The 2020 presidential race is in full swing, and speculation about whether President Trump will energize enough of his base to stave off former Vice President Joe Biden has dominated headlines for months. With the Nov. 3 election less than three months away, Bank Innovation spoke with lawyers, academics and think tanks to learn how the two campaigns view important policies surrounding banking and fintech. In the second part of this ongoing series, we examine what is at stake for credit reporting as the election approaches.

Credit reporting has long been dominated by the private agencies Experian, Equifax and TransUnion. That could change, however, under a Biden administration.

The government already regulates the credit reporting bureaus through the Fair Credit Reporting Act, but a set of policy recommendations from a joint Biden and Bernie Sanders task force proposed a more drastic measure. “Democrats will also expand access to credit by creating a public credit reporting agency to provide a non-discriminatory credit reporting alternative to the private agencies, and will require its use by all federal lending programs, including home lending and student loans,” the report read. 

Although the idea is still in its nascent stages, a public credit reporting agency could help underbanked consumers who often struggle to receive credit. “The theory is commercial credit underwriting doesn’t do a sufficiently good job of servicing underrepresented groups, so the government should produce its own credit underwriting metrics,” said Brian Knight, director of innovation and governance and a senior research fellow at the Mercatus Center at George Mason University.

The challenge, according to industry experts, is creating a viable alternative to FICO that will satisfy both lawmakers and lenders.

Lenders, for their part, aren’t going to want to use a risk metric that isn’t accurate. “I could definitely see it being on [lawmakers’] agenda,” said Julie Hill, a professor of law at the University of Alabama and a financial institution regulation expert. “What I have heard has made me wonder how is it something that folks who are issuing credit are going to want to use.” 

Using data and proprietary algorithms to underwrite consumers often overlooked by FICO has been the focus of fintech lenders like LendUp, Aura and Prosper. Fintechs like Kabbage and BlueVine have taken the approach as a way to reach small businesses overlooked by banks.

If a Biden administration were to uncover inaccuracies in the current private credit reporting models, it could be beneficial for lenders and consumers alike, but simply ignoring predictive data could be a different story. “If [lawmakers] are going to pretend like it’s different or just insert directives that modify the cold hard math then that’s a recipe for disaster,” said Robert Savoie, an attorney at McGlinchey specializing in financial services and fintech regulation and policy.

According to Diego Zuluaga, associate director of financial regulation studies at the Cato Institute’s Center for Monetary and Financial Alternatives, a public credit reporting agency likely wouldn’t be created under a Trump administration.  Even Biden, he noted, might have trouble convincing moderate Democrats to embrace the idea. “The great danger is that this creates a major political incentive to mandate that lenders consider the government credit score and, subsequently, they give it precedence over private scores,” Zuluaga said. 

See also: Massachusetts to Sue Equifax for Data Breach

A potential boost to the public credit reporting movement could be the negative headlines the private credit reporting agencies have generated. In 2017, for example, an Equifax data breach affected almost 150 million Americans. That same year, the Consumer Financial Protection Bureau also fined both Equifax and TransUnion for misleading consumers about the cost and usefulness of credit scores. These failings have garnered bipartisan scorn that could make a new public option more appealing. 

Thomas Brown, a partner with the Paul Hastings law firm focused on antitrust and competition and global banking and payment systems practices, testified during the Equifax data breach hearings. “I remember sitting there and thinking, ‘Gosh, no one likes them ,’” he said. “I think there is interest in a bipartisan way to see alternatives to the existing framework.”

Bank Innovation Build, which takes place Sept. 9-10 as a virtual experience, is a must-attend industry event for professionals overseeing financial technologies, product experiences and services. Register here.