The Federal Trade Commission (FTC) estimates that twenty-one percent of credit reports contain material errors, and poor credit reports can cause significant harm. Credit reports affect whether consumers get loans and how much they pay, and credit reports are used for more than just credit. Insurers use credit reports to set premiums, landlords use credit reports to decide whether to rent apartments, and both private and public employers use credit reports to determine whom to hire. When the Equal Employment Opportunity Commission (EEOC) sued an employer for considering credit reports, the Sixth Circuit noted that the EEOC itself considered credit reports in filling eighty-four of its ninety-seven positions. The EEOC is not alone in criticizing the credit reporting industry. States, Senators, and Representatives have taken action aimed at reform. Eleven states and several cities limit the use of credit reports in employment, and Senators Elizabeth Warren and Bernie Sanders have co-sponsored legislation that would impose a national prohibition. Additionally, legislation sponsored by Representative Maxine Watters would: (i) reduce the period during which negative information can appear on credit reports from seven to four years, (ii) prohibit credit bureaus from reporting defaults if the consumers settled for less than the outstanding balance, (iii) prohibit the reporting of negative information related to loans deemed predatory or abusive, and (iv) regulate the scoring models users apply to the reports. These reforms would limit the content or use of credit reports. Other proposed reforms seek to reduce reporting error, either by imposing greater liability for mistakes or by having the government determine the reporting process. For example, Senators Warren and Sanders have also co-sponsored legislation that would allow courts to issue injunctions under the Fair Credit Reporting Act (FCRA) and have the Consumer Financial Protection Bureau (CFPB) promulgate a rule “establishing the procedures that a consumer reporting agency must follow to assure maximum possible accuracy.” This article begins with a question neglected by the existing literature: why regulate credit reporting at all? Although the answer may seem obvious given the importance of credit reports and the number of mistakes, this article argues that efficiency justifications for regulation are dubious. More specifically, the credit reporting market is imperfect, but existing and proposed regulations are poorly designed to address these market failures. Distributional or equitable justifications for regulation are more compelling, but the distributional consequences of regulation are unpredictable.

Citation
Rich Hynes, “Maximum Possible Accuracy” in Credit Reports, 80 Law & Contemporary Problems, 87–115 (2017).