Canada and credit bureaus can do more to help struggling Canadians

As Canadians struggle to deal with the pandemic and its negative impact on their finances, the challenge of making payments becomes more difficult as the pandemic continues and impacts struggling households. As of the end of September, the Canadian Bankers Association reported almost 760,000 Canadian homeowners have taken a mortgage deferral, with one million existing loans being deferred. Equifax has recently reported since the pandemic started, three million Canadians have taken at least one deferred payment. Canada’s unregulated credit reporting agencies, Equifax and TransUnion, have offered consumers negatively impacted by COVID-19 the opportunity to treat deferred revolving loan (e.g., mortgage) payments as regular payments paid within 30 days so long as they have a deferral agreement with the creditor. However, many mortgage deferrals were time limited to six months and are now becoming due. So, the potential for more missed payments, or more loans taken to keep households afloat, will negatively impact Canadians’ finances further. Ordinary Canadians, and in particular, those who are younger and in the lower- and middle-class, face a vicious cycle of lower credit scores and more difficulty getting loans to financially survive in a pandemic. TransUnion's research showed at the end of March that 57 per cent of respondents reported they were financially impacted by COVID-19, with younger generations impacted the most: generation Z at 82 per cent and millennials at 67 per cent. TransUnion found 70 per cent of respondents are concerned about their ability to pay their bills and loans but millennials were at 78 per cent and generation Z at 74 per cent. Poor credit scores tend to have a disproportionately negative impact on racialized and disadvantaged communities and low-income workers who are more unlikely to qualify for mortgages, lines of credit, or car loans. The U.S. National Consumer Law Center released a report in 2019 that showed credit bureaus and the information that companies supplied them “still have serious problems in ensuring the accuracy of credit reports.” Moreover, an inaccurate credit reporting system increases the financial discrimination faced by disadvantaged groups with the economic disparities being made worse by erroneous and harmful financial information. Research from the Law Commission of Ontario and various U.S. studies have also shown that systemic racism or bias can also be built into algorithms by the data gatherers since these reflect the skewed data or bias of the programmers that designed them. As these data gatherers collect, analyze, and report the extensive credit and financial history of consumers, credit bureaus serve as the unregulated gatekeepers of Canadians’ sensitive financial information. In such an important role, this oligopoly of Canada's two credit bureaus can be doing more to help Canadians. Canada’s credit reporting agencies can entirely eliminate the negative impact on credit scores of new or additional loans such as lines of credit, car loans, and refinancing of mortgages taken out due to COVID-19. Importantly, Canada can appoint a regulator for Equifax and TransUnion, which would make their reporting system accountable, transparent, understandable, and fair for all Canadians instead of being privately determined by banks and the credit bureaus without transparency, accountability, or a set of national standards. U.S. president-elect Joe Biden has stated his interest in creating a government-led reporting agency in the U.S. to compete with the reporting agencies, in recognition of the need for accurate information, and the credit bureaus’ power to cut consumers off from essential financing, such as mortgages and car loans. As many Canadians have experienced, correcting inaccurate credit reports is a challenging and frustrating process, and without recourse to appeal to a regulatory authority. Canada has an opportunity with the credit crisis to go farther by finally implementing a comprehensive set of measures to protect Canadian consumers. Canada should impose customer service standards on credit bureaus so they must acknowledge and promptly respond to consumer complaints, and impose penalties if credit bureaus fail to deal with consumer complaints. Canada can also protect consumers by suspending any reporting of negative COVID-19 by the credit bureaus (such as taking out new loans or maxing out existing ones to stay afloat) as U.S. Democratic lawmakers have already proposed. Through formal regulation of credit bureaus and imposing much needed standards, Canadians can finally get a better credit reporting system that puts consumers first and that Canadians deserve. Daniel Tsai is a lecturer in law and business at Ryerson University's Ted Rogers School of Management, a former senior policy adviser in the federal government, and editor of ConsumerRights.ca. Twitter: @dtsailawyermba The Hill Times