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




 
                        THE ROLE OF FCRA IN THE
                        CREDIT GRANTING PROCESS

=======================================================================

                                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

                               __________

                             JUNE 12, 2003

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 108-37




91-542              U.S. GOVERNMENT PRINTING OFFICE
                            WASHINGTON : 2003
____________________________________________________________________________
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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:
    June 12, 2003................................................     1
Appendix:
    June 12, 2003................................................    67

                               WITNESSES
                        Thursday, June 12, 2003

Cloutier, C.R., President, MidSouth National Bank, Lafayette, LA, 
  Chairman, Independent Community Bankers of America.............    47
Courson, John A., Chairman, Mortgage Bankers Association.........     8
Fishbein, Allen, General Counsel, Center for Community Change....    15
Gambill, Harry, Editor Publisher, CEO, TransUnion LLC............    18
Hendricks, Evan, Editor, Privacy Times...........................    53
Hildebrand, Scott, Vice President, Direct Marketing Services, 
  Capital One Financial Corporation..............................    57
Loban, George B., Co-Chairman and President, FSF Financial 
  Corporation and First Federal FSB, Hutchinson, MN, on behalf of 
  America's Community Banker.....................................    49
Manning, Robert, Caroline Werner Gannett Professor of Humanities, 
  Rochester Institute of Technology..............................    51
Moskowitz, David, General Counsel, Wells Fargo Home Mortgage.....     9
Pickel, A.W. III, President and CEO, Leader Mortgage Company, 
  Lenexa, KS, President-Elect, National Association of Mortgage 
  Brokers........................................................    11
Plunkett, Travis B., Legislative Director, Consumer Federation of 
  America........................................................    13
Vadala, Michael, President and CEO, The Summit Federal Credit 
  Union, on behalf of the National Association of Federal Credit 
  Unions.........................................................    45
Wong, Martin, General Counsel, Global Consumer Group, Citigroup, 
  Inc............................................................    55

                                APPENDIX

Prepared statements:
    Bachus, Hon. Spencer.........................................    68
    Gillmor, Hon. Paul E.........................................    71
    Hinojosa, Hon. Ruben.........................................    72
    Cloutier, C. R...............................................    73
    Courson, John A..............................................    79
    Fishbein, Allen..............................................    85
    Gambill, Harry...............................................    94
    Hendricks, Evan..............................................   109
    Hildebrand, Scott............................................   122
    Loban, George B..............................................   132
    Manning, Robert..............................................   138
    Moskowitz, David.............................................   167
    Pickel, A.W. III.............................................   174
    Plunkett, Travis B...........................................   182
    Vadala, Michael..............................................   197
    Wong, Martin.................................................   207

              Additional Material Submitted for the Record

Maloney, Hon. Carolyn:
    ``Cash-Outs Let Homeowners Share the Wealth,'' article, The 
      Washington Post, June 8, 2003..............................   215
Courson, John A.:
    Written response to questions from Hon. Ruben Hinojosa.......   219
Gambill, Harry:
    Written response to questions from Hon. Ruben Hinojosa.......   222
Loban, George B:
    Written response to questions from Hon. Ruben Hinojosa.......   233
Moskowitz, David:
    Written response to questions from Hon. Ruben Hinojosa.......   235
Pickell, A.W. III:
    Written response to questions from Hon. Ruben Hinojosa.......   239
Vadala, Michael:
    Written response to questions from Hon. Ruben Hinojosa.......   244
Fannie Mae, prepared statement...................................   245


                        THE ROLE OF FCRA IN THE
                        CREDIT GRANTING PROCESS

                              ----------                              


                        Thursday, June 12, 2003

             U.S. House of Representatives,
         Subcommittee on Financial Institutions and
                                    Consumer Credit
                           Committee on Financial Services,
                                                   Washington, D.C.
    The subcommittee met, pursuant to call, at 10:11 a.m., in 
Room 2128, Rayburn House Office Building, Hon. Spencer Bachus 
[chairman of the subcommittee] presiding.
    Present: Representatives Bachus, Royce, Lucas of Oklahoma, 
Capito, Tiberi, Feeney, Hensarling, Brown-Waite, Barrett, Hart, 
Renzi, Miller, Sanders, Maloney, Watt, Meeks, Gutierrez, 
Waters, Velaquez, Hooley, Hinojosa, Lucas of Kentucky, Crowley, 
Israel and Davis.
    Chairman Bachus. [Presiding.] Good morning.
    Our hearing today is another installment in a series of 
hearings the subcommittee is holding with respect to the Fair 
Credit Reporting Act. The provisions in FCRA that guarantee a 
single national standard with respect to many of the FCRA 
provisions are set to expire January the 1st of 2004. As I 
Stated last week, my primary focus throughout this debate will 
remain on providing consumers and the economy with the strong 
protections and benefits of the law.
    At our last hearing, we had more than twenty witnesses. 
They described why and how FCRA is important to consumers, and 
the economy as a whole. Today we will focus on the credit 
granting process and the role of FCRA in facilitating the most 
robust credit market in the world.
    The process of applying for a personal loan, car loan or 
even a credit card has become increasingly simple. The consumer 
fills out a brief application, and within a matter of minutes, 
the consumer will know whether he or she has qualified for 
credit. The Chairman of the Federal Trade Commission, Timothy 
Muris, has referred to this as the miracle of instant credit. 
Even the mortgage underwriting process has become much less 
complicated, as millions of Americans are demonstrating each 
month.
    Today, new homeowners can spend more time picking out new 
curtains and wallpaper, because they spend less time on 
mortgage paperwork and stress. It should be obvious that these 
improvements in the credit-granting process benefit consumers.
    Our witnesses today will provide us with the complete 
picture of how FCRA operates as part of the credit-granting 
process. Our first panel will focus on how lenders assist 
millions of Americans in realizing the dream of home ownership. 
Just as importantly, we will also learn how a credit reporting 
agency, commonly known as a credit bureau, facilitates the 
credit-granting process.
    The first panel will also include witnesses representing 
consumer groups. Our second panel will review the credit-
granting process in a broader scope. We will hear from 
representatives of a credit union, smaller banks, a large bank 
and a credit card issuer. Each will describe how the FCRA 
affects their ability to make credit widely available to 
American consumers.
    We will hear from other witnesses describing some potential 
pitfalls of the credit-granting process. I, for one, am 
particularly interested in how the national standards 
established by certain provisions of FCRA relate to the credit-
granting process. For example, I am interested in learning 
whether FCRA has facilitated a national credit market and 
whether having a national system is beneficial.
    More importantly, if the national uniformity in place today 
were replaced with a patchwork quilt of inconsistent State 
laws, would consumers face a less convenient and more expensive 
credit-granting process?
    I want to thank Chairman Oxley, Ranking Member Frank and 
Mr. Sanders for working with me on FCRA re-authorization. I 
believe the bipartisan cooperation that we have had on this 
important issue to date has been helpful in the debate.
    Today, we have accommodated all four of the minority 
witness requests.
    I look forward to our witnesses' testimony on how the FCRA 
facilitates the most advance credit underwriting process in the 
world and how it benefits consumers.
    The Chair now recognizes the ranking member of the 
subcommittee, Mr. Sanders, for any opening statement he would 
like to make.
    [The prepared statement of Hon. Spencer Bachus can be found 
on page 68 in the appendix.]
    Mr. Sanders. Thank you very much, Mr. Chairman, for 
convening this very important hearing. We have an excellent 
panel of witnesses. And I look forward to hearing from them 
all.
    I will be running in and out because of other commitments. 
But I will be listening attentively to what all of our 
witnesses have to say.
    What I have been hearing from the banking and credit card 
industry is that consumers have never had it so good, that 
consumers are reaping billions of dollars in savings due to 
lower interest rates and that consumers have a much easier time 
accessing credit.
    It may be true that the credit card industry and the CEOs 
have never had it so good. According to the FDIC, credit card 
lenders and the banking industry reported record-breaking 
profits in the first quarter of this year while revenue from 
credit card fees have increased dramatically, from $7.3 billion 
in 1994 to $23.9 billion in 2001.
    So I think one of the areas, Mr. Chairman, that we are 
going to want to take a hard look at is what is going on with 
credit card fees, not just interest rates. And fees now account 
for 31 percent of credit card industry income. And that is an 
issue, I think, that needs a lot of study.
    Is gaining access to credit a good thing? Well, obviously, 
it is in many instances, but sometimes it is not. According to 
Dr. Manning, credit card debt has skyrocketed, from 
approximately $51 billion in 1980 to over $610 billion in 2002. 
At the same time that consumers are bombarded by a record 5 
billion credit card solicitations. Now, that is an incredible 
number.
    My understanding is, and somebody else can do the 
arithmetic, that the American people receive 5 billion credit 
card applications a year. And I suspect my son receives about 
half of them. Not his father, but my son.
    And the largest increase in credit card debt is among 
consumers making $10,000 a year or less. Three-fourths of 
college students use their student loans to pay their credit 
card bills. And the average credit card debt per consumer has 
risen from $10,000 in 1998 to $12,000 in 2002, which is not 
good.
    Mr. Chairman, there is another issue that I certainly am 
going to be focusing on today, and I hope you will, as well. 
And there were major stories in The New York Times, ABC World 
News, Washington Post on what I consider to be a scam, and 
nothing less than a scam. And that is, as part of the 5 billion 
solicitations that take place each year, the credit card 
companies say, Well, sign up with us, 3 percent interest rate. 
Not a bad deal. Somebody signs up for 3 percent interest rate. 
Suddenly, three months later, they are paying 25 percent, 29 
percent interest rate. What happened?
    Did they not pay their credit card payments on time? Were 
they late? Did they default? The answer is in every instance, 
they may well have paid what they owed the credit card on time, 
but perhaps they borrowed some money, went to the bank as the 
result of an illness in the family, borrowed some more money. 
Maybe they were late paying an auto loan two months before. 
Maybe 3 years ago they were late on their mortgage, and out of 
nowhere their interest rates have skyrocketed.
    This is a scam. It is causing severe problems for large 
numbers of credit card borrowers in America, and it is 
something that we want to address.
    So, Mr. Chairman, this is an important day. We have got a 
lot of excellent panelists. And I thank you very much for 
working with us to bring those panelists here.
    I would yield back the balance of my time.
    Chairman Bachus. Thank you.
    Are there other members who wish to make an opening 
statement?
    Ms. Hooley?
    Oh, Mr. Gutierrez, I am sorry.
    Mr. Gutierrez. Thank you, Mr. Chairman.
    Well, I am happy to be here today to discuss the role of 
FCRA in the credit-granting process. A major concern I have is 
the increased use of the insurance scores and the lack of 
information about these scores available to consumers. I think 
we should research the increased use of credit-based insurance 
scoring and excessive negative impact it is having on the 
consumer's ability to purchase insurance coverage. Low credit 
scores can prevent someone from being insured at all. In fact, 
this has stirred complaints across the country, from consumers 
who feel that the use of credit scoring for services unrelated 
to credit is both discriminatory and invasive.
    The mix of information is used to compile a credit score, 
which includes much more than just the timeliness of payments. 
The methodology includes items such as outstanding debt a 
person has and the number and type of open credit lines. Given 
the fact that currently 90 percent of property insurers use 
credit scoring as a determining factor in their approval 
process and as a means to derive rates, we have an obligation 
to look at this matter carefully.
    A major problem with the use of these scores is the lack of 
consistency in how scores are established and unwillingness on 
the part of insurers to reveal publicly how they determine 
scores. Without a standard to fall back on and without 
insurance companies being required to reveal how they tabulate 
score, there is no way to make sure consumers are protected 
from discrimination.
    We should look at, Mr. Chairman, just how it is we have 
credit scoring and insurance scoring, as one is tied to the 
other.
    I thank the chairman for the timeliness of the hearing and 
I look forward to the testimony today.
    Chairman Bachus. I thank you.
    Go ahead, I am sorry.
    Mr. Israel. Thank you, Mr. Chairman. I will be very brief.
    One of the principal concerns that I have had with FCRA is, 
in my view, the unfair and even unpatriotic practice of 
harassing families of deployed military personnel for late 
payments or scoring against someone who is sitting in a Humvee 
in Iraq a late payment.
    It seems fundamentally unfair to me that somebody who is 
willing to lay his or her life on the line for our freedoms 
today is going to be denied credit tomorrow because they could 
not make a payment or were late making a payment while being 
deployed in very dangerous parts of the world.
    I have been focusing on this issue with some of my 
colleagues. And I want to continue focusing on this issue and 
hope that during questions and answers we can address that 
critical and very important issue.
    And I look forward to working with you, Mr. Chairman, on a 
bipartisan basis to continue developing a response to what is a 
very significant problem for our activated military personnel.
    And I thank the chairman.
    Chairman Bachus. Thank you, Mr. Israel.
    Ms. Hooley, and then Ms. Waters?
    Ms. Hooley. Thank you, Mr. Chairman.
    Very briefly, I am glad we are having these hearings. Of 
hearings, I think it is incredibly important. It is important 
to consumers, as well as to our credit system and our economy. 
I do think we have the best credit system in the world, and 
hopefully we will take positive steps to ensure the supremacy 
of our credit system, that it continues.
    While I am happy having these hearings, I am becoming more 
and more concerned about the lack of movement from the 
administration. I know we had the undersecretary here earlier. 
We have been told that they would have something ready in June. 
I have now heard rumors, and I hope they are just rumors, that 
we won't be ready until mid-July.
    I hope we do not delay on this issue. I think, again, it is 
an issue that we need to deal with, not only for our economy, 
but for consumers. And I just think this attention deserves 
attention from the White House, as much as this subcommittee 
has provided for this issue.
    I am looking forward to the rest of our hearings. And, 
again, I would like to thank the ranking member and the 
chairman for having these hearings. I think they are incredibly 
important.
    Thank you.
    I yield back the remainder of my time.
    Chairman Bachus. Thank you.
    Gentlelady from California?
    Ms. Waters. Well, thank you very much, Mr. Chairman.
    I would like to thank both you and our ranking member, 
Congressman Sanders, for this hearing today.
    Today we have the opportunity to discuss one of the most 
important issues facing this subcommittee all year, the ability 
of consumers to have access to accurate credit information, 
maintain their privacy and be given the ability to safely 
conduct their business without having their identity stolen.
    The Fair Credit Reporting Act was originally enacted by 
Congress in 1970 to bring the consumer credit reporting 
industry under Federal regulation and create certain 
obligations and rights governing credit reporting transactions. 
The 1996 amendments to the Fair Credit Reporting Act were 
designed to address widespread problems experienced by 
consumers who were going to buy credit are being charged too 
much for inaccuracies in their credit reports.
    We all understand the need to have easy access to credit 
information and to have a uniform national standard. It is 
equally important that the information be correct. According to 
the Consumer Federation of America and the National Credit 
Reporting Association, who conducted an exhaustive study of 
over 500,000 credit reports, they found that nearly eight out 
of 10 files, 78.4 percent, were missing a revolving account in 
good standing.
    In addition, one file out of three, 33.3 percent, was 
missing a mortgage account that had never been late. And two 
files out of three, 66.7 percent, were missing another type of 
installment account that had never been paid late. This 
includes mistaken identities, misapplied charges, uncorrected 
errors, misleading information and variation between 
information reported by the various credit repositories.
    Part of the solution to strengthening consumer accuracy and 
access to their credit report can be found in the State of 
California. Consumer reporting agencies must disclose the names 
and addresses of all sources of information used in the 
consumer's report. California also requires consumer reporting 
agencies to, with a reasonable degree of certainty, match at 
least three categories of identifying information within the 
consumer's file with the information provided by a retailer. 
The categories of identifying information may include the 
consumer's first and last name, month and date of birth, 
driver's license number, place of employment, current 
residence, previous residence or Social Security number. This 
effectively reduces a successful attempt at identity theft, and 
reduces the chance for mistaken identity.
    Also in the California law a consumer has a right to 
receive his or her credit score, the key factors and any 
related information. Under new provisions, a consumer would be 
able to have a security freeze placed on his or her credit 
report by making a request in writing by certified mail with 
the consumer credit reporting agency.
    A security freeze prohibits the consumer reporting agency 
from releasing the consumer's credit report, or any information 
from it, without the expressed authorization of the consumer. 
Effective July 1, 2003, upon receipt from a victim of identity 
theft of a police report or a valid investigative report, a 
consumer reporting agency must provide a victim of identity 
theft with up to 12 copies of their credit report for the 
consecutive 12 month period free of charge.
    These examples create the opportunity for banks, credit 
card companies, department stores and auto financing and other 
furnishers who provide accurate information voluntarily to 
complete a report, the full scope of information, increasing 
the likelihood credit bureaus will not miss any negative 
information. With strong consumer protections, Federal 
preemption of States would not be necessary because Federal law 
would be the doer rather than the seller.
    I yield back the balance of my time.
    Chairman Bachus. Are there any other opening statements?
    Let's first introduce this panel. We have a very, I think, 
esteemed group of panelists.
    John Courson is president and CEO of Central Pacific 
Mortgage Company, located in Folsom, California. Mr. Courson is 
also chairman of the Mortgage Bankers Association of America. 
Prior to that, he was the CEO of Westwood Mortgage Company and 
president and COO of Fundamental Mortgage Company.
    And I note one thing interesting about his resume is that 
he served as president of the California and the Michigan 
Mortgage Bankers Association, and as a director of the Texas 
Mortgage Bankers Association, so quite a few positions in 
different States.
    David Moskowitz is senior vice president, secretary and 
general counsel for Wells Fargo Home Mortgage. He has been in 
that position since 1994. Prior to that, he was with Prudential 
Home Mortgage Company, where he was associate general counsel, 
and Perpetual Mortgage Company in McLean, Virginia, prior to 
that as general counsel. Educated at Union College in 
Schenectady, New York, he has a law degree from Case Western, 
and admitted to several different State bar associations.
    A.W. Pickel III, is currently president and CEO of Leader 
Mortgage Company, a mortgage banker broker company 
headquartered in Lenexa, Kansas. He is president-elect of the 
National Association of Mortgage Brokers. He graduated from the 
University of Illinois, Urbana-Champaign, in accounting. And as 
I mentioned to him earlier, he then went to work for an 
international Christian organization known as the Navigators, 
where he worked with college students at major universities. 
And I can personally tell you that the Navigators have been 
very meaningful to me.
    And I know several of folks who do the same thing you do, 
very dedicated people. I commend you for that work. A long list 
of different awards, too numerous, really, to mention. But we 
welcome you to our hearing today.
    Travis Plunkett, he serves as the Consumer Federation of 
America's chief liaison to members of Congress, to Federal 
regulators and to agency administrators. Consumer Federation of 
America is a non-profit association of over 300 organizations 
that advances the consumers' interests through advocacy and 
education, has a combined membership of 50 million Americans. 
Its primary focus is on credit reporting, bankruptcy, credit 
counseling, consumer privacy and insurance. Frequently 
interviewed by national and news media, written a number of 
consumer guides. He holds a Bachelor of Arts from the great 
University of Denver. I noted that you served in the U.S. Army 
intelligence and security commands. So Mr. Israel, some of his 
questions might also be something you could shed light on.
    Allen Fishbein, general counsel of the Center for Community 
Change, he specializes in the area of expanding the 
availability of responsible lending and banking services for 
the underserved. He testified before our committee before.
    And actually, Mr. Fishbein, we are going to have a hearing, 
I guess, later in the month on the underserved and how to 
better reach them with banking services, something that I am 
sure you could assist us with.
    Prior to joining the Center, he was senior adviser for 
government-sponsored enterprise oversight, Fannie Mae and 
Freddie Mac. He supervised the department rule-making process 
at HUD for new affordable housing goals for the two 
enterprises. He has written several books. Past member of the 
Federal Reserve Board's Consumer Advisory Council. And I close 
by saying that he has been honored by the District of Columbia 
Bar as Consumer Lawyer of the Year with a degree from Antioch 
School of Law, here in Washington, D.C.
    Mr. Gambill, present chief executive officer of TransUnion, 
joined TransUnion in 1985, rose, obviously, up through the 
ranks to the top position. Prior to joining TransUnion, Mr. 
Gambill was regional credit manager for Rhodes Furniture in 
Atlanta, Georgia, and also held management positions at Belth 
Department stores and Sears Roebuck.
    So, you can obviously give us a good view, from your 
background both from a credit reporting agency and also from a 
furnisher of information to a Credit Bureau.
    He has a Bachelor of Science degree in Business 
Administration from Arkansas State, and also served in the U.S. 
Army for six years, and, as I was, he was an enlisted man who 
rose up through the ranks. That is why I have such fear of 
generals, even today.
    [Laughter.]
    He became a staff sergeant, which is a very respected 
position.
    An Arkansas native, currently resides in Aurora, Illinois, 
with your wife, and you have two children.
    With that, we will start with Mr. Courson, chairman of the 
Mortgage Bankers Association, and go just in order.
    Thank you.

