[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]



 
                     THE IMPORTANCE OF THE NATIONAL
                       CREDIT REPORTING SYSTEM TO
                     CONSUMERS AND THE U.S. ECONOMY
=======================================================================

                                HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON
               FINANCIAL INSTITUTIONS AND CONSUMER CREDIT

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION


                              MAY 08, 2003


       Printed for the use of the Committee on Financial Services

                           Serial No. 108-26













                       U.S. GOVERNMENT PRINTING OFFICE
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                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                    MICHAEL G. OXLEY, Ohio, Chairman

JAMES A. LEACH, Iowa                 BARNEY FRANK, Massachusetts
DOUG BEREUTER, Nebraska              PAUL E. KANJORSKI, Pennsylvania
RICHARD H. BAKER, Louisiana          MAXINE WATERS, California
SPENCER BACHUS, Alabama              CAROLYN B. MALONEY, New York
MICHAEL N. CASTLE, Delaware          LUIS V. GUTIERREZ, Illinois
PETER T. KING, New York              NYDIA M. VELAZQUEZ, New York
EDWARD R. ROYCE, California          MELVIN L. WATT, North Carolina
FRANK D. LUCAS, Oklahoma             GARY L. ACKERMAN, New York
ROBERT W. NEY, Ohio                  DARLENE HOOLEY, Oregon
SUE W. KELLY, New York, Vice Chair   JULIA CARSON, Indiana
RON PAUL, Texas                      BRAD SHERMAN, California
PAUL E. GILLMOR, Ohio                GREGORY W. MEEKS, New York
JIM RYUN, Kansas                     BARBARA LEE, California
STEVEN C. LaTOURETTE, Ohio           JAY INSLEE, Washington
DONALD A. MANZULLO, Illinois         DENNIS MOORE, Kansas
WALTER B. JONES, Jr., North          CHARLES A. GONZALEZ, Texas
    Carolina                         MICHAEL E. CAPUANO, Massachusetts
DOUG OSE, California                 HAROLD E. FORD, Jr., Tennessee
JUDY BIGGERT, Illinois               RUBEN HINOJOSA, Texas
MARK GREEN, Wisconsin                KEN LUCAS, Kentucky
PATRICK J. TOOMEY, Pennsylvania      JOSEPH CROWLEY, New York
CHRISTOPHER SHAYS, Connecticut       WM. LACY CLAY, Missouri
JOHN B. SHADEGG, Arizona             STEVE ISRAEL, New York
VITO FOSSELLA, New York              MIKE ROSS, Arkansas
GARY G. MILLER, California           CAROLYN McCARTHY, New York
MELISSA A. HART, Pennsylvania        JOE BACA, California
SHELLEY MOORE CAPITO, West Virginia  JIM MATHESON, Utah
PATRICK J. TIBERI, Ohio              STEPHEN F. LYNCH, Massachusetts
MARK R. KENNEDY, Minnesota           ARTUR DAVIS, Alabama
TOM FEENEY, Florida                  RAHM EMANUEL, Illinois
JEB HENSARLING, Texas                BRAD MILLER, North Carolina
SCOTT GARRETT, New Jersey            DAVID SCOTT, Georgia
TIM MURPHY, Pennsylvania              
GINNY BROWN-WAITE, Florida           BERNARD SANDERS, Vermont
J. GRESHAM BARRETT, South Carolina
KATHERINE HARRIS, Florida
RICK RENZI, Arizona

                 Robert U. Foster, III, Staff Director

       Subcommittee on Financial Institutions and Consumer Credit

                   SPENCER BACHUS, Alabama, Chairman

STEVEN C. LaTOURETTE, Ohio, Vice     BERNARD SANDERS, Vermont
    Chairman                         CAROLYN B. MALONEY, New York
DOUG BEREUTER, Nebraska              MELVIN L. WATT, North Carolina
RICHARD H. BAKER, Louisiana          GARY L. ACKERMAN, New York
MICHAEL N. CASTLE, Delaware          BRAD SHERMAN, California
EDWARD R. ROYCE, California          GREGORY W. MEEKS, New York
FRANK D. LUCAS, Oklahoma             LUIS V. GUTIERREZ, Illinois
SUE W. KELLY, New York               DENNIS MOORE, Kansas
PAUL E. GILLMOR, Ohio                CHARLES A. GONZALEZ, Texas
JIM RYUN, Kansas                     PAUL E. KANJORSKI, Pennsylvania
WALTER B. JONES, Jr, North Carolina  MAXINE WATERS, California
JUDY BIGGERT, Illinois               DARLENE HOOLEY, Oregon
PATRICK J. TOOMEY, Pennsylvania      JULIA CARSON, Indiana
VITO FOSSELLA, New York              HAROLD E. FORD, Jr., Tennessee
MELISSA A. HART, Pennsylvania        RUBEN HINOJOSA, Texas
SHELLEY MOORE CAPITO, West Virginia  KEN LUCAS, Kentucky
PATRICK J. TIBERI, Ohio              JOSEPH CROWLEY, New York
MARK R. KENNEDY, Minnesota           STEVE ISRAEL, New York
TOM FEENEY, Florida                  MIKE ROSS, Arkansas
JEB HENSARLING, Texas                CAROLYN McCARTHY, New York
SCOTT GARRETT, New Jersey            ARTUR DAVIS, Alabama
TIM MURPHY, Pennsylvania
GINNY BROWN-WAITE, Florida
J. GRESHAM BARRETT, South Carolina
RICK RENZI, Arizona


















                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    May 08, 2003.................................................     1
Appendix:
    May 08, 2003.................................................    67

                               WITNESSES
                         Thursday, May 08, 2003

Abernathy, Hon. Wayne, Assistant Secretary for Financial 
  Institutions, Department of Treasury...........................    12
Reidenberg, Joel R., Professor of Law, Fordham University........    39
Sheaffer, Dean, Senior Vice President of Credit, Boscov's 
  Department Stores Incorporated, on behalf of the National 
  Retail Federation..............................................    35
Staten, Michael, Professor, Director, Credit Research Center, 
  Georgetown University..........................................    44
Swire, Peter P., Professor of Law, Moritz College of Law, Ohio 
  State University...............................................    41
Turner, Michael, President and Senior Scholar, Information Policy 
  Institute......................................................    37
Uffner, Michael S., President, Chairman and CEO, AutoTeam 
  Delaware, on behalf of the United States Chamber of Commerce...    32

                                APPENDIX

Prepared statements:
    Bachus, Hon. Spencer.........................................    68
    Fossella, Hon. Vito..........................................    70
    Gillmor, Hon. Paul E.........................................    72
    Hinojosa, Hon. Ruben.........................................    74
    Hooley, Hon. Darlene.........................................    76
    Maloney, Hon. Carolyn B......................................    78
    Abernathy, Hon. Wayne........................................    80
    Reidenberg, Joel R...........................................    85
    Sheaffer, Dean...............................................    92
    Staten, Michael..............................................   102
    Swire, Peter P...............................................   118
    Turner, Michael..............................................   130
    Uffner, Michael S............................................   142

              Additional Material Submitted for the Record

Hinojosa, Hon. Ruben:
    Consumer Federation of America, prepared statement...........   151
    TELACU letter, May 5, 2003...................................   202
Abernathy, Hon. Wayne:
    Written response to questions from Hon. Patrick J. Tiberi....   204
Sheaffer, Dean:
    Written response to questions from Hon. Ruben Hinojosa.......   205
















                     THE IMPORTANCE OF THE NATIONAL
                       CREDIT REPORTING SYSTEM TO
                     CONSUMERS AND THE U.S. ECONOMY

