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SEPTEMBER 2014

ROADMAP
FAIR CREDIT REPORTING IMPROVEMENT ACT
Discussion Draft

2014 by Canfield Press, LLC. All rights reserved. Copying or redistribution prohibited without prior consent. www.canfieldpress.com
Roadmap to the

Fair Credit Reporting Improvement Act of 2014


Discussion Draft

The U.S. House of Representatives Ranking Democrat on the House Financial Services
Committee, Rep. Maxine Waters (D-CA), has released a discussion draft of legislation
that would amend the Fair Credit Reporting Act (FCRA).

The bill would reduce the length of time certain adverse information could be included in
credit reports. Credit reports could not include adverse information relating to mortgages,
such as loss mitigation, that resulted from unfair, deceptive, or abusive acts, as the CFPB
or a court determines. Credit reports could not include adverse mortgage information
relating to acts that are the subject of government settlements, such as the national
mortgage settlement. If a delinquent debt is fully paid or settled, adverse information
about it would need to be removed from the credit history. In addition, if a private
student loan borrower makes nine timely, consecutive payments after a delinquency,
information about the delinquency could not be included a credit report.

Credit score algorithms could not adversely treat participation in a credit restoration
program or any other program the CFPB determines appropriate. Multiple credit report
inquiries for the same product type within 120 days would be required to be treated as a
single inquiry for credit scoring purposes.

Using credit reports for employment purposes, unless required by law or for national
security investigations, would be permissible only if the report is both a valid predictor of
employee performance in the specific position, and is a more reliable predictor that
alternative scoring methods, as the CFPB would determine.

Injunctive relief would be available for noncompliance.

Consumers would have the right to obtain a free proprietary credit score annually, not
just a credit report, as is required today.

Here are links to the discussion draft, a press release, and a summary of key provisions.

The Roadmap to the Fair Credit Reporting Improvement Act of 2014 follows, with
additional details on the discussion draft.
2 Foreclosure Credit Restoration
Adds a new item to the list of information excluded from consumer reports:
Any adverse item of information relating to a residential real property loan
(including the origination and servicing of such a loan, any loss mitigation activities
related to such a loan, and any foreclosure, deed in lieu of foreclosure, or short sale
related to such a loan), if the action or inaction to which the item of information
relates
o Resulted from unfair, deceptive, or abusive acts or practices, or fraudulent or
illegal activities of, a financial institution, as determined by the CFPB, the FTC,
or a court of competent jurisdiction; or
o Is related to acts, practices, or activities of a financial institution that are the
subject of a settlement agreement between the financial institution and a local or
State government or the Federal Government.

The CFPB must issue implementing regulations within 18 months.

3 Reporting Adverse Information


Statutory time periods
The length of time adverse information can be reported is shortened as follows:
Bankruptcy, shortened from 10 years to 7;
Civil suits, judgments, and arrests, is amended from the longer of 7 years or when the
statute of limitations expires, to change 7 years to 4;
Paid tax liens, shortened from 7 years to 4;
Accounts placed for collection or charged off, shortened from 7 years to 4;
Other adverse information other than criminal convictions, shortened from 7 years to
4.

The CFPB would be permitted to modify these time periods, after notice and comment, if
necessary to prevent a significant adverse impact on:
The interests of consumers;
The availability and affordability of consumer financial products and services; or
The availability and use of consumer reporting products and services by users of such
products and services.

The bill would delete existing 605(b), which makes exemptions to these time periods
for consumer credit reports used in connection with:
Loans with a principal amount of $150,000 or more;
Life insurance with a face amount of $150,000 or more; or
Employment at an annual salary of $75,000 or more.

Recordkeeping requirement
Furnishers of information to credit reporting agencies must maintain all relevant
records necessary to substantiate the information, including any records establishing
the liability and terms and conditions under which credit was extended and any

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payment history. The retention period lapses when the information can no longer be
included in a consumer report.
If a furnisher is acquired, or if a right to repayment connected to the information is
acquired, the acquiror is subject to the same record retention requirement. The seller
or transferor must provide the information to the transferee or acquiror.

