The Federal Credit Reform Act of 1990 (FCRA) may sound righteous, but it contains a scam costing consumers a pile of money.  The FCRA forces the Congressional Budget Office (CBO) to assume that loans made directly by the government earn huge profits (called “savings”) without provision that such estimates could be wrong.  Congress likes this because it allows for fake “savings” to be spent the day legislation is passed.  For example, CBO says that federal direct student loan program ”savings” were over-stated by $28 billion in risks that CBO is not permitted to consider and that $1T in risky loans would pile up by 2017.  Congress and the President spent the $68 Billion in student loan program “savings” on the Affordable Care Act (aka Obamacare) and educational entitlements. 


In the case of Federal Housing Authority (FHA) insurance, CBO says the FCRA formula for estimating savings produces $4.4 Billion in 2012, but when CBO applies a fair value analysis, the savings turns negative to -$3.5 Billion.  Thus in just one year for just one program, Congress can and will overspend by $7.9 Billion from applying its FCRA “savings” scam to FHA insurance.


But the scam is wickedly more perverse than a mere $36 billion of overspending.  To replenish the “savings” slush fund, Congress has to invent additional loan programs on which the government can theoretically profit.  That motivates them to shovel out loans for housing, student loans, and anyone in political favor who wants a bailout.  The trillions of dollars in these loan entitlements have engorged the future debt load Congress tells taxpayers to shoulder.  


With this sordid scam as a backdrop, some in Congress see a bright future for Fannie and Freddie as rehabilitated, profitable Federal lenders – why just think of the “savings.”    American consumers are besieged by political conceits from many directions including the FCRA’s bogus “savings” estimates.  Let’s stop FCRA’s fake “savings” from replenishing Congress’ credit card.  It leads them into spending temptation they will not resist, and that we cannot afford.


Alan Daley is a retired businessman living in Florida.  He follows public policy issues from the consumer’s perspective