                              ----------                              


                         Thursday, May 8, 2003

                  House of Representatives,
Subcommittee on Financial Institutions and Consumer 
                                            Credit,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The subcommittee met, pursuant to call, at 10:10 a.m., in 
Room 2128, Rayburn House Office Building, Hon. Spencer Bachus 
[Chairman of the subcommittee] presiding.
    Present: Representatives Bachus, Castle, Royce, Kelly, 
Gillmor, Ryun, Biggert, Capito, Tiberi, Kennedy, Hensarling, 
Garrett, Brown-Waite, Oxley (ex officio), Sanders, Maloney, 
Watt, Sherman, Meeks, Gutierrez, Moore, Gonzalez, Kanjorski, 
Waters, Velazquez, Hooley, Ford, Hinojosa, Lucas of Kentucky, 
Crowley, Israel, McCarthy and Davis
    Chairman Bachus. [Presiding.] Good morning. The 
subcommittee will come to order.
    Last week, Chairman Oxley and Ranking Member Frank 
announced their intention to hold a series of hearings with 
respect to the Fair Credit Reporting Act, because key 
provisions of FCRA, which are critical to consumers, will 
expire at the end of this year. They have agreed to work 
together to develop bipartisan legislation.
    This first hearing will focus on the importance of a 
national credit reporting system to consumers and the U.S. 
economy. Additional hearings will take place over the next two 
months and will cover a full range of issues relating to the 
national credit reporting system and the security of consumers 
personal financial information. Issues such as identity theft, 
which is obviously important to all of us will be addressed.
    I am pleased that the Chairman and the ranking member of 
made FCRA and consumers personal financial information and the 
security thereof a top priority, and look forward to working 
with them on this important issue. I expect that our efforts 
will culminate in legislation, since key provisions of the Fair 
Credit Reporting Act are set to expire at the end of this year.
    The U.S. economy is being supported to a great degree by 
consumer spending. In fact, consumer spending is vital to the 
strength of the economy. A critical component of consumer 
spending is the availability of consumer credit. For example, 
many major purchases, such as homes, cars, appliances, even 
vacation plans are financed using credit. However, we tend to 
take for granted the national credit reporting system that 
enables this credit to be extended safely and efficiently.
    In fact, it is our national credit reporting system that 
provides a great deal of fuel to the engine of consumer 
spending that is currently driving our economy. Although many 
strong market forces have helped shape our credit reporting 
system over the years, the contours of the system were 
fundamentally defined by the basic legal framework established 
under the Fair Credit Reporting Act or as we refer to, FCRA.
    Congress adopted FCRA in 1970. The law was passed because 
the banking system and consumers depend on fair and accurate 
credit reporting. And Congress wanted to ensure that credit 
bureaus exercised their important responsibilities with respect 
to fairness, impartiality and respect for the consumers needs 
and security.
    Congress made some significant amendments to FCRA in 1996 
to improve consumer protections and update the FCRA to better 
accommodate the needs of lenders, consumers, and others.
    At its core FCRA is a consumer protection statute, which 
regulates the credit reporting process. In order to protect the 
customer, FCRA imposes important and strict obligations on 
those who provide information to credit bureaus, the credit 
bureaus themselves and those who receive a consumer's credit 
report.
    The FCRA also severely limits who may see a consumer's 
credit report, allows consumers their access to their credit 
reports, and provides a mechanism under which consumers can 
dispute the accuracy of anything in their credit file, such as 
when a consumer is a victim of identity theft.
    In view of FCRA's core function of regulating the credit 
reporting process for the benefit of the consumer, we will hear 
in detail today how our uniform credit system under FCRA 
benefits consumers and the economy as a whole.
    Among the consumer benefits afforded by national credit 
system are efficient and convenient access to credit and 
insurance, strong competition in the financial market place, 
and lower cost of credit.
    Although I have just mentioned the benefits of our national 
credit reporting system, or the benefits the national credit 
system provides customers--consumers, and the financial 
services sector, the stuff of our national credit system is 
much broader than one industry.
    For example, today we will hear from two private sector 
witnesses as they discuss how important FRCA is to consumers 
with respect to other sectors of the economy, such as retail 
and auto sales. Although we will hear the perspective given 
from a retailer and an auto dealer, the subcommittee could have 
just as easily asked a wireless telephone provider, a utility 
company, a daycare center, a university, or dozens of others to 
describe how FCRA is important to consumers with respect to 
their businesses.
    Several witnesses today will also describe a critical 
component of FCRA and our national credit system's overall 
success--National uniformity with respect to several areas of 
the law. The national uniformity provided under FCRA ensures 
that consumers have access to affordable credit in all 50 
states, minimizes red tape, and helps prevent identity theft 
and fraud.
    I would also like to remind the subcommittee the testimony 
provided by the Federal Reserve Board Chairman Alan Greenspan 
to the full committee just last week. When asked about the 
importance of FCRA's national standards for our credit system, 
he responded and I quote, ``I have been favor of national 
standards here for reasons which are technically required. If 
you have very significant differences from state to state, it 
would be very hard to maintain as viable a system as we 
currently have.'' The provisions of FCRA that guarantee a 
single national standard with respect to many of FCRA's 
provisions are set to expire on January the 1st, 2004.
    I share Chairman Greenspan's concern that if we have 
different FCRA requirements among the States, the consumer 
benefits and protections provided by our national systems could 
be destroyed.
    I am extremely concerned as to how a patchwork of State 
laws may affect the cost and availability of credit and the 
security of individual consumer's financial records. I again 
thank Chairman Oxley and ranking member Frank for working 
together to move this issue forward. I encourage all members of 
the subcommittee, both Republican and Democrat, to follow their 
example as we address FCRA reform and consumers' financial 
security.
    The Chair now recognizes the ranking member of the 
subcommittee, Mr. Sanders, for any opening statement he would 
like to make.
    Mr. Sanders. Thank you, Mr. Chairman. And thank you for 
holding what we all recognize is a very important hearing, and 
the beginning of a series of hearings on an issue which affects 
tens and tens of millions of Americans.
    The Fair Credit Reporting Act of 1970 has made it easier 
for the people of our country to own their homes, automobiles, 
and credit cards. And that is the good news. The bad news is 
that errors in credit reports still exist today and have ruined 
the lives of millions of other Americans, by making it more 
expensive and difficult to purchase their own homes or their 
own cars.
    And we all understand that this a huge problem that when 
people want to purchase something terribly important to them, 
they end up finding out that there were errors in the credit 
reporting system, which either jacks up the interest rates they 
have to pay or, in fact, in some cases, makes it impossible for 
them to purchase what they want.
    For example, according to a report by the U.S. public 
interest research group, 70 percent of the credit reports they 
studied contained inaccuracies, 70 percent. With 29 percent 
containing errors serious enough to result in a denial of 
credit. So that is a hugely important issue that this committee 
must address.
    In addition, the rapid increase in identity theft, as the 
Chairman has just indicated, caused in large part to the easy 
access of personal Social Security numbers and billions of 
unsolicited pre-approved credit applications sent through the 
mail each year, every year, needs to be addressed by the 
subcommittee. And I think we are in agreement, Mr. Chairman, 
about the importance of that issue.
    In fact, the Federal Trade Commission reported that the 
number of persons filing complaints of identity theft nearly 
doubled from 86,000 in 2001 to 162,000 in 2002. And that the 
dollar losses reported by consumers skyrocketed by $160 million 
in 2001 to $343 million in 2002.
    Bankrate.com estimates that the average identity theft 
victim must spend $1374 and 175 hours just to clean up their 
credit reports. This is a serious problem, and it is a growing 
problem. It is one that I hope this committee will address.
    Just this morning, as it happens, on the front page of 
``The Washington Post,'' we have apparently learned just how 
easy it is to steal the identities of Americans. ``The Post'' 
reported that Montgomery County Police and federal 
investigators found a ``veritable factory for counterfeit 
credit cards, 600 pages containing more than 40,000 allegedly 
stolen names and credit card numbers, more than 100 newly 
minted cards under 100 different names, featuring the trademark 
Visa logo, ``Washington Post,'' today.
    This discovery was found not at a Visa credit card company. 
It was discovered in just one couple's home that highlights the 
need for the subcommittee to find solutions to the scourge of 
identity theft.
    But one thing I would like to make clear, despite what you 
may be hearing from the financial services and consumer credit 
industry, and this is an important point, the Federal Credit 
Reporting Act, FCRA, does not need to reauthorized this year, 
does not need to be.
    The Fair Credit Reporting Act does not expire on January 
1st, 2004. The only provisions that expire on January 1st, 2004 
are the preemption of State laws that prohibits States from 
enacting stronger consumer protection statutes. That is all. 
That is what expires.
    So if some of you have seen some of the misleading 
advertising from the industry, take it with a grain of salt. My 
own State, the State of Vermont, or the State of--my own State, 
my own belief is, and I believe this strongly, and I sometimes 
find myself in the unusual position of being the conservative 
on this committee, but I have heard for a long, long time----
    Chairman Bachus. Could you repeat that for the record?
    Mr. Sanders. Oh, yes.
    [Laughter.]
    In this discussion, there will be some people who want to 
play the oppressive hand of big bad federal government. Now 
some of us have heard that for years. We have heard that the 
best government is that government closest to the people. We 
have heard about, what is that word, devolution, giving power 
back to the people and back to the States.
    Well, some of us champion that argument. We believe very 
strongly, not only on this issue, but I was yesterday meeting 
with women who are involved in the Breast Cancer Coalition, 
talking about some model programs being developed in various 
States in the country, that my State can learn from. And the 
reality is that we have 50 states.
    You have extraordinary people in each of the 50 states. You 
have innovative ideas and legislatures in 50 of those states, 
Governors, Attorney Generals. And the idea, and I hate to quote 
Newt Gingrich, but the idea that the federal government always 
knows best may not be most appropriate in this issue.
    And my own belief, and strong belief, is that if the State 
of Vermont or the State of Alabama, or any other states in this 
country wants to pass laws that are stronger and more pro-
consumer than the federal governments, we must allow those 
states to do that.
    That is what our government is about. We have 50 states and 
we have to respect those states.
    According to some in the financial services and consumer 
credit industry, if we do not extend these states preemptions, 
the entire credit system will just collapse, fall apart. I 
think that that is patently inaccurate. And that is not true.
    Let us not forget that we had a national credit system 
before the 1996 state preemptions, and that that system worked 
well. In addition, as we will hear from Professor Reidenberg 
this morning, the 1996 FCRA Amendment specifically, and this is 
important, exempted the stronger consumer protection statutes 
in California, in Massachusetts, and in Vermont from 
preemption.
    What we have seen in those three states that have stronger 
consumer protection laws, what have we seen in those three 
states that are stronger consumer protection laws in regards to 
credit reporting?
    What can we learn from that?
    And what we have seen, among other things, is that in the 
State of Vermont, we now have the lowest rate of consumer 
bankruptcies in the country. Now I would be the first to admit 
that there are a dozen other reasons.
    But it is significant to know that in the State of Vermont, 
which has stronger pro-consumer legislation, Vermont has the 
lowest rate of consumer bankruptcies in the country. The State 
of Massachusetts also preempted, also allowed to go forward 
with pro-consumer laws, has the second lowest consumer 
bankruptcies in the United States. And California comes in 
ahead of the median.
    At a time when the United States as a whole is experiencing 
the highest rate of bankruptcy cases in our history, increasing 
23 percent since 2000, I would say that these three examples 
give us proof that strong state consumer protection laws work.
    What about mortgage rates? Well, the most recent data 
indicate that the State of California has the lowest effective 
rate for conventional--a conventional mortgage in the nation. 
And Vermont and Massachusetts were well below the median. And 
that sounds pretty good to me.
    Chairman Bachus. Mr. Sanders, if you could wrap up?
    Mr. Sanders. Well, I am almost finished, Mr. Chairman.
    In addition, let us not forget why the 1996 FCRA amendments 
were enacted. While new members may be aware that identity 
theft complaints have been the number one complaint to the FDC 
each year since 2000, and in fact doubled from 2001 to 2002, it 
was credit bureau mistakes, which were the number one complaint 
to the FDC 10 years ago.
    And it was credit bureau mistakes and complaints about them 
that led Congress to the 1996 FCRA amendments. From 1990 to 
1992, according to a study by U.S. PERG, mistakes in credit 
reports were the number one complaint to the FDC.
    Let me conclude simply by saying this. The issue that we 
are addressing today is enormously important. My hope that what 
we will end up with is extremely strong, pro-consumer 
legislation. And I think one way, one way--not only will we 
need a strong national floor, but we also need to allow those 
states who have the courage to go beyond the federal government 
to be able to continue to do so.
    Thank you, Mr. Chairman.
    Chairman Bachus. Thank you, Mr. Sanders.
    Chairman Oxley, is recognized for an opening statement.
    Mr. Oxley. Thank you, Mr. Chairman.
    I am glad I came this morning to hear Bernie talk about his 
conservativism. And to quote Newt Gingrich----
    Mr. Sanders. Well, I think it is important to remind you of 
your heritage.
    Mr. Oxley. I want to welcome our old friend, Wayne 
Abernathy to the committee. Good to see you again, and 
particularly in your new position at Treasury. And our second 
panel also will welcome particularly Peter Swire, Professor of 
law at Moritz College of Law at Ohio State University. National 
champion. I promise that is the end of that.
    Mr. Chairman, one of the hallmarks of the modern U.S. 
economy is quick and convenient access to consumer and mortgage 
credit. And although it would have seemed unimaginable just a 
generation ago, consumers can now qualify for a mortgage over 
the telephone, walk into a showroom and finance the purchase of 
a car in less than an hour, and get department store credit 
within minutes.
    Over the last 30 years, consumer mortgage credit has more 
than doubled, and the availability of non-mortgage credit to 
households in the lowest quintile of income, has increased by 
nearly 70 percent, including a nearly three fold increase in 
the number of low income households owning credit cards just in 
the last decade.
    This miracle of instant credit is only possible because of 
our credit reporting system. However, Federal Reserve Chairman 
Alan Greenspan recently testified that the credit economy, 
``cannot function without the credit histories of individual 
borrowers.''
    The free flow of credit that consumers rely on depends on 
the free flow of information to lenders, who use that 
information to assess individual credit risks and extend more 
products accordingly.
    How many times over the past two years have we heard that 
it is the American consumer who has almost singlehandedly kept 
our economy afloat? At a time in our history when consumer 
spending accounts for over two-thirds of gross domestic 
product, any disruption in the free flow of affordable credit 
would have serious consequences for job creation and economic 
growth.
    Reducing the amount of information available to creditors 
would compromise the reliability of credit determinations, 
which could undermine the safety and soundness of U.S. 
financial institutions, and could increase the cost of credit 
to consumers, particularly those with less well established 
credit histories.
    The Congressional Research Service notes that ``from an 
economic perspective, laws that limit the reporting of credit 
data could impose significant financial costs on consumers and 
the economy as a whole.''
    Perhaps for this reason, our nation's top economic 
policymakers, including Chairman Greenspan and Secretary of 
Treasury John Snow have announced their strong support for 
extending the Fair Credit Reporting Act's uniform national 
standards.
    In addition to maintaining the vitality of the world's most 
sophisticated and reliable system for the reporting of credit 
information, we must also ensure that when the system fails, 
for example, when a consumer is denied credit based upon 
inaccurate information, or becomes a victim of identity theft, 
there are procedures in place to facilitate prompt redress.
    Americans are increasingly preoccupied with the security of 
their personal financial information, and for good reason, 
given the alarming rise in the reported instances of identity 
theft and other financial frauds.
    Assistant Secretary Abernathy has previously highlighted 
the importance of FCRA's uniform national standards in both 
deterring identity theft and facilitating the repair of the 
victim's credit record.
    One of the purposes of the series of hearings that the 
committee embarks upon today is to determine whether more needs 
to be done in this area to protect consumers. And I suspect the 
answer will be yes.
    Ultimately, the most important protection we can provide 
for both consumers and for our economy is to address the 
renewal of FCRA's uniform consumer protections, ensuring that 
all consumers are treated equally under our laws and have 
continued access to affordable and available credit.
    We are a very mobile society. We transact business across 
state lines virtually every minute of the day. The commerce 
clause was recognized by the Supreme Court as having a major 
effect on national economic activity. And we need to keep that 
in mind.
    Since the uniform national standards of FCRA expire at the 
end of this year, over the coming months, we will be listening 
to a wide array of viewpoints as we gather information and 
opinions. The committee will take testimony and develop a 
comprehensive hearing record that can serve as the basis for 
legislative judgments on the whole range of FCRA issues.
    In conclusion, I would like to thank Chairman Bachus for 
convening this hearing, for his continued leadership in 
protecting consumers and our national credit system. I would 
like to thank ranking minority member Mr. Frank for his support 
and cooperation in initiating the process in a bipartisan 
manner. And I hope that we can continue to work together 
closely as this process moves forward in the next few months.
    Mr. Chairman, this legislation going forward is probably 
the most--certainly the most important piece of legislation 
that this committee will deal with the rest of this year, this 
congressional session. And we have tackled some important 
issues over the last few months in this new Congress. And we 
have passed them successfully and moved them onto the Senate.
    But this reauthorization of FCRA is project number one for 
the Financial Services Committee for the foreseeable future. 
And certainly, the members are asked to get up to speed on 
these issues. And we appreciate the attendance today at this 
important hearing. Again, congratulations for starting this 
process.
    This will be a deliberative process. At the end of the day, 
make no mistake, this committee will act. This committee will 
pass legislation reauthorizing the Fair Credit Reporting Act. 
And that is our job number one. And we will continue to pursue 
that effort.
    Again, thank you, Mr. Chairman. I yield back.
    Chairman Bachus. I thank the Chairman. The gentle lady from 
New York?
    Mrs. Maloney. Thank you, Mr. Chairman. Today, this 
subcommittee begins consideration on the reauthorization of the 
Fair Credit and Reporting Act, portions of which expire at the 
end of the year.
    This is one of the most significant topics that this 
subcommittee will consider possibly for many years. The FCRA 
has a major impact on the lives of all of our constituents. 
When families sit around the dinner table and make their 
monthly budgets, it is often the cost of credit that is the 
greatest variable in figuring family expenses.
    All consumers should know that credit reports affect the 
cost of mortgages, car loans, and credit cards. What consumers 
may not know is that credit reports reach even deeper into 
their lives, impacting their employment prospects and their 
attractiveness as insurance risks.
    The sweeping impact of the FCRA is further reinforced by a 
study released yesterday by the Financial Services Roundtable 
and reported in ``The American Banker,'' which found that 
failing to reauthorize could cost the economy nearly $90 
billion in GDP, $20 billion in additional incremental interest 
for consumers, and over 19,000 fewer single family homes.
    These are incredibly large numbers, especially in a 
struggling economy. While the costs of failing to extend FCRA 
may be significant, I believe that the cost of not improving 
the law, while we have a chance to do so, is just as important. 
This subcommittee must address the tragedy that is identity 
theft while we have a chance.
    Too often, victims of ID theft are left to fend for 
themselves. I have personally worked with the constituents, who 
must struggle to repair their credit through a process that can 
take several years and cost thousands of dollars.
    Representative Hooley has an excellent bill on this issue, 
and I am proud to be a co-sponsor. I hope this bill would be 
considered as part of FCRA reauthorization. I also believe this 
debate gives us a significant opportunity to empower consumers 
to take more control of their credit ratings. We must take 
additional steps to improve credit report accuracy and increase 
consumer education efforts.
    This is especially important for populations that have 
traditionally been consumers of predatory or high cost lending. 
Given the importance of the task before the subcommittee, I am 
very pleased that Assistant Secretary Abernathy is here to 
share the views of the Treasury Department with us. This topic 
is so important that the position of the Administration will 
have to be well defined if Congress is to act in an expeditious 
manner.
    In this regard, I am somewhat concerned that with the 
exception of declaring strong opposition to identity theft, the 
Treasury testimony submitted to the committee this morning 
seems to ask more questions than it answers.
    The FCRA has incredibly serious consequences for the 
economy and for individual consumers. I hope we can have a 
bipartisan agreement that strengthens this market for the 
benefit of consumers before the end of the year. And I yield 
back the balance of my time.
    [The prepared statement of Hon. Carolyn B. Maloney can be 
found on page 78 in the appendix.]
    Chairman Bachus. Thank you. The gentleman from California?
    Mr. Royce. Thank you, Mr. Chairman. Thanks for holding this 
hearing.
    I think the Articles of Confederation expired in 1787, when 
we begin the process of drafting a national commercial system 
under the Constitution. I think Murray Rothbard was the last 
enthusiast for that patchwork quilt. I am not sure if he ever 
convinced Newt Gingrich, but he was a purist on the issue.
    But today, consumer credit plays a major role in the U.S. 
economy. And today, the Federal Reserve estimates that 
consumers owe about $7.7 trillion in mortgage and auto and 
other types of loans. And I think it is fair to say that a 
national credit reporting system here in the United States has 
been crucial to the development of consumer access to credit.
    And I think it is evidenced by the fact that an individual 
can go to any state in this country, and he can get approval or 
she can get approval for a car loan in a matter of minutes.
    Additionally, since the national system allows providers of 
credit to conduct cost effective due diligence, consumers 
receive access to credit at one of the lowest costs in the 
world, a much lower cost than they would receive if we did not 
have this national system.
    So what we want to focus on today is how do minimize errors 
in that system, how do we ensure that there are true 
disincentives that we are going to prosecute those who are 
involved in identity theft, what we do to make this system work 
more effectively.
    And I think as we begin to re-engage in this debate about 
fair credit reporting, I look forward to hearing our witnesses' 
views on the issue of federal government preemption of State 
law in the context of the Fair Credit Reporting Act. And I 
think the Chairman is to be thanked for his leadership in 
bringing this issue now before this subcommittee.
    And I would also like to take this opportunity to thank our 
witness Assistant Secretary Abernathy and our witnesses that 
are going to appear today, as we discuss with our colleagues 
the best solution for the consumers in this country and for our 
U.S. economy. And I yield back the balance of my time.
    Chairman Bachus. Thank you.
    Is there another member in the minority? Mrs.--Mr. Moore, 
Ms. Hooley, I am not sure. Ms. Hooley?
    Ms. Hooley. Mr. Chairman? Are you ready? Okay.
    Thank you, Mr. Chairman and ranking member Sanders. I look 
forward to the first of these hearings on whether or not to 
reauthorize the seven expiring provisions of FCRA. As I have 
said to everyone I have met on this subject, I am convinced the 
credit system in place in the United States is the best credit 
system in the world.
    The supremacy of the credit system is no doubt a result of 
the strength of our financial industry, the watchfulness of our 
consumer groups, and the thoughtfulness of past congresses.
    I am very hopeful that we in the 108th Congress follow the 
example of past congresses and debate and consider 
reauthorization of FCRA with the same amount of diligence. 
While I mentioned that I believe we have the best credit system 
in the world, I also see room for improvement, both in industry 
practices, and in government regulation.
    But foremost on my mind is the rising problem of identity 
theft. The problem is receiving more and more public and media 
attention. Representative Sanders mentioned the article in 
``The Post,'' the front page. Well, this article and these 
kinds of articles appear every single day in every newspaper 
across the United States.
    We need to do whatever we can to stop this criminal 
activity. A 2003 survey I recently saw found that 92 percent of 
Americans think it is important that government take action on 
the issue of identity theft. I know many of us think it is 
inappropriate to govern by polls, but we cannot and must not 
ignore the fact that Americans throughout the country are 
begging for us to act and help them.
    Today, with Mr. LaTourette, I am introducing the Identity 
Theft Bill. We have about 40 co-sponsors, many of them sitting 
in this room. But this bill is just one of many being 
considered by this committee, dealing with identity theft. Many 
of my colleagues also have great ideas and have built up.
    But identity theft is going to take all of us working 
together to solve this problem. Assistant Secretary Abernathy, 
you have made comments publicly stating your support for 
legislation to help fight identity theft. And each time I read 
those comments, I welcome them for I think this must be a 
central part of the debate.
    We have sent a copy of our legislation over to you. I hope 
you will look at and again comment on it, criticize it, and 
give us your ideas. I thank each of the witnesses that are with 
us today for taking your time to help this committee. I look 
forward to the continued debate. And, again, trying to keep an 
eye on helping our fellow Americans with identity theft and 
with our credit reporting system, and with our financial 
systems.
    Thank you. I yield back the rest--the remainder of my time.
    [The prepared statement of Hon. Darlene Hooley can be found 
on page 76 in the appendix.]
    Chairman Bachus. Thank you. The gentleman from Texas?
    Mr. Hinojosa. Thank you, Chairman Bachus. I have a 
statement, but rather than read it, I think I would like to 
just ask for your permission to enter it in its entirety into 
the record, together with a memorandum that I have as an 
attachment to this--to these remarks.
    Chairman Bachus. Without objection. And Mr. Hensarling?
    Mr. Hensarling. Thank you, Mr. Chairman. I would just like 
to state for the record that it has been my honor and privilege 
to know this witness I believe for over 15 years now. I know 
him to be a man of keen intellect, a man of great integrity. 
Obviously, he is one of the undisputed experts in the area in 
which we are hearing testimony today, but if my memory serves 
me right, I must admit that his softball playing expertise must 
be called into question.
    The nation's benefited from his public service. And I look 
forward to hearing his testimony today, Mr. Chairman.
    Chairman Bachus. I thank the gentleman. I think that is an 
appropriate introduction for our first witness. And so we will 
go from there.
    I do want to say this, I think the Statements on both sides 
have illustrated quite accurately that we are talking about one 
subject, but it has many facets. We are talking about the 
National Credit Reporting System. We are also talking about the 
need for consumers to have their consumer--their financial 
information, security for that information, and also that their 
information be accurate, and that they be able to correct 
mistakes in their credit report.
    It is important, I think, for our economy, for availability 
of consumer credit across state lines, for us to address all 
these issues. But they are not mutually exclusive. It is not an 
either/or situation. In fact, the issues are synonymous when we 
talk about the need for a viable National Credit Reporting 
System or sustaining one. We also--the need is there for an 
accurate system. The need is there for a secure system. So they 
are one in the same when we discuss these problems.
    And I think that when we address national credit reporting 
system, it is only natural for us to talk about identity theft, 
because it is all a part of the same issue.
    And we certainly do not want a system where we have 
widespread identity theft. Nor do we want a system where 
consumers cannot respond and correct it. I recognize Ms. Waters 
and then we will go to the first panel.
    Ms. Waters. Thank you very much, Mr. Chairman. I really had 
not intended to do an opening statement. But as I listen to 
you, I am reminded why many of us decided to be elected 
officials. There is no greater service that we can perform, 
than protecting consumers. Our consumers are at the mercy of 
very complicated systems, applying for credit, you know, paying 
bills, trying to protect their privacy, and trying to 
understand the systems that determine the quality of life they 
are going to have.
    In this committee, we get the opportunity to serve, 
perhaps, in the best way possible, by putting aside any 
alliances we may have with special interest groups, and 
focusing on what we can do, number one, to protect the 
consumers in everything from credit reporting to the operation 
of the Fair Credit Reporting Act, in any and all ways that we 
can.
    And we must remember that we want the best possible 
opportunities for protection for protection for our consumers. 
And if states can do this, we must not get in the way of States 
who will have stronger laws for protecting consumers by somehow 
preempting them. That is a very serious issue that we have to 
look at.
    This business of the credit scoring, I hear so many 
complaints about mistakes that are made. And people are denied 
the opportunity to realize the American dream of a home because 
the credit reporting is inaccurate. And we must correct that. 
And we must now have consumers at the mercy of agencies that 
are either careless in their work, or for some reason, they are 
not interested in doing the absolute best job that they can do.
    And, finally, this business of identity theft must be dealt 
with. And when it happens, we cannot have consumers taking a 
year or so out of their lives to correct it. I know people who 
are working almost into two years to correct the identity 
theft. We can do better than that. And Mr. Chairman, let me 
just say if we cannot get it right here in this committee, with 
subject matter, than none of us need to be here.
    Thank you very much. And I yield back the balance of my 
time.
    Chairman Bachus. I thank the lady for her remarks.
    At this time, our first witness, and you heard from Mr. 
Hensarling about our first witness, but Assistant Secretary 
Abernathy was sworn in as Treasury Assistant Secretary for 
Financial Institutions in December of 2002, after being 
nominated by the President on August 1st of last year.
    But I think more importantly to this committee, he brings 
20 years of financial policy expertise to that position, having 
most recently served as Staff Director of the U.S. Senate 
Committee on Banking, Housing and Urban Affairs.
    So Mr. Abernathy or Secretary Abernathy, most of us are 
well aware of your expertise and your knowledge in this area. 
And we very much welcome your comments this morning.