Removal of paid or settled debts


There is added to 605(a) (information excluded from consumer reports):
Any adverse information related to a fully paid or settled debt, including a medical
debt, that had been characterized as delinquent, charged off, or in collection which,
from the date of payment or settlement, antedates the report by more than 45 calendar
days.

Private education loan credit restoration


There is a new 605C:
A consumer reporting agency may not make any consumer report containing any
adverse item of information relating to a private education loan (as defined under
TILA 140(a)), if the consumer has made 9 consecutive on-time monthly payments
(in accordance with the terms and conditions of the borrowers original loan
agreement or any other repayment agreement that antedates the original agreement)
on such loan after the date on which the default or other action or inaction to which
the adverse item of information relates occurred.

4 Credit Score Algorithms


The CFPB must by regulation require a person who creates or maintains credit score
algorithms, formulas, models, programs, or mechanisms used in making credit
decisions to establish standards for validating the accuracy and predictive value of all
of them, both before release for initial use and regularly thereafter, for as long as they
are made available by the person.
FHFA, in consultation with the CFPB, shall regularly examine the predictive value
and appropriateness of the credit scoring algorithms, formulas, models, programs, or
mechanisms used to determine which residential real property loans are eligible for
purchase by the Fannie Mae and Freddie Mac to ensure such algorithms, formulas,
models, programs, or mechanisms are empirically derived and demonstrably and
statistically sound.
A credit score algorithm may not take into account, in a manner adverse to a
consumers credit score, any information in a consumer report concerning the
consumers participation in a Federal credit restoration program. A Federal credit
restoration program is a Federal program or statute that assists a consumer to
rehabilitate their credit standing following a delinquency or default on a credit
obligation as described in 605(a)(7) or 605C, and any other program that the CFPB
determines appropriate.
o 605(a)(7) is added by 2 of this bill, and prohibits reporting information related
to what the CFPB determines to be unfair, deceptive, or abusive, or that is the
subject to a settlement with a state or local, or the federal, government;

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o 605C is added by 3 of this bill, and prohibits reporting certain private
education loan information.

5 Study of Additional and Alternative Credit Scoring Products


FHFA, in consultation with the CFPB, shall study the costs and benefits of implementing
additional or alternative credit score products used to establish the eligibility criteria for
loans purchased by Fannie Mae and Freddie Mac. In their study, they shall consider
whether the use of such additional or alternative credit score products would
Improve the accuracy, predictive value, and appropriateness of factors used in GSEs
credit scoring algorithms;
Improve the GSEs ability to more effectively manage credit risks;
Reduce operational risks associated with the reliance on one single provider of credit
scores;
Improve the availability and affordability of residential real property loans;
Protect the interests of taxpayers; and
Any other factors FHFA and the CFPB deem relevant.
They must report to Congress within a year.

6 Consumer Disputes
Section 611(a)(2) requires consumer reporting agencies who receive notice of a
dispute to notify the furnisher, and provide information regarding the dispute. The
word relevant is deleted in two places:
(A) IN GENERAL
Before the expiration of the 5-business-day period beginning on the date on which
a consumer reporting agency receives notice of a dispute from any consumer or a
reseller in accordance with paragraph (1), the agency shall provide notification of
the dispute to any person who provided any item of information in dispute, at the
address and in the manner established with the person. The notice shall include
all relevant information regarding the dispute that the agency has received from
the consumer or reseller.
(B) PROVISION OF OTHER INFORMATION
The consumer reporting agency shall promptly provide to the person who
provided the information in dispute all relevant information regarding the dispute
that is received by the agency from the consumer or the reseller after the period
referred to in subparagraph (A) and before the end of the period referred to in
paragraph (1)(A).

After reinvestigating a notice of dispute, a consumer reporting agency must notify the
consumer and supply certain information. This bill would add that the consumer
reporting agency must provide a copy of all information the agency used in its
reinvestigation.
Section 611(a)(1) requires consumer reporting agencies who receive notice of a
dispute to reinvestigate it. This bill adds that consumer reporting agencies must
maintain sufficient resources and trained staff to do so as required under 611.

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Section 623 is amended to add a duty on furnishers of information to maintain
sufficient resources and trained staff to investigate and reinvestigate disputes as
required under 623.
Section 609(c) is amended:
o To replace FTC with CFPB as apparently originally intended; and
o To add that consumer reporting agencies must conspicuously post on their
websites the CFPBs summary of consumer rights.