   STATEMENT OF JOHN A. COURSON, CHAIRMAN, MORTGAGE BANKERS' 
                          ASSOCIATION

    Mr. Courson. Good morning, Mr. Chairman, and members of the 
subcommittee.
    I want to thank you for inviting MBA to participate in this 
very important discussion. I am proud to testify this month, in 
June, which has been designated by the president as 
Homeownership Month. I applaud the subcommittee for holding 
these hearings and giving the mortgage finance industry an 
opportunity to share with you the great success that our nation 
and its homeowners have experienced as a result of having the 
American dream met, due in part, to the Fair Credit Reporting 
Act.
    Let me share with you, if I may for just a moment, some of 
that success. As you know, home ownership brings good things to 
our citizens and to our economy. In the last 2 years, over $100 
billion has been put back into the economy from refinancing of 
real eState. The real eState sector employs 1.36 million, of 
which approximately about 500,000 come from our industry, the 
mortgage lending industry.
    FCRA plays an integral role in this success by creating a 
structure that produces reliable consumer information used to 
lower the cost of home ownership, offers the dream of home 
ownership to underserved markets and produces innovative 
mortgage products.
    I am here today to strongly recommend that you reauthorize 
the preemptions contained in FCRA in their current form and 
maintain the national standards, uniformity and protections.
    Let me emphasize, Mr. Chairman, FCRA has national 
standards, uniformity and protections, all important for 
consumers and the mortgage industry because it gives rise to 
the following benefits.
    It enables Americans to move to new States and purchase 
homes with relative ease. It lowers the cost of credit to 
consumers, as lenders compete for customers on a national 
level. It speeds the consumer's access to credit, as mortgage 
lenders underwrite loans assisted by automated systems that 
provide a timely response to the consumer's mortgage 
application. And it permits lenders to evaluate risks more 
accurately through the analysis of consumer credit data, 
thereby enabling mortgage lenders to extend credit to Americans 
who, under traditional evaluation models, were considered too 
great of a risk.
    And it allows for greater innovation in mortgage products, 
as lenders take a successful product in one State and implement 
it in another State, allowing those consumers to also benefit.
    Seven important Federal preemptions included in FCRA's 1996 
amendments provide standards of accuracy, consistency and 
uniformity among the users of consumer information: those who 
report consumer information and credit bureaus that collect and 
distribute information. The preemptions, which Congress 
included on an experimental basis, also provide for consumer 
protections, to prevent the misuse and inaccurate reporting of 
consumer information.
    The mortgage lending industry believes FCRA and the 
preemptions within it have proven to be a financial success for 
consumers and the economy, and should be extended and made 
permanent.
    You know, the United States, Mr. Chairman, has the best 
mortgage finance system in the world. Should Congress decide to 
dismantle part of this well-operating structure, it will 
negatively affect the availability and cost of mortgage 
products in this country. The following are just a few 
examples.
    The cost of credit for consumers will increase as lenders 
who currently operate under national standards face higher 
costs to discover and comply with the myriad of State laws. 
Consumers will have fewer lenders among which to choose as 
varying non-uniform State laws give rise to regional barriers 
that will make it difficult to operate nationally.
    Innovation in mortgage products will slow, as non-uniform 
standards set forth in disparate State laws decrease the amount 
of available consumer information, which is necessary for 
advancements to better serve the needs of our borrowers. 
Further, consumers will face a patchwork of protections with 
inconsistent and fragmented State laws.
    The housing market is serving consumers, the mortgage 
lending industry and the economy well. It is important to note 
that housing has been a tremendous support to a weak economy in 
recent years. Failing to reauthorize the standards, uniformity 
and protections of FCRA would have severe adverse effects on 
serving our customers and your constituents.
    I thank you for inviting the Mortgage Bankers Association 
to testify, and look forward to answering your questions.
    [The prepared statement of John A. Courson can be found on 
page 79 in the appendix.]
    Chairman Bachus. Thank you.
    Mr. Moskowitz?