  STATEMENT OF HON. WAYNE ABERNATHY, ASSISTANT SECRETARY FOR 
         FINANCIAL INSTITUTIONS, DEPARTMENT OF TREASURY

    Mr. Abernathy. Thank you, Mr. Chairman, Representative 
Sanders, members of the subcommittee. It is an honor to be here 
before you today in this capacity. I agree with the comments 
that I have heard here. I think there could hardly be----
    Chairman Bachus. Sort of come to order. And thank you, Mr. 
Abernathy.
    Mr. Abernathy. Thank you, Mr. Chairman. And I would also 
ask if my full statement would be placed in the record. And I 
will summarize for the benefit of the committee.
    There could hardly be a more important subject to consider 
than the information infrastructure of our financial system. So 
much of the economy and the welfare of every participant in 
that economy is dependent on getting right the legal structure 
of our financial system, particularly of the financial 
information infrastructure.
    In 1996, the Congress undertook an experiment with uniform 
national standards for financial information sharing. It is 
appropriate now that Congress evaluate what the results of 
those--that experiment are. And we are eager to participate in 
that evaluation, as we develop Administration policy.
    We should keep in mind that all Americans have two very 
important interests with respect to this matter. First of all, 
they have an interest in the widest availability of financial 
services at the lowest cost to as many people as possible.
    Second, they have a strong interest in the security of the 
personal financial information that is related to the 
availability of those financial services. These two interests 
together need to be weighed, and taken together, and 
accommodated together. And I believe that they can be. We would 
suggest considering the following questions, as we begin this 
process.
    Do uniform national standards facilitate or harm the fight 
against identity theft?
    Do uniform national standards reduce or increase the cost 
to the consumer of financial services?
    Do uniform national standards bring more or fewer people 
into the mainstream of financial services?
    To what extent do uniform national standards help or hinder 
job creation?
    Is small business development helped or harmed by uniform 
national standards?
    In short, what costs and benefits to the economy as a whole 
can be attributed to uniform national standards?
    And what would be the economic impact, if they were allowed 
to expire?
    One area that we have been particularly concerned with is 
the role that the FCRA uniform national standards play in the 
fight against identity theft. The importance of this concern 
can be understood by a brief review of the nature of the crime.
    Identity theft is one of the fastest growing crimes in 
America today. By some estimates, there will be as many as one 
million new casualties, new victims to identity theft this 
year, with many times that number already in the ranks of 
sufferers.
    In a recent national survey of homeowners, 12 percent 
reported having been victims of identity theft. Few other 
crimes have touched such a large portion of Americans. In that 
same survey, 90 percent said they were concerned that they 
might be a target of identity theft. A separate survey recently 
found that Americans are more concerned about being a victim of 
identity theft than they are about losing their jobs.
    The crime of identity theft occurs in great variety. As I 
speak, somewhere someone is using someone else's good name to 
engage in fraud, to steal from a furniture store, to rob a bank 
account, engage in stock swindles, write bad checks, run up 
huge phone bills, escape gambling debts, shield illegal drug 
deals, create false resumes, impersonate doctors, or other 
professionals, destroy reputations.
    And do not look for patriotism among identity thieves. When 
our soldiers, sailors and airmen moved to the front to engage 
the enemy, the identity thieves are ready to take advantage of 
their absence, to steal their identities, to engage in fraud.
    I would guess that the soldier in the 3rd Infantry Division 
in Baghdad was not giving much thought today to his bank 
account, or worrying about his credit cards. He is certainly 
not looking at his financial statements, but the fraudster's 
paying attention. For he knows that the fraud could go 
undetected for a long period of time unless friends and family 
are vigilant, on the watch here at home over the financial 
affairs of this serviceman or woman overseas.
    Arguably, the most virulent form of identity theft occurs 
when the crook takes your good name and uses it to open new 
accounts, that you know nothing of, with statements going to 
places that you have never been, so that weeks and months pass 
without your knowledge of the fraud.
    The crook may even keep up minimum payments for a period of 
time, until they max out on the credit limits. Then he 
disappears. The payments stop and the creditors come looking. 
But they do not come looking for the crook. They do not find 
the crook. They look for you. And then you will see perhaps the 
most painful of all the many faces associated with the crime of 
identity theft, the face of the victim.
    Where do you go? How do you begin to clear your name? How 
do you convince creditors all around the country that you never 
made those transactions, that there must be some mistake? 
Remember, crooks have long sought to exploit state lines to 
avoid punishment.
    The General Accounting Office reports that it can take 
victims as many as 175 hours, man hours, to clear their name 
and their records. Now what role have the uniform national 
standards under the FCRA to play? And what role have they 
played in the fight against identity theft?
    What role might they play in the future? Are they more 
likely to cause the crime? Or can they be enlisted in the fight 
against it? Certainly, the crook uses information to craft a 
mask, as much in the likeness of the victim as he can make it. 
What steps can we take to deny the thief the information tools 
he needs to make--to take away the mask?
    In what way might we be able to put information to work, to 
fight the crime? If the merchant or banker knows more about his 
customer than the identity thief does, can we unmask the crook 
and prevent a loss from occurring? If information about the 
thief can cross state lines faster than he can, might we enable 
the sheriff to meet the thief at his next stop?
    And what role does information play in restoring the 
records of victims? Can it be harnessed in the effort to 
eradicate the false information? As we consider the uniform 
standards for information sharing under the FCRA, we anticipate 
working together with you, to consider how this review can help 
in this crucial fight against identity theft.
    And so as I said in the beginning, whether considered from 
the impact on each family in America or on the economy as a 
whole, there could hardly be a more important inquiry than the 
one you begin today. Thank you and I will now be pleased to 
answer questions.
    [The prepared statement of Hon. Wayne Abernathy can be 
found on page 80 in the appendix.]
    Chairman Bachus. I thank the Assistant Secretary. Mr. 
Abernathy, you state in your testimony that since the 
experiment with uniform national standards under FCRA began, we 
have witnessed a significant increase in the availability of 
credit to Americans.
    Given that consumer spending now accounts for over two-
thirds of our country's gross domestic product, and I think you 
heard the Chairman mention that in his opening statement, is it 
safe to assume that any significant reduction in the 
availability of consumer credit would have serious negative 
consequences for the U.S. economy?
    Mr. Abernathy. I think that has been very clear. As many 
have pointed out, one of the positive factors that we have had 
in the economy recently has been the fact that we have been 
able to sustain consumer spending.
    And where would the economy be if that had not happened?
    I think it is easy to say and undeniable that we would have 
been in very serious circumstances. The economic downturn would 
not have been as brief, would have probably been steeper, would 
have taken us a lot more time to get out of it.
    Chairman Bachus. Anything that we do we limit consumer 
spending, obviously has a detrimental effect on the economy and 
the national--the uniform national standards have resulted in 
an increase in consumer spending, is that safe to say?
    Mr. Abernathy. The various studies that I have seen so far, 
and there are more that are coming forward, all point in that 
direction.
    Chairman Bachus. Thank you.
    Can information sharing and pre-screening help target 
economic resources more efficiently and get consumer products 
they want, instead of junk they do not?
    Mr. Abernathy. That is one of the things that we need to 
evaluate, one of the interesting questions that would be 
interesting to pose to a group of people. And try this sometime 
in an audience. Ask them how many of you here wish that you 
never got ever again a pre-screened credit solicitation in the 
mail?
    And you can see a lot of hands go up. Then ask how many of 
you people, the same ones, currently hold a credit card that 
you obtained through a pre-screen solicitation. And very 
likely, you will see almost the same hands go up.
    People, I think, a little bit of two minds of this process. 
And that is why we think we need to look at this in its 
entirety, again keeping in mind that there are two goals here 
that we need to achieve, and that I think are both achievable--
facilitating the provision of credit and financial services to 
consumers, at the same time protecting the security of their 
financial information.
    Chairman Bachus. I tell you, I can speak for one consumer, 
myself. I think these activities of receiving a pre-screening 
often in the mail is certainly less intrusive than mass 
telemarketing appeals that come at 8:00 at night or during the 
middle of a football game.
    Isn't a certain level of information sharing under FCRA 
helpful in combating identity theft and fraud? And doesn't 
having national uniform standards facilitate a company's 
ability to utilize additional authentications and identity 
verifications to protect consumer security?
    Mr. Abernathy. Yes, as we have been trying to come to grips 
with this problem of identity theft, we have talked to a lot of 
people. We have talked to victims from all around the country. 
We have talked to law enforcement people. We have talked to 
regulators.
    We have talked to industry. And we have asked them, just 
what can be done to improve the effort to fight identity theft? 
And every one of them constantly emphasizes the importance of 
information as the tool, the single most important tool for 
fighting identity theft.
    So, again, remember, identity theft takes place when the 
crook puts on a mask. He is pretending to be somebody he is 
not. If we can find the way to see behind that mask, perhaps at 
the point of sale, at the point of transaction, we can stop a 
lot of identity theft from occurring. But that means 
information has to move quickly and it has to be accurate.
    Chairman Bachus. And authentications and verifications are 
a part of the national credit reporting system, aren't they?
    Mr. Abernathy. They are. And it is an interesting pattern, 
as we talked to people. It used to be not terribly long ago 
that financial services providers, retailers, rely upon a 
single source of identity verification. They have discovered 
now that what they need to do is rely upon a package. And they 
need to be able to change that package, because the identity 
thieves are figuring these things out. And it used to be, well 
maybe your mother's maiden name is a unique identifier.
    We had a high official at the Treasury Department give my 
staff a Rumpelstiltskin kind of test a little while ago. He 
said by tomorrow, tell me my mother's maiden name. My staff did 
it. They were able to keep their first-born, but it 
demonstrates that whatever these unique identifiers are, they 
change.
    And what is needed is to allow the ability of the financial 
service provider, the retailer, to be able to change those 
unique identifiers faster than the crooks can.
    Again, it is important that they know more about their 
customer than the thief does.
    Chairman Bachus. Thank you. Mr. Sanders?
    Mr. Sanders. Thank you, Mr. Chairman and thank you, Mr. 
Abernathy for your testimony.
    Mr. Abernathy. Thank you.
    Mr. Sanders. From what we have heard this morning, I think 
from everyone, we all recognize the importance of this issue. 
And among other things, we all recognize the tragedy of 
identity theft.
    And, obviously, the devil will be in the details, but I 
hope that we can all work together to deal with this scourge 
that is affecting so many American people. And we appreciate 
your help and comments on that issue.
    It seems to me that the best thing that we can do as a 
committee, as a Congress, is to pass the strongest possible 
national legislation as a floor, but to allow those states that 
want to go beyond that to be able to do so.
    I will give you an example. In the State of Vermont right 
now, to the best of my knowledge, and in some other states, if 
you as a consumer want, you can get a free credit report from 
one of the bureaus. That exist in some states, but not in all 
states. It is just a minority of States. I think that is a good 
idea.
    I will fight to see that that exists in 50 states, but my 
question to you is if I am not successful, do you think that 
legislation should be passed which would preempt the State of 
Arizona or New Mexico from doing what seven states or so do 
right now, if they choose to do that?
    Mr. Abernathy. Thank you, Mr. Sanders. I think as we 
evaluate how well the current system is working, and that is in 
essence what we are talking about. How has the current system 
worked, the uniform national standards, the seven that occur in 
the FCRA?
    I think we need to look at that experiment in a couple of 
ways. And I think you point out that the Vermont example is 
part of that experiment. While we have been conducting an 
experiment nationwide of uniform national standards, we have 
had a couple of experiments going on simultaneously where that 
is different. And I think we need to evaluate what the data and 
the information tells us in all of those cases.
    With regard to the free credit report, as we have been 
putting together a number of different suggestions on how to 
tackle the issue of identity theft, that has been one of the 
suggestions that has been made to us from a number of different 
parties. And I think there is a lot of merit to it.
    As I have been saying to the credit reporting agencies, and 
particularly to their customers, there is a strong interest on 
the part of the user of their product that their information be 
accurate. A bank wants to be able to provide financial 
services. They want to be able to target the financial service 
as carefully as possible for their customer as they can.
    One of the great phenomenon that has occurred in the last 
several years in financial services is the ability to tailor 
make products. But the only way you can tailor make a financial 
service for somebody is making sure the information you have is 
right.
    And I wonder what impact it would have on the accuracy of 
information if we had 150 million people verifying the 
information that is there. I have to think that you would be 
enlisting the people who would be most interested and most 
sensitive to making sure that information is correct.
    Mr. Sanders. I do not mean to put you on the spot, and I 
very much appreciate your comments, but what I am hearing you 
say is that you are not unfavorably disposed to us having 
national legislation which would allow every American to gain 
full free access to their credit history? Is that roughly what 
I am hearing you say?
    Mr. Abernathy. That is very much on the table if things 
were considered.
    Mr. Sanders. Okay, well, I appreciate that very much. Thank 
you very much, Mr. Abernathy.
    Mr. Abernathy. Thank you.
    Chairman Bachus. Let me read out the list of Members in the 
order that the committee staff has given me, and let us make 
sure that we are all on the same page here. I have the next 
person that is here on our side as Mr. Kennedy, that he would 
be our first Member to ask questions. And then we would go to 
Ms. Maloney.
    Then we go to Mr. Hensarling. Then Mr. Meeks, then Mr. 
Garrett, Mr. Moore, Ms. Biggert, Ms. Velazquez, Ms. Capito, 
then Ms. Hooley, Mr. Tiberi, then Mr. Gutierrez is not here any 
longer so Mr. Hinojosa, Mr. Castle, Mr. Davis. And then on this 
side, I have Lucas, Davis, McCarthy, Ford, and Gonzalez. Is 
that--was that the--Mr. Gonzalez, have you been here since the 
start?
    Mr. Gonzalez. More or less, sir. I got here at----
    Chairman Bachus. That is what I was thinking.
    Mr. Gonzalez. 15 minutes late.
    Chairman Bachus. This part is a little inaccurate. So I am 
going to try to work with that, but----
    Mr. Gonzalez. Thank you.
    Chairman Bachus. But that will give somewhat of a----
    Mr. Sanders. We stand in reporting, Mr. Chairman.
    Chairman Bachus. Say what? That is right, that it is--this 
system that we have of who comes in is a little hard sometimes 
to order, but Mr. Kennedy?
    Mr. Kennedy. I thank you. And thank you for your testimony.
    I would like to just have you clarify again what benefit or 
harm it would cause to the economy to commercial business if 
there were rights for the States to over and above what was 
enacted through Fair Credit Reporting Act, be able to put on 
more stricter provisions in the States?
    Mr. Abernathy. Mr. Kennedy, that is something that we are 
examining right now at the Administration, just what would be 
the impact if the uniform national standards that are currently 
in place were allowed to expire at the end of the year. From 
the point of view, sort of a micro level, what impact would it 
have on individual families? But also, what impact would it 
have on the economy as a whole?
    All of the studies that I have seen so far indicate that 
the impact would not be immediate, but that the impact would 
progressively grow and could become very large. But we are 
right now evaluating that.
    Mr. Kennedy. And do you have any studies as to the cost 
that would be incurred by financial businesses if there was a 
patchwork quilt of regulations that needed to be dealt with 
around the country, and how much that would affect the cost of 
financial services to consumers?
    Mr. Abernathy. We have seen a number of studies. I think 
there are some other work that it is going to provided probably 
in the next week or two from some private parties. I think your 
witnesses are going to be presenting some findings of their 
research. The Council of Economic Advisers is not only 
evaluating that, but we are doing some of our research on our 
own.
    I would say there are preliminary information that some of 
these studies point at, but we want to make sure that we have 
the whole picture together before we say exactly what that 
impact would be. But I think it is undeniable that we are 
talking about something that is significant.
    Mr. Kennedy. Thank you.
    And as we look at identity theft, you know, we in this new 
post 9/11 world have looked at a lot of homeland security 
proposals for how we can certify someone's true identity, 
including biometrics and other measures, to confirm that the 
person we are talking about truly is that person.
    Has there been any creativity seen in other countries, in 
other applications, that could help us assure that the person 
using the credit is in fact that person?
    Mr. Abernathy. There are a lot of very interesting things 
being done in the world of technology with regard to verifying 
identities. And certainly, we want to make sure that we do not 
do anything that discourages use and putting in place of the 
technologies that will help in that regard.
    I think also, though, that there are things that we can do 
legislatively and perhaps regulatorily, that will facilitate 
the ability to verify who people are.
    Mr. Kennedy. Good, thank you for your testimony.
    Mr. Abernathy. Thank you.
    Chairman Bachus. Ms. Maloney?
    Mrs. Maloney. Okay, thank you, Mr. Chairman. And welcome 
Assistant Secretary. I appreciate very much your appearance 
today, since we have something now very much in common. Your 
former boss, Senator Gramm, is now one of my constituents. So I 
can say we are both working or have worked for the same person.
    Mr. Abernathy. He is working on the accent.
    Mrs. Maloney. Anyway, I truly appreciate your testimony. 
And I appreciate the lengthy discussion on identity theft in 
your testimony. It is truly a huge problem. And many of my 
constituents have been affected by it.
    But beyond identity theft, does the Administration have a 
position on reauthorization of FCRA? Do they have a position?
    Mr. Abernathy. We have a position. We do not have the final 
position yet. We are in a process. I think much the same 
process that is taken place here in the Congress.
    Our position is, as we begin this process, that there are 
two very important interests that must be part of whatever the 
final legislation or solution or action is. And that is, that 
whatever we do, we have to make sure that we are facilitating 
access to credit for as many people as possible, in as wide a 
variety as possible, while also improving and increasing the 
security of the information.
    If we can bring those two goals together, which I think we 
can, then I think we will have legislation that at the end of 
the year would better the circumstance of the consumers, which 
as I think as many pointed out, really need to be the focus of 
what we are doing.
    Mrs. Maloney. So this proposal will not be ready until 
when, January you say or?
    Mr. Abernathy. No, I am saying where we are now is we have 
focused on what these two things are that need to be 
accomplished.
    Mrs. Maloney. Yes, I think we all agree with that, but when 
can we hear from the Administration what their position is?
    Mr. Abernathy. It is a top priority, not only for the 
Treasury Department, but for the Administration as well. I 
think the answer of when we have the package of things that we 
think ought----
    Mrs. Maloney. And when do you estimate that will be? In a 
month or two or three or six or 10 or?
    Mr. Abernathy. I would say the sooner the better.
    Mrs. Maloney. The sooner the better.
    Mr. Abernathy. It is just a matter of when we have the--
when we have all the pieces together for it to be a 
comprehensive set of actions.
    Mrs. Maloney. Okay. We cannot pin you down. You are like 
Greenspan. You are not going to tell us when you are going to 
have that. But does the Administration have any position on the 
privacy related ballot initiative in California that deals with 
Gramm-Leach-Bliley privacy provisions?
    Mr. Abernathy. Now I do not believe the Administration has 
any position on that. Frankly, we do not make a habit of 
looking very closely at legislation that is before particularly 
states. I will say in as much as that impacts what is being 
done at the federal level in this area, we want to make sure 
that we can achieve those two goals that I have outlined.
    Mrs. Maloney. Also, among the functions of the seven 
provisions in FCRA that are expiring are exemptions dealing 
with loan underwriting, and preemptions that make it easier for 
companies to market products. So those are two of the 
preemptions, the loan underwriting and the marketing of 
products.
    Some observers contend that it is impossible to separate 
the two. Does Treasury have any position on the relative 
importance of reauthorizing preemptions for underwriting versus 
marketing? And do you agree that the two are interrelated and 
inseparable? Or do you feel that the two can be separated?
    Mr. Abernathy. No, I think you correctly point out that we 
need to consider that in the FCRA, there are seven particular 
uniform national standards. I think they are closely related, 
but I do not think that they are inseparable.
    I think each one has its own particular purpose. They each 
relate to one another. And part of, I think the process in 
coming up with a uniform policy that makes sense for customers 
is being aware of how they relate to one another.
    Mrs. Maloney. In your testimony, and you spoke quite 
lengthily on identity theft, and you did note that you are 
concerned about the role that FCRA uniform national standards 
play in the fight against identity theft. And do you have any 
concrete recommendations for strengthening the provisions to 
fight identity theft?
    Mr. Abernathy. We have a number of things that we are 
looking at. And that, frankly, is part of the package that we 
hope to bring to you is----
    Mrs. Maloney. Can you share some of those ideas now or?
    Mr. Abernathy. I would love to that, but what I have 
learned, one of the best processes that you have in work in the 
Administration is, when you have a good idea, you have to make 
sure the corners get rubbed off, if there are problems or any 
burrs on. And we are going through that interagency process 
right now.
    So rather than share them, and then say, well, I have 
discovered there is a piece where it can be done better, we 
would like to make sure we have a good product before we bring 
it forward.
    Mrs. Maloney. In Peter Swire's testimony on the second 
panel, he addresses reports that the Administration is 
circulating a draft of PATRIOT 2 that would give unprecedented 
access to credit reports to government agencies.
    The proposal in section 126 of the draft PATRIOT 2 Act is 
titled ``Equal Access to Consumer Credit Reports,'' but Mr. 
Swire contends it would allow law enforcement officials to get 
any credit report with a simple certification that they will 
use the information, and I quote ``only in connection with 
their duties to enforce federal law.''
    There are no limits on redisclosure to other agencies and 
no mechanisms at all to ensure that the credit reports will be 
used for the Stated purpose, once they are given to the 
government. And does Treasury support this proposal? And could 
you please respond to Mr. Swire's criticisms?
    Mr. Abernathy. If I could get back to you on that, Mrs. 
Maloney. I have not been part of any of those discussions, but 
I can certainly make sure that that question is taken back to 
those at Treasury that do work with that legislation.
    Mrs. Maloney. Well, I thank you. And you will get back to 
us in writing or how----
    Mr. Abernathy. If you would like, yes, we can----
    Mrs. Maloney. Whatever way. Thank you.
    Mr. Abernathy. Sure. Happy to do that.
    Mrs. Maloney. Thank you.
    Chairman Bachus. Ms. Kelly?
    Mrs. Kelly. Thank you very much, Mr. Chairman.
    Mr. Abernathy, it is nice to have you here again.
    Mr. Abernathy. Thank you.
    Mrs. Kelly. I am pleased that Chairman Greenspan and 
Secretary Snow have both endorsed the extension of the FCRA's 
uniform standards. And I share their views that a failure to 
reauthorize the FCRA would have a negative impact on the flow 
of credit and on our economy.
    As you know, this committee's worked really hard to combat 
money laundering through the PATRIOT Act. We found that both 
criminals and terrorists use complex and very sophisticated 
schemes to manipulate the laws and our financial systems.
    Their deception is spread across many entities. And it has 
continued to expand. I personally am concerned that not 
extending the FCRA may affect our ability to detect suspicious 
activity. I wonder if you could comment on the impact that 
failure to reauthorize the FCRA may have on our ability to 
carry out the PATRIOT Act?
    Mr. Abernathy. I think that is certainly one of the things 
that needs to be weighed, as we examine this--these uniform 
standards and how they operate, not only from the point of view 
of what we would consider traditional relationships between a 
customer and their financial services provider, but also the--
how they might help us in a law enforcement way to combat 
things like money laundering.
    One of the things that I continue to emphasize to the 
people in Treasury that do the day to day work on money 
laundering is that we need to maintain a cooperative 
relationship with the financial institutions in order to get 
the best kind of information on who the crooks are.
    And it may be that the ability to have uniform ways of 
reporting information are central to that responsibility, 
central to that effort.
    Mrs. Kelly. There is another troubling issue on which I 
have held hearings with Mr. Bachus. And that is identity theft.
    Could you tell me your thoughts on how the FCRA and the 
information sharing that it provides has helped combat identity 
theft?
    Mr. Abernathy. I can give you one example in particular 
that recently brought home to us. My wife thought it would be a 
great idea from my father-in-law for a gift to buy him a riding 
lawnmower so he would not have to mow his acre and a half in 
the countryside of western New York by hand. Or actually, she 
was concerned that her mother was doing that and that maybe if 
they got a riding lawnmower, dad would get out there and drive 
thing and do the mowing.
    Well, after we bought that riding lawnmower, the very next 
day, we got a phone call. And the phone call was not from my 
in-laws. They would have called a little earlier than that. We 
got a phone call from our credit card company.
    They said, ``Did you make a purchase in upstate New York at 
a garden supply store?'' And we said, ``Yes.'' They said, 
``Okay, just wanted to know.''
    They were using information that they were able to obtain, 
facilitated by the Fair Credit Reporting Act to verify whether 
that was a legitimate transaction or not. And my wife's 
reaction was gee, I am awfully glad they are doing that and 
that they can do that.
    In many cases, I have heard of other cases where identity 
thefts have been discovered through that same set of process.
    Mrs. Kelly. At one of our earlier committee hearings on 
identity theft, we had an expert security consultant that came 
in and testified that we need better practice standards to be 
implemented for information, security and auditing procedures. 
This is an issue that you think we ought to be taking a look at 
