Unfair Mortgage Act ~ opinion piece by Scott Andrew Alpaugh

The Biden Administration wants to implement a new unfair discriminatory rule that aims to make those with higher credit scores subsidize lower credit scores through extra fees.

Credit scores are supposed to be a fair and objective measure of a person's creditworthiness, based on their payment history, debt level, credit mix, and other factors. However, many critics have argued that credit scores are inherently biased and discriminatory, reflecting and reinforcing racial and economic inequalities in our society.

According to a recent report by the Consumer Financial Protection Bureau (CFPB), there are significant disparities in credit scores among different racial and ethnic groups. For example, the average credit score for white consumers is 734, while the average score for Black consumers is 677, and for Hispanic consumers is 701. These gaps can have serious consequences for access to affordable credit, housing, education, and other opportunities.

To address this issue, some policymakers have proposed a new rule that would require lenders to charge higher fees to borrowers with higher credit scores, and lower fees to borrowers with lower credit scores. The idea is to create a more equitable distribution of credit costs and benefits, and to encourage lenders to serve more underserved communities.

However, this rule is not only unfair, but also counterproductive and harmful. Here are some of the reasons why:

- It penalizes responsible borrowers who have worked hard to build and maintain good credit. They would have to pay more for the same loan than someone who has a lower score due to late payments, defaults, or bankruptcy. This would discourage them from using credit wisely and reward bad behavior.

- It creates a perverse incentive for borrowers to lower their credit scores intentionally, by missing payments, maxing out their cards, or taking on more debt. This would hurt their financial health and increase their risk of default.

- It undermines the reliability and accuracy of credit scores as a tool for assessing credit risk. Lenders would have less information and confidence about the borrower's ability and willingness to repay their loans. This would increase their costs and losses, and reduce their lending activity.

- It violates the Equal Credit Opportunity Act (ECOA), which prohibits creditors from discriminating against applicants based on race, color, religion, national origin, sex (including sexual orientation and gender identity), marital status, age, or other protected factors. Charging different fees based on credit scores would amount to indirect discrimination based on these factors, since credit scores are correlated with them.

Therefore, we should oppose this rule and support alternative solutions that would improve access to fair and affordable credit for all Americans, regardless of their race or background. Some of these solutions include:

- Expanding financial education and counseling programs that help consumers understand and improve their credit scores.

- Promoting alternative data sources that can supplement traditional credit reports and scores, such as rent payments, utility bills, or bank account activity.

- Enforcing fair lending laws that protect consumers from predatory lending practices, such as high-interest rates, hidden fees, or deceptive marketing.

- Supporting community development financial institutions (CDFIs) that provide responsible and affordable credit products and services to low-income and minority communities.

Credit scores are not racist, but they reflect the racism and injustice that exist in our society. Instead of punishing those who have good credit scores, we should empower those who have low or no credit scores to achieve financial inclusion and stability.

Thank you for reading, I know rarely write opinion blogs but I think this is important to our business climate.

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