STATEMENT OF DAVID MOSKOWITZ, GENERAL COUNSEL, WELLS FARGO HOME 
                            MORTGAGE

    Mr. Moskowitz. Thank you, Chairman Bachus, Ranking Member 
Sanders and members of the subcommittee.
    My name is David Moskowitz, and I am general counsel for 
Wells Fargo Home Mortgage, headquartered in Des Moines, Iowa. 
Wells Fargo, our parent company, is a diversified financial 
services company offering mortgage, securities, insurance, real 
eState services, online banking, institutional and retail 
banking products under the Wells Fargo brand through a number 
of separately incorporated affiliates to 15 million customers 
nationwide. Wells Fargo's headquarters is in San Francisco. The 
company has 130,000 employees, has mortgage offices nationwide, 
has a retail banking presence in 23 States.
    I thank you for the invitation to testify today. I would 
like to share with you some of Wells Fargo Home Mortgage's 
experiences in providing products and services within the 
framework established by the Fair Credit Reporting Act.
    Wells Fargo Home Mortgage works in concert with its other 
Wells Fargo business affiliates in providing financial service 
products to its customers. Marketplace experience shows that 
consumers expect that the financial service companies they do 
business with to know about their accounts, to respond quickly 
to their questions and to advise them about products and 
services that will help them reach their financial goals.
    The service consumers expect requires that Wells Fargo have 
integrated information systems to give consumers what they 
want, when, where and how they want it. Subject to the Fair 
Credit Reporting Act, Wells Fargo shares customer information 
internally to meet these goals.
    Providing a new mortgage, refinancing an existing mortgage 
and meeting our contractual servicing requirements for 
investors and our customers requires information about their 
financial affairs. Applying inappropriate restrictions on 
transfers of information among affiliates would impede customer 
service.
    The 1996 amendments to the Fair Credit Reporting Act 
recognized the value to customers of the ability to transfer 
information among affiliates. This ability is wholly consistent 
with consumers' expectations that their questions will be 
answered and their needs will be met with a single call or a 
single e-mail message, whether their financial products are 
provided by a single company or several companies in the same 
affiliated group. To put it another way, customers do not care 
whether for technical, regulatory or management reasons, Wells 
Fargo chooses to organize itself into a particular series of 
affiliates of a holding company or subsidiaries of one bank.
    What customers do care about is the seamless delivery of 
the products Wells Fargo offers, regardless of how we choose to 
distribute them.
    In Wells Fargo's view, it is consumer expectations and 
needs that should shape the public policy that regulates 
information use, not legal structure. Because of legal 
requirements that prohibited or restricted bank branching, 
Wells Fargo, at one time, owned numerous separately 
incorporated banks. The Riegle-Neal Act of 1994 allowed bank 
holding companies to consolidate banks into as few as a single 
charter. Today, for business reasons, rather than legal 
reasons, Wells Fargo owns 28 separately chartered banks, but 
the number of separate banks that a holding company chooses to 
have should not affect public policy relating to information 
use.
    If a bank holding company conducts its banking business in 
a single bank entity, that bank would have all the information 
about a customer who had deposits, a mortgage, a credit card, a 
home equity loan from that bank. As a single corporate entity, 
it could use this information without restriction to serve its 
customer.
    If, on the other hand, the bank holding company chooses to 
conduct its mortgage, credit card and home equity loan 
businesses in three separately incorporated banks, and the law 
restricted the sharing of information among affiliates, a 
customer who supplied the same information for the same 
products at three affiliated institutions, instead of a single 
institution, would not receive the same level of service from 
its financial services company.
    To use customer information to provide the same level of 
service that could be provided by a single entity with the same 
information about the same customer, a holding company like 
Wells Fargo that provides services through multiple banks and 
non-bank charters would have to consolidate its operation into 
as few charters as legally possible.
    Because of the uncertainties of the outcome of the FCRA 
debate, institutions like Wells Fargo will likely change their 
corporate structures to reduce the number of separate entities, 
rather than risk restrictions on information sharing among 
affiliates.
    It is our view that corporate structure should not be a 
factor in setting public policy regarding information use. The 
touchstone, instead, should be consumer expectation. This is 
especially critical to our mortgage business.
    Since passage of the 1996 amendment to the Fair Credit 
Reporting Act, mortgage servicing has become more efficient. 
Wells Fargo customers have more channels through which they can 
apply for a mortgage and get assistance or conduct transactions 
related to a mortgage, as well as a complete array of financial 
products offered by Wells Fargo. With affiliate transfers and 
use of customer information, mortgage customers can make a 
mortgage payment at their local bank branch, obtain balances, 
get consolidated statements and get the support of 24-hour call 
centers that serve an entire affiliated enterprise.
    It is our goal to provide seamless service and product 
advice to customers no matter which member of the Wells Fargo 
family of companies provide the particular product or services.
    With the FCRA framework, companies can do a better job of 
evaluating credit and market risks. This translates into better 
and lower cost service to customers. Wells Fargo can offer a 
variety of mortgage service and products, such as quick turn-
around on refinancing, discounts on closing costs for signing 
up with Wells Fargo's product line, referrals for new 
homeowners and alternative financing options for customers.
    Finally, Wells Fargo believes the current uniform national 
standard for information use, as provided by the 1996 
amendments to the FCRA, is vital, and asks that this Congress 
provide clarity and stability by removing the sunset provisions 
that affect affiliate sharing and other segments of credit 
granting.
    Congress should also address identity theft and should 
grant authority to bank regulators to set new national 
standards for notices about information use to customers. The 
problem of identity theft and complicated notices about 
information use are frustrating to both customers and financial 
service providers. The availability of financial services, such 
as mortgages, for our customers and the flow of information 
required to make those services available, do not stop at State 
borders or corporate structures.
    Thank you. And I would be happy to answer any questions 
that you, Chairman Bachus, or the subcommittee may have.
    [The prepared statement of David Moskowitz can be found on 
page 167 in the appendix.]
    Chairman Bachus. Thank you, Mr. Moskowitz.
    Mr. Pickel?

   STATEMENT OF A.W. PICKEL, III, PRESIDENT AND CEO, LEADER 
    MORTGAGE COMPANY, LENEXA, KS, PRESIDENT-ELECT, NATIONAL 
                ASSOCIATION OF MORTGAGE BANKERS

    Mr. Pickel. Chairman Bachus, Congressman Sanders, and 
members of the committee, I am A.W. Pickel, president-elect of 
the National Association of Mortgage Brokers, and president of 
Leader Mortgage Company in Lenexa, Kansas.
    I appreciate the opportunity to present NAMB's views on the 
Fair Credit Reporting Act. NAMB is the nation's largest 
organization exclusively representing the interests of the 
mortgage brokerage industry, and has more than 14,000 members.
    Thank you, really. I appreciate it, for having us here.
    I want to commend this committee for holding a series of 
hearings on an issue that is vital to our economy and to 
consumers. FCRA, as amended, provides a carefully constructed 
balance, which creates uniform national standards that have 
increased the effectiveness of consumer report information.
    This national uniform standard impacts nearly every 
business sector that makes consumer credit-related decisions. 
It is also essential to the operation of our current mortgage 
industry. As it is estimated that mortgage brokers originate 
more than 60 percent of all the residential mortgages, NAMB is 
very concerned of the impact changes to FCRA may have on the 
mortgage marketplace and the economy, in general.
    FCRA has facilitated the information that is provided by 
consumer reporting agencies, which is mandatory to make sound 
mortgage lending decisions and to help evaluate risk. This 
information is essential in order for the mortgage industry to 
provide consumers with access to credit and reasonably priced 
products. A carefully constructed balance in FCRA creates the 
ability to make quick decisions on offers of credit that is 
critical to both consumers and mortgage originators. It also 
creates competition, which helps to lower credit costs for 
consumers.
    NAMB believes the extension of the preemption provisions 
are necessary to preserve a national uniform standard, some of 
which I will address today. If Congress allows the preemption 
provisions in FCRA to expire, the outcome of such inaction will 
increase risks and costs for mortgage originators, and as such, 
will have a detrimental impact on a consumer's access to credit 
and availability of mortgage products.
    Applying for a mortgage was a very time-consuming process 
before the carefully constructed balance of FCRA was created. 
Processing a mortgage application required personal contacts 
with references, other creditors and contact with individuals 
who had knowledge of a consumer's personal finance history.
    Now, consumers can gain access to credit virtually 
instantaneously on a wide array of credit products.
    The information contained in a consumer report is an 
essential component to the mortgage process. It dictates the 
terms and rates for a consumer's mortgage. If States are 
allowed to enact inconsistent laws regarding what information 
can and cannot be contained in a consumer report, the ability 
for mortgage originators to determine a consumer's credit risk 
will be compromised.
    Accurate reports benefit not only the consumer, but also 
the mortgage broker and the lender, who are able to make more 
rapid and accurate credit decisions utilizing these scoring 
models when underwriting a mortgage loan. The lack of a 
national standard on the contents of a consumer report would 
add a level of uncertainty in the risk profile of the 
consumer's credit history. As a result, the price of credit 
will increase for all consumers, and access to credit will be 
reduced, which could result in a reduction in our country's 
historically high homeownership rate, something that NAMB is 
very proud of.
    Uniform adverse action notices provide a consumer with 
consistent information regardless of their location. If this 
preemption provision expires, an adverse action notice may 
differ from State to State. This could result in confusion to 
consumers and a significant increase in operational costs to 
the industry, from which consumers will suffer the 
consequences.
    Mortgage brokers generally do not furnish information to 
consumer reporting agencies. However, the lenders with which 
mortgage brokers transact business and many other industry 
sectors do furnish information to consumer reporting agencies. 
If States are allowed to enact inconsistent laws regarding 
furnisher requirements, furnishers may decide that compliance 
with different State laws is too burdensome and may choose not 
to submit the information at all, making consumer reports both 
inaccurate and unreliable.
    Finally, we also think that the procedures for disputing 
inaccurate information need to maintain uniformity. 
Inconsistent investigation time restrictions would lead to a 
cursory and inaccurate investigation to the detriment of 
consumers. Mortgage brokers often work with consumers to help 
them to review and correctly dispute items on their credit 
report, when necessary to obtain the most rapid modifications 
necessary to obtain the best mortgage for them. Cursory and 
inaccurate investigations of credit disputes will frustrate 
this working relationship between a mortgage broker and their 
consumer.
    NAMB believes it is important that Congress maintain our 
current uniform credit system, which has provided the economy 
with strong benefits and protections and has enabled millions 
of consumers to obtain the dream of home ownership.
    Thank you very much for the opportunity to testify here 
today.
    [The prepared statement of A.W. Pickel can be found on page 
174 in the appendix.]
    Chairman Bachus. Thank you, Mr. Pickel.
    Mr. Plunkett, we welcome your testimony.