with more closely with regard to the FCRA?
    Mr. Abernathy. Yeah, I think that all of these issues have 
to be on the table. And we have a great opportunity be doing 
that. And that certainly would be an important one as well.
    Not all that we need to do needs to be done legislatively 
or regulatorily. There are also important best practices that 
can be developed.
    Mrs. Kelly. Do you think there are potential ways that we 
can help consumers get more information to help them combat 
identity theft and fraud or to help coordinate with local--with 
law enforcement people and to--I do not know if that is 
increased penalties or some kind of information sharing that 
could happen. It seems to me that perhaps we can energize 
consumers themselves to do a bit more to help protect against 
identity theft?
    Mr. Abernathy. Yeah, they really are the first line. And I 
think a lot of identity theft can be stopped if people knew a 
little bit more about their credit reports, how the financial 
system operates. One of the other things that I spent a lot of 
my time, one of the responsibilities I have is financial 
education.
    There is a crying need in this nation to improve the level 
of financial literacy. It is amazing to me the kinds of 
mistakes and trouble that people get into and might have been 
able to avoid had they known some of the basic rules of what we 
might call financial literacy of how financial affairs operate.
    I think that certain types of information can be very 
helpful. I am eager to see the day when the average customer is 
able to put a stop to a lot of these problems just on their 
initiative. I do not think that is enough. I think there are a 
lot of other things that need to be done, but that is got to be 
an important part of it.
    Mrs. Kelly. I am glad to hear you say that. I believe that 
financial literacy is something that is at a very low level, in 
general, in this nation. And we do need to do something about 
it.
    And with the addition of the Smart technology that it seems 
to be coming more and more available, that is a potential 
thing. So anything you can help us with on that score I 
certainly think this committee would be grateful for. And I 
thank you and turn back the balance of my time.
    Chairman Bachus. Thank you, Ms. Kelly. Mr. Meeks?
    Mr. Meeks. Thank you, Mr. Chairman.
    Mr. Abernathy, let me first--I do not know, I want to ask a 
question. It is something that has been happening with some 
constituents of mine and that they have been complaining about 
recently. Find out if you are aware about it, and what if 
anything you would recommend to be done?
    Recently, I have had a number of complaints from 
individuals talking about insurance companies who are actually 
using credit information as a factor to increase or decrease 
their auto insurance, even though they may have a great drivers 
record, never had an accident, never had any problem, but if 
they had a problem with their credit, they have a credit 
report, that is causing the insurance companies to charge 
higher rates.
    Have you heard of anything of this nature? And if so, what 
would you recommend be done about it?
    Mr. Abernathy. I have heard anecdotes. Nothing in any kind 
of systematic way. Maybe I have heard some of the same kinds of 
complaints that you have. As you know, insurance is regulated 
at the State level. We do not have any federal insurance rules 
with regard to that.
    There is obviously a strong interest on the part of 
insurance companies in particular to get the risk right. The 
way an insurance company makes money is by accurately, as 
accurately as they possibly can, identifying what the risk is 
of each particular customer.
    And the way they compete with one another in many ways is 
how they can identify that risk better than their competitor 
can. There are other elements that they use to compete with, 
but that is an important part.
    To the extent an insurance company gets that risk wrong, 
either by charging too much of a premium for a customer or too 
low of a premium, in the end, they will lose money. So I would 
think that over time, companies could not get away with that 
sort of practice.
    Inasmuch as there is a practice that they are engaging in 
that is unfair, I would hope and would expect that the State 
regulators would be involved with that and that those kinds of 
complaints would be brought to their state regulator.
    Mr. Meeks. Let me also ask this question. The sharing of 
information, you know, since we have enacted Gramm-Leach-
Bliley, I understand about people not wanting to opt in. They 
opt out. And when you go to the bank sometimes with the 
mortgages, you expect that they are interlocutory, etcetera.
    But what about situations where we have major corporations 
that provide completely different services, such as commercial 
banking and investment banking?
    Could we then, you know, flip so that there is an opt in as 
opposed to just having the option to opt out? Because in those 
situations, the consumer does not maybe readily expect that 
they can go to their--pay their credit card bill or something 
with--at the same financial institution.
    What would be your feel there?
    Mr. Abernathy. Yeah, I think that goes into part of the 
whole parcel of issues that we are looking at in the context of 
this legislation. Obviously, there are debates taking place on 
these types of ways of presenting choices to consumers and 
other areas of legislation.
    I think we need to keep first and foremost again in mind 
what is the goal that we are trying to achieve. The goal that 
we are trying to achieve is to provide the widest array of 
financial services to the most customers as possible at the 
lowest cost.
    Now if we keep that in mind, together with the important 
goal of maintaining the security of their information, then we 
have some means of measuring where the one way of presenting 
choice to consumers is better than another choice, but we need 
to keep those particular goals in mind as we evaluate that.
    Mr. Meeks. And lastly, because I did not really--I did not 
hear your answer, I did not understand your answer, to Mr. 
Sander's question about what would be your recommendation when 
we talk about the uniform national privacy law and having the 
States making a determination as to whether or not they want to 
go to a standard that would make sense nationally. Because we 
may all agree that we should do something nationally.
    What is your opinion on allowing the States to have a 
higher standard than we may have since had nationally?
    Mr. Abernathy. Well, that is the very key issue I think 
that we are evaluating right now. We have been having an 
experiment now for seven years as to whether or not setting 
uniform standards at the federal level with regard to 
information sharing is the right answer to get to these--those 
goals that I mentioned to you. And now we have the opportunity 
to go back and see what are the results.
    What has been the results in terms of providing services to 
customers at low cost and wide array? Has the current system 
worked best or are there some changes to it that might be 
better?
    And that is the process that you are beginning today, that 
we have been undertaking. And at the end of the day, whatever 
the answer is, it has to be what is providing the best set of 
financial services to the customer as possible.
    Mr. Meeks. Thank you. I yield back.
    Chairman Bachus. Thank you, Mr. Meeks. Mr. Hensarling?
    Mr. Hensarling. Thank you, Mr. Chairman.
    First, I feel compelled to set the record straight. And I 
regret that Ms. Maloney is no longer with us. She invoked the 
name of my dear friend and former employer, Senator Phil Gramm. 
I would like to say for the record that although he maintains 
an office in New York, I assure you that his home and heart 
remain in Texas.
    Mr. Abernathy, in your testimony, you mentioned that since 
the FCRA experience with uniform national standards began we 
have witnessed significant increases in the availability of 
credit to Americans.
    As a freshman congressman, FCRA is a matter of first 
impression to me, but I assume that there is at least from the 
evidence I have seen so far, a cause and effect relationship 
here.
    And so, it was not evident to me in your testimony, do you 
believe there is a cause and effect relationship here?
    Mr. Abernathy. There is certainly a high correlation. And 
the arguments that I have seen as to how you connect those dots 
are very compelling. I think really what the research that 
remains to be done is just what is the size, how big can you 
quantify that increased access to financial products through 
the FCRA?
    But I think the trend is undeniable. I think the effect is 
undeniable. How big is it? I do not know, but it is big.
    Mr. Hensarling. So at least we have some historic analysis 
that underpins the belief that a uniform standard has increased 
greatly the availability of credit to Americans.
    I am curious, have you reviewed any evidence? Or is there 
any other modern economy that you are presently aware of that 
has a contrasting system of consumer reporting? I believe the 
phrase patchwork has been used before. If so, have you compared 
and contrasted the system of that economic system with ours on 
the availability and cost of credit?
    Mr. Abernathy. There are few countries in the world that 
have the kind of federal system that we have. Well, one of the 
great benefits that we have from our federal system is our dual 
banking system, which comes as a great consequence of our 
federal system.
    But with regard to the availability of credit, really what 
the contrast is, is the--what you might call the full credit 
report system that we have, that provides positive information 
with regard to customers, as well as negative information. 
Haven't been paying your bills? That is on your credit report 
as well.
    You can compare that with a number of other countries that 
only allow the placing of positive information and the negative 
information does not go on.
    And it seems to be that when you make those comparisons, 
the cost of financial services is much lower here in the United 
States than in those countries. And the availability, the way 
we did--the people that we can reach with financial services is 
much greater in this country than it is in those countries.
    And the variety of services, the kind of creativity that we 
have in this country for developing new financial services far 
exceeds anything else that you find in any other country.
    Mr. Hensarling. In your testimony, you also allude to a GAO 
report that says it can take victims of identity theft as much 
as 175 man hours to clear their names and records, 175 hours. 
So roughly the same amount of time it takes us to fill out our 
federal tax returns, but I suppose that is a matter for a 
different committee at a different time.
    I have some familiarity with identity theft. Prior to 
becoming a congressman, I was a small businessman for 10 years. 
I employed fewer than 10 people, but one of those people 
decided to open up a credit card in the name of our small 
business, obviously without the knowledge of myself, the owner 
of the small business, and run up a tab of roughly $23,000, 
roughly equivalent to this individual's annual salary.
    I am happy to report that once I became aware of this, 
frankly, with one letter to the credit card company and one 
telephone call to the credit card company, I never had to worry 
about this matter again. And the employee obviously had to deal 
with a felony theft conviction.
    But I am curious about how often, from your experience, 
does the system work? The system worked for me unlike the 
people who have spent 175 man hours to clear their names and 
records.
    Mr. Abernathy. It is uneven, congressman. I think where the 
best progress has been made has been with credit cards. Partly, 
it is because of federal legislation, partly because of a lot 
of the work that has been done by the credit card companies.
    Under the Truth in Lending Act, a consumer today, a credit 
card holder is liable only for up to $50 for any unauthorized 
purchase that may occur on his credit card.
    What the credit card company has discovered, and they 
opposed that piece of legislation, when it was put in place 
though, credit card companies lowered that number on their own 
to zero, because they discovered that by eliminating the 
liability for unauthorized purchases, they could greatly 
increase the willingness of people to use credit cards, knowing 
that by using a credit card, I am not opening myself up to an 
unacceptable level of risk that unauthorized purchases are 
going to take place.
    And to back up that, once they went to a zero liability, 
the credit card companies did a lot of other things to try to 
reduce the costs that they were then taken upon themselves. And 
so, we have seen a lot of great progress that has been made 
with regard to--in the credit card companies.
    Recently, a credit card company announced a program of 
offering insurance against identity theft. Not because there is 
a risk that you might have a loss for an unauthorized charge, 
but because as was pointed out I think by Mrs. Hooley, it costs 
a lot of money to clear your name and many victims.
    175 hours, that is 175 man hours. That is a whole month, 40 
hours a week of time stretched out over a long period of time, 
and usually involves very expensive legal costs.
    Chairman Bachus. All right, thank you. Thank you, Mr. 
Abernathy.
    We are going to move to Mr. Moore. And I think at the end 
of his questioning, we probably will adjourn the committee for 
four votes on the floor. And we will convene shortly after 
those four votes, but it probably will be 45 minutes after we 
have recessed.
    Mr. Moore. Thank you, Mr. Secretary for your testimony.
    Ms. Maloney asked you some questions. And you seemed to 
indicate that the Administration has not yet prepared to state 
a position or make recommendations to this committee, but I 
want to ask a couple of questions, coming at it from a 
different way, and see if you can help me with this.
    Mr. Abernathy. Okay.
    Mr. Moore. FCRA's uniform national standards, which were 
enacted in 1996 were set to expire in January of next year, 
2004. So we have now this committee and our committee, the full 
committee about eight months and the House, eight months to 
consider what is going to happen before the expiration on 
January 1st.
    Are you able at this time to state, and maybe the answer is 
no, but I am going to ask anyway, are you able to state that 
you have any recommendations as to whether this experiment has 
been successful so far that we started in 1996 with uniform 
national standards?
    Mr. Abernathy. I cannot give you complete answer because we 
have not completely reviewed all of the records.
    Mr. Moore. Then find me a partial answer if you can.
    Mr. Abernathy. Well, I think the partial answer is, is that 
there is a lot of evidence that it has been very successful. 
There are some evidence or some assertions that are made that 
there are some problems that need to be worked on. We are 
looking at both of those, because when we bring our package or 
our suggestions to you, we want to make sure that they are the 
right answers, because it is very important that we get the 
right answer here.
    Mr. Moore. Everybody is concerned about privacy, right?
    Mr. Abernathy. Yes, sir.
    Mr. Moore. And if, in fact, this experiment has worked for 
the most part well, I think a lot of us on this committee would 
agree that it should be extended. I am talking about uniform 
national standards?
    Mr. Abernathy. Right.
    Mr. Moore. Okay? And in my experience as an attorney for 28 
years, in many cases, the best answer does not always lie on 
either extreme, but somewhere in the middle. Will you agree 
with that as well?
    Mr. Abernathy. That has been my experience of 20 years 
working in the Congress.
    Mr. Moore. All right. Are you aware, Mr. Secretary, of any 
other countries that have a system similar to ours or different 
than ours, that is better in your opinion, than ours as far 
gathering information for a credit report and extension of 
credit?
    Mr. Abernathy. We are reviewing some of the other systems 
to see if there are some lessons to be learned. I do not think 
that that research has been extensive yet, although I know--and 
some members of the staff that are looking carefully at some of 
the examples of what there might be that we can learn from the 
European experience, for example.
    It would be hard for me, though, to point to any country 
where I think it is better. Frankly, it is hard to find, and I 
do not know of any other country, where there is such a wide 
array of financial services available to the average consumer 
today, at as low a cost and to as many people. You know, we 
reach a much larger segment of the population than we ever did 
before.
    Over the last 10 years or fewer, a lot of people that used 
to be on the fringe looking in to mainstream institutions are 
now their customers.
    Mr. Moore. I am not trying to beat a dead horse here. Not 
trying to push you say something you cannot say, but I would 
urge you and your other colleagues in the Administration to 
complete your study as quickly as possible, and provide that 
information and the recommendations for amendment or change.
    And when we reauthorize this in January, before January of 
next year, so that we can take what needs--take what action 
needs to be done here in this committee and the full committee 
and the House floor.
    Mr. Abernathy. Thank you. I appreciate that encouragement 
and will act on it.
    Mr. Moore. Thank you, sir, very much.
    Chairman Bachus. Thank you. We are going to recess the 
subcommittee until 12:30. We are going to reconvene at that 
time. Assistant Secretary, will be available at that time?
    Mr. Abernathy. Yes, sir.
    Chairman Bachus. Okay, thank you. So we will adjourn until 
that time. Thank you.
    [Recess.]
    Chairman Bachus. The subcommittee will come to order. Mr. 
Castle, if you have questions of the witness?
    Mr. Castle. Thank you, Mr. Chairman.
    Mr. Abernathy, this is a very hypothetical question. I do 
not want to get excited by what I am stating. And I am not even 
in support of what I am stating either, but I want to talk 
about national identification cards.
    Mr. Abernathy. Okay.
    Mr. Castle. Because I am interested in an objective opinion 
of what they might do with respect to preventing some of the 
piracy problems that you have concentrated on a lot today.
    And I do not--I am not advocating them at all at this 
point, although I am not opposed or for them. And, obviously, 
as you know, a lot of people are opposed to them at this point.
    But if we had national identification cards with biometric 
identification, I guess fingerprints or irises to the eyes or 
whatever it may be, and similar cards obviously for people 
coming to visit in the country, and obviously combined in some 
way or another with the computer abilities we have now in terms 
of identification of people trying to use credit cards or other 
methodologies of credit, will this be a way of addressing this 
problem?
    Because I agree with you. I think this piracy is a huge 
issue, the ways on the minds of a lot of people across this 
country. And you are right, it is a huge aggravation. It can be 
$5.00 worth of goods and it can create all kinds of problems 
for you. And I am just casting about for ways to do this.
    So I am not asking you to endorse national identification. 
I understand some of the politics of that, but I am just 
curious as to whether you have given any thought to how that 
might interact with the whole business of piracy and perhaps 
the prevention of piracy?
    Mr. Abernathy. Yeah, there are a number of different ways 
of identifying who your customer is, so that you can be 
relatively comfortable in the bonafides that you are dealing 
with the person who you think you are dealing with. And I think 
technology is opening up some very interesting opportunities 
that might not have been there years ago. Biometrics with so 
many ideas, smart chip cards and things of that nature.
    I think it might be a little bit too early yet to predict 
where the technology will take us. And one of the more 
significant problems that you often have as a policymaker is 
trying to make the policy match where the technology is, or 
even more importantly, where the technology is going, to make 
sure that you are not coming up with policies that have 
foreclosed opportunities that the technologies might present to 
you.
    And I would like to think of it in terms of that--looking 
at the problem in that way, of making sure that we have 
legislation that does not foreclose the development of certain 
types of identifiers that technology might offer to us in the 
near future.
    Mr. Castle. Well, I--that is a good answer and I would 
agree with you. And you know, I just happened to pick national 
identification cards. I do not care how it is done. But I 
really hope that the Administration will spend a portion of 
each day, not to tell you what to do with your days, perhaps 
Sunday off, in looking at technologies.
    And you are right, we do not--we in Congress never should 
pass legislation that would foreclose the possibility of 
developing something along those lines. And, frankly, 
technology has changed so fast, that it may have to change in 
two years. And I understand all that.
    Mr. Abernathy. Right.
    Mr. Castle. But I just think we need to have a greater 
focus. It just seems to me it is too simple in this country to 
be able to get a card, to get a PIN number, to be able to copy 
a signature or whatever it may be, or use a computer in some 
way or another, and be able to really take somebody else's--if 
not their identity, at least their credit for a borrowed period 
of time, if you will.
    And I just think it is going to worse and worse. I think 
your--you have documented that today. And I think we have to 
fire with fire with the--we have done with this currency in 
this country. And I just think we need to start doing it with 
some of the other things that we are doing within the 
reasonable cost basis level. So I was just interested in 
getting that point clarified.
    Mr. Chairman, I yield back.
    Chairman Bachus. Thank you. Thank you, Mr. Sherman?
    Mr. Sherman. Just a comment or two. First building on the 
gentleman's remarks, I think that we did not have a whole lot 
of privacy 200, 250 years ago when we all lived in small towns. 
And given technology, we may not have much privacy in the 
future. And that is why it is important for us to develop rules 
for government and rules for other institutions, so that 
whatever information they do have cannot be misused.
    I know these hearings are focused on whether we should have 
a federal system of regulating credit agencies. And I just want 
to say that I think that is an outstanding idea.
    There are those in the consumer protection movement who 
would think if we could just leave it to every city to pass its 
own ordinance, then there would be a few cities that would pass 
their dream ordinance, or a few states that would pass their 
dream statute.
    But that would leave hundreds of millions or tens of 
millions of Americans in states where they pass laws that would 
be the worse nightmare of these consumer agencies.
    It makes more sense for us to reach a national mean, 
because 100 million consumers with no protection and 100 
million consumers with whatever you define to be great 
protection, is not nearly as good as 200 million consumers with 
good protection.
    A national economy does not work if Berkeley gets to have 
its own financial services laws, much as I know they would like 
to. So I do not know if the witness has any comment, but I do 
not really have a question with a question mark.
    Mr. Abernathy. Well, I would add maybe one observation to 
that. I think it is important for us to understand that we have 
an interest in the security of our information. But I have a 
certain interest in my neighbor's information.
    And my neighbor has some interest in my information. And 
one of the metaphors I use for that, but I think it applies in 
their financial information, I have on my house my street 
number.
    Now, I could think I do not know if I want everybody to 
know what my street number is. So I could take off my house to 
house number. But that would make it much harder for the 
emergency vehicle to find my neighbor's house if all of the 
houses along the street did not have street numbers on there, 
and they had to try to figure out which is Mrs. Jones, where we 
are supposed to go to.
    And I think there are similar ways in which each of our 
pieces of our information are important in helping meet the 
services needs of one another.
    Now that does not mean that we cannot make sure that the 
information travels in secure channels. I think we can do that, 
but I think we need to understand that our information also is 
important to our neighbors. And their information's important 
to us.
    Mr. Sherman. And just building on that, when there is 
identity theft, or where there is fraud, where there is fraud 
on both the financial institution and some identity theft 
victim consumer, or whether it is just fraud against the 
financial institution itself, those are not the only parties 
damaged.
    I am damaged because I go to get a car loan, and they have 
to charge me a quarter point more on the interest to take care 
of the rest of that.
    And so, while it is possible to identify people who have a 
problem with the present system--because then you can say, 
``aha, but my score is unfair.'' If we did not have a system 
design to prevent financial institutions from being defrauded 
or not having all the information they need, our interest rates 
would be higher, our consumer credit would be less available.
    It is pretty amazing that people who never see me face to 
face are willing to lend me $10,000 and give me a nice plastic 
card with the picture of the ocean on it.
    And that relies upon a system that has some disadvantages, 
but it has some advantages as well. I yield back.
    Mr. Abernathy. Thank you.
    Chairman Bachus. Thank you. Assistant Secretary, the 
average American moves every six years. And that is actually 
two-thirds higher rate than any other country. Does our 
national uniform credit system play any role in increasing the 
mobility of our labor force and the ability of a consumer to 
move from state to state while keeping affordable credit 
reputation and preserving their ability to access well, cheap 
capital?
    Mr. Abernathy. Yeah, I think it has a tremendous impact. We 
have today, because of the information sharing systems in 
place, we have in essence today the ability to have portable 
reputations. Your reputation can travel with you. And to give 
an--I have seen that in my own family, how important that was.
    I grew up, when I was a young child from age 1 to age 12 in 
south Florida. At age 12, my parents decided they were going to 
move. They did not move next door. They moved to western New 
York. And I saw how difficult it was for my parents to re-
establish their reputations.
    They had good credit reputations, good business reputations 
in south Florida. They had to rebuild all of that when they 
went to New York because the information was not portable at 
that time. This is in the late 1960s.
    Other people now, I have many friends who have moved many 
times. And they can pick up their lives wherever the new place 
they move to. Almost right away there, they are fully 
integrated in the financial life of their new community.
    Chairman Bachus. Thank you.
    At this time, if there are no other questions, I would ask 
that you get back to us as soon as possible on the 
Administration's proposals regarding both FCRA and identity 
theft.
    Mr. Abernathy. I would be very happy to do that, Mr. 
Chairman.
    Chairman Bachus. Thank you.
    Mr. Abernathy. Thank you.
    Chairman Bachus. With that, you are discharged. We very 
much appreciate your testimony. And it has been very helpful. 
Thank you.
    At this time, we will go right to our second panel. At this 
time, I am going to recognize Representative Castle for an 
introduction.
    Mr. Castle. Thank you very much, Mr. Chairman. It is my--I 
guess the correct word, it is my privilege to introduce our 
next witness, but really, it is a great pleasure because he is 
a good friend.
    Mike Uffner, who appears before us today in his capacity as 
a member and a board member of the United States Chamber of 
Commerce and the CEO of Autoteam Delaware, which is in the 
automobile business, selling cars to members of Congress who 
cannot afford to--I am sorry that is not completely correct, 
but selling cars to people in Delaware.
    He received his bachelors and masters degree from the 
University of Pennsylvania. And I am very pleased he decided to 
make Delaware his home. In addition to employing hundreds of 
people in Delaware, Mr. Uffner has been an active participant 
in Delaware's civic and charitable organizations, probably too 
numerous to mention, really, but particularly the Delaware 
chapter of the American Heart Association.
    I look forward to his testimony about the real world 
benefits of the national credit reporting system, what it means 
to business owners. And he has some stories he can tell us and 
what it means to consumers.
    So we thank him for volunteering his day to be here with 
the committee, as we endeavor to establish a sound policy on 
credit reporting.
    Chairman Bachus. Thank you. I am going to introduce the 
other members of the panel. We have Mr. Dean Sheaffer, vice 
President of Boscov's Incorporated on behalf of the National 
Retail Federation. And Mrs. Hart had wanted to be here to 
introduce you, but she is in a Check 21 meeting, legislation 
which she introduced.
    Mr. Michael Turner, President and Senior Scholar, 
Information Policy Institute, we welcome you. Mr. Joel R. 
Reidenberg, Professor of law at Fordham University, thank you. 
Mr. Peter Swire, Professor of law, Ohio State University and 
Mr. Michael Staten, Director of Credit Research Center, 
Georgetown University.
    And Mr. Swire, you are a Professor of law at the law school 
of Ohio State, is that correct? Okay, thank you.
    We welcome you--all of you gentlemen. At this time, we will 
go starting with Mr. Uffner for any opening statements.