7 Standards and Procedures for Investigations and Reinvestigations of Disputed


Information
The following is added to 611:

In any investigation or reinvestigation by a consumer reporting agency of an item of


information being disputed by a consumer, the consumer reporting agency shall, at a
minimum
Verify that the consumer reporting agency has a record of the particular item of
information being disputed; and
Verify that the item of information being disputed is accurate and complete and
relates to the consumer in whose file the information is located, including by
o Conducting an independent analysis, separate from any furnisher investigation of
such information, of all data the consumer reporting agency possesses related to
such information, in order to identify any inconsistencies or errors in such data;
and
o Verifying that the personally identifiable information connected to the item of
information subject to the dispute is accurate and complete, including verifying
the consumers full legal name, address, full social security number or other
similar identification number, and date of birth.

The following is added to 623:

In any investigation or reinvestigation by a person who furnishes information to a


consumer reporting agency of an item of information being disputed by a consumer, the
person shall, at a minimum
Verify that the person has a record of the particular item of information being
disputed;
Verify that the item of information being disputed is accurate and complete and
relates to the consumer in whose file the information is located, including by
o Conducting an analysis of all data the furnisher has, or has access rights to, related
to such information, in order to identify any inconsistencies or errors in such data;
and
o Verifying that the personally identifiable information connected to the item of
information subject to the dispute is accurate and complete, including verifying
the consumers full legal name, address, full social security number or other
similar identification number, and date of birth.

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8 Accuracy and Completeness of Compliance Procedures
Section 607(b) requires consumer reporting agencies to follow reasonable procedures to
assure maximum possible accuracy of information. This is replaced with:

A consumer reporting agency shall follow reasonable procedures when preparing a


consumer report to assure maximum possible accuracy and completeness of the
information concerning the individual to whom the consumer report relates.
Within a year, the CFPB must issue a final rule establishing the procedures that a
consumer reporting agency must follow to assure maximum possible accuracy and
completeness of all consumer reports furnished by the agency in compliance with this
subsection. When formulating this rule, the CFPB shall consider if requiring the
matching of the following information would improve the accuracy and completeness
of such consumer reports:
o The full name of a consumer.
o The date of birth of a consumer.
o The full social security number of a consumer.
o Any other information that the CFPB determines would aid in assuring maximum
possible accuracy and completeness of such consumer reports.

9 Restrictions on the Use of Consumer Reports for Employment Purposes


Section 604(b) limits when a consumer reporting agency may furnish a consumer report
for employment purposes. A new restriction is added:

In the case of a consumer report that contains any information bearing on the consumers
creditworthiness, credit standing, or credit capacity, the person who obtains such report
from the agency certifies to the agency that
Either
o The person is required to obtain the report by a local, State, or Federal law or
regulation;
o The information contained in the report is being used with respect to a national
security investigation (as defined in 604(b)(4)(D)); or
o The information is a valid predictor of employee performance in the specific
position of employment and is a more reliable predictor of such employee
performance than alternative scoring methods, as the CFPB determined;
None of the cost associated with obtaining an employee or applicants consumer
report are passed on to the employee or applicant; and
The information in the employee or applicants consumer report is kept confidential;

Procuring consumer reports for employment purposes requires a disclosure that a report
may be procured for employment purposes, and the consumers consent. This bill adds
that if the user certifies its compliance with the certification of permissible purpose to the
consumer reporting agency, the consumer must also receive a written disclosure of the
reason for seeking the report, before it is procured.

Before taking adverse action based on a consumer report for employment purposes, the
person taking the action must provide the report and a description of rights. This bill

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adds a requirement to identify the consumer reporting agency, the report date, and the
specific factors from the report upon which the adverse action was based.

10 Disclosures on Products and Services


There is added a new 609(h):

The CFPB, in coordination with the FTC, shall issue regulations within 18 months
requiring each consumer reporting agency and reseller to clearly and conspicuously
disclose all material terms and conditions, including any fee and pricing information
associated with any products or services offered, advertised, marketed, or sold to
consumers by the agency or reseller. Such disclosures shall be displayed prominently on
the agency or resellers website and all other locations where products or services are
offered, advertised, marketed, or sold to consumers.