STATEMENT OF TRAVIS B. PLUNKETT, LEGISLATIVE DIRECTOR, CONSUMER 
                     FEDERATION OF AMERICA

    Mr. Plunkett. Good morning, Chairman and Ranking Member 
Sanders.
    My name is Travis Plunkett. I am the legislative director 
of the Consumer Federation of America. Thank you very much for 
the opportunity to offer our comments on the important issue of 
the role of the Fair Credit Reporting Act in the granting of 
mortgage loans.
    I have three main points I will touch on today.
    First, accuracy and completeness of information about 
consumers' credit history is the very foundation on which the 
entire credit reporting system is built. And that foundation is 
shaky. We agree that there have been positive effects to the 
automation of credit reporting over the last 15 years, but 
broad and credible evidence demonstrates that the status quo 
has led to serious problems with credit reporting accuracy and 
completeness.
    Second point: The furnishers of credit reporting data--
creditors, collection agencies and others--are responsible for 
many accuracy and completeness problems. Provisions of the Fair 
Credit Reporting Act to require furnisher accountability need 
to be improved.
    Third point, the dispute resolution process under the Fair 
Credit Reporting Act, which is supposed to help consumers 
resolve problems with credit reporting accuracy, is flawed and 
is becoming obsolete. It needs to be overhauled and modernized.
    Now, let me touch on each of these points briefly and tell 
you that there is a lot of detail and specific recommendations 
in my written testimony on each point.
    On accuracy, we agree with Howard Beals, the director of 
the Bureau of Consumer Protection at the Federal Trade 
Commission, in speaking about credit scoring and the trend 
towards credit scoring. He said, ``Even small differences in a 
consumer's credit score can influence the cost or other terms 
of the credit offer, or even make the difference between 
getting approved or denied. Accuracy of the information 
underlying the score calculation is paramount.''
    A study released by the Consumer Federation of America and 
the National Credit Reporting Association has found dramatic 
and costly discrepancies in credit scores in underlying credit 
information among credit repositories. We looked at half a 
million actual mortgage consumers seeking mortgage credit. 
Researchers then closely examined the files of consumers with 
scores near the 620 cutoff; this is the commonly known dividing 
line between prime lower-cost mortgage credit and sub-prime 
higher-cost credit.
    The study found wide variations in credit scores for a 
given consumer among the three national credit repositories. 
The average discrepancy for all consumers was 41 points. The 
credit scores for nearly one in three consumers varied by 50 
points or more. In credit scores for one in 25 varied by 100 
points or more. This means that roughly 8 million consumers, 
one in five of those who are on this borderline, are likely to 
be misclassified as sub-prime upon applying for a mortgage.
    A similar number of consumers are likely to benefit from 
errors in their report. However, I don't think anybody in this 
room would argue that individual consumers benefit from system-
wide averages like this. And I don't think anybody in the room 
would agree that consumers should have to cope with a credit 
reporting system that functions like a lottery.
    Falling below the cutoff score for prime mortgage can lead 
to a complete denial of credit or be extremely costly. We threw 
out an example in our written testimony. The upshot is we 
compare an A-loan, less than ideal credit, to an A loan. The 
consumer at A would pay $124,000 more in interest payments over 
the life of a 30-year fixed $150,000 mortgage. There is a 
detailed analysis in the testimony of this report.
    Let me add that the Federal Reserve has come to similar 
completions about one aspect of the problem that we highlight, 
and that is the completeness of reporting by creditors. The 
primary area of concern that they identify with data integrity 
was that of missing credit limits. This can have a major 
detrimental effect on consumers' credit score and on their 
credit rating overall.
    The Controller of the Currency has also raised concerns 
about complete reporting, as has the Federal Financial 
Institutions Examination Counsel, which brings me to closing 
and to highlight the second and third issues that I mentioned 
at the top.
    If one of the major problems is inaccurate and incomplete 
reporting by the furnishers, then we need to go and look at 
many of the recommendations that have been thrown out by CFA 
and others to increase complete reporting by those furnishers. 
We suggest if they use the system, voluntary approach, if they 
use the credit reporting system, they need to report 
everything.
    Finally, we need to look at our dispute resolution process. 
It doesn't allow consumers access to their credit score in most 
cases. Most States don't allow it and FICRA doesn't allow it, 
and it doesn't allow consumers to get quick, timely access to 
their report to correct errors and get that good credit offer, 
that good mortgage loan or that other offer of credit that they 
would like to get. It is a serious problem, and we need to look 
at modernizing the dispute resolution process.
    Thank you.
    [The prepared statement of Travis B. Plunkett can be found 
on page 182 in the appendix.]
    Chairman Bachus. Thank you, Mr. Plunkett.
    Mr. Fishbein?

   STATEMENT OF ALLEN FISHBEIN, GENERAL COUNSEL, CENTER FOR 
                        COMMUNITY CHANGE

    Mr. Fishbein. Thank you, Mr. Chairman, and Mr. Sanders and 
members of the subcommittee.
    My name is Allen Fishbein, and I am general counsel of the 
Center for Community Change. I want to thank you for the 
opportunity to testify today and share my thoughts at this 
hearing on the role of FCRA and the credit-granting process.
    My written testimony focuses on a series of issues 
pertaining to the impact of credit scoring and automated 
underwriting in providing fair access to mortgage credit, which 
we think bears on the issues that are the concern of this 
hearing.
    In 1969, during the debate on the original FCRA, Senator 
Proxmire spoke of the congressional intent behind the law, 
saying that the aim of FCRA is to see that the credit report 
system serves the consumer as well as the industry. ``The 
consumer has a right to information which is accurate. He has a 
right to correct inaccurate or misleading information,'' said 
Senator Proxmire. ``And he has the right to know when 
inaccurate information is entered into his file. The Fair 
Credit Reporting Act seeks to secure these rights.''
    Referring to this legislative intent, last year, William 
Lund with Maine's Office of Consumer Regulation Stated, ``Just 
as the FCRA demystified the storage and the use of credit 
information, credit scoring is now serving to re-mystify that 
process.'' And we share the regulator's concern.
    The rapid growth in the use of credit scoring and related 
technologies have worked to improve access to credit for many, 
particularly in mortgage lending. However, it also has added an 
additional veil of secrecy over the credit decision-making 
process. This veil has created uncertainty and suspicions among 
consumers about the role that these scoring technologies play 
as gatekeepers for obtaining credit. Lifting this veil, 
particularly for the mortgage lending arena, is long overdue, 
but is likely to require congressional action to achieve.
    Let me highlight the main points that are in my written 
testimony in the time I have this morning, let me say that 
there have been great changes in consumer credit reporting and 
consumer credit decisions since FCRA was originally enacted, 
and even since the 1996 amendments. Computerized credit scores 
are contained in huge national databases today. Credit scoring 
and application scoring technologies play significant roles in 
a vast majority of the credit-granting decisions that are made.
    Perhaps no area has changed greater than in mortgage 
lending. In less than a decade, mortgage loaning has gone from 
a largely manual decision-making process to an automated one. 
Predictably, fans of credit scoring say that it represents an 
improvement over manual underwriting, because it is more 
objective, it has a greater predictive value for judging which 
than does manual underwriting. The efficiencies that scoring 
provides permits expanded underwriting and has contributed to 
increases to homeownership overall and for increases in 
homeownership for the underserved.
    They also say that scoring is fair and unbiased, but only 
the developers of these scoring systems know this for sure. 
Their confidence in the fairness of these systems must be 
accepted today as an article of faith, because these systems 
are very closely held and proprietary. Former President Reagan 
once said in another context, ``Trust, but verify.'' And that 
is our position about assessing the accuracy and fairness of 
the scoring models that are used today.
    Concerns about the fairness and accuracy have been raised 
almost since these new systems have gone into effect in the 
mortgage area, and the stakes are higher than ever before. No 
longer is it just about access to credit, meaning affecting 
people at the margins, but the advent of risk-based pricing, 
which is being used more and more in mortgage lending and other 
areas of consumer credit, means that scoring also affects how 
much credit costs and the terms and conditions that are 
extended. In other words, it affects virtually every consumer. 
Consumers that do not meet the minimum cutoffs that credit 
scoring assigns are relegated to the higher priced sub-prime 
market.
    The concerns about the scoring models in place are several 
fold. Research, as Travis and others have suggested, indicate 
significant inaccuracies and inconsistencies in the underlying 
credit reports. This represents a double-whammy, in effect. If 
the reports are inaccurate, then it is likely the credit 
scoring models are, as well. The CFA study indicate that one 
out of five of households are at risk of being misclassified, 
as a result of these inaccuracies, into the sub-prime market.
    But regulators have also voiced concerns that certain 
creditors may be manipulating credit reporting systems in an 
effort to hang on to what they view as their most favorable 
customers by not reporting favorable information about their 
coustomers.
    There are also a host of methodological issues, including 
under representations of key demographic groups, such as low-
income people and minorities, and important omitted variables 
from the credit scoring methodologies, such as non-traditional 
factors that may pertain to predictiveness: counting rent 
payments and utility payments, as examples.
    And when pressed, all the purveyors of credit score models 
will acknowledge that minorities, African-Americans and 
Hispanics, are disproportionately adversely affected by the 
methodologies today in place. In other words, on average, 
minorities fare worse under credit-scoring methodologies than 
do white households.
    This doesn't necessarily mean they are discriminatory. But 
given the legacy of lending discrimination and housing 
discrimination in this country, adverse impacts should be 
treated very seriously. And it should trigger very strict 
scrutiny, such as an effects test analysis, which would ensure 
that the factors and their weight are being used correctly in 
the models; second, that there is a business necessity for 
using these factors; and third, that less discriminatory 
approaches that would achieve the same ends are not available.
    But despite these legitimate concerns, independent review 
and analysis has not been conducted to ensure the validity and 
the fairness of the scoring systems that are in common usage 
today. We urge, therefore, the establishment of an effective 
and meaningful oversight process, which would evaluate and 
regularly monitor the statistical scoring models that are used.
    We think Federal agencies such as the FTC and HUD can be 
used for these purposes.
    In conclusion, let me say such steps we believe are 
necessary to lift the veil of secrecy that exists. These steps 
are entirely consistent with the objectives of FCRA to ensure 
accurate credit reporting and are necessary in order to achieve 
full consumer confidence in credit decisions that are being 
made today.
    Thank you, Mr. Chairman.
    [The prepared statement of Allen Fishbein can be found on 
page 85 in the appendix.]
    Chairman Bachus. Thank you, Mr. Fishbein.
    Mr. Gambill, before you testify, I want to say this to all 
members.
    Mr. Gambill is CEO of one of the credit bureaus or credit 
reporting agencies.
    And I want to commend you for testifying. Often, no matter 
where the fault may lie, it is directed at the credit reporting 
agency. You sometimes find yourself the whipping boy, even 
though someone may have supplied you with bad information or 
because someone is receiving a credit score that they don't 
like. So I think most of the members of this panel are 
knowledgeable of that fact and will bear that in mind during 
the questioning.
    We welcome your testimony. And we also, I think that all 
the members of this panel realize the problems in the system, 
that we all work together. But I think we would all agree, 
including consumer groups, industry, et cetera, that credit 
reporting agencies are a valuable component of our lending and 
borrowing process and our economy, and perform a very 
fundamental role. So I thank you and welcome your testimony.