 STATEMENT OF MICHAEL S. UFFNER, PRESIDENT, CHAIRMAN AND CEO, 
 AUTOTEAM DELAWARE, ON BEHALF OF THE UNITED STATES CHAMBER OF 
                            COMMERCE

    Mr. Uffner. Thank you, Mr. Chairman.
    Thank you, Governor Castle, for the warm introduction. Good 
afternoon, Mr. Chairman and distinguished members of the 
subcommittee. Thank you for inviting me to testify before you 
today. I commend you for your efforts to protect the nation's 
economy and for holding a hearing on this important issue.
    My name is Michael Uffner. I am the President, Chairman and 
CEO of Audit Team Delaware. We are a regional automobile 
dealer. We are located in Wilmington, Delaware. We have 
customers throughout the region, including Delaware, Maryland, 
New Jersey and Pennsylvania.
    I am here to speak with you today on behalf of the U.S. 
Chamber of Commerce. I became a member of the Board of 
Directors of the Chamber in 1998. I also serve as Chairman of 
the Chamber's public affairs committee, and am active in the 
Delaware state Chamber of commerce, where I formerly served as 
Chairman of the board.
    The U.S. Chamber is the world's largest business 
federation, representing more than three million businesses and 
organizations of every size and in every industry sector and 
region of the country.
    I would like to jump right into the practical side of this 
matter. I believe a failure to reauthorize the FCRA could 
adversely affect almost every industry sector in the economy.
    In particular, a failure to reauthorize would significantly 
disrupt the country's credit markets, increasing interest 
rates, and reducing the availability of credit, and could cause 
major disruptions in the way that companies of all sizes and 
sectors interact with their customers.
    In the economy that is two-thirds driven by consumer 
spending, this is not an issue that Congress can afford to 
ignore. For example, a multiplicity of credit rules across 
multiple states could wreak havoc on the credit industry and 
their customers, making it more difficult and expensive for 
consumers to obtain credit for everything from home and car 
loans, to student loans and credit cards.
    Further, this does not affect only banks and their 
customers, but reduces the ability of entrepreneurs to start 
businesses and create jobs, impedes the ability of companies 
like ours to expand, and reduces consumer spending.
    In short, a failure to reauthorize the uniform standards of 
the FCRA could cause significant problems throughout the 
economy, from manufacturing companies to everyday services that 
people simply take for granted, like utility service and 
shopping.
    While my experience may be typical for an auto dealer or a 
small retailer, these issues cut across the business spectrum. 
For your convenience, therefore, I have included as an appendix 
to my written testimony a short description how a wide range of 
industries relies on the smooth and continued operation of the 
FCRA.
    Prior to the enactment of the FCRA, there was little 
widespread credit availability or competition in the credit 
market. Today's consumers, however, enjoy more competition and 
convenience, because consumers who were formerly forced to 
obtain their car loans and own financing from their bank can 
now shop around for the most convenient and best deals.
    These come from their auto retailer, their realtor, or even 
the bank across the country. For example in my industry, 
customers often had to shop around to a couple of different 
banks, wait a few days for approval, and compare financing 
packages that way. Now, they can obtain instant financing 
through us, through their own bank, or even through companies 
that may not even have offices in our state.
    The customer benefits from these advantages. And the 
consumer will be the one to pay the price if a lack of 
uniformity increases costs and hassles. Because I come from the 
great State of Delaware, which incidentally, the U.S. Chamber 
recently rated as having the best legal system in the country, 
I am not particularly worried about any ill considered rules 
that my State legislature might impose on small businesses or 
on the credit reporting system.
    However, my ability to conduct our business could be 
directly impacted if other states enact their own rules, even 
if I do not have any business relationships with those states. 
Different rules in different states may put consumers at a 
competitive disadvantages. Like many companies of all sizes, we 
generally operate on a regional basis, and have customers from 
four states. However, we occasionally do business with 
consumers from states as far away as West Virginia, Texas, and 
Florida, especially Florida.
    For companies like mine who serve customers from multiple 
states, a uniform national standard is vital. Different credit 
rating and reliability standards in different states may affect 
my ability to serve customers in those states. And they force 
me to charge different prices for customers based solely upon 
where they live.
    Second, a state law that reduces the information available 
in a credit report, making it less reliable, may force lenders 
to charge customers higher interest rates to compensate lenders 
for increased risks.
    Finally, credit furnishers, companies that voluntarily 
provide information to their credit bureaus every month, could 
be impacted by the increased liability associated with 
different rules in different states.
    This increased liability could impact upon their desire to 
report the proper information in a quick way. In a national 
economy that depends on interstate commerce, and allows 
consumers and businesses easy access to services in other 
states, a national uniform standard that treats every customer 
the same is vital.
    Increased inefficiencies in costs could also adversely 
affect the primary job creator that our economy has, small 
businesses. For example, many entrepreneurs take out loans or 
borrow from their credit cards to start a company or sustain 
themselves during lean times.
    If it is more difficult and expensive to obtain critical 
financing, many small business owners may decide that the costs 
are too great. Small businesses and consumers have been the 
drivers in this weakened economy. Let's not shut them down, now 
that the economy is just getting its legs back.
    In our particular case, a failure to reauthorize could 
cause severe disruption in our ability to care for our 
customers. We have a corporate structure that is made up of 
separate, but affiliated firms. They are linked by common 
ownership and control, but perceived correctly by our customers 
as a single brand.
    Restrictions on information sharing between these 
affiliated companies could turn a series of transactions that 
are seamless to our consumer into time consuming, multiple 
transactions. This could add to the hassle and stress to our 
customers, could increase the potential for errors, and could 
cause consumers to miss or forego potentially vital services.
    Further, multiple transactions could actually increase the 
opportunities for identity theft if, for example, the number of 
people handling a single transaction increased from one to 
many.
    In conclusion, the FCRA protects consumers, businesses, and 
the economy from potentially massive disruption. Without the 
preemptive provisions of the FCRA, a consumer's ability to 
borrow could face severe delays and burdens. Retailers' ability 
to provide seamless service to their customers would be at 
risk.
    Borrowers could have their ability to establish credit 
impaired if lenders stopped reporting payment history to the 
credit bureaus. And companies that operate across state lines 
could be forced to charge different customers different amounts 
simply because the rules were different in the different 
states.
    So, the current act helps me to meet the needs of my 
customers. If a customer needs financing at 8:30 at night, or 
on a Saturday afternoon, the current system provides me with 
the tools to complete the transaction quickly and efficiently, 
and to provide our customer with a competitive financing 
package.
    If Congress allows these amendments to expire, the benefits 
of our national consumer credit system that have evolved over 
the last seven years will likely unravel. This potential 
patchwork of dozens of divergent laws and systems could result 
in significant detrimental consequences for consumers and 
businesses.
    Again, thank you very much for the opportunity to present 
my experience to this committee. I would be happy to answer any 
questions.
    [The prepared statement of Michael S. Uffner can be found 
on page 142 in the appendix.]
    Chairman Bachus. Thank you. Mr. Sheaffer?

STATEMENT OF DEAN SHEAFFER, VICE PRESIDENT OF CREDIT, BOSCOV'S 
   INCORPORATED, ON BEHALF OF THE NATIONAL RETAIL FEDERATION

    Mr. Sheaffer. Good afternoon. My name is Dean Sheaffer. I 
am Senior Vice President of Credit and CRM for Boscov's 
Department stores and Chairman of the Pennsylvania Retailers 
Association. I am testifying today on behalf of the National 
Retail Federation.
    I would like to thank Chairman Bachus and the ranking 
member Sanders for providing me with the opportunity to testify 
before the subcommittee. Boscov's is a family owned mid 
Atlantic department store chain. In addition to stores in 
Maryland, New Jersey, Delaware and New York, we have more than 
two dozen stores in our home State of Pennsylvania.
    Boscov employs, more than 10,000 people. In 1911, Solomon 
Boscov established the first Boscov store in Reading, 
Pennsylvania. In those days, retailers granted store credit by 
word of mouth and the customer's good reputation.
    As towns and cities grew----
    Chairman Bachus. Yes, if you would move your microphone a 
little closer. Thank you. Thank you, Mr. Sheaffer.
    Mr. Sheaffer. As towns and cities grew, retailers began 
using their local merchants associations as a trusted 
repository for information about the customers with whom they 
dealt. Eventually, the merchants associations were merged or 
sold, and became part of today's credit reporting system.
    Boscov's currently has 1.1 million active credit card 
accounts. Activity on all our accounts, not just past due 
accounts, is reported monthly to the three major credit 
bureaus. As many of you know, consumers often use retail credit 
as their gateway into the larger credit market. It is very 
common for a Boscov's card to be the first credit card in a 
customer's wallet.
    By building good credit with us, they help build a good 
credit file with the credit bureaus. This, in turn, makes them 
eligible for other credit products, such as car loans, or even 
a first mortgage.
    I am here today to express strong support on behalf of 
Boscov's and the retail industry as a whole, for the permanent 
reauthorization of the seven state law preemptions contained in 
Section 624 of the Fair Credit Reporting Act. I want to briefly 
focus on three of the areas of the law that are particularly 
important to retailers: furnisher liability, pre-screening, and 
affiliate sharing.
    Mr. Chairman, uniform standards and furnished liability are 
critical to the integrity and overall success of the current 
voluntary reporting system. Quite frankly, inconsistent or 
heightened liability standards, and the creation of new private 
rights of action would discourage lenders from supplying 
information, particularly negative information, out of fear of 
being sued.
    Credit reports are only as good as the participants' 
information. If a creditor does not have a complete view of the 
consumers' information, their risk assessment may not be 
adequate. This incremental risk would then have to be factored 
into the loan, driving up the cost of credit, and diminishing 
credit availability. In the end, no one would benefit, except 
for lawyers.
    Another important preemption under the FCRA is that for 
pre-screening. Retailers like Boscov's use pre-screening to 
grow our customer base. This is not just important to our 
credit card business. We use the same customer base as the best 
predictor of where to open a new store.
    For us, it takes as many as 10,000 to 20,000 known 
customers to venture into a new location. Boscov's is still 
growing. Over the past few years, we have opened one or more 
stores in every state in which we do business.
    If any mid Atlantic state were to act to prohibit pre-
screening, they would undoubtedly slow down Boscov's entry into 
the new markets, potentially costing jobs and consumer 
opportunities.
    Third, Mr. Chairman, in order to give our customers the 
service they expect, it absolutely necessitates information 
sharing among our affiliates, as well as with our third party 
licensees.
    As a department store retailer, I would like to take a 
moment to explain the structure of our stores. When a customer 
walks into a Boscov's, they see a broad range of specialty 
departments, from make-up to fine jewelry. However, the 
Clinique and Lancome counters, for example, are not operated by 
Boscov's, but by Clinique and Lancome under third party license 
contractual agreements.
    Additionally, a licensee company runs many of our fine 
jewelry counters. Boscov's also owns several retailing 
affiliates, including Boscov's travel center, our hearing aids 
center, and a warranty department that services the electronics 
and appliances that we sell.
    Our in-house credit card is further maintained by corporate 
affiliates. This complex business structure is necessary for 
many valid, legal and accounting reasons. However, the 
structure is completely transparent to our customers.
    Through information sharing with these entities, we cannot 
only market more specifically to our customers, and provide 
them with exceptional customer service, but we can also do 
things, such as underwrite more credit, and combat identity 
theft.
    A lot of people have asked what affiliate sharing has to do 
with the granting of credit. And the answer is, a lot. 
Retailers use the data they collect from their stores and 
affiliates to create internal models that predict the credit 
habits of our customers. This information supplements credit 
reports and FICO scores to paint the most accurate picture 
possible of a customer.
    In fact, retailers must often use this type of information 
to grant credit to people on the margins, in lower income 
households with mediocre FICO scores, or who are just entering 
the credit market. Information is also a retailer's best weapon 
against identity theft. As you know, this is one of the fastest 
growing crimes in the United States.
    At Boscov's, we have implemented a number of safeguards to 
help protect our business and our customers, all of which 
require information sharing. Many retailers also have neural 
networks that identify suspicious purchasing behavior. Our 
systems will automatically flag transactions and refer them for 
investigation.
    Further, as a service to our requesting customers who have 
been victims of identity theft, we program our register system 
to immediately refer sales made on their accounts to our credit 
center, to verify the customer's identity.
    We at Boscov's are constantly challenged to find new 
patterns in our many data sources that will help us identify 
fraudulent transactions without inconveniencing our legitimate 
customers.
    Without the ability to search all data sources available to 
us, ID theft would grow at an even greater rate. The ability to 
share, aggregate and search affiliate and third party data 
sources is paramount in the effort to protect Boscov's and our 
valued Boscov's customers.
    In closing, I would again like to emphasize the retail 
industries strong support for the permanent reauthorization of 
the seven areas of State preemption.
    In the final analysis, we in the retail industry have a 
real concern that more fragmented reporting and approval 
processes for credit will negatively impact consumers, and as a 
consequence, retail sales, ultimately costing jobs and hurting 
the economy as a whole.
    Thank you again for the opportunity to testify here today. 
I look forward to working with all of the members of this 
committee to permanently reauthorize the FCRA preemptions 
before they expire on December 31st of this year.
    [The prepared statement of Dean Sheaffer can be found on 
page 92 in the appendix.]
    Chairman Bachus. Thank you.
    Mr. Turner?

  STATEMENT OF MICHAEL TURNER, PRESIDENT AND SENIOR SCHOLAR, 
                  INFORMATION POLICY INSTITUTE

    Mr. Turner. Good afternoon, Mr. Chairman and honorable 
members of this subcommittee. I am grateful for the opportunity 
to testify before you today.
    My name is Michael Turner and I am President and Senior 
Scholar at the Information Policy Institute, a non-profit, non-
partisan research organization dedicated exclusively to issues 
pertaining to the regulation of information, both locally, 
federally, and globally.
    Perhaps no information issue is more important on a day to 
day basis than the national credit reporting system. Currently, 
we are studying the significance of the federal regulatory 
framework, and related preemption that govern this system.
    Preliminary findings from our analysis strongly suggest the 
national credit reporting system as governed by the Fair Credit 
Reporting Act, ensures that all consumers are given an equal 
opportunity to access credit, and with it, the opportunities 
that this access provides.
    In addition, our data suggests that consumers have enjoyed 
a wide range of benefits directly attributable to the national 
credit reporting system. These consumer benefits are sizable 
and real, and would be put at risk should Congress fail to 
reauthorize the FCRA's strengthened preemptive provisions.
    We have been examining how automated underwriting has 
impacted the cost of mortgage credit. In addition, we have been 
reviewing at a range of existing research in order to document 
how credit scoring and automated underwriting have affected 
access to mortgage credit, particularly for minority and low 
income borrowers.
    Our analysis suggests that the use of credit scores and 
automated underwriting have played a key role in the dramatic 
expansion and access to mortgage credit witnessed over the past 
few years.
    The institute is also conducting research to understand how 
the loss of full-file credit reporting may affect access to and 
the price of credit.
    We have designed a number of scenarios showing how credit 
files could be affected with the loss of preemptions.
    We constructed these scenarios based on pending state 
proposals. We are running the alternative-scenario credit files 
through a number of risk scoring models, determining the effect 
of the predictive power of the models, and comparing these 
results with the baseline from the current models.
    We will also use these results to explore whether credit 
issuers would have to restrict access to credit to keep 
defaults at their current level, or, alternatively, accept 
higher default levels at the current levels of access.
    The institute is also conducting research exploring the 
likely impact from a ban on the use of pre-screening. We are 
collecting data showing how credit-card issuers require new 
customers now, and how they would acquire them if pre-screening 
were prohibited.
    Our study is not yet complete, but our preliminary results 
show that pre-screening is the single most important method of 
acquiring credit-card customers, accounting for about half of 
all new customers acquired.
    Preliminary results also indicate that, on average, it is 
less expensive to acquire a customer using pre-screening. 
Further, we have good reason to believe that the loss of pre-
screening would result in some loss of access from new-credit 
applicants.
    Preliminary results from our study offer some indication 
that pre-screening may help to protect against identity theft. 
First, credit bureaus generally filter out accounts identified 
as being at high risk for fraud.
    Second, card issuers typically review the application, 
using a variety of sophisticated authentication tools. These 
products are very successful, identifying as much as 80 percent 
of fraudulent applications before the accounts are ever opened.
    Thus, a ban on pre-screening is unlikely to reduce the 
incidence of identity theft and may, ironically, have just the 
opposite effect. While we have yet to complete the quantitative 
component of this portion of our analysis, a survey of State 
bills is suggestive on its own.
    During the current legislative session, there have been 
nearly 250 FCRA-related bills introduced in 46 states.
    The diversity of these bills strongly suggests that a post-
preemption world will not be characterized by legislative 
coordination and harmony among the States.
    One possible near-term result is horizontal preemption.
    As is likely to occur, should a single large state enact 
data restrictions inconsistent with the current FCRA regime, in 
a very real sense, then, Congress must decide whether it wishes 
to have its current authority over the national credit-
reporting system usurped by lawmakers in a single state.
    Mr. Chairman, thank you for the opportunity to testify, and 
I would be happy to answer any questions you and your 
colleagues may have.
    [The prepared statement of Michael Turner can be found on 
page 130 in the appendix.]
    Chairman Bachus. Thank you. And Professor Reidenberg, it is 
my understanding that you have to leave at 1:50?
    Mr. Reidenberg. That is correct.
    Chairman Bachus. So you will be free to leave at that time, 
and we welcome your testimony.

