I just read a column in the WSJ that offers sound advice for anyone looking to loan money to a friend or relative. The key to loaning money in these situations is to “[t]ake emotion out of it and treat it like a bank loan as much as possible.” /1/. The column also recalled several conversation starters I have had over the 26 years representing credit bureaus.

Keep it simple

Credit reporting can be hard to explain to consumers, legislators, legislative staff, the media, and others. One way to break down a complicated system in conversations is to take it to its core, most understood component – how credit reporting is relatable to real people. For example, if I am talking to Luna and Henry about credit reporting, I might turn to ask Luna what she would want to know about Henry before loaning Henry $500. Luna might want to know who else Henry owes money to, how much debt he has, and whether he pays those debts on time. She might also want to know more about his income.

The value of data

The Federal Reserve said information is the “cornerstone of a democratic society and market economy.” /2/. The “’almost universal reporting of personal credit histories (under the rules of the Fair Credit Reporting Act) is, in the words of economist Walter Kitchenman, the ‘foundation’ of consumer credit in the United States and a ‘secret ingredient of the U.S. economy’s resilience.’ Studies have shown that the comprehensive credit reporting environment in this country has given U.S. consumers access to more credit, from a greater variety of sources, more quickly, and at lower cost than consumers anywhere else in the world.” /3/.

Then-FTC Chairman Tim Muris referred to the “miracle of instant credit” where a consumer can walk into an auto dealer and “can borrow $10,000 or more from a complete stranger, and actually drive away in a new car in an hour or less.”  Muris also noted that this

‘miracle’ is only possible because of our credit reporting system.  The system works because, without anybody’s consent, very sensitive information about a person’s credit history is given to the credit reporting agencies.  If consent were required, and consumers could decide – on a creditor-by-creditor basis – whether they wanted their information reported, the system would collapse * * * The FCRA is an intricate statute that strikes a fine-tuned balance between privacy and the use of consumer information.  At its core, it ensures the integrity and accuracy of consumer records and limits the disclosure of such information to entities that have ‘permissible purposes’ to use the information. /4/.

The American economy works because the American consumer credit system works. Explaining how it works is not that hard when you take it to its core. Before loaning money to someone or giving them credit, you must know a few things about them. Sadly, the CFPB/5/ and some in Congress/6/ have proposals to blind lenders and creditors to the full extent of a consumer’s debts. That “hear no evil, see no evil” approach is dangerous to the economy and to consumers who will have to pay the tab for those who cannot meet their debt obligations.

/1/ Jonathan I. Shenkman, If You Really, Really Need to Lend Money to Friends or Family, Wall Street J., Oct. 15, 2024.

/2/ Board of Governors of the Federal Reserve System, Report to Congress Concerning the Availability of Consumer Identifying Information and Financial Fraud (1997), 2. 

/3/ Fred H. Cate, Michael E. Staten, The Value of Information-Sharing, The National Retail Federation’s, Protecting Privacy in the New Millennium Series (citations omitted).

/4/ FTC Chairman Tim Muris, October 4, 2001 before the Privacy 2001 conference in Cleveland.

/5/ Editorial, Hiding Medical Debt Won’t Make it Go Away, Bloomberg, July 15, 2024.

/6/ U.S. Rep. Maxine Waters (D-CA) had a proposal that would have, among other things, removed paid or settled debts from credit reports before the current seven-year deadline and she would shorten that seven-year deadline for the removal of debts down to three years.