        STATEMENT OF HARRY GAMBILL, CEO, TRANSUNION LLC

    Mr. Gambill. Thank you very much, Chairman Bachus.
    And thank you, Congressman Sanders, and members of the 
subcommittee for inviting me to be here today.
    As you know, TransUnion is one of the nation's largest 
consumer credit information companies. We are a facilitator of 
commerce that provides credit granters with information and 
analytic tools that enable them to better understand their 
customers and make more informed decisions. And we provide 
consumers with choice, access, reliability and the promise of a 
robust and more stable economy. All of this relies on Federal 
preemption. Federal preemption brings uniformity to the risk 
management process that is inherent in the granting of credit.
    Uniformity allows lenders to make fast, reliable business 
decisions on a national basis. Uniformity means consumers are 
treated equally and presented with a constantly evolving array 
of financial products and services uniquely tailored to meet 
their personal lifestyles and qualifications. Uniformity allows 
regulators to assess risk and take appropriate measures to 
protect the interest of depositors and the American public.
    If Federal preemption were allowed to expire and each 
State, county or municipality are permitted to adopt their own 
laws, the credit reporting system will be severely fragmented, 
and the consequences to the consumer and our economy will be 
significant.
    We have seen this play out in other markets around the 
world. In many countries, consumers, regardless of their credit 
profiles, don't have access to long-term mortgages at all or 
must pay interest rates of more than 20 percent on the loans 
that they can get. This is the direct result of the lack of a 
comprehensive and uniform credit reporting system. Consumers in 
those countries really have few options. They are generally 
tied to one institution, their bank, for all of their financial 
needs.
    There has been a good deal of discussion before this 
subcommittee on identity theft and data accuracy issues. These 
concerns are not taken lightly by TransUnion, but should not 
override a law that, and I quote from legislative history, 
``recognizes the fact that credit reporting and credit granting 
are, in many aspects, national in scope, and that a single set 
of Federal rules promotes operational efficiency for industry 
and competitive prices for consumers.''
    To address the concerns of identity theft and data 
accuracy, I believe we start with consumer education. Consumers 
are more engaged in the credit reporting process today than 
ever before. We believe the public and private sector must each 
take a role in ensuring consumers know their rights under the 
FCRA. And TransUnion has responded to the need for consumer 
education by making tools available that help individuals 
manage their financial help. We are committed to providing 
education to consumers through a multitude of channels, but our 
ability to do that, if we first have to find out their address, 
will be severely limited.
    We make our living by accurately and efficiently processing 
2 billion pieces of information into 192 million credit files 
every month, and we do it well. We recognize, however, that 
some consumers have questions and issues regarding the 
information in that file. And that is why we have recently made 
large investments in technological platforms to automate the 
re-verification of information. Fifty-two percent of our data 
providers now participate in the automated process of re-
verification, and our goal is 100 percent participation.
    We believe this approach will seamlessly resolve most 
matters quickly and efficiently, but we face a significant 
challenge from credit repair clinics. If these credit repair 
clinics are allowed to continue to generate spurious volumes, 
and they are currently responsible for 35 percent of our total 
re-verification volume, our ability to deliver fast, accurate 
resolutions will be hamstrung.
    That will bring us to identity theft. We understand the 
personal nature of an individual's credit information, and have 
taken substantial steps to protect the integrity of our systems 
and our information. We are strongly committed to continue to 
be part of the identity theft solution.
    TransUnion led the industry with the creation of a fraud 
victim assistance center, which has been recognized by law 
enforcement, as well as the media, for its unprecedented 
service to identity theft and other credit fraud victims. Our 
fraud victim assistance experts work with consumers, law 
enforcement and credit granters to assist victims and aid in 
the apprehension of perpetrators.
    Earlier this year, TransUnion and our competitors announced 
that we now share information related to fraud identity theft 
victims. Consumers can now make one call to any of the three 
national bureaus and be confident that all of us will put the 
appropriate safeguards in place.
    U.S. lenders are purchasing millions of credit reports each 
day. These reports allow lenders to make decisions that allow 
consumers to enjoy same-day commitments on home loans, receive 
instant credit approval at the retail point of purchase and 
drive off a car lot with the vehicle of their choice in 
minutes. Lenders are making those decisions based primarily on 
the information contained in a credit report, because the 
credit report system works.
    This system is critical to our economy. Our economy is 
driven two-thirds by consumer purchasing, and we believe our 
system must be maintained.
    Thank you again for the opportunity to be here. We at 
TransUnion are committed to assisting your committee in any way 
that we can with respect to this important matter.
    [The prepared statement of Harry Gambill can be found on 
page 94 in the appendix.]
    Chairman Bachus. Thank you, Mr. Gambill.
    At this time, we are going to have questions from the 
members of the committee, and I am actually going to waive my 
questions. I will say that I am sure that Mr. Sanders or 
someone else will ask, particularly Mr. Gambill, about free 
credit reports. That is something we are hearing a lot about.
    And if that question is asked, I would like you to detail 
the impact that will have, you know, on your company. I think 
if we discuss that, we need to know about the impact of it.
    Mr. Feeney has no questions.
    Mr. Hensarling?
    Mr. Hensarling. Thank you, Mr. Chairman.
    There appear to be some accusations of huge inaccuracies 
within our credit reporting system. So I guess, Mr. Gambill, my 
first question would be for you. Can you quantify for me the 
number of credit records or reports you are responsible for and 
how often consumers have complained about inaccuracies? How 
often have records been changed because of inaccuracies in the 
report?
    Mr. Gambill. I will give you some of the information, and I 
would like to have my team be able to work with individually so 
I can really understand your question.
    About 8 million consumers a year avail themselves of the 
opportunity to get a free credit report from TransUnion. That 
represents probably about 8 percent of the households in the 
United States. About half of the consumers that then get a copy 
of their credit file ask us to re-verify something on it, 
either because they don't understand it or they may disagree 
with the rating as provided by one of our data furnishers.
    So, the 8 million people, which represents about 2 percent 
of the files sold, on who we sell files ask us for copies of 
those in a free manner. Then, about half of those ask us to re-
verify something on those files. The average file has about 
nine trades on it, so now I am getting into math. I had better 
stop trying to do and have the team work with you on it 
individual basis.
    But 2 percent of the people ask for a copy and then half of 
those ask us to reverify something.
    Mr. Hensarling. Thank you, that is helpful to me. When I 
hear about accusations of huge inaccuracies within the system, 
I am a firm believer that the world works off of incentives. I 
am trying to figure out who might have an incentive to put 
inaccurate information into the system in the first place. I am 
somewhat curious.
    I guess my next question would be for Mr. Courson and Mr. 
Moskowitz, since you both are in the business of extending 
credit. I assume that to be profitable you would like to make 
more credit transactions instead of fewer. And to make more 
transactions, you need accurate information so that you can 
price the risk premium accordingly. And if that assumption is 
true, in your observation, who has an incentive to put 
inaccurate information into this system?
    Mr. Moskowitz. I don't think any lender has an incentive to 
put inaccurate information into this system, including lenders 
that would like to retain their existing customers. Each lender 
has a vested interest in the performance of the loan and the 
success of the consumer who has the loan. And the integrity of 
that system and the quality of that information is the 
necessary foundation of that.
    If we merely were interested in retaining our own 
customers, or a lender was merely interested in retaining its 
own customers, you could argue that. But a company like Wells 
Fargo has a much larger interest in expanding its customer base 
and relies on the integrity of the information in the system.
    Also, to protect itself from identity theft and from fraud, 
it relies on the information, corrects erroneous information 
promptly and would assume that all lenders in that position who 
have integrity would do the same thing.
    Mr. Hensarling. Mr. Courson?
    Mr. Courson. Our members, obviously, are primarily 
originating and selling loans, Congressman, into the secondary 
market, so we have another standard that we have to meet in 
terms of standing behind the information we have. And there is 
really, as Mr. Moskowitz says, no incentive for incurate 
consumer credit reporting.
    As a matter of fact, lenders are the ones that are standing 
behind the loan based on the accuracy of the information that 
we receive. Lenders are both users and furnishers of 
information provided through the CRAs as we make our credit 
decisions.
    Mr. Hensarling. Given that my time is rapidly running out, 
I would like to ask each of you to just give the briefest of 
answer to this question. If we did not reauthorize the Fair 
Credit Reporting Act, would there be more credit offerings or 
fewer credit offerings to the American people? Would the credit 
be more expensive or less expensive? Just from left to right.
    Mr. Courson. There clearly would be less credit offerings, 
particularly because you have to deal with a patchwork of 50 
different sets of State laws. Clearly, we have a national 
mortgage market. The easy and fluid movement of capital across 
State lines exists because of the seamless ability of mortgage 
lenders to obtain credit information, make credit decisions and 
offer products. If Congress starts putting barriers up, and we 
have to deal with 50 different standards, obviously, some 
lenders will withdraw, some will not compete, there will be 
less markets available and, therefore, a higher cost to the 
consumer.
    Mr. Moskowitz. And I would follow up that comment by saying 
that the current national standard that we have allows lenders 
like Wells Fargo to make credit more available by innovating 
products that identify the needs of communities, low-to 
moderate-income communities, and that the failure to extend 
FCRA would limit those opportunities because of the impact on 
liquidity in the marketplace.
    Mr. Pickel. Since we sell to both the companies that MBA 
represents and Wells Fargo and others like it, we feel like it 
would increase the cost quite substantially. As a further 
comment, we feel like it would increase the cost, especially in 
rural areas, where credit may not be extended as much as often 
where mortgage brokers really excel, and also when you have a 
city that is on a State line if the States enact different 
laws.
    Thank you.
    Mr. Plunkett. As we heard last week, we have a national 
mortgage and lending market created through joint State and 
Federal regulation. The Fair Credit Reporting Act is not 
expiring; some very limited provisions are expiring. If minimal 
baseline meaningful Federal standards were on the books, you 
would get a lot of uniformity. And States like Vermont could 
respond to localized problems and help their citizens after, 
then Congress would be able to respond.
    So I don't see, if that approach were taken, which is the 
approach we are recommending, I don't see a change in lending 
at all.
    Mr. Fishbein. I would agree with Travis on that. I think if 
we allow the States to be more active players in this process, 
that could very well improve the level and accuracy of 
reporting.
    Mr. Gambill. To try to directly answer your question, there 
would be more offers to apply for credit, because absent the 
prescreening preemption provisions of FCRA, lenders would still 
have to find new cardholders, but they couldn't target their 
mailings. So, they would have to broad scale mailings to people 
offering the opportunity for them to apply without having those 
mailings be pre-approved.
    Consumers would then apply, and the turn down rates would 
go up, of course, because they will have gone to everybody, not 
only those people that already meet the eligibility standards. 
So, the ultimate result would be higher costs, probably same 
amount.
    Chairman Bachus. Okay.
    Thank you, Mr. Hensarling.
    Mr. Sanders?
    Mr. Sanders. Thank you, Mr. Chairman.
    Representatives of the industry have argued that they want 
to preempt States from passing strong consumer protection 
legislation. Just to set the record straight, because I hear a 
lot about concerns about consumer needs today, let's be clear 
that every major consumer organization in America, including 
the two that are represented at the panel right now, but U.S. 
PIRG, Consumer Federation of America, Consumers Union, National 
Consumers Law Center disagree with industry.
    And they believe, as I believe, and I think many, Americans 
believe, that what we want are high national standards to 
protect consumers, but we want to allow States to go even 
further so that they can address their own local needs and 
become laboratories for democracy.
    Second point that I want to make is that in a recent study, 
Consumers Federation of America examined over 500,000 credit 
bureau files. And they found, among other things, that 29 
percent of the people whose reports that they examined had a 
range of 50 points or more between the highest and lowest 
scores. One in 25 of the people whose reports they examined had 
a range of 100 points or more between the highest and lowest 
scores.
    As everybody here understands, that makes all the 
difference in the world between whether somebody's going to get 
reasonable interest rates or very, very high interest rates.
    Now, given that reality, what I would like to ask is 
representatives of the industry, and perhaps everybody on the 
panel, but we will start with Mr. Gambill. Given that reality, 
do you think that these errors could be reduced by allowing 
consumers to receive free credit reports and free credit scores 
at least once a year?
    In other words, wouldn't the consumer at least have a 
fighting chance to know why his or her interest rates are 
escalating, perhaps because of false information, if they, in 
fact, had a report in their hands?
    Why don't we start with Mr. Gambill?
    Chairman Bachus. Without taking the gentleman's time, I 
mean, just extending your time, you said ``errors.'' You mean 
differences in scores?
    Mr. Sanders. Well, I mean that when you have three separate 
