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WORKING PAPER NO. 05-13A CENTURY OF CONSUMER CREDIT REPORTING IN AMERICA
 Robert M. HuntFederal Reserve Bank of PhiladelphiaJune 2005
 
 WORKING PAPER NO. 05-13A CENTURY OF CONSUMERCREDIT REPORTING IN AMERICA
Robert M. Hunt*Federal Reserve Bank of PhiladelphiaJune 2005
* Research Department, Federal Reserve Bank of Philadelphia, Ten Independence Mall, Philadelphia, PA 19106.Phone: 215-574-3806. E-mail: bob.hunt@phil.frb.orgThe idea for this paper originated in discussions with the Federal Reserve Bank of Philadelphia’s PaymentCards Center. Thanks to James DiSalvo for his assistance in assembling data for this paper. Thanks to Mark Furletti for help with fact checking. Any remaining errors are my own.The paper benefited from discussions with Robert Avery, Mitchell Berlin, Tony Capaldi, John Caskey, PaulCalem, Satyajit Chatterjee, Richard Disney, Nicola Jentzsch, Nick Souleles, and Todd Zywicki and seminarparticipants at Butler University, the European University Institute, the Federal Trade Commission, Riksbank,and the Southern Finance Association.The views expressed here are those of the author and do not necessarily represent the views of the FederalReserve Bank of Philadelphia or the Federal Reserve System.This paper is available free of charge at www.philadelphiafed.org/econ/wps/index.html.
 
 A CENTURY OF CONSUMERCREDIT REPORTING IN AMERICA
Robert M. HuntFederal Reserve Bank of PhiladelphiaJune 2005
Abstract
 In the United States today, there is at least one credit bureau file, and probably three, forevery credit-using individual in the country. Over 2 billion items of information areadded to these files every month, and over 3 million credit reports are issued every day.Real-time access to credit bureau information has reduced the time required to approve aloan from a few weeks to just a few minutes. But credit bureaus have also been criticizedfor furnishing erroneous information and for compromising privacy. The result has been30 years of regulation at the state and federal levels.This paper describes how the consumer credit reporting industry evolved from a few jointventures of local retailers around 1900 to a high-technology industry that plays asupporting role in America’s trillion dollar consumer credit market. In many ways thedevelopment of the industry reflects the intuition developed in the theoretical literature oninformation-sharing arrangements. But the story is richer than the models. Credit bureaushave changed as retail and lending markets changed, and the impressive gains inproductivity at credit bureaus are the result of their substantial investments in technology.Credit bureaus obviously benefit when their data are more reliable, but should we expectthem to attain the socially efficient degree of accuracy? There are plausible reasons tothink not, and this is the principal economic rationale for regulating the industry. Anexamination of the requirements of the Fair Credit Reporting Act reveals an attempt toattain an appropriate economic balancing of the benefits of a voluntary information-sharing arrangement against the cost of any resulting mistakes. Subsequent litigation andamendments to the act reveal how this balance has evolved over time.JEL Codes: D180 G180 L880 N220Keywords: Information sharing, consumer credit reporting, Fair Credit Reporting Act
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