11 Disclosure of Credit Score and Educational Credit Score


Section 609(f) is amended to read:

Upon the request of a consumer for a credit score, a consumer reporting agency shall
supply to the consumer a statement containing
o A current credit score generated using the scoring algorithm, formula, model,
program, or mechanism that is most frequently used to generate credit scores,
subject to regulations of the CFPB; or
[Current 609(f)(1)(A) does not require generating a score for this purpose.]
o To the extent it is not practicable to generate such a credit score, a consumer
reporting agency shall supply to the consumer an educational credit score.
Such a statement shall include
o The most recent credit score that was provided to a creditor or the most current
educational credit score;
o A minimum of 4 key factors that adversely affected the credit score or educational
credit score, except that if one of the key factors consists of the number of
enquiries made with respect to a consumer report, that factor shall be provided to
the consumer in addition to the factors required by this subparagraph;
[Current 609(f)(1) requires no more than 4 factors, all adverse, and if number
of inquiries is one, it must be included.]
o To the extent possible, specific actions a consumer could take with respect to each
key factor listed to improve the consumers credit score or educational credit
score;
o A minimum of 4 key factors that positively affected the credit score or
educational credit score;
o The range of possible credit scores or educational credit scores under the model
used;
o The distribution of credit scores or educational credit scores among consumers
who are scored under the same scoring model using the same scale as that of the
score that is provided to the creditor or consumers

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In the form of a bar graph containing a minimum of 6 bars that illustrates the
percentage of consumers with credit scores or educational credit scores within
the range of scores reflected in each bar; or
By another clear and readily understandable graphical depiction, statement, or
illustration comparing the consumers credit score or educational credit score
to the scores of other consumers, as determined by the CFPB;
o The date on which the credit score or educational credit score was created; and
o The name of the person that provided the credit score or educational credit score.
If an educational credit score is provided is such statement, a consumer reporting
agency shall clearly and conspicuously include in a prominent location on the
statement, in boldface type of 18 point font or larger, and in a text box with boldface
outer borders, the following notice:
NOTICE
The educational credit score provided to you is not a credit score that a lender is
likely to use. There are many different credit scores derived from a wide variety
of models used by lenders and creditors. An educational credit score is merely an
educational tool. It is intended to provide consumers with a basic understanding
of how the information contained in a consumer report may affect the terms and
conditions of credit that are available. The credit scores you receive directly from
different lenders and creditors may not be the same as an educational credit score.
There are a number of reasons for this:
Each company uses its own formula for calculating credit scores and the
differences in the formulas may lead to differences in your scores;
Companies may produce scores that give results on different scales, and
Not all lenders or creditors report to every consumer reporting agency, and
therefore the information contained in your consumer report that the consumer
reporting agencies use to calculate your educational credit score may differ
among agencies.

A consumer reporting agency shall be prohibited from referring to an educational


credit score as a credit score in any application, solicitation, marketing, or other
informational materials or media.
A consumer reporting agency shall clearly and conspicuously display on the home
page of their website, and as part of any application, solicitation, or marketing
material or media providing information related to an educational credit score, the
following notice, in boldface type of 18 point font or larger and in a text box with
boldface outer borders:

WARNING
There is no one credit score. There are many scoring formulas derived from a
wide variety of models available to a consumer and used by lenders and creditors.
Different lenders use different scoring formulas, so your score can vary from
lender to lender. An educational credit score is not a credit score that a lender is
likely to use. Educational credit scores are merely intended to be used as an
educational tool to help consumers understand how the information contained in a

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consumer report may affect the terms and conditions of credit that are available to
a consumer.