  STATEMENT OF JOEL R. REIDENBERG, PROFESSOR OF LAW, FORDHAM 
                           UNIVERSITY

    Mr. Reidenberg. Thank you, Mr. Chairman and members.
    I would like first to commend you for convening this 
hearing on the national credit-reporting systems and would like 
to thank you for the honor and privilege to be able to testify 
today.
    By way of background, I am a law Professor at Fordham 
University in New York, where I teach courses in information 
privacy.
    As a law Professor, I have written and lectured extensively 
on the regulation of fair-information practices in the private 
sector, and my bibliography includes a series of scholarly 
articles and co-authored books on privacy.
    I have also studied and written about the Fair Credit 
Reporting Act, and of particular relevance to today's hearing, 
I assisted the Federal Trade Commission in its successful 
litigation against TransUnion's illegal disclosure of credit-
report information for marketing purposes.
    I am testifying today, however, solely as an academic 
expert on data privacy, and I am not representing any 
organization or institution with which I am or have been 
affiliated.
    I have a prepared statement for the Committee, and thought 
that I must highlight a couple of points from the Statement, 
and make a few recommendations, rather than go through all the 
details.
    I will start, however, with a concern I have in hearing the 
testimony at today's hearings and some of the questions from 
the members concerning the current Fair Credit Reporting Act.
    In particular, I am concerned by the terminology being used 
today: ``Uniform national standard,'' and ``reauthorization of 
the Fair Credit Report Act.''
    The terminology concerns me because I find those terms to 
be imprecise. Perhaps they are imprecise by design, but the 
effect of that imprecision is a very dangerous scare tactic for 
the development of good public policy.
    The Fair Credit Reporting Act does not expire on January 
1st. Only certain limited provisions related to federal 
preemption expire on that date.
    As for the ``uniform national standard,'' a term that we 
have heard used quite a bit this morning, it never existed, and 
it does not exist today. Prior to the enactment of the Fair 
Credit Reporting Act, two states, Massachusetts and New Mexico, 
already had credit-reporting statutes.
    The current act, in fact, expressly authorizes three states 
to have standards that go beyond those preempted under the 1996 
amendments. And, we have a series of States around the country 
that have stronger provisions on various areas of the statute 
that are not preempted by the provisions included in 1996.
    So I think it is very important when the committee examines 
this issue, that the Committee focuses quite specifically on 
the exact alleged problems and exact harms and remedies that 
the statute is trying to resolve.
    In looking at the statute, I think it is particularly 
important to review the history. Strong privacy protections are 
absolutely essential for the credit-reporting system in the 
United States.
    The Fair Credit Reporting Act created the conditions for 
today's robust system. Congress in the 1960s heard extensive 
testimony on patterns of abuses. The statute introduced 
fairness and better accuracy.
    The FCRA was novel in its time. The law created an opt-in 
approach for privacy. The statute defined core credit-reporting 
purposes, and authorized dissemination of credit information 
for those purposes. Anything else needed written consent.
    Congress very wisely allowed the States to go further and 
to enact stronger protections. The 1996 amendments, as we have 
heard, contained a partial preemption clause. The amendments 
did not create a ``uniform standard.''
    As the ranking member quoted from my prepared statement 
earlier this morning, when we look at the States exempted from 
the preemption clause, the three states that Congress allowed 
to go further, some preliminary data suggest that they do much 
better on credit decisions: They have lower bankruptcy rates. 
They have cheaper home-mortgage rates.
    Strong privacy is absolutely essential for public 
confidence.
    Looking at the statute, I think there are substantial 
weaknesses that threaten the safety and soundness of our credit 
reporting system.
    The basic tenet for fair information practices enshrined in 
the original statute was that data collected for one purpose 
should not be used for other purposes without consent. 
Deviations from the key standard threaten the system. The 1996 
amendments deviated from this key fairness principle in the 
affiliate-sharing and pre-screening provisions.
    Industry practices today are exploiting and circumventing 
the FCRA. Major wireless phone companies, for example, under 
the guise of offering credit, rummage through credit-reporting 
files, and instead offer free phones and free phone services.
    Information dealers will sell the same data that is 
regulated under the FCRA outside the scope of the statute, 
because of the way the statute is drafted.
    The kind of data leakage that is enabled by those 
provisions--the leakage of credit information for secondary 
uses of affiliate sharing, unsolicited offers, non-credit 
decisions undermine security. They undermine confidentiality 
and they facilitate identity theft.
    In fact, Assistant Secretary Abernathy this morning 
mentioned dumpster diving in his testimony. When an identity 
thief goes dumpster diving, what is it they are likely to find 
in the trash?
    All of those pre-approved offers of credit in the envelopes 
that people have thrown away. They give lots of valuable 
information for potential identity thieves.
    Some of the issues we just heard in testimony on this panel 
were misleading. Pre-screening for instance, is not authorized 
under the statute for market research to decide where to locate 
stores.
    We have to be very careful how we let data leak from the 
basic core credit-reporting functions.
    I would like to make three recommendations for your 
consideration going forward. In essence, these all say that 
Congress must continue to assure the integrity of the credit-
reporting system.
    I think it would be particularly valuable first for 
Congress to legislate higher standards of privacy, to ensure 
the integrity and public trust by specifically returning pre-
screened offers to the opt-in approach of the original FCRA, or 
else allow the States to legislate higher standards.
    Let the preemption clause lapse January 1st, as you 
originally anticipated in 1996.
    Second, expand the definition of consumer report in the 
statute to cover affiliate sharing. Or else, let the States 
modify that definition.
    Third, extend the protections of the Fair Credit Reporting 
Act to the dissemination of personal information collected for 
the purpose of making any type of financial decision about the 
consumer, so that similar activities affecting consumers do not 
escape fair information practice standards.
    In other words, these other organizations selling very 
similar information for critical decisions about consumers 
escape the protections of the statute. They should be brought 
within the statute. Thank you very much. I will be happy to 
answer any questions.
    [The prepared statement of Joel R. Reidenberg can be found 
on page 85 in the appendix.]
    Chairman Bachus. Thank you. Mr. Swire?

 STATEMENT OF PETER P. SWIRE, PROFESSOR OF LAW, MORITZ COLLEGE 
                 OF LAW, OHIO STATE UNIVERSITY

    Mr. Swire. Yes, thank you, Mr. Chairman, ranking-member 
Sanders and other distinguished members of the committee.
    My name is Peter Swire, and I thank you very much for the 
invitation to testify today.
    I am currently a Professor of law at the Moritz College of 
Law of the Ohio State University. I live here in the D.C. area 
and am Director of the school's summer internship program.
    As a Professor both of banking law and of privacy law, the 
area of financial privacy has long held special fascination for 
me, as odd as that might sound to normal human beings.
    I have written four law-review articles in the book chapter 
just on the topic of financial privacy, and I will not be able 
to cover all of that in the five minutes here today. Thank 
goodness.
    In March 1999, I was named as the chief counselor for 
privacy in the U.S. Office of Management and Budget, and in 
that position, I was intensively involved in the Administration 
policies during the Gramm-Leach-Bliley debates.
    And as you know, President Clinton in the spring of 2000 
proposed additional financial privacy legislation that was 
introduced in this committee as H.R. 4380, and that I think 
still can serve as a useful guidepost for some issues for 
today.
    Since returning to law teaching, I have written a law-
review article on my views on the Gramm-Leach-Bliley privacy 
provisions, and all of that is on my web site.
    My written testimony, which goes into more length on 
several topics, largely agrees with the views of Mr. Abernathy 
and other witnesses on the overall tremendous effectiveness of 
the FCRA as a system for providing the advantages of price, 
speed and variety of products to the American consumers.
    This has been a great success as a law which went into 
effect in 1970.
    But I also think people involved in FCRA reforms should go 
back and read the hearings from the 1960s or read Professor 
Arthur Miller's book on the subject from the time, to see why 
we got this law, because I think some similar things are 
happening today in certain respects.
    At that time, people's lives were being ruined by certain 
problems in the credit system. There were documented numerous 
stories of people being turned down for jobs and mortgages 
because of erroneous credit reports.
    Because consumers have no direct relationship with credit-
reporting agencies, there at that time was no effective way for 
the individuals to discover the mistakes and make the changes.
    And in many instances, people would be turned down over and 
over again and never find out why.
    As Professor Reidenberg just told us, the Fair Credit 
Reporting Act in 1970 created a legal system--opt-in consent, 
private rights of action, the FTC, the State attorneys 
journal--a series of strict and enforceable legal rules that 
changed all this.
    Most central was that it changed accuracy in the system, 
because now consumers can see their own credit history.
    In fact, industry fought that request for a long time, 
saying it was too burdensome to let individuals see their full 
credit history. We have gotten past that now at how keep 
improving accuracy is something that I think everyone has a 
great stake in.
    So to sum up that history, an effective system of checks 
and balances that has been updated in 1996 with stronger 
consumer protections has helped create this great system we 
have today.
    In my testimony, I make a number of observations about 
preemption and the FCRA. I am going to limit myself to one 
remark today.
    Having heard the discussion, my question is whether 
identity theft efforts in the States should be preempted by 
Congress this year. This is a tough year. We know there is an 
awful lot going on in identity theft. We do not have all the 
answers yet. We hope the Administration will have its proposal 
in short order.
    But as a basic matter, are we going to let the States 
experiment? We have, as Chairman Bachus said earlier today, a 
huge number of people suffering from identity theft in a lot of 
different ways.
    It seems to be a natural subject for states to try to 
figure out how to do things, perhaps as they have helped figure 
out anti-spam legislation, and now Congress is learning from 
that.
    There are several substantive matters that I touch on 
briefly in my testimony, and I am going to do it in one or two 
sentences here, issues to bring to the committee's attention.
    One is an observation, again, that was made earlier this 
morning, that since 1989, there has been a tremendous increase 
in availability of credit to underserved populations, the 
lowest and second lowest quintile of incomes in the United 
States.
    1989 perhaps coincidentally is when there started to be 
stricter enforcement of the Equal Credit Opportunity Act. This 
follows shortly after that by much stronger efforts in the 
community reinvestment area.
    It is at least possible that underserved communities got 
some help from laws that came from this committee in these 
respects, and not simply from an earlier past credit reporting 
act.
    A second point had to do with information security. In 
1996, that was not on the horizon for how to improve the 
information security of critical infrastructure and the rest. 
It is on the front burner now. The Administration talks about 
information security in its testimony. There may well be 
measures to improve practices in that area, as you look at the 
law this year.
    A third topic is medical privacy in the FCRA. The law was 
visionary for mentioning medical privacy in 1970, but it has 
not been amended in that respect since then. We now have a much 
fuller set of protections on the medical privacy area. This, 
too, probably deserves further attention.
    And the fourth and final topic that Congresswoman Maloney 
mentioned earlier today, is some very disturbing language in 
the so-called PATRIOT 2 text that was widely circulated in town 
earlier this year.
    As she described, there would be essentially no safeguards 
on sending credit reports in to government agencies basically 
without any limits on redisclosure.
    For those who have followed the total-information awareness 
systems, where credit histories were something that was 
discussed there, we can see a system where credit reports get 
fed into the federal systems automatically.
    How furnishers, how people in the system will feel about 
that in the world of voluntary compliance, is something, I 
think, that deserves attention.
    In conclusion, my written testimony goes into more detail 
on this. A central question is how do we keep updating this 
information system for the information age?
    Eight years ago, we did not talk about identity theft or 
information security. Eight years from now, there will be new 
information challenges.
    However the committee looks to solve the problems for 
today, I hope we have a way to come back over time to update 
the protections for people in the system.
    Thank you.
    [The prepared statement of Peter P. Swire can be found on 
page 118 in the appendix.]
    Chairman Bachus. Mr. Staten, you are the third witness in a 
row from a University, from Georgetown University. We welcome 
you and your testimony.

