma or Maria.

Auditors prepare for PCAOB audit reporting change
Accounting Today - Companies and their auditors are getting ready for the Public Company Accounting Oversight Board’s new audit reporting model, despite uncertainty over whether the Securities and Exchange Commission will approve the new standard.

Equifax is tipping point for credit bureau reform, lawmakers say
American Banker - Congress may soon try to limit the personal identifiable information that companies and the government can collect on consumers. Senators on both sides of the aisle expressed more outrage Tuesday during former Equifax CEO Richard Smith’s second of four planned hearings on Capitol Hill this week probing the firm’s massive data breach.

Senate takes key step toward confirming Quarles for Fed
American Banker - The Senate on Wednesday took a key step toward confirming Randal Quarles to serve as a governor of the Federal Reserve Board. It voted 62-33 to invoke cloture to debate his nomination. The full Senate is scheduled to vote on his nomination on Thursday morning.

Dem bill would shut down banks over Wells-caliber abuses
American Banker - Rep. Maxine Waters, D-Calif., introduced a bill Wednesday outlining a process to break apart systemically important big banks that engage in widespread consumer abuse. The bill, sparked by Wells Fargo's ongoing fake-accounts scandal, was backed seven by other Democrats.

SEC data breach has muni advisors on edge about compromised personal information
Bond Buyer - Municipal advisors are concerned that personal information could have been compromised in a recently revealed security breach of the Securities and Exchange Commission's online EDGAR system.

How employers can protect themselves from hacks
Employee Benefit News - Epstein Becker Green attorneys Robert Hudock, a member in the Health Care and Life Sciences practice in Washington, D.C., and Brian Cesaratto, a member in the Employment, Labor & Workforce Management practice in New York City, spoke with Employee Benefit News to discuss the latest hacks, how employers can protect themselves from internal and external threats, and why the benefits department should be involved.

CFPB gives more time to reach troubled borrowers in servicer rule revision
National Mortgage News - The Consumer Financial Protection Bureau said Wednesday that it would give mortgage servicers more time to send early intervention notices to distressed borrowers who have asked not to be contacted about the collection of their debts. The CFPB issued an interim final rule to give servicers a longer, 10-day window to provide modified early intervention notices to borrowers facing foreclosure.

Ocwen won't face SEC enforcement action over collection practice
National Mortgage News - Ocwen Financial Corp. received more breathing room on the legal front as the Securities and Exchange Commission is not pursuing an enforcement action against the company regarding its debt collection practices.

Wells Fargo to offer fee refunds to 110,000 mortgage customers
National Mortgage News - Amid allegations that Wells Fargo scammed borrowers who extended mortgage rate lock periods, the embattled bank said that it will refund those who believe they were wronged. The $1.9 trillion-asset bank announced the customer refund plan on Wednesday.


Extra Credit

Senators Rip Credit-Reporting Model in Wake of Equifax Breach
Wall Street Journal - The Equifax data breach has lawmakers talking about changes to the credit reporting industry that would have broad implications for the financial services industry -- particularly for lenders who rely on the credit bureaus as a key partner in loan underwriting.

Trump sends Puerto Rican bonds into tailspin
Financial Times - President Trump’s unexpected suggestion that the federal government would “wipe out” the substantial debt the government of Puerto Rico owes to bondholders precipitated a rash of selling on Wednesday, which drove down the value of securities issued by the island.

Navient to Buy Fintech Firm Earnest for $155 Million
Wall Street Journal - As part of a bid to expand out from simply collecting student loan payments to offering borrowers refinancing options, Navient is purchasing fintech startup Earnest for $155 million.

Trump’s Short List for Fed Chair Features These Hawks and Doves
Bloomberg - The president is expected to announce his choice for Federal Reserve Board chair in the next few weeks. Bloomberg runs down the latest list of candidates for the job, some of whom have distinctly different views on monetary policy.

Rob Garver

Rob Garver has been covering the intersection of public policy and the private sector for more than 20 years.