The information required by this subsection shall be provided in the same timeframe
and manner as the information described in subsection (a) of this section.
This subsection shall not be construed so as to compel a consumer reporting agency
to develop or disclose a score if the agency does not
o Distribute credit scores used by a person who makes or arranges a loan or extends
credit to predict the likelihood of certain credit behaviors; or
[This is changed from current 609(f)(4), which does not require consumer
reporting agencies to develop or disclose a score if the agency does not
distribute scores used in connection with residential mortgage loans.]
o Develop educational credit scores that assist in understanding the general credit
behavior of a consumer and predicting the future credit behavior of the consumer.
This subsection shall not be construed to require a consumer reporting agency that
distributes credit scores developed by another person or entity to provide a further
explanation of them, or to process a dispute arising pursuant to section 611, except
that the consumer reporting agency shall provide the consumer with the name,
address, and website for contacting the person or entity who developed the score or
developed the methodology of the score. This paragraph shall not apply to a
consumer reporting agency that develops or modifies credit scores that are developed
by another person or entity. [This is the same as current 609(f)(5).]
This subsection shall not be construed to require a consumer reporting agency to
maintain credit scores or educational credit scores in its files. [This is the same as
current 609(f)(6) except that it adds educational credit scores.]
A consumer reporting agency may charge a fair and reasonable fee that shall not
exceed $10 (as adjusted by the Bureau on January 1st of each year to reflect
proportional changes in the Consumer Price Index, with fractional changes rounded to
the nearest 50 cents, as determined by the Bureau, for providing the information
required under this subsection) and that shall be clearly disclosed to the consumer
before the consumer incurs any obligation to pay the fee. Such fee shall not apply to
a credit score or educational score provided pursuant to 612(h). [The limit to $10 is
new.]
For purposes of this subsection:
Credit Score means a numerical value or a categorization derived from a statistical
tool or modeling system used by a person who makes or arranges a loan or extends
credit to predict the likelihood of certain credit behaviors, including default, as
determined by the CFPB (the numerical value or the categorization derived from such
analysis may also be referred to as a risk predictor or risk score). [The current
609(f) definition of credit score excludes mortgage AUS scores.]

Educational Credit Score means a numerical value or categorization derived from a


statistical tool or modeling system based upon information from a consumer report
for the purpose of predicting the likelihood of certain credit behaviors or outcomes.

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Key Factors means relevant elements or reasons affecting the credit score for the
particular individual, listed in the order of importance based on the effect of each
element or reason on the credit score or educational credit score. [The current
609(f)(2)(B) definition of key factor includes only adverse factors.]

Creditor means a creditor, as defined in ECOA 702, except that such creditor shall
regularly and in the ordinary course of business
o Obtain or use consumer reports, directly or indirectly, in connection with a credit
transaction;
o Furnish information to consumer reporting agencies, as described in 623, in
connection with a credit transaction; or
o Advance funds to or on behalf of a person, based on an obligation of the person to
repay the funds or repayable from specific property pledged by or on behalf of the
person; but such person advancing funds is not a creditor if the person advances
funds on behalf of a person for expenses incidental to a service provided by the
creditor to that person. [Current 609(f) does not define this term.]

12 Disclosure of Credit Scores by Certain Mortgage Lenders


Section 609(g) is amended.
Currently, it requires mortgage lenders to provide the most recently generated credit
score. The score range, 4 key factors, the date, and the providers name. This is
revised to require providing the score or scores used, and the score distribution as
follows:

The distribution of credit scores among consumers who are scored under the same
scoring model using the same scale as that of the score that is provided to the
creditor or consumers
In the form of a bar graph containing a minimum of 6 bars that illustrates the
percentage of consumers with credit scores or educational credit scores within
the range of scores reflected in each bar; or
By another clear and readily understandable graphical depiction, statement, or
illustration comparing the consumers credit score or educational credit score
to the scores of other consumers, as determined by the CFPB.

Section 609(g)(2), renumbered 609(4)(B), provides that lenders are not liable for any
contractual provision for providing a credit score under 609(g). The term score is
made plural.
There is added:
o This subsection shall not require any person to disclose any credit score or related
information obtained by the user after a loan has closed.
o No person has liability under this subsection for the content of that information or
for the omission of any information within the report provided by the consumer
reporting agency.

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13 Free Annual Disclosure of Credit Scores or Educational Credit Scores
The free annual credit report that 612(a) requires is revised to include a credit score
or educational credit score. There are several conforming amendments in 612.
There is added to 612:
o Each consumer reporting agency described in 603(p) [definitions] shall provide
a free annual credit score or educational credit score once during any 12-month
period, upon the request of a consumer without charge to the consumer.
o This shall only apply with respect to a request from a consumer made using the
centralized source established pursuant to 211(d) of the Fair and
o Accurate Credit Transactions Act of 2003.
o For this purpose, the term educational credit score has the meaning under
609(f)(9).

