The U.S. Credit Rating Agency Reform Act is a set of laws, enacted by the American government to improve the quality of credit ratings. The U.S. Credit Rating Agency Reform Act was passed by the U.S. Senate in 2006, under the title Credit Rating Agency Reform Act of 2006.
The American credit rating agencies mattered a lot to the Senate, as a significant national asset. So, it was necessary that every aspect of their activities including analyses, writings, preparing the credit reports and finally credit ratings must have some guidelines to follow, in order to avoid unwanted fallacies, frauds and corruptions, on the part of the American credit rating agencies.
Moreover, the Act also protects the interests of investors and layman simultaneously.
Some significant aspects and clauses of the Credit Rating Agency Reform Act of 2006:
The Credit Rating Agency Reform Act of 2006 involves some of the following clauses and criteria:
Procedure for Registration: It is compulsory that all American credit rating agencies must register themselves, by making an official application. However, all the registration application forms must be provided with the following general information about the applicant:
The performance statistics of the applicant which will measure his/her credit rating activities.
The applicant’s organizational framework
The required steps (policies, etc.) taken by the applicant to prevent the abuses of both material and information.
The procedure and methods used by the applicant in determining the credit ratings.
Updates regarding registration: According to Section-15E of the Reform Act of 2006, all American statistical credit rating companies of national recognition should rectify or amend their respective applications.
Liabilities for the Rating Procedure: As per the Reform Act of 2006, Section-15E, the Commission is solely empowered to enforce the provisions of this particular Section, if the credit rating companies issue ratings in material contravention of the related procedure, for preventing opinion differences and misuse of personal information.
Criticism, disapproval or delay of the registration procedure: The Commission have all the rights for criticizing and restricting all related registration activities, for a time period of not more than a year. It may as well annul the registration of any national credit rating agency on grounds of safeguarding the interests of investors and public jointly.
Adjournment of Registration: Either a credit rating agency may withdraw himself/herself willingly from registration under non-compliance of the above-mentioned terms and conditions, or the Commission may terminate the registration of a particular rating agency, on grounds of non-existence of the organization or closing down of its commercial activities.