STATEMENT OF MICHAEL STATEN, DIRECTOR, CREDIT RESEARCH CENTER, 
                     GEORGETOWN UNIVERSITY

    Mr. Staten. Thanks very much, Mr. Chairman and good 
afternoon to the members of the committee.
    I am very pleased to be invited to join this discussion of 
the impact of the Fair Credit Reporting Act.
    It is a remarkable piece of legislation that has 
facilitated the most robust credit reporting system in the 
world, a system that provides the foundation for the most 
competitive and robust credit markets on the planet.
    By way of background, I am Professor of Management and 
Director of the Credit Research Center within the McDonough 
School of Business at Georgetown University. The center is a 
non-partisan academic-research center, devoted to the study of 
consumer-and mortgage-credit markets.
    Over its 29 year history, the center has generated over 100 
research studies and papers, many of which have been published 
in professional academic journals.
    Many of these articles have directly addressed the 
evolution and value of credit-report data and credit scoring as 
a critical risk-management tool. We have watched the credit-
reporting industry evolve under the FCRA, and we have closely 
studied the development and application of the risk-evaluation 
tools that credit reports make possible.
    I should also note for the record that throughout its 
history, the center's research program has been supported by a 
mix of grants from the public sector, including the National 
Science Foundation and the Federal Trade Commission, as well as 
unrestricted private-sector grants from foundations and 
corporations made to the university on behalf of the center.
    Because our projects so often address public-policy issues 
related to consumer credit markets, we are sensitive to 
concerns about our reliance on funding from industry sources.
    For that reason, we established in 1974 and continue to 
rely on broad based external advisory panel of academic and 
government representatives, who provide independent oversight 
and commentary on all of our activities and projects.
    Among that group, currently, are several distinguished 
Professors of finance and economics at major research 
universities, Senior Vice Presidents from the Federal Reserve 
Banks of Atlanta and Chicago, and senior economists from the 
Federal Reserve Board of Governor staff right here in 
Washington.
    By agreeing to serve in an advisory capacity, the 
reputations of these individuals become intertwined to some 
degree with the centers. Thus they have an incentive to be sure 
that our methodology is sound, and our conclusions are 
supported by the empirical evidence.
    That structure, plus our continued placement of articles in 
high-quality peer-reviewed academic journals should diminish 
concerns that somehow our corporate sources of funding color 
our results.
    This afternoon, I am pleased to share with you the results 
of two reports which I have recently co-authored to assess the 
impact of the FCRA.
    One report was co-authored with my colleagues Fred Cate, 
Robert Litan and Peter Wallison, and was just published by the 
AEI Brookings Joint Center for Regulatory Studies.
    The other report was commissioned by the Financial Services 
Coordinating Council, and it was co-authored with my colleague 
Fred Cate at the Indiana University School of Law.
    I have summarized the highlights of both reports in my 
written testimony and will happily make the reports themselves 
available to the committee for your review.
    Because there has been surprisingly little comprehensive 
study of the overall impact of credit reporting in the United 
States, our goal in both reports was to fill the gap, not by 
creating new estimates, but by surveying the business and 
economics literature to assemble evidence about the performance 
of the reporting system in regard to its original objective, 
which was to facilitate broad access to credit-related products 
for all consumers.
    All of the relevant economic analyses, case studies, and 
government and industry reports that we examined pointed to one 
conclusion.
    Underpinned by the most comprehensive credit reporting 
system in the world, the system of consumer-and mortgage-credit 
markets in the United States has achieved a remarkable 
combination of: one, widespread access to credit across the age 
and income spectrum; two, relatively low-interest rates on 
secured loans, such as autos and home loans; three, 
exceptionally broad access to open and unsecured lines of 
credit, such as bank credit card-products; and four, relatively 
low default rates across all types of consumer loans.
    Achieving one or two of these results is relatively easy. 
Achieving all four simultaneously is an accomplishment 
unequaled in the rest of the world.
    One of the strongest messages from the material we surveyed 
is that these benefits derive because we have evolved the 
national credit-reporting system, which in turn has facilitated 
a truly national market for all types of consumer loans.
    Competition in every location, urban and rural, has been 
heightened because credit reports give lenders the confidence 
to reach out to consumers they have never seen, living hundreds 
or even thousands of miles away, and make them offers of 
credit.
    Credit reports give consumers a portable reputation. That 
reputation brings them offers of credit from lenders they have 
never met. It travels with them across state lines, so they can 
obtain credit when they travel or move.
    As a result, the vast majority of Americans deal with one 
or more creditors from out of State.
    In turn, that out-of-state competition forces the local 
institutions to be just as competitive in pricing and product 
development. All of this lowers the cost of credit to U.S. 
consumers.
    It is important to emphasize that it is not just the 
content of our credit reports that drives this result, but also 
the ability of institutions to use those reports across their 
affiliates to pre-screen customers and make them offers.
    The ability to use credit reports to pre-screen customers 
is the jet engine that powered the explosion and competition 
over the past two decades. Credit reports provided the jet 
fuel.
    Laws that would inhibit the assembly of comprehensive 
credit reports act as a barrier to that competition by denying 
new market entrants the information needed to provide new 
credit services.
    In many European countries, where comprehensive credit 
reports are unavailable, and France and Spain are good 
examples, financial services are provided by far fewer 
institutions, and customers to a large degree are captive to 
the same institution for years.
    It is no coincidence that also in those countries, consumer 
credit plays a far smaller role in the national economy and 
both unsecured and even secured loans are harder to obtain for 
those outside the upper tiers of the income distribution.
    That is why proposals in this country to abandon the 
federal preemption enacted in 1996 under the FCRA threaten the 
diverse array of benefits that flow from the current credit-
reporting system.
    U.S. consumers are remarkably mobile, thanks in large part 
to the ubiquitous availability in credit reports. Regulating 
the content and uses of credit reports state by state would ill 
serve consumers as they move, commute and deal with businesses 
across state lines.
    It will leave holes, and potentially large ones, in their 
credit files, which would greatly reduce the reliability of all 
credit reports.
    A Balkanized credit-reporting system would make a 
consumer's credit worthiness, and credit opportunities, depend 
on the State in which he or she lived.
    Thus the preservation of a truly national credit-reporting 
system is critical for sustaining and building on the 
remarkable record of the past 32 years under the FCRA.
    As Congress deliberates whether to reauthorize the federal 
preemption, the risk of unraveling these remarkable gains to 
individual consumers should give members pause.
    Thank you very much for the opportunity to testify today, 
and I would be happy to answer questions.
    [The prepared statement of Michael Staten can be found on 
page 102 in the appendix.]
    Chairman Bachus. I thank all members of the panel for their 
testimony.
    At this time, I am going to reserve my five minutes to 
allow other members who have been here time to ask questions. 
Mr. Royce?
    Mr. Royce. Thank you, Mr. Chairman. I appreciate it.
    I was going to ask Dr. Turner a question, and that was, if 
the seven provisions of the Fair Credit Reporting Act were 
allowed to expire, what information do you have concerning the 
effect that the legislative proposals that are put forward in 
the States would have on current reporting and information-
sharing systems?
    And I am thinking, for example, of California, my home 
state, has a proposal, which is Assembly Bill 800, which would 
dramatically alter, I think, the credit-reporting system, but 
only for California residents.
    And it would allow a $2500 per violation fine for erroneous 
information, including typos.
    And the question I wanted to ask was if you could provide 
your judgment concerning the likely impact of those changes, 
both individually and collectively.
    Chairman Bachus. Mr. Turner?
    Mr. Turner. Thank you, Congressman.
    It is an excellent question, and it is very complex 
because, in fact, the relationship between the preemptive 
provisions and the robustness and richness of the credit 
reporting system is difficult to model.
    What we have done is we have taken actual state proposals 
and categorized them, and constructed four different scenarios 
that we consider fairly likely should the strengthened 
preemptive provisions expire.
    And these scenarios range from what we consider moderate or 
conservative, to more severe, and we have been working with 
modelers and analysts at credit bureaus and financial 
institutions to understand how this would affect particular 
data sets and then their ability to predict default, which is 
the primary objective of a risk model.
    And we have not actually seen the results yet, but based on 
strong priors and our hypotheses, we expect that the ability to 
predict default will be deteriorated substantially.
    And credit issuers would have one of two choices. 
Essentially, either they could preserve their current default 
rate, and to do that, they would most likely to restrict access 
to credit.
    So, fewer people who are currently getting credit would get 
credit.
    Or, they could keep the current level of access, but the 
cost of credit would be lost because charge-offs would likely 
go up. It becomes a riskier proposition.
    Now this, of course, plays out through the credit markets 
generally, and it could have serious implications potentially 
for the safety and soundness of the entire system.
    But, again, we expect to have the results back soon, and we 
look forward to being able to share them with this committee.
    Mr. Royce. Thank you very much, Mr. Chairman.
    Chairman Bachus. Thank you. Mr. Sanders?
    Mr. Sanders. Actually, let me pick on Mr. Royce's questions 
to see if I understand. Do I understand, Mr. Royce, that in 
California, they are considering legislation which would fine 
some of the credit bureaus if there were mistakes found?
    Mr. Turner. $2500.
    Mr. Sanders. $2500? Okay.
    I would gather, knowing this is the first that I have heard 
of that, that there is a reason that that legislation was 
proposed, and I gather there is concern about the number of 
mistakes that have been reported.
    The issue here, and I want to address my opening remarks to 
Mr. Reidenberg, is it seems to me this committee should be 
doing two things.
    First, we should have a national floor, a strong pro-
consumer national floor, which among other things, does what 
six states in the country now do, and apparently the 
Administration is not unkindly disposed to this idea, to make 
sure that every citizen in this country at least once a year 
can get free access to their credit.
    Six states now have that. I would like to see 50 states 
have that.
    And I think in a number of ways, as the committee would 
want to deal with identity theft in as strong a way as we can, 
have a high national floor. That is one issue, and we will be 
arguing about what that means.
    But the second issue then comes down to the question of 
States' rights and whether or not the folks in California or in 
Vermont or Alabama should also have rights to go forward in 
ways that they think can address the consumer concerns of the 
people in their own State.
    Now from where I come, and what my political background is 
about, I think it is a really good idea. We can learn something 
from California. Maybe it will work, maybe it will not work. 
There must be a reason. Maybe these guys will get unelected if 
it is a bad idea.
    But when we have 50 states and 50 Governors and 50 
legislatures working on issues, whether it is identity theft or 
other issues, it seems to me there are a lot of good ideas out 
there that we would like to see germinate. What do you think 
about that?
    Mr. Reidenberg. I agree completely.
    Mr. Sanders. That is why we have you as a witness.
    [Laughter.]
    Mr. Reidenberg. You took all the fun away.
    On the national floor, that in fact has been the practice 
for almost all American privacy legislation. We can look at the 
different sectors in which Congress has enacted legislation. In 
HIPPA, in the Cable Communications Policy Act, the Video 
Privacy Protection Act, in each of these statutes, Congress has 
allowed to states to go further than the level the federal 
government set. That is the standard practice in the United 
States on privacy.
    It is also the standard practice in other countries. If you 
look at what is going on in Europe, the European Directive, 
enacted in 1995, set a minimum standard for the European Union. 
Each of the member states had to adopt that minimum standard, 
but they could go further.
    On the States' rights point, and from what we see in the 
different states, where certainly we have seen many interesting 
initiatives percolate up from the States in the privacy sphere, 
I think we will also find that there may be very local concerns 
in credit reporting coming from the States that we would not 
want to shut down.
    An interesting example comes from your state, Congressman, 
a number of years ago, when I believe it was the entire town of 
Norwich, Vermont, found their credit reports all contained 
serious erroneous information because there was a particular 
problem that occurred in Vermont.
    Mr. Sanders. There is a slight problem. Those who paid 
their property taxes on time were told that they had not paid 
their property taxes at all. Other than that, it was no 
problem.
    Mr. Reidenberg. And if I may just make a point on the 
international side, because I mentioned the standard practice 
elsewhere. I think we have to be very, very careful making 
comparisons to other countries, which we have heard done I 
think in a very fast and loose manner during this hearing.
    When you look at the credit industries and the granting of 
credit decisions in other places, those decisions are affected 
by far more than the privacy laws, and I will take the example 
of France, which was mentioned----
    Mr. Sanders. We do not talk about France here, sir.
    [Laughter.]
    Mr. Reidenberg. Yes. We know.
    We do know, for instance, that the French do not view the 
American dream the same way we do, and in France, where I have 
done substantial work on French data privacy--I hold a Ph.D. 
from the University of Paris in law--the suggestions that home 
ownership in France is a lower percentage than the United 
States, that the deposits one has to make to buy a home are 
higher because of the credit reporting system, those are 
extraordinarily creative uses of statistics.
    The banking system is different there. Direct regulation of 
the credit relationship is different there. Foreclosure 
obstacles are substantially different there from the United 
States. All of those things factor in. You can not look just at 
the----
    Mr. Sanders. Mr. Reidenberg, I agree with that. But we do 
not have a whole lot of time. Let me throw it to somebody who 
has a different point of view.
    Mr. Swire made a point a moment ago that it was not so many 
years ago that the credit bureaus opposed the right of people 
to even know what their credit was. We know that they have 
opposed free access to information. They now oppose the rights 
of States to go above the federal level.
    Who wants to tell me why you think the world will collapse 
if the California legislature addresses what they see as a pro-
consumer need? Or Vermont does the same? Who wants to tell me 
why that is just such a horrible, terrible idea?
    Mr. Staten. I will take a crack.
    I am not going to claim the world is going to collapse, but 
let me describe to you a little bit more of the complexity of 
the reporting system.
    First and foremost, it is a voluntary system. Nobody is 
required to report.
    And because of that, that creates a certain fragility in 
the system, such that if you impose let's say excessive 
furnisher liability--and I do not know exactly wher liability 
becomes excessive, but at some point, clearly, we could have 
excessive furnisher liability--creditors could decide just not 
to report information that could trigger such a lawsuit.
    What kind of errors in credit reports are likely to trigger 
such private rights of action? Probably negative information. 
So that might be the first thing that disappears from the 
credit files in those states that have passed those sorts of 
laws.
    So you begin to lose the negative, so-called 
``derogatory,'' information in the credit file, which is the 
most important component for predicting future risk.
    But it is more complicated than that. We are a very mobile 
society. It has been mentioned earlier, every American moves on 
average every six years.
    So if Californians who live in that state, and for whom 
creditors now have not been reporting negative information for 
some period of time then move, they have holes in their credit 
files.
    And a creditor that looks at them when they move to Texas 
or Georgia or some other state, does not know if a clean 
history is because they have really paid all their bills on 
time, or because they used to live in California and they 
simply can not see some of that negative information.
    And so, the problem tends to perpetuate around the system, 
because we have a national credit system, and because we have a 
very mobile society.
    And that is the root of the problem when you begin to let 
states do different things.
    Mr. Turner. Could I touch on that as well? I am sorry, 
because some of our analysis gets to that.
    Chairman Bachus. Go ahead and just briefly.
    Mr. Turner. And I think this, Congressman, should be of 
particular interest to you.
    We are actually trying to retool models based on these 
alternative scenarios, and we have actually just gotten a 
credit bureau to agree to refit the models, based on proposals 
like the one, in fact, you recommend from California.
    Mr. Sanders. I did not recommend it. I just heard about it.
    Mr. Turner. Fair enough.
    And it is a significant investment in terms of time to 
adjust to the data restrictions.
    And imagine a scenario: We are only doing four, but imagine 
50 states continually passing legislation. You have to 
continually then adjust 50 separate models to moving targets, 
at considerable expense and considerable time.
    Now these models are based on sample sizes that are 
national currently, but if you go to a state, and particularly 
a small state with a small population, the predictive ability 
of smaller sample sets is diminished.
    So for example, what you get is you get a small state/big 
state dichotomy. So in some senses then where you live 
determines your credit, and people in smaller states could be 
handicapped.
    Mr. Sanders. Let me just thank you for the extra time, Mr. 
Chairman. It is an interesting debate. I do not agree with the 
last two speakers, but I thank them very much for sharing their 
thoughts with us.
    Chairman Bachus. Thank you. Mr. Castle?
    Mr. Castle. Thank you, Mr. Chairman.
    I would like to address a question to Mr. Uffner and Mr. 
Sheaffer, in trying to understand the actual application of 
Fair Credit Reporting and what would happen if the preemption 
is removed, where the rubber meets the road at the retail 
level.
    And I would assume that your experiences are quite 
different. I am not sure if Boscov's is nationwide or just the 
East Coast?
    Mr. Sheaffer. Just in the mid-Atlantic region.
    Mr. Castle. Or mid-Atlantic region.
    But one dealing with a smaller department-store type of 
transactions, the other with large automobile transactions.
    For example, the case of Mr. Uffner, with all the zero-
percent financing promotions on automobiles, etcetera, you 
know, is that something that could be done if we did not have 
some sort of immediate credit checks, and you had to go through 
several states?
    Or just various questions about credit in general. I do not 
know if you recall what it was like before preemption or what 
you know about it, but I am sure you have probably monitored 
this to a degree, both of you, and what the costs would be, 
what the concerns would be, and just how it applies to those of 
us in the room who are trying to go get credit and buy 
something?
    Mr. Uffner. I will take a crack at this first.
    From a practical standpoint, I can tell you from personal 
experience that before 1996, we very rarely would deliver a 
vehicle to someone, what we would call instantly.
    We have clients that come in all the time now. About 50 
percent of our clients will take delivery of a vehicle within 
two or three hours, the same day.
    Whereas in the not so distant past, in order to get a 
credit decision from a finance source, which would be either a 
factory-finance source or a local bank, could in some instances 
take several days.
    During that period of time, a lot of things happen, and 
vehicles that are set aside for people could get damaged. Or 
somebody else would try to buy it.
    All I can tell you is that from a practical point of view, 
the transactions that take place in an automobile dealership 
today are significantly enhanced by the fact that we make 
reliable credit decisions very rapidly.
    And we also do business in a lot of different states.
    And we have real problems in some states with the titling 
laws that are completely different all across the country, and 
I know there has been some discussion about national titling, 
and that is not what we are here today for, but what affects 
us, and what affects the consumer and you as a consumer, is 
that there is significant additional costs in dealing with 
different titling laws in different states.
    And we would look at it in the car business as this being a 
similar type of problem. If we had credit rules that were 
different 10 minutes away in New Jersey than we have in 
Wilmington, Delaware, then consumers from New Jersey would be 
at a disadvantage if the rules were severe enough.
    So, this whole national preemption--and I am certainly not 
an academic expert, but maybe a practical one--really enhances 
our ability in this nation to affect the commerce in the 
automobile business.
    Chairman Bachus. Mr. Sheaffer?
    Mr. Sheaffer. Talking from retailer's perspective, I 
remember a point in time where retailers used to take a 
customer's driver's license and a major credit card--Visa, 
Mastercard--and rely upon those two pieces of information to 
issue a starter line of credit, typically $300.
    In fact, Boscov's used to do this in the early and even up 
until the mid 1980s.
    Once that card was issued, the retailer then had the 
obligation to try to go out and get the credit-bureau report as 
fast as they could, and to try to make a decision based on 
potentially non uniform data.
    Two things happened. One is we made poor decisions in 
issuing that $300 line of credit. If a person were trying to 
defraud us, they would have instant access, to that relatively 
small but nonetheless real $300; that they would walk away with 
our merchandise.
    The flip side of that is the customer may have been wanting 
to make a very large purchase, a $2,000 purchase of a large 
screen. Well, perhaps they did not have large-screen TVs then, 
but a $2,000 purchase in our store, and we would not be able to 
authorize that purchase instantaneously.
    In today's world, because of the uniform standards, because 
we know what a current line of trade in the credit bureau 
means, because we know precisely what a FICO-risk score means, 
we can make very well-informed decisions.
    96 to 98 percent of the decisions we make as a credit 
granter are good decisions. They are accounts that pay us on 
time, they are responsible consumers. We are acting as 
responsible credit granters.
    If we Balkanize the credit system, and now in California, 
``current'' means, well the customer paid us somewhere between 
one and 90 days, but in Delaware, it means the customer paid us 
between one and five days. I really do not know what a 
``current'' credit line means anymore.
    Scoring systems begin to deteriorate. My decisions 
deteriorate. My cost of credit goes up. My ability to grant 
credit diminishes. It affects the economy as a whole.
    Mr. Castle. Thank you both, and I yield back to Mr. 
Chairman.
    Chairman Bachus. Thank you. Mr. Moore?
    Mr. Moore. Thank you, Mr. Chairman.
    Mr. Staten, would you agree that California, in terms of 
the economy, the relative size of the economy is one of the 
biggest in our country?
    Mr. Staten. Absolutely.
    Mr. Moore. Okay. In fact, it is bigger than many nations 
around the world, isn't it?
    Mr. Staten. All but about what, seven or eight I think?
    Mr. Moore. Okay.
    And if commercial entities want to operate in California, 
and California legislature adopts something more stringent than 
federal standards, they have to do it, don't they? Or just give 
up a large portion of a potential business. Is that correct?
    Mr. Staten. Anybody with a California presence would find 
it difficult to walk away from.
    Mr. Moore. Okay. In effect, could California then kind of 
set the standard for the rest of the country?
    Mr. Staten. I could certainly see it happening with respect 
to an issue such as this one.
    Mr. Moore. All right.
    And I am not sure, and maybe Mr. Sanders has a different 
view, but I am not sure I would want that to happen for Kansas 
or for Vermont or any other state. Would you agree with that?
    I am not asking Mr. Sanders, I am asking you, Mr. Staten.
    Mr. Staten. Well, I am a Virginia resident. So I suppose 
that I prefer to have Virginia laws bind me.
    Mr. Moore. All right. Okay.
    We have experimented for about the last eight years with 
uniform national standards and preemption, and I think most of 
the people up here, who have testified today, most of the 
witnesses agree, that that deserves to be extended. There is 
one-and-a-half, maybe, exceptions there, but most of the 
panelists, I think, agree that it has worked pretty well 
overall.
    I guess my question to you, Mr. Staten, and to anybody else 
who cares to comment is if it has worked well, if you agree 
with that, should it be extended on a permanent basis or on a 
five, seven or 10 year, something less than permanent where we 
can come back and reevaluate it once again in the future?
    Do you want to start, Mr. Staten, please?
    Mr. Staten. Well, I certainly am in favor of extending it. 
It seems to me Congress always has the right to look at it 
again, at any point in time. So, whether it is the five year 
additional preemption or a permanent one, seems to make no 
difference in my view.
    Mr. Moore. You are going to agree with him, Mr. Swire?
    Mr. Swire. I agree that these are national systems 
overwhelmingly. I think there is a lot of reasons to preempt, 
but there are two items.
    One is that because of the expiration this year, this whole 
committee is taking this issue very, very seriously and really 
looking at a lot of things it might not have looked at 
otherwise.
    And that fits the other laws we have seen--Gramm-Leach-
Bliley and HIPPA and the Telecom Act--which is that privacy 
laws have been passed in this Congress when industry and 
consumer interests came together to favor legislation.
    If you have permanent extension, you are not going to have 
that confluence, and you are really unlikely to get the 
reexamination, I think.
    Mr. Moore. Thank you. Anybody else care to comment?
    Mr. Sheaffer. I will jump in.
    I believe that the permanent reauthorization is necessary. 
As stated before, you can certainly go back and look at it at 
any time.
    But in 1996, as part of the overall negotiation process, we 
all agreed upon a test to determine whether or not state's 
preemption worked.
    Indeed, the United States credit reporting system is 
effectively the holy grail of the world's credit reporting 
systems.
    There is no better credit reporting system in the world. 
There is no reason not to extend it permanently, and again, you 
can always go back and look at it if technology or the 
environment changes.
    Mr. Moore. Mr. Uffner, any different thoughts?
    Mr. Uffner. Well, I really do not have any different 
thoughts.
    I really feel that if we have to change our rules in 
midstream, that it will create tremendous disruption, 
especially on a retail level amongst small businesses, medium-
sized businesses, and I would hate to see that happen, 
especially when we are trying to get our economy back together 
again.
    Mr. Moore. Thank you, Mr. Chairman and panelists. Thank you 
as well.
    Chairman Bachus. Thank you. Mr. Tiberi, you are sort of an 
expert on this.
    Mr. Tiberi. Yes, thank you, Mr. Chairman.
    I did not give an opening statement, because I had hoped to 
have an opportunity to ask Mr. Abernathy a question, and that 
did not work out, but as you know, Mr. Lucas from Kentucky and 
I have sponsored a bill that not only extends FCRI but delves 
into the Gramm-Leach-Bliley issue.
    And I appreciate you having this hearing today, and also 
the hearings that you are going to have in the future.
    Mr. Turner, I am going to ask you a question I was going to 
ask Mr. Abernathy.
    Section 507 of Gramm-Leach-Bliley, appears to authorize 
states to enact privacy laws that are more stringent than 
Gramm-Leach-Bliley, the Gramm-Leach-Bliley standard. Section 
506(c) of the Gramm-Leach-Bliley Act also makes clear that 
Gramm-Leach-Bliley Act in no way modifies or supersedes FCRA 
and the Act's preemptions of State law.
    What is your opinion, that you can give to us, on the 
interaction between Gramm-Leach-Bliley and the Fair Credit 
Reporting Act with regard to State laws on affiliate sharing?
    Mr. Turner. It is an excellent question. Unfortunately, it 
would have been probably better posed to Abernathy.
    Our analysis does not look specifically at affiliate data 
sharing, nor does our analysis examine any relationship between 
Title V and GLDA and the strength in preemptive provisions in 
the FCRA.
    We are really trying to measure the performance of the 
National Credit Reporting System over time, and as E.E. 
Schattschneider suggested that research is really finding the 
facts behind the facts.
    We are trying to understand the causal relationships 
between the preemptive provisions and the performance, if any.
    So unfortunately, that does not really speak to your 
question, but that is really the scope of our analysis.
    Mr. Tiberi. Anybody else want to take a crack at that? Mr. 
Swire?
    Mr. Swire. Well, the federal courts examined that--District 
of Columbia court--and I thought it was a convincing opinion 
that the judge wrote in that case, which basically found that 