companies coming up with three separate ratings, somebody is 
making a mistake. ``Errors'' is the word I would use.
    Mr. Gambill?
    Mr. Gambill. Yes, sir. I think I heard a question about 
free reports, Congressman, and also a question about accuracy.
    Mr. Sanders. Free reports and free credit scores so 
consumers could know what is going on in their lives and why 
they may be paying higher interest rates than they should be 
paying.
    Mr. Gambill. Yes sir. Thank you.
    You know, when people ask me in my job, What keeps you up 
at night? one of the things that keeps me up at night is, how 
in the world will we do it? If Congress decides to pass a law 
that says that we need to give away credit reports to consumers 
with 200 million of them likely to ask, here in America, 
existing law provides free reports to people who have been 
declined for credit; who are unemployed; who are on welfare; 
who are or think they have been victims of fraud; or who are or 
are likely to be seeking employment.
    In our case at TransUnion, that represents about 8 percent 
of the households in America. But we know that that is a 
relatively consistent percentage of the volume of reports that 
we sell. And we know how to manage a business and manage our 
support functions to deal with those 8 million reports or so 
that we are going to provide on an annual basis.
    I don't know how to build a business around the fact that 
there might be a front page article on USA Today tomorrow 
suggesting everybody that reads USA Today is now eligible for a 
free credit report, and they should call.
    Mr. Sanders. Well, my time is limited, and I am gathering 
that you think that this is not a good idea?
    Mr. Gambill. Yes sir.
    Mr. Sanders. Okay.
    Mr. Plunkett, what do you think? Do you think consumers 
should have a right to know how their interest rates are 
determined?
    Mr. Plunkett. We think it is the best and least expensive 
way. As Assistant Secretary of Treasury Abernathy said a few 
weeks ago, Imagine tens of millions of Americans having easy, 
free access to their credit reports. They can prevent these 
problems before they occur. It is the most cost effective way 
to do it.
    And in speaking about costs, we need to talk more about 
cost to consumers if we don't act, not just cost to business if 
we do act.
    Mr. Sanders. Okay.
    Mr. Courson, do you want to give us a view on that?
    Mr. Courson. Mr. Sanders, obviously mortgage lenders are 
also users of consumer information. I really feel that we are 
not the appropriate party, however, to respond. As to whether 
access to credit reports should be free.
    Mr. Sanders. Mr. Moskowitz?
    Mr. Moskowitz. As we said, we have a vested interest in the 
accuracy of the information. And an informed consumer who 
understands the ramifications of their credit and their 
performance and their life and how they manage their credit is 
a benefit to that consumer, and ultimately will increase the 
likelihood that they will become a homeowner.
    Mr. Sanders. So, do you support the right of consumers to 
get free----
    Mr. Moskowitz. I can't comment on whether or not it should 
be free or not, but availability and knowledge of what is in 
your credit report is a good thing.
    Mr. Sanders. Mr. Pickel?
    Mr. Pickel. Well, like Mr. Moskowitz, I don't think I can 
comment on whether or not it should be free. But I do want the 
credit reports to be accurate. And I will tell you, sir, as a 
mortgage loan officer working with consumers, oftentimes it 
takes a lot of time to work with a consumer on a credit report. 
It is somewhat intimidating, it is hard to read, I am not sure 
if they just got it, it would help. But that is not for me; we 
want it to be accurate, and we want them to get home loans.
    Mr. Sanders. Mr. Fishbein?
    Mr. Fishbein. I agree that the disclosure ought to be 
regular and be free for credit reports and scores. I think the 
industry should actually be promoting this as much as 
possible----
    Mr. Sanders. Right.
    Mr. Fishbein.----in an effort to try to correct the 
complaints about inaccuracies and inconsistencies. The best way 
to do that is by providing people with more information.
    Mr. Sanders. Who is going to know about their credit 
history better than the consumer himself?
    Mr. Fishbein. Correct.
    Mr. Sanders. Okay.
    Thank you all very, very much.
    Thank you, Mr. Chairman.
    Chairman Bachus. Thank you.
    Mr. Fishbein?
    I will ask a question now.
    One of my staffers was recently burglarized. You know, they 
stole his TV and they stole a stereo system. And he went down 
to the D.C. police department and asked for an incident report 
on that, and he was charged $10 for it. Do you think he should 
have been given a free police report?
    Mr. Fishbein. Well, I don't know whether we want to use the 
standards of the D.C. police department for judging access to 
credit reports.
    Chairman Bachus. I mean, do you think that was fair that 
they charged him for that report?
    Mr. Fishbein. We hear a lot of talk about new technologies 
and cheaper and faster. Technologies have a tremendous ability 
to provide people with information relatively inexpensively. 
And I think that ought to be pursued very carefully by the 
industry in an effort to get more----
    Chairman Bachus. But you didn't answer my question. I mean, 
we are talking about free reports; do you think they should 
have given him a free report? I mean, he pays taxes, you know, 
he actually pays the city of D.C. Should he have been given 
free reports?
    Mr. Fishbein. Well, if the D.C. government had a way of 
providing this information inexpensively, then I think it could 
be done. Again, I think we don't want to use that measure. What 
we are talking about here is----
    Chairman Bachus. But you understand what I am saying. They 
charge money for this report, and actually, he pays taxes to 
D.C. And actually, as taxpayers, we don't pay taxes to 
TransUnion.
    Mr. Sanders. Mr. Chairman, I would agree with you. You are 
absolutely right. Perhaps he should have been given a free 
report, and maybe if they had Statehood and collect revenues, 
they would be able to do it. But----
    [Laughter.]
    Chairman Bachus. Well, actually, I was charged $5 for 
somebody who ran into my car in Alabama. I was charged $5 for 
an accident report. I didn't demand any. I guess we could give 
everybody everything free, but who would pay for the cost of 
maintaining these systems. The cost would go up, wouldn't it, I 
mean, if they are giving away 20 million free reports?
    And I guess as a practical matter, I am just wondering if 
all of this was available and free and you could get it for 
free, why would anybody pay them for a report? How would they 
make any money? And wouldn't they just go out of business?
    Mr. Plunkett. Mr. Chairman?
    Chairman Bachus. I mean, if you give away your product, how 
do you stay in business? I guess that might be my question. And 
I am asking the two consumer people. I mean, how do you get 
around that?
    Mr. Plunkett. Well, revenues for the credit reporting 
agencies has certainly increased in terms of their direct sales 
to consumers. But as the bulk of their revenue is generated 
through the users of the system, the furnishers and those who 
use the system for risk analysis and other purposes. However, 
we have seen a growth in premium services that are charging 
consumers for some items that we think are vital and should be 
free, like the credit score or----
    Chairman Bachus. Well, now, you are----
    Mr. Plunkett.----credit reporting information.
    Chairman Bachus. Aren't you charged for a lot of services 
that are vital today?
    Mr. Plunkett. I would agree with Representative Sanders 
that certain government documents are so important, such as a 
police report, such that they should endeavor to give you those 
documents as cheaply as possible. In this case, consumers are 
the subject of these documents. They have an absolute right to 
ensure that the information about them is accurate. And the 
best way to do that is to make access easy through free 
reports. Six States require this already.
    Chairman Bachus. Well, you know, I was just looking, I had 
a list of when you get a free credit report. Today, current law 
says that credit bureau has to give a free report to people on 
public assistance, people seeking employment, people denied 
credit, people denied insurance, people denied employment, 
people that think they may be the victim of identity theft. And 
everybody else pays $9. In other words, if you can afford it, 
you pay for it.
    And I am not talking about accuracy or anything else. I am 
talking about that it is at great expense that they maintain 
these systems. I mean, they are a for-profit corporation. And I 
don't think that there is anything wrong with that.
    Mr. Sanders. Mr. Chairman, could I----
    Chairman Bachus. And, you know, if we wanted to start a 
public agency to maintain records, or something, but I am just 
wondering even almost the constitutional implications of 
starting to tell people to give away their product. Does that 
bother you a little bit from a constitutional standpoint?
    Mr. Plunkett. I haven't heard, Mr. Chairman, of any 
constitutional issues being raised regarding the six States 
that require it now. Overall, it decreases cost in the system, 
and in many ways makes the system more effective for lenders. 
If the information is more accurate, they can predict risks 
more accurately. If consumers correct errors, the lenders have 
a better system, as well. Overall, I see it as a win-win.
    Chairman Bachus. Okay. All right. Thanks.
    Mr. Gambill, do you want to respond?
    Mr. Gambill. Well, yes, sir. Thank you.
    At $9, providing reports to consumer that want it is not a 
moneymaker. Okay? If it was, you would see us advertising it a 
lot more heavily than we do now. Our companies aren't that big. 
The credit reporting companies in America in information 
services are well under $1 billion in sales. We spend, already, 
probably 10 percent-ish of our money dealing with this 
population of consumers, that we are happy to deal with and 
help, that are entitled to free credit reports.
    So it represents a huge change if we are to go from 
disclosing 8 million reports a year to disclosing a 100 
million, or 200 million.
    And as I said, I just don't know how we will do it. I am 
sure that we will, if we are somehow required to, but I don't 
know how we will plan for it. And I don't know how we will be 
able to continue to give the kind of service and automation 
investment in re-verification issues for consumers that are 
entitled to free disclosures if we have everybody that is 
responding to e-mails that may go out. There was a recent e-
mail that had millions of people opt out unnecessarily. It cost 
us $2 million at TransUnion just to deal with that kind of 
thing. I don't know how to mange it.
    Chairman Bachus. Let me say this, we have a vote on the 
floor. We are going to recess this hearing until the end of 
vote, and it probably will be at least 30 minutes.
    I do want to say this in closing, we have talked about the 
difference between the report at the credit bureaus, the 
difference in credit scores. And we have talked about that as 
an error. But, you know, conservative groups give us a score, 
you know, and liberal groups give us a score, and I may get a 
95 from one conservative group and a 90 from another group. He 
may get a 2 from one conservative group. And a five from 
another. But that wouldn't be an error.
    I mean, that would be each group using a little different 
criteria. And I don't call these groups and say, You have made 
an error. This other group scored me at an 85, you scored me at 
a 10. There is a 75 percent discrepancy here. I mean, they are 
using different input. And, I mean, this is proprietary.
    This is the most popular thing that both sides of the 
people talking about free credit reports, I just think somebody 
has got to pay for it. If you ask these credit reporting 
agencies to pay for it, and it costs 50 percent of their 
revenues, that is a problem. I mean, that is almost 
confiscation of property.
    We will recess this hearing at this time.
    [Recess.]
    Chairman Bachus. The subcommittee will come to order.
    The gentleman from North Carolina, Mr. Watt, is recognized.
    Mr. Watt. Thank you, Mr. Chairman.
    It is a good way to slip back in and cut the line before 
everybody else gets back. So I am glad to be able to do that 
because I have to go to the floor and do something on this 
class action bill.
    This is the third set of hearings we have had on fair 
credit reporting. And I have been trying to get to as many of 
the panels as I can to see whether there was any kind of 
consensus starting to be built about some things that we might 
begin to coalesce around. And I wanted to try to see, maybe, 
whether some consensus is beginning to emerge on at least some 
principles that we could start to draft a bill around.
    Mr. Plunkett, your testimony may be interpreted by some to 
suggest that you are disenchanted with a Federal standard. But 
it seems to me that most of the things that you raised 
questions about would probably be worse off if we didn't have a 
Federal standard, at least in some areas of the country they 
would be worse off. In some areas of the country they might be 
better off.
    So I guess the question I want to ask you before I start to 
try to see whether there is any consensus is whether you are 
advocating for no Federal standards? I don't think that is what 
you are doing, but I want to clarify and be clear on what it is 
you are advocating for.
    Mr. Plunkett. We propose strong Federal baseline standards. 
We have also endorsed the notion that the existing eight 
preemptions should be allowed to expire and then where States 
deem it necessary, they could exceed, not conflict with, but 
exceed the strong Federal baseline standards.
    Mr. Watt. So you are not advocating for expiration 
necessarily, maybe improvement of the existing standards with 
that being the base, rather than--and then States could go 
beyond that? Would that be a fair characterization of what you 
are----
    Mr. Plunkett. Absolutely, Congressman. And in that 
circumstance, it would be very rare and quite unlikely, 
especially initially, that States would choose.
    Mr. Watt. But, I mean, is it clear to you that the kinds of 
things that are covered in the eight standards that exist, 
whether they are the correct minimum Federal standards, but the 
kinds of things that are addressed in those eight standards 
should be the kinds of things that you would set a minimum 
Federal standard for?
    Mr. Plunkett. Absolutely.
    Mr. Watt. Okay.
    And now, Mr. Courson and Mr. Moskowitz, I take it, and Mr. 
Pickel, also, I guess, all of you agree that there needs to be 
Federal standards, I take it?
    Now I guess, ideally, if you had a Federal standard, and 
the standard was good enough nationwide, we wouldn't have to 
worry about States preempting or States passing something even 
more aggressive.
    How would you all react to the existing eight things being 
massaged and clarified in some way and maybe trying to get to 
some consensus on the things that I have heard really most 
people complain about? Those are errors and accuracy; credit 
scoring; dispute resolution; maybe free credit reports, if some 
consensus could emerge on that; discrimination or adverse 
impacts on minorities; and identity theft.
    Do you all think that those are the kinds of things that 
there ought to be some Federal standard for, I guess?
    And I am assuming you all were probably for the Federal 
standards whenever this thing was done 15 years ago. But now 
you have decided it is a good idea to have that Federal 