14 Renewal Notice
The following 631 is added to FCRA:
With respect to any product or service of a consumer reporting agency that is
provided to a consumer under promotional terms, the consumer reporting agency
shall provide clear and conspicuous notice to the consumer when the promotional
period ends.
With respect to any product or service of a consumer reporting agency that is
provided to a consumer under promotional terms, the consumer reporting agency may
not continue to provide such product or service to the consumer after the end of the
promotion period unless the consumer specifically agrees at the end of the
promotional period to continue receiving the product or service.

15 Injunctive Relief
There are added to 616 [civil liability for willful noncompliance] and 617 [civil
liability for negligent noncompliance] both, the following:
In addition to any other remedy set forth in this section, a court may award
injunctive relief to require compliance with the requirements imposed under this
title with respect to any consumer. In the event of any successful action for
injunctive relief under this subsection, the court may award to the prevailing party
costs and reasonable attorney fees (as determined by the court) incurred during
the action by such party.

The FTCs FCRA enforcement authority is currently subject to the CFPBs Subtitle B
enforcement authority, and the FTC may otherwise bring actions for knowing
violations, for civil money penalties up to $2,500 per violation. This is amended in
621(a)(2)(A), to authorize the FTC to bring actions for negligent or willful
violations, in addition. The maximum penalty is not revised.

16 Requirement for Dispute Resolution Staff to be Able to Correct Records


There is added to 611:
Each consumer reporting agency shall ensure that agency staff with the responsibility
for investigating disputed information and communicating with consumers also have
the ability and responsibility to directly correct errors identified in a consumer report.

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17 Indication of Dispute by Consumer and Use of Disputed Information
Section 605(f) is amended to require indication of dispute, whether the consumer notifies
the information furnisher or the agency; and to require a furnisher that learns of a dispute
about information it already furnished to report that dispute to the agency, as follows:
In 605(f):
If a consumer reporting agency is notified pursuant to section 623(a)(3) that
information regarding a consumer [that] was furnished to the agency is disputed
by the consumer, either by the consumer (directly or indirectly through a
reseller) pursuant to 611 or by a furnisher of the information pursuant to
623(a)(3) the agency shall indicate that fact in each consumer report that
includes the disputed information.
In 623(a)(3):
If the completeness or accuracy of any information furnished by any person to
any consumer reporting agency is disputed to such person by a consumer, the
person may not furnish the information to any consumer reporting agency without
notice that such information is disputed by the consumer, and if the person has
already furnished such information to a consumer reporting agency, the
person shall notify such agency within 5 business days that the information is
disputed by the consumer.
There is also added in 605(f):
Unless the consumer reporting agency determines that a dispute is frivolous or
irrelevant, such disputed information may not be considered or taken into account
in a manner adverse to the consumer by any credit scoring algorithm or any user
of a consumer report, including in a credit score or an educational credit score.

18 Establishing Consumers Right to Shop for Affordable Credit


There is added to 605:
With respect to enquiries made with a consumer reporting agency for a consumer
report or credit score with respect to a consumer, any credit scoring algorithm or
model shall treat the enquiries as a single enquiry, if the enquiries
o Are made within the same 120-day period; and
o Are all for the purpose of determining the consumers creditworthiness for
purposes of the same category of loan from among the following:
A residential real property loan;
An automobile loan;
A private education loan (as defined in TILA 140(a)).

19 Study on Non-Traditional Data


The CFPB shall study whether including more non-traditional data on a consumer
report used in connection with a credit transaction involving the extension of credit to,
or review or collection of an account of, the consumer would increase access to credit.
It must report to Congress in one year.
For this purpose, non-traditional data means data related to telecommunications,
utility payments, rent payments, remittances, wire transfers, and such other items as
the CFPB determines appropriate.

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20 CFPB Rulemaking
Unless otherwise provided, the CFPB must issue final rules to implement the
amendments made by this Act within 2 years.

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