Americans may see the formation of a new federally-backed credit bureau if former vice president and presumptive Democratic presidential nominee Joe Biden is elected in November, thanks to the efforts of a task force appointed by Biden and Vermont Senator Bernie Sanders in May.
This week, the task force of Democrats presented Biden with a 110-page document of policy recommendations. NBC News first reported on the policy wish list on Wednesday. Although the document contains a wide range of initiatives from health care to immigration, the policy recommendations also focused on ways the U.S. can work to close the racial wealth gap, including creating a more level playing field when it comes to credit reporting.
“We’ve seen with horrifying clarity the cost of systemic racism,” Biden said in a speech given Thursday in Pennsylvania. “We need a dedicated agenda to close the wealth gap.”
During the last economic downturn, Black families experienced a 44.3% decline in median net worth, almost double that of White households, which only experienced a 26.1% drop, according to the Brookings Institution.
To help narrow the gap, the policy roadmap proposes creating a public credit reporting agency housed within the Consumer Financial Protection Bureau. This federally-backed credit bureau would “provide consumers with a government option that seeks to minimize racial disparities,” according to the document.
The federally-backed credit bureau would be required to ensure that credit scoring was not discriminatory and that algorithms used for credit scoring would include non-traditional sources of credit data such as rental history and utility bills.
Once established, all federal lenders would be required to use and accept the federal credit agency’s scoring, including for programs such as federal home lending, PLUS loans and other loans that are guaranteed by the U.S. government.
“There is a persistent, pernicious racial wealth gap that holds millions of Americans back, with the typical White household holds 10 times more wealth than the typical Black family,” the document says.
Credit reporting plays a major role in the racial wealth gap, experts say. While the major credit bureaus, Equifax, Experian and TransUnion, say their scoring does not take into account age, race, gender, income or geography, multiple studies have shown that Black Americans routinely have lower credit scores than White consumers. Earlier this year, the Urban Institute found that while more than 50% of White households maintained a FICO credit score above 700, only 21% of Black households were able to achieve the same.
Not only were scores lower, but 1 in 3 Black households did not have enough credit information to generate a credit score (known as having a ‘thin’ credit file), while only 18% of White households had a thin file.