standard. Are those kinds of things the things that we also 
should have some minimum Federal standard on?
    Mr. Courson. Congressman, as you know, you are correct in 
saying the uniform national standard fo consumer credit 
information credit the free flow of capital across State lines. 
Mortgage lenders are very concerned that their ability to 
originate loans across State lines with consistent standards 
will be in jeopardy if the preemptions disappear. The 
preemptions were put in place in 1996, and as a result, 
mortgage lenders are doing increasing volumes of business, both 
purchase and refinance. The system is working. Mortgage lender 
flow enable credit to move back and forth, across State lines.
    My concern is that once Congress gives States the 
opportunity it will block the free flow of credit requirements 
among States. My fear is, as we have seen in other areas.
    Mr. Watt. I understand that, but would you accept the 
proposition that on the things that I have just described, the 
list of things, that there ought to be some Federal standard?
    Mr. Courson. Well, I think you have to look at each of 
these areas on an individual basis. We are talking about the 
FCRA including the preemptions that target to some very 
specific areas. There are other issues that have been discussed 
today, and our concern is that we don't want to disadvantage 
the consumers by not maintaining the preemptions so that we can 
continue to have free flow of credit.
    There are other issues to discuss, but I think that we have 
to realize, too, that the FCRA basically deals with those 
specific seven items.
    Mr. Watt. You mean there is something on my list that 
should be discussed outside of fair credit reporting? I mean, 
it seems to me that all of those things are being impacted by 
fair credit reporting.
    Mr. Courson. Some of them would affect our industry, and 
others on the panel, also.
    Mr. Watt. I know I am over my time, but it would great if I 
could hear from Mr. Pickel and Mr. Moskowitz.
    Mr. Moskowitz. I would echo what Mr. Courson said. The 
concept of uniform, understood Federal standards that ensure 
consistency in decision-making is obvious to us. And the 
ability of a myriad of State regulations overlying those 
standards would actually undermine the effectiveness of those 
standards and would ultimately impact liquidity and 
availability of credit, in general. So we would not be in 
support of that.
    Mr. Pickel. NAMB has not taken a position on identity 
theft. But that said, we really want the credit reports to be 
as accurate as possible, and if it is a Federal standard on 
those issues that you brought up, it would seem like to me that 
would be better than individual standards by State on those 
issues, sir.
    Mr. Watt. Thank you, Mr. Chairman.
    Chairman Bachus. Thank you, Mr. Watt.
    The gentleman from Illinois, Mr. Gutierrez?
    Mr. Gutierrez. Thank you, Mr. Chairman.
    Mr. Gambill, what is the total profit of your corporation 
for the issuance of credit reports? That is, when private 
individuals ask you for a credit report, what is the extent of 
that? Is it 2 percent, 5 percent?
    Mr. Gambill. Well, we almost have no revenue from that 
particular source at this point, Congressman. And right now it 
is underwater. We were trying to build a business there. We 
acquired a company to help us do online disclosures in a more 
efficient way. But we are at below break-even at this point on 
the sale of reports directly to consumers. I would like to see 
that ultimately become something in the 15----
    Mr. Gutierrez. Why are you losing money on that particular 
part of your business?
    Mr. Gambill. Well, I am just trying to build my sales. I am 
trying to build the consumer base that uses the products and 
services that we have available. And we have a level of cost 
right now that is greater than our sales. Our sales are about 
$30 million in that space, and so are our costs.
    Mr. Gutierrez. So where do you derive most of your profits, 
then?
    Mr. Gambill. From the sale of credit reports to lenders.
    Mr. Gutierrez. To lenders?
    Mr. Gambill. Yes, sir.
    Mr. Gutierrez. I was just curious about where you derived 
most of your profits from, because I know that everyone else, 
kind of, was speaking about issuance of credit reports and 
their availability to the public. And I guess it is the nature 
of your relationship with the public that I think is different. 
And that is that you gather information on me and everyone else 
in this room. You don't ask me if you can use that information, 
but yet you sell, you barter and you use that information to 
say, as you say, that makes the majority of your profit in your 
corporation.
    So I think it is different than when I go down and, I don't 
know, get a birth certificate from someone, and say I need a 
birth certificate because I had to enroll my daughter in 
school, and I need a birth certificate to get that, in that you 
are in the business of gathering my information, selling my 
information. And I think you have a responsibility with me and 
everyone else whose information you are using in order to 
generate profit for your corporation. So I think in that sense 
it is a very different relationship than other kinds of 
relationships that have been expressed here today.
    So I would just like to see how this committee could take 
that very special relationship that not only Mr. Gambill who is 
here and was kind enough to come before this committee, not 
expecting to get a very pleasant reception here today. He knew 
he was going to have to answer some hard questions today about 
how it is you do it.
    But, yes, they should make a profit. And I think government 
has to protect the right of the people that send us here, the 
consumers, and what the relationship between Mr. Gambill's 
corporation or any of the other two major corporations that 
issue credit information that is garnered for the public to 
make sure that it is the best information available, and they 
can correct that information. Because, as Mr. Gambill has 
testified, he makes most of his profit, because he loses money 
on the other part, from one area, and that is selling the 
information.
    So when I walk into a department store and they say, you 
know, we will give you 20 percent off if you take this credit 
card, he makes some money. Because they call and say, Mr. 
Gutierrez would like this credit card, get his 20 percent off. 
And that is where he makes his money. And I want to make sure 
that I don't have any problems. I get my credit card, I get my 
20 percent off.
    And that is really not a very, very serious issue, whether 
I am going to get 20 percent off on a tie or a shirt or 
something I might purchase that maybe I really don't need. But 
when it comes to my home.
    And I think, Mr. Chairman, that we have found, and I think 
this could be proven in one study after the other, that there 
are problems, problems that range from 10 to 20 to 25 percent 
of errors that exist on these credit reports that the credit 
agencies have taken from the public to make a profit from.
    So I think they have a responsibility with the public. I am 
sure they don't want to shirk that responsibility with the 
public. And I think we have a responsibility. We regulate how 
much I pay for my telephone bill, how much I pay for my gas. As 
a matter of fact, the price of my milk has a relationship with 
actions in the Congress of the United States, even when I buy 
my Snickers bar, since we subsidize peanuts, or sugar and 
everything else in this Congress.
    So the Congress has taken action in order to avail the 
public of the best possible avenue. And since we do have 
Freddie Mac and Fannie Mae, and we take on issues, and we have 
a huge institutional responsibility to guarantee that people, 
and we have mortgage insurance for those, I mean, we are in the 
business of helping people in homeownership. And it seems to me 
that if we just look at it, not so much vis-a-vis the 
corporations and what their profit--they should make a profit, 
I agree with that--what is our responsibility to, kind of, 
blend in all the other actions we are taking to guarantee 
homeownership, which we know is a key critical point of our 
economy, that we do that?
    And lastly, Mr. Chairman, I hope that at some point, since 
it has now been it is a fact, that insurance and what I pay for 
insurance, which makes up part of my monthly payment when I go 
to a bank and they say, Oh, Mr. Gutierrez, you are going to pay 
PMI, and you are going to pay this for taxes and you are going 
pay this for insurance, since insurance is also now being 
driven by what is on a credit report, although I don't 
understand if I made a late payment what that has to do with 
lightning striking my house----
    [Laughter.]
    ----but seriously, that does happen. It is a fact that we 
also look and expand as the insurance corporations now have 
gotten into using the credit bureau in terms of determining 
what a person will pay for insurance, because that could mean a 
lot of difference in someone's home ownership.
    Thank you, Mr. Chairman.
    And I want to thank all of the panelists for coming here 
today. They have been very, very informative.
    Chairman Bachus. I appreciate it, Mr. Gutierrez,
    I would just, if you will yield for an additional minute, I 
would simply say that I don't disagree with what you are 
saying.
    I think that I would point out that the information the 
credit reporting agencies are getting is not actually by going 
through our records, it is people that are furnishing those 
records. We do business with someone and that party supplies to 
them our record of payment or our credit relationship with the 
people that they are in association with. And then they 
actually share it, not with the general public, but they share 
it with people who we go to, like you say, where we go to 
someone and ask for, How about, you know, a $10,000 loan or a 
$200,000 mortgage? Then they share it with that person. They 
are not putting it out in the public domain.
    But I think that you are asking and thinking, I mean, we 
are all asking these questions, and that is the way we get a 
decision-making.
    The gentlemen from Ohio?
    Mr. Tiberi. Thank you, Mr. Chairman.
    Chairman Bachus. Mr. Tiberi?
    Mr. Tiberi. Mr. Gambill, let me direct a question to you, 
at least, let me give you my bias up front. I believe we should 
extend, permanently, FCRA and I have introduced a bill with 
Representative Lucas. Not only to do that, but also to create a 
uniform standard with respect to privacy. And I have seen, as a 
realtor, before I came to Congress, the incredible result that 
the amendments to FCRA had with respect to consumer credit in 
Ohio, in central Ohio, where I was a realtor.
    Now, put on your prognosticator hat, if you can, and tell 
me what you think would happen if my State legislature, and I 
was a State legislator, in the chairman's State legislature. 
And the ranking members State legislature, in Vermont, created 
three different types of standards that could happen if we 
don't extend FCRA, the amendments to FCRA. What would happen in 
terms of your role as a person who is obviously very much in 
the middle of the whole credit scoring issue?
    Mr. Gambill. Congressman, we would have to invest in and 
develop significant new technologies to ensure that we complied 
with whatever the rules were relative to a consumer who was 
either seeking credit in Ohio, but had lived in Vermont, or was 
seeking credit in Vermont, but had lived in Ohio, or was 
seeking credit in Vermont or Ohio, but the credit grantor was 
in Delaware or South Dakota, to be sure that we understood how 
all of those rules interacted together.
    Mr. Tiberi. And that would cost how much?
    Mr. Gambill. Oh, a couple of million dollars per time.
    Mr. Tiberi. And that would come from the Federal 
government, you assume?
    Mr. Gambill. No, sir, I am assuming that I would try to 
extract that from my customers----
    Mr. Tiberi. Okay. And your customers----
    Mr. Gambill.----who use the information, who then are going 
to try to extract that from their customers.
    Mr. Tiberi. So someone is ultimately going to pay for it?
    Mr. Gambill. Yes.
    Mr. Tiberi. And what may end happening is that that first-
time homebuyer may actually end up not being able to qualify 
for a first home because of increased cost to their mortgage.
    Mr. Gambill. Right. If a lender's costs go up, they either 
have to lend to less risky people, or charge more to the people 
they lend to.
    Mr. Tiberi. Mr. Courson. Did I say that right?
    Mr. Courson. Correct.
    Mr. Tiberi. Can you comment on that, as far as the lending 
industry?
    Mr. Courson. Sure. Well, unfortunately, I have been around 
this business long enough; I have seen how it works without 
this. The issue of trying to get a borrower's credit history 
who has lived in other areas is a nightmare. It is slow, it is 
debilitating and very costly.
    And the gentleman's correct that, in fact, the cost of 
trying to put this together, somebody is going to ultimately 
pay, and it is going to be the consumer.
    Mr. Tiberi. Thank you.
    Mr. Moskowitz? Your testimony was very good. Let me ask you 
to expand on it, if you would, from a Wells Fargo perspective. 
And that is, and you may not be familiar with my legislation 
with Mr. Lucas, but taking the FCRA point one step further, how 
would a national standard on privacy impact Wells Fargo, and 
then ultimately, the person who has a loan with Wells Fargo, if 
we go ahead and take that step and do it?
    Mr. Moskowitz. Obviously, we believe that in a multi-
jurisdictional company like ours, the ability to have a 
national standard, one which provides clarity to consumers, 
consistency and understanding of what the treatment of their 
information will be, is something that we think is 
advantageous.
    With respect to the issues raised about various 
jurisdictions creating their own separate myriad of local, 
county and State-level requirements, we operate in multiple 
States. We have customers who have accounts in one State and 
live in a different State. Conflicting requirements would 
severely impact the liquidity of the marketplaces that we do 
business in.
    So for example, mortgages that have to comply with various 
standards would be more difficult to securitize, would impact 
the interest rate scenarios that are available now, and would 
ultimately impact consumers' ability to get credit.
    Mr. Tiberi. This is the final thought, Mr. Chairman. So 
correct me if I am wrong: Whether it is with respect to credit, 
whether it is with respect to privacy, to a multi-
jurisdictional company like Wells Fargo or any other company 
that may be in more than one State, ultimately it is going to 
cost you more money to deal with those different State 
requirements, and that will eventually be passed on to your 
customer. Is that correct?
    Mr. Moskowitz. That is right. The current system is a model 
of efficiency in that it allows, in particular, an operating 
subsidiary of a national bank the ability to efficiently drive 
down costs, serve customers, have consistency and clarity in a 
way that we have never seen before.
    Mr. Tiberi. Thank you.
    Chairman Bachus. Thank you.
    The gentlelady from New York, Miss Maloney?
    Mrs. Maloney. I thank the chairman very much for yielding.
    And I would just like to State that despite the 
controversies of this week, I think we have to remember that 
the U.S. mortgage market is the best in the world, and the fact 
that home ownership is at 68 percent in this country is truly 
an incredible success. A major contributor to the high 
percentage is the ease with which consumers can now get 