the Gramm-Leach-Bliley provisions were effective, 
notwithstanding the claims that the FCRA prevented them from 
being affected.
    Mr. Tiberi. Anybody else want to take a crack at that? No?
    Let me switch to the issue of States here and the 
preemption of States, and Mr. Swire, I am an Ohio State 
graduate.
    Mr. Swire. Oh.
    Mr. Tiberi. So you and I are not going to be agreeing on 
this issue, but at least we agree on the Buckeye issue. You 
represent Columbus.
    You made a statement in written testimony that standards 
under the FCRA are appropriate on a state-by-state basis 
because it will affect only those companies who choose to do 
business in each particular state, and your comments have been 
similar to that this afternoon.
    Let me take it to another step here. As a state legislator, 
the issue of States preempting municipalities came up with 
respect to predatory lending. Can't we take this further and 
say, ``Well, how about the municipalities that want to write 
their own laws with respect to this issue?'' And what would you 
say to that?
    Mr. Swire. Well, we have seen that, of course, in 
California with some of the Gramm-Leach-Bliley issues. I think 
that in my testimony I said the closer you get to how the 
computer systems you have to program nationwide, the more 
compelling the federal interest.
    And the more it has to do with what kind of signage or what 
kind of local issues or what kind of personal interactions you 
have down at the local level, the stronger the local interest.
    And if you are talking about how the programs are going to 
get reported into a national system, to me, that feels pretty 
national.
    Mr. Tiberi. And following up on Mr. Moore's comments, 
doesn't it have the effect in essence, if you have Cleveland, 
Ohio and Los Angeles enacting stringent standards, stronger 
than maybe 40 other states, in essence, you have a national 
standard taking place that essentially could be controlled by a 
city council in Cleveland and a city council in Los Angeles, 
where Congress really is being usurped of its authority?
    Mr. Swire. At some level, we have a history of State 
contract law being a local common-law, state-law effort. A lot 
of consumer laws get written at the State level. When this 
committee did Regal-Neil in 1994, they said the consumer-
protection law stayed at a state level.
    There is a very long tradition of that.
    On the other side, if you are chopping up national computer 
systems with local exceptions, that is going to create a big 
mess, and so, I am just trying to make sense out of when does 
preemption makes sense.
    The closer you have to a national system that you have 
reprogram, the stronger the argument for preemption.
    Mr. Tiberi. Mr. Turner, do you want to comment on that same 
theory?
    Mr. Turner. Again, we see in the preliminary data a real 
risk. If there is a Balkanization of, for example, data-
furnisher requirements or obligations or obsolescence rates, 
for example, for derogatories or you know, an increase in the 
reporting periods, it will have an impact on, again, the 
predictive power of the models, which will play out through the 
safety and soundness of the system.
    So you know, obviously, we are talking about the difference 
between unified system versus a Balkanized state system.
    If you extend that even further and allow counties or 
municipalities, you know, that problem increases exponentially. 
So I would not see that as a positive development in terms of 
consumer access to credit and the price of credit, and all of 
the benefits associated with those two variables.
    Mr. Tiberi. Thank you. Mr. Chairman, just a comment.
    It was talked earlier about credit bureaus providing credit 
reports. I would just like to note that my wife actually 
thought we had a credit problem, made a request to a credit 
bureau to get a copy of our credit, and we were provided a free 
credit report based upon the fact that there was a concern 
about our credit.
    And I think that is done pretty uniformly across the 
country. Thanks, Mr. Chairman.
    Chairman Bachus. Do you think she had a credit problem 
because she was married to you?
    Mr. Tiberi. Well, no, and it had nothing to do with the 
telemarketer either.
    [Laughter.]
    Chairman Bachus. I appreciate that. Mr. Crowley?
    Mr. Crowley. Thank you, Mr. Chairman.
    Sorry I was not here for your testimony, but my able staff 
will make sure I get all your written statements, and I thank 
the Chairman for holding this hearing.
    I have a general question for all of you, and then I have a 
second question specifically for Mr. Turner.
    And the first question is, while I understand the need for 
information for a consumer to acquire credit, that would 
include any consumer's credit report that covers such things 
like their name, Social Security number, telephone, address, 
employment information, credit, and payment history, and other 
previous credit inquiries.
    I am wondering what the law means by requiring one's 
personal characteristics and mode of living as criteria in 
regards to one's credit report.
    And specifically, what do those last two terms mean as they 
are barely defined in U.S. Code 15 FCRA chapter of the U.S. 
Code, and how do they pertain to the core mission of the FCRA, 
which is to ensure easy and uniform availability of credit to 
U.S. citizens?
    Mr. Turner. My recollection is that the mode of living 
language has more to do with something called investigative 
credit reports, which were a much bigger deal back in the 
1960s, where if someone was a doing a check on your credit, 
they might go interview your neighbors and do a whole 
background write-up on you.
    And overwhelmingly, we have shifted away from that to a 
much more standardized system. So I think that is a much 
smaller piece than it was when the law was first passed.
    Mr. Crowley. Well, this gets I guess to my second question 
then, and that is, there are these seven provisions that are in 
the law, and there has been discussion about parsing the seven 
privacy provisions that are all up for sunset at the end of 
this year.
    And with some arguing that, as you have just made the 
argument, that maybe some are outmoded, and they be somewhat 
more important than others, could you rate the seven provisions 
in order of importance? Or do they in essence work in tandem, 
as for taking any one of them away would in effect changed the 
system of credit reporting?
    Mr. Turner. As I mentioned earlier, our analysis is not 
systematically examining the relationship between all of the 
provisions and the cost and benefits of the national system.
    I have, through the process of conducting our research, 
come across this notion that several of preemptive provisions 
are for marketing, and the rest are for scoring.
    And I just caution on this bifurcation, because the 
relationship between the preemptive provisions and either 
marketing or scoring is not necessarily linear and not 
necessarily intuitive.
    For example, this notion that affiliate sharing is purely 
about marketing, in the work we are doing on identity theft, we 
have been having discussions with financial institutions, 
credit bureaus and the networks.
    And we see that, in fact, the credit-card issuers interface 
with the networks in their neurological networks, and they rely 
on data from their affiliates to ascertain whether or not an 
identified incident of fraud is an isolated case, or is part of 
a crime ring.
    And restrictions on affiliate data sharing, because perhaps 
it is considered a marketing preemptive provision, would in 
fact miss the greater context of the value of consumers of 
affiliate sharing.
    And actually on that, I caution on this notion that 
consumer protections in the FCRA should be viewed narrowly 
through the privacy lens.
    The ability of consumers to access credit, the ability of 
consumers to be rewarded for responsible behavior, for example, 
the de-averaging of credit that we have seen, because of risk 
modeling, and because of pre-screening frankly, could be lost.
    And these are real consumer benefits, and these are real 
consumer protections.
    So I think that when you are looking at the preemptive 
provisions, rather than ranking them, it would be far more 
beneficial to really understand the full context of each one, 
and that there may be scoring consequences or identity-theft 
consequences from these so-called marketing provisions that are 
not immediately understood.
    Mr. Sheaffer. Perhaps I could answer your question a little 
bit more directly, too.
    As a retailer, I can tell you that every single one of the 
State's preemptions, if they were not extended and not 
reauthorized, would have a significant negative impact on my 
business.
    And to expand on Mr. Turner's statements, in the retail 
business, we have many affiliates and unaffiliated companies 
under the Boscov's umbrella.
    For example, there is the Boscov's Receivable Finance 
Corp., the Boscov's Credit Card Master Trust, and the Boscov's 
Travel Center. Some retailers have their dotcom operation as a 
separate affiliate structure.
    We also have third party licensees: The Lancome counter, 
Clinique counter, the Ritz Camera Center in some of our stores, 
unaffiliated, contractually related third parties.
    If we are unable to take and share data across those 
entities, I will do a much worse job of identifying identity 
theft, stopping identity theft, stopping credit-card fraud, 
protecting not only my business, but the customers, my 
customers in the communities in which I do business. This is 
absolutely critical.
    Mr. Swire. Just one sentence. I said in my Statement today 
that I have come to think listening to the discussion today on 
preemption, a big issue is is the Congress going to preempt 
theft initiatives at the State level?
    Are states just going to be put out of that business? Or do 
they have some role?
    And I think figuring in to the overall preemption debate 
this year is something that deserves some careful attention.
    Mr. Crowley. I thank you. Let me just thank the Chairman. I 
am in the middle of a mark-up over in the IR committee, but I 
appreciate this panel's testimony today. Thank you.
    Chairman Bachus. Thank you.
    I would like unanimous consent to go ahead instead of going 
back and forth, for you two members to both question 
consecutively, and then I will close with either one.
    Mr. Ford. Thank you. Thank you, Chairman.
    If the ranking member in the committee, my friend Mr. 
Gutierrez, wants to yield to the leader, just a couple of quick 
questions, following up on the line of questions raised by my 
friend Joe Crowley.
    I have concerns about these credit scores and the way there 
bureaus put this stuff together.
    And the funny thing to me in this whole thing is that they 
do not really have any standards for putting stuff on the 
credit report, if it is bad, but they make you jump through 
about 50 hoops to reach them, let alone get the thing 
corrected, if they have made a mistake.
    I just wanted to, for the record, one of these consumer 
federation groups, Consumer Federation of America, which does 
not always agree with me, but I agree with them more than they 
think I agree with them.
    I think they are right on this--one of their more recent 
findings--or I should say I find interesting one of their more 
recent studies, where they get in to how two or three 
headaches--I would love to hear the panel's sort of 
observations on this.
    The first is that there seem to be these widespread 
discrepancies amongst credit scores between or among the 
different agencies, and we know the impact that these credit 
scores now have on pricing for credit and insurance and utility 
service, employment, and housing, rental housing included.
    And the numbers are just staggering here. If I could, Mr. 
Chairman, one of the findings in the study shows that the 
impact of credit-score discrepancies on at-risk consumers is 
really phenomenal.
    So, roughly eight million consumers are likely to be 
misclassified as sub prime upon applying for a mortgage, based 
on the studies review of credit files for errors and 
inconsistencies.
    This misclassification can require a bar to overpay by tens 
of thousands of dollars in interest payments over the life of a 
typical mortgage.
    I like numbers. I do not understand all this language. To 
give you all a sense of what I am trying to say, is over the 
life of a 30 year, $150,000 mortgage, if they place you at a 
9.84 sub-prime loan, you would pay some $317,000 in interest, 
compared to about $190,000 if the borrower could obtain at 6.5 
percent prime loan, a difference of almost $125,000.
    That is a lot of money to a lot of families and to a lot of 
people in this country. I know this Congress will take up tax-
cut policy here in the coming days or say the coming hours.
    I know Mr. Sanders touched on the idea of these free credit 
reports and making this a national bill, and I would imagine 
everybody on the panel here has an interest getting accurate 
credit scores, I should say, free reports and having their 
credit risk evaluated fairly and accurate.
    What are your thoughts on the free report? I heard some 
answers, but I did not hear them all.
    And two, what are your thoughts about there being a better 
mechanism for consumers to redress or to correct problems with 
furnishers, discredit that?
    And three, with the impact that these credit scores have if 
it is a wide array of things here in the country, shouldn't 
consumers, and for that matter just regular people, have some 
idea about how this credit-score methodology is put together?
    I think that is what Jill was getting at it, just a tad bit 
there, because we all can guess paying your bills on time, 
doing all those things, the smart things, but it would still be 
good to know, and it would probably eliminate some of the bad 
things that people think about credit-reporting agencies along 
the lines that maybe they, based on where you live, or what you 
look at, to where you may work, or where you may not work.
    So it seemed to me to be in the long run, this would be 
good for the industry, good for lenders, good for their 
furnishers of credit scores and most important, good for 
consumers.
    I would love to heard some observations. Again, my 
frustration, if it came across, is not directed at anybody at 
the panel. I, like some 50 million Americans, have had a 
personal experience with this and have had to go through one 
recently, as I tried to get my home refinanced.
    And one of the reasons was because one credit agency had 
something bad on it and the other two did not. It was my luck 
that the lender picked the one with the bad stuff on it, the 
wrong stuff I should say. I ended having to walk back through 
to try to correct that.
    What are your thoughts? Congress is going to struggle with 
this, but how do you see we redress this, and can national 
legislation help or hinder?
    Mr. Staten. I will take the first crack it.
    You had a number of different things rolled into those 
observations and I sympathize and agree, in fact, with many of 
them.
    As far as the CFA study on the errors or discrepancies and 
the implications for a credit score and price, I am not 
intimately familiar with that study, but my big recollection is 
that a good part of those discrepancies came from errors of 
omission, if you will.
    In other words, information that was not present on some 
credit bureau files, but was on others for that same 
individual, and my only point there is that, you know, that is 
partly a fallout of our voluntary credit reporting system.
    And I just hearken back to some of my earlier comments that 
if we take steps, either at the national or at the State or at 
the municipal level, that discourage voluntary reporting, those 
kinds of problems the CFA found are going to get worse.
    Mr. Ford. What do you mean by that? I am little a confused.
    Mr. Staten. Because there may be more errors of omission in 
the sense that good trade lines may not get reported. Negative 
may not get reported, and there may be essentially more holes 
relative to the true picture of the consumer that are present 
in the credit file because information simply is not being 
reported.
    All right? In terms of the second comment, should consumers 
play a more active role in trying to do their part to police 
the quality of information in the credit files? Absolutely. I 
am all for that. That was the linchpin of the FCRA at the 
outset, giving consumers the right to access those credit 
reports.
    Whether that means that they should have one free copy per 
year, I do not know. I do not really have a position on that, 
but I am all for anything that will encourage them to be using 
that and viewing it, and getting back to bureaus when they 
perceive that there are errors.
    Mr. Ford. I could not agree more with everything you said, 
but what happens when you find there is a mistake on it or an 
error, and it takes you forever to try to get the doggone thing 
fixed?
    And by the time you get it fixed, the lender's already made 
a negative decision. That is the challenge that so many, as you 
well know, of your customers or consumers and others face, and 
that is the concern I have.
    I can understand mistakes being made. We make them here 
hourly. The way you correct it here is every two years, people 
go to the polls and vote. I want to know how do you expect the 
consumer going up against a large lender--and the lender's 
basing their decision on what they think is accurate 
information from a credit agency--what steps can be taken?
    And maybe you do not want to propose, you know, regulation 
of credit reporting agencies, but how much can you do going up 
against your banker if the banker says, ``Look, this is what we 
got from your credit report.''
    Mr. Swire. You have more rights than you used to because 
the FCRA exists.
    Mr. Ford. You don't have any gripe on me there.
    Mr. Swire. Right. But here are two observations.
    One is, if Congress decides it is going to be a national 
law, and the States are out of the business here, then it is up 
to Congress to figure out these consumer protections. There is 
no one else to point to. So that is part of the work for this 
committee.
    And the second point is, I have heard of a problem where a 
consumer goes in, corrects the mistake, but then the bad data 
comes back in a second time.
    And I think that is an area that deserves special 
attention, maybe some additional hearings just on how that gets 
fixed, having the bad data come back in once it is been fixed 
the first time.
    Mr. Ford. No, I am not shirking our responsibility. I just 
want to know your recommendation to us, because I have to think 
if we do something wrong, you are going to come back and tell 
us. So you might as well as tell us on the front end what we 
should do to make it right.
    So I know I am going over my time, and I hope we can take 
Mr. Swire's advice, Chairman, and maybe even hold another 
hearing on these things. I know Mr. Gutierrez has expressed 
some concerns in this area as well.
    Chairman Bachus. Mr. Ford, we will just give you one minute 
instead of five minutes next time.
    [Laughter.]
    The gentleman from Illinois?
    Mr. Gutierrez. Thank you, Mr. Chairman.
    Well, I want to follow up on Mr. Crowley and Mr. Ford and 
the issues that they were speaking to. Because it seems that 
about 70 percent of credit reports have some kind of mistake on 
them, and three out of 10 have such a significant mistake, that 
it can actually impact.
    I know a lot of us like to go out there and say APR and 
what that is, and what that means, and if does not mean 
anything else, it means the best rate for those people that 
have the best scores.
    Everyone should walk into a mortgage company or a car 
dealership and get the best score.
    So we know there are lot of mistakes being made, and we 
know they can be simply made.
    And we know that insurance companies, at least it has been 
my experience that credit-card companies, even when you pay 
them the annual fee and you tell them that somebody double 
charged you, they seem to go into this new interrogation--
``Well, you sure you were not at that hotel? Are you sure you 
didn't stay there? You didn't order that room service?''--to 
the point where you can feel like they are not on your side, 
and they are supposed to be protecting your interests.
    And given this new phenomenon of these lack of any kind of 
personal relationship or real caring from the credit-card 
industry as I have seen it, and the credit industry in general 
and maximizing their profits.
    The FCRA does not specifically address a reference-
insurance score, so I would like if Mr. Swire could talk a 
little bit about insurance score.
    So, if they are using your credit report in order to see 
whether or not you are going to have any insurance, how long, 
what your rate is going to be. So if I paid my Discover card on 
time for five years, and my mortgage, does that necessarily 
mean that I am going to get the best insurance rate? Can I make 
that assumption?
    And conversely, are there things that my insurance report 
says about me that have nothing to do because I never violated 
a law in 10 years. I am a perfect driver. I pay my bills late, 
but I drive perfectly.
    I imagine those people exist. I drive perfect. I have never 
been in any accidents, no traffic tickets. I mean, that has 
happened to me personally since I got elected in 1992. I have 
not gotten stopped or been issued a police traffic violation.
    I mean some might say that is because I am from Chicago, 
but I like to say I have been much more careful about the way I 
drive. So I guess the question is, do your credit scores 
enhance necessarily how well you do in getting an insurance 
policy?
    And if I drive real well, but I have a bad credit, can I 
get a lousy insurance rate?
    And do we know enough about how they acquire that insurance 
score? Do we know enough of what the elements are? And should 
there be some more transparency in how we arrive at those? And 
would that help consumers?
    Mr. Swire?
    Mr. Swire. I have heard about the practice. I have not been 
in pure discussions about it.
    The question for the insurance company is that they think 
that they can price more accurately, based on a set of 
information. As a business, they are tempted to price more 
accurately, and if they find out from experience folks do not 
pay their home premiums as quickly, then they are going to be 
tempted not to charge.
    One of the problems is it exacerbates mistakes. Right? If 
there is a mistake in your file, or if there are reasons why 
your community gets treated badly on some score or there is any 
other problems in the system, as you link the system 12 
different ways, that problem keeps going on all the way 
through.
    One thing I mentioned earlier is, there are interactions 
for things like Community Reinvestment Act and Underserved 
Communities and a whole list of other areas.
    And I think that those are things to watch for as these 
systems get linked together.
    Because one apparently innocent factor could turn out to be 
used to disadvantage people a lot of other places.
    Mr. Gutierrez. So we do not have a lot of information then, 
about how--because now that they are all interrelated, the 
people that give you credit, sell you the insurance, and give 
you the mortgage and everything else and the credit card--in 
order for me to establish my policy, the duration, and the 
premiums on my policy, we might--any members of the panel, do 
we know anything about the insurance industry using credit 
reports to reach decisions about what my premiums might be?
    Mr. Staten. I know that it is done. I know that it has 
actually been a growth product for the scorecard builders, 
these companies that build the models, like Fair Isaac in 
California, and I know that many of the leading property-
casualty insurers do use them.
    And the reason they use them is much as Peter said, they 
found that it is predictive of risk in the auto-claim area.
    And so, like any good business, if you are worried about 
the competition, you are worried about other carriers stealing 
away your better risks, your better customers, if you can find 
a way to price them less, because you can reward them, then you 
would lower the price.
    And you would gain more customers or you would keep 
customers from defecting.
    By the same token, some people are going to get priced 
higher as a result, and I do not have a particular problem with 
that, although it is a bit of a mystery as to why your payment 
performance influences your driving risk, but it apparently 
does.
    Peter's comment is well taken here, though, and that is 
that if there are errors, it is not just affecting the credit 
markets, but it is spread to the insurance market as well.
    Mr. Gutierrez. Mr. Chairman, having driven a cab for three 
years, I paid all my bills on time, but you can imagine what my 
driving record was like.
    And conversely, now that I no longer drive a cab, it has 
gotten better, and I would like to make sure that the public is 
getting a good break, a fair break, and that the information is 
such that they can challenge that information about how they 
get insurance premium.
    Maybe we should look a little bit better into that.
    And I think it stresses the point about, you know, these 
kind of impersonal institutions, when you have an 800 number 
for a credit-card company versus a lender that gives you a 
mortgage.
    And I know Mr. Ford, the closer you get to home to those 
financial institutions, savings and loans and banks, the easier 
it is to resolve those problems, because you get a human being 
on the line that really wants to make sure that mortgages are 
handed out in that particular community, and it is really 
looking to do that.
    Thank you very much, Mr. Chairman. You have been very, very 
generous with both Mr. Ford and I in extending this 
conversation.
    Chairman Bachus. Thank you.
    Mr. Gutierrez. Thank you.
    Chairman Bachus. Mr. Uffner, could you explain how an 
individual might qualify for an auto loan if they were from a 
state that allowed robust credit reporting, might not quality 
for a loan, or may have to pay a higher rate if they are from a 
state that puts restrictions or limitations on credit history?
    Mr. Uffner. Well, from a practical standpoint, if a 
consumer comes in to purchase a vehicle, whether it is new or 
used, we are not the ones that make the credit decision.
    However, we do use the information from the credit granters 
in order to make a determination as to whether or not we should 
deliver the automobile to this particular client.
    So if we have a situation where we can not get a decision 
or that the decision that comes down from the bank or finance 
company is not as favorable, then that person would have to pay 
more for his or her credit.
    It would not affect the price of the vehicle, but it would 
affect the price of the credit that they receive.
    So anything that would interfere with the ability of the 
ultimate credit granters to make those decisions on a timely 
basis is, I think, is likely to increase the costs of those 
decisions.
    Did I address your question, sir?
    Chairman Bachus. Yes, thank you.
    Mr. Sheaffer, you have three stores in Delaware. You have 
three in New York. You have a couple of dozen in Pennsylvania. 
So I suppose it would not be too much for you to be aware, 
maybe, of the laws in those states.
    But now you are both a furnisher and a user of credit 
information?
    Mr. Sheaffer. That is correct.
    Chairman Bachus. If we had 50 different laws out there, how 
might that impact you with regard to furnishing credit 
information or in using credit information? What would the cost 
of that be?
    Mr. Sheaffer. I do not know that I can give you a hard-
dollar cost, but I can tell you how it would affect us.
    Chairman Bachus. Right.
    Mr. Sheaffer. For example, if there are 50 different laws, 
on what information I could report, at what point in time I 
could report that information, or if there were different 
standards of furnisher liability throughout all 50 states, I 
would have to make a business decision whether or not, again on 
a voluntary basis, I wanted to report information on my 
customers in that given state.
    For those states that I chose not to report credit 
information, the credit report will be less complete. 
Therefore, my fellow credit granters would be able to make less 
accurate future credit decisions.
    The same is true as a user of credit information. If for 
each individual state in which I did business, I would have to 
have an entirely different process, an entirely different set 
of business rules, not only about who are individuals to whom I 
grant credit, the credit scores bring out different things for 
different states.
    I would also have to create different processes for credit-
limit assignment, account management, collections, charge-off 
and recovery potentially, because I now have more or less 
predictive information about how to handle an account 
throughout its entire life cycle.
    So it is not just an issue of initial underwriting, it is 
an issue of account management throughout the life cycle.
    Chairman Bachus. You know, I would think that with some of 
those states who may impose a higher limit, obviously you could 
have the unscrupulous take advantage of those in several 
different ways. Could it encourage people to move from state to 
state?
    Mr. Sheaffer. Well, not only could it encourage people to 
move from state to state, it almost might prevent folks from 
living from state to state. For example, if Maryland, 
hypothetically, had a standard that said an issuer was not 
allowed to report credit information for 90 days, and 
Pennsylvania has a provision that said you may report it in 
five days, I may not, as a Maryland resident, if I have been 
sort of past due, and my credit availability has still been 
there, and I am thinking about taking a new job in 
Pennsylvania, I may make the decision not to do that because I 
know that just by virtue of moving to a different state, my 
Visa card or my Boscov's charge will be past due; or, I am 
sorry, will be closed, or my credit limit will be reduced. Or, 
perhaps I will not be able to get a mortgage in the States that 
now have more robust credit reporting law.
    Chairman Bachus. Thank you. We have a vote on the floor. 
And I think we have about five minutes left. So we are going to 
discharge the committee at this time. But Mr. Turner, I would 
ask you, you mentioned some interesting work that you have done 
that I think could helpful for us to consider on the issue.
    But would you be willing work with the GAO, so that they 
can maybe understand your research, and help us evaluate it? We 
understand that the data would be subject to confidentiality 
restrictions and GAO would have to respect those, but if you 
would work with the GAO, it would be quite helpful to us to 
submit some of your----
    Mr. Turner. To the extent that they are willing to respect 
the confidentiality agreements, I would welcome the 
opportunity.
    Chairman Bachus. Thank you. At this time, the hearing is--
Mr. Crowley, I do not know if we have time.
    Mr. Crowley. Mr. Chairman----
    Chairman Bachus. Go ahead.
    Mr. Crowley.----my quick point, and that is, Mr. Sheaffer, 
you actually answered my question. I was going to ask on 
uniformity. For instance, late payments, for instance, varying 
from state to state. We obviously have until the sun set. And 
you have answered my question. I thank the chair.
    Chairman Bachus. And I apologize. Thank you.
    This hearing is adjourned.
    [Whereupon, at 2:32 p.m., the subcommittee was adjourned.]




                            A P P E N D I X



                              May 8, 2003



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