More than 40 years ago, Sen. William Proxmire (D-WI) guided the Fair Credit Reporting Act (FCRA) through Congress, seeking to improve the operations of the credit reporting industry. The complexities and tensions in a reputation system like credit reporting are formidable, however, and the FCRA has not satisfied consumer group demands for accurate, responsive, fair, and confidential credit reporting. In fact, new problems have emerged, such as credit repair fraud and identity fraud.
Credit reporting today is anything but the confidential service Proxmire hoped for. Passed in tandem with a financial surveillance law called the Bank Secrecy Act, the FCRA has been turned toward government and corporate surveillance, providing little or no privacy or control for consumers.
As economic theory predicts, the credit reporting industry appears to have benefited from the ossifying effects of regulation. Though the information and technology environments have changed dramatically over the last four decades, the credit reporting and reputation marketplace has seen little change or innovation. A potential related market for identity services is also stagnant thanks in part to government policies.
When Congress chose to preempt common law remedies for wrongs done by credit bureaus, it withdrew a tool that could have guided credit reporting toward better service to consumers and a more innovative and vibrant marketplace. With uniform national regulations, we cannot know how credit reporting might have evolved for the better.