approval for mortgages, because of advances in technology, 
including automated underwriting that relies on the FCRA.
    Mortgage decisions are now made at speeds that would have 
astonished people trying to buy a home just a year or two ago. 
The ease with which people can be approved for a mortgage is 
one of the major factors that has kept the economic slowdown of 
the last 3 years from getting any worse.
    As we all know, in the current low interest rate 
environment, mortgages are being refinanced at record rates, 
and this would be impossible without automation and readily 
available credit histories. And, Alan Greenspan has testified 
before this committee several times that it has truly been the 
mortgage market, the refinancing, that has helped our economic 
situation in this country.
    The Washington Post detailed the impact that the ability to 
refinance so easily is having on the economy last Sunday in an 
article that I would request unanimous consent to place into 
the record. But to summarize----
    [The following information can be found on page 215 in the 
appendix.]
    Chairman Bachus. Without objection.
    Mrs. Maloney. Thank you, Mr. Chairman.
    To summarize it, it said that since 2001, banks will have 
processed more than 27 million mortgage refinances by the end 
of the year. Out of those, homeowners will have converted more 
than $270 billion of home equity into cash, either to spend or 
convert high interest debt into very low interest loans, at 
least another $20 billion that is freed up in lower monthly 
mortgage payments. And in total since 2001, refinancing will 
have delivered about $300 billion directly to consumers who 
will have more money to spend and pump up the economy.
    That is in comparison to the $263 billion that the Bush tax 
cuts of 2001 and 2003 will have put back into the economy by 
year's end, which have less direct impact on spurring consumer 
spending, because they have gone not only to individuals, but 
also to businesses and in some cases, State and local 
governments.
    So I do believe that there is a significant argument for 
the importance of FCRA and the health of the macro-economy in 
our nation.
    At the same time, the reliance on automated underwriting 
magnifies mistakes in credit reports. This can be especially 
dramatic for individuals who are close to the line of being 
approved or denied a mortgage.
    So my first question is to Mr. Plunkett.
    The credit reporting agencies are in the business of 
selling reliable information to their clients. If their data is 
wrong, as your studies indicate, why does the lending industry 
continue to rely on them? And wouldn't incorrect data lead to 
losses for lenders and motivate them to find another means of 
monitoring and predicting whether people will default on loans?
    Mr. Plunkett?
    Mr. Plunkett. Well, the research shows, Congresswoman, that 
there are mistakes of omissions and mistakes of co-mission, 
omission being incomplete reporting. And the Controller of the 
Currency has commented on that issue. It is a good question. 
Why would furnishers shoot themselves in the foot, so to speak, 
by not submitting complete information?
    And what the Controller said was that he thinks that some 
sub-prime lenders in particular are gaming the system by not 
including positive information about their borrowers, because 
they don't want their borrowers to be solicited by another 
lender, and they don't want to lose them, because their 
borrowers may find a better deal and go elsewhere. So that 
might explain a part of the incomplete problem.
    Regarding the mistakes of co-mission, which we detail in 
our report, I don't think there is intent there to do harm: I 
think there is sloppiness. I think we have sloppy procedures, 
and we have a dispute system for consumers that doesn't work 
very well. So once a mistake is made, corrections are not made 
easily.
    Mrs. Maloney. Okay. Well, thank you.
    Mr. Gambill, how do you respond to the findings of the 
Consumer Federation that credit reports contain widespread 
errors?
    Mr. Gambill. Congresswoman, accuracy is how we make our 
living at TransUnion. We compete on the basis of the ability to 
have the freshest, most accurate, most complete file that is 
available to the lending community, so they can make the best, 
most useful decision about whether to lend money or develop a 
financial relationship, how much to charge for that and how to 
manage the overall relationship with the consumer.
    There are going to be differences in files because we 
compete. There are going to be lenders who provide information 
to TransUnion and don't provide information to Equifax and vice 
versa, or there are going to be lenders who provide information 
to Experian and not to TransUnion, either because I haven't 
persuaded them to do so, haven't found out about them or there 
is something else going on between us and that particular 
lender that keeps one of us from putting their information in 
the file.
    So certainly, our products do differ in the marketplace. If 
they weren't, if they were all alike, you wouldn't need but one 
of us.
    Mrs. Maloney. Could I briefly ask Mr. Courson and Mr. 
Pickel, in following up on this line of questioning, in your 
experience as a mortgage banker and broker, at your place in 
the loan process, do bankers ever question the information in 
credit reports? Do they question it, or do they just accept it?
    Mr. Courson. The credit information that we receive is 
really one part of a total underwriting. We are looking at the 
entire set of circumstances. And frankly, most of that 
information that we garner initially, as you know, 
Congresswoman, is from the applicant. So when we get that 
information from the applicant, what are their debts, where do 
they have credit, where have they had credit, we are able, 
then, to compare that to the records that we receive from third 
parties.
    And if there is a discrepancy, it is really up to lenders, 
because we are the one making the loan, to reconcile those. 
And, in fact, we do resolve some of the disputes, if you will, 
or some of the questions as part of the process, because we 
need to know what is accurate before we put our credit and 
funds on the line.
    Mrs. Maloney. But so do the bankers work off the decisions 
that come from the automated underwriting process? Or is that 
just one part of a whole that they look at?
    Mr. Courson. Automated underwriting, which has as part of 
it, credit, and other factors are used for automated 
underwriting. It is utilized, in our case, at the outset of the 
process. If, in fact, the loan is approved, and gets an accept 
from and automated underwriting system, that loan is one that, 
in our office, and I think most offices, would go on to be 
made.
    Sometimes, however, they are not. They will have a decision 
that is called a refer. In that case, what we do now is we go 
outside the system, we have to look at hard data and do further 
investigation to determine why, and then make a judgment, our 
underwriters make a judgment whether to make that loan or not.
    Mrs. Maloney. Okay. Thank you.
    Chairman Bachus. Thank you.
    Mr. Sanders?
    Mr. Sanders can take one minute.
    And then, Ms. Hooley, you can have your full five minutes, 
or three minutes, or whatever.
    Mr. Sanders. Thank you very much, Mr. Chairman, and I will 
be brief and I appreciate you giving me the time.
    Just a few basic points, number one, the name of our 
country is the United States--S-T-A-T-E-S--of America. And it 
is based on some brilliant work done by the founding fathers of 
this country, who created, if I may quote some of the 
panelists, a patchwork.
    They said we should have a Federal government with certain 
rights, a State government with certain rights, local 
governments with certain rights.
    Some of us, and I get disturbed with my conservative 
friends who seem to change their tune every other day whether 
they like the big, bad Federal government usurping the powers 
of the folks back home, or whether they don't, depending the 
issue in front of us.
    I happen, as a former mayor of a city, to think that 
everything being equal, give the people backup, give the 
governance, give the State legislators the right to address the 
local problems if they can. That exists in a dozen different 
areas, and the word ``patchwork'' here is a misnomer. That is 
what America is about.
    If we want to do away with States, we can have one nation, 
call it ``America'' and resolve the 50 State legislatures.
    So I think States should have the right to protect 
consumers and not be preempted from doing that.
    The second point that I want to make, the issue came up a 
moment ago about costs. My goodness, if Vermont or California 
does something that is going to raise up the costs, how are we 
going to pay for that? And Mr. Gambill suggests, well, it is 
going to be passed on to the poor old consumer.
    Let me make another suggestion. According to Standard & 
Poor's, the top four executives of MBNA, who are the largest 
credit card dispensers in America, make close to $300 million a 
year. The top guy, the chairman and CEO, Mr. Lerner, makes $195 
million.
    Now, maybe they could pay for some of this consumer 
protection by lowering the outrageously high compensation 
packages that their top executive makes.
    Third point that I would ask Mr. Gambill, a question. We 
have heard, unofficially, so I have to tell you its 
unofficial--I haven't seen it in print--that it costs, when you 
supply information to a large consumer of yours, a bank for 
example, it costs you 37 cents, or they pay you 37 cents for 
the consumer report and score. Is that roughly accurate?
    Mr. Gambill. For a large issuer, Congressman?
    Mr. Sanders. Yes.
    Mr. Gambill. Yes, sir.
    Mr. Sanders. All right. So when we are talking about making 
that available for millions and millions of Americans with 
Citibank, or these other big ones are paying, are 37 cents, 
approximately. I think the American people deserve the respect 
that providing these reports would bring them, and I don't 
think 37 cents is too much cost to provide that information.
    Thank you.
    Chairman Bachus. Do you think maybe those top three CEO's 
ought to get a free report?
    [Laughter.]
    Mr. Tiberi. Mr. Chairman? Mr. Chairman? Mr. Chairman?
    I just want to make note that one of those CEO's, Mr. 
Chairman and ranking member, passed away last year, Mr. Lerner. 
Just for the record.
    Mr. Sanders. I appreciate that.
    Chairman Bachus. Yes.
    Ms. Hooley?
    Mr. Meeks, Ms. Hooley, we yielded to Mr. Sanders, instead 
of Ms. Hooley, so if it is all right with both of you, Ms. 
Hooley, and then Mr. Meeks.
    Ms. Hooley. Thank you, Mr. Chair.
    There are so many questions, I don't know where to start. 
But I am going to start with Mr. Gambill.
    And one of the things you said was if there was a free 
credit report, 200 million would likely ask for a free credit 
report. My question is where do you get the number? And isn't 
it true that in the six States where it is currently free there 
have been no increase in the requests? Can you help me verify 
that or not verify that?
    Mr. Gambill. In the six States where it is currently free, 
there has been an increase in the requests.
    Ms. Hooley. How much of an increase? Do you know?
    Mr. Gambill. No, I could get my people back to your----
    Ms. Hooley. Okay.
    Mr. Gambill.----office with that data----
    Ms. Hooley. Okay. I would like that.
    Mr. Gambill.----and the very specific information because 
there are differences across each State as to what they need to 
do and why that works.
    It is something more than doubled. And in using my ``200 
million,'' I just mentioned that there are 200 million adults, 
roughly, 195 million on whom we maintain files. And if there 
were big publicity spread across large pieces of news media, I 
don't know how many of them are going to request copies of 
their file. I don't know how to build an organization that 
could respond to the sudden influx of 1 million more, 10 
million more or 7 million more that could result from a big e-
mail campaign or a big piece of news publicity.
    Ms. Hooley. Let me ask you a couple of questions. One of 
the things that I have been very interested in is identity 
theft and what that has cost all of us from the increase in 
cost for that.
    We are looking at a way to do a couple of things. One is to 
make sure that individuals take some responsibility of what is 
on their credit report. And the second issue is, I mean, and it 
is been brought up several times today, it is how do we make 
sure those reports are accurate? I mean, I would hate to have 
somebody not be able to buy a house because the report was 
inaccurate or not be able to get a job. And I understand that 
before somebody is going to look at their credit report for 
employment purposes, that they have to tell them they are going 
to do that.
    But if, you know, all of a sudden you see that report and 
there are some things on there that are not accurate that make 
your report look bad, I am guessing that an employer may say, 
Well, you know, it is going to take too long to clear this up, 
or provide some doubt.
    So how do we do a better job in making sure that we have 
accurate reports? And then, and I just got my own; now, there 
is something on there that is inaccurate. I don't think it 
probably affects my score. But I made a point of every year 
getting mine because I have been involved in this. But how do 
you make sure that they are more accurate? And again, how do 
you make sure that people have the ability to take some 
responsibility for themselves on this? Many people have no idea 
where to get their credit report or what their credit report is 
even all about.
    Mr. Gambill. Well, Congresswoman, the accuracy issue is an 
issue around which, as I said, we compete. There are probably 5 
million credit reports a day, more or less, being purchased 
from either TransUnion or one of its two competitors in the 
United States today, and lending decisions are being made 5 
million times a day based on those credit reports. Consumers 
that are adversely affected by the information in the file, so 
that they get either no loan or a loan at a higher rate than 
they had applied for, are notified where the report came from, 
they are notified what the principle factors were in the score 
that, if there was a score, that caused them not to get the 
loan and they are notified how to get their report for free 
from the supplier of that report.
    We then, within the Fair Credit Reporting Act, upon 
receiving a request from them, are obligated to fulfill that 
request within a specified, regulated time frame, which we 
report to our regulating bodies on that, that we have 
accomplished.
    Upon receipt of re-verification request, we now have 
automated systems in place so that we can, in fact, deliver to 
our issuers and lenders information that suggests consumers 
have asked us to re-verify a piece of information that is in 
their file. They can respond to us in an automated manner thus, 
decelerating the process dramatically and however they respond, 
we report back to the consumer what the results of that re-
investigation were.
    The consumer is also welcome to get a copy of a score. 
Scores are snapshots, they change constantly as the file 
changes and as information on the application that the consumer 
may have provided, changed.
    Ms. Hooley. How do they get a score?
    Mr. Gambill. When they get a disclosure, they are asked if 
they would like to have a score as well. They will get a score, 
as of that moment.
    Ms. Hooley. You think there are some ways, for example, 
when they go to refinance their home or their automobile, or 
whatever they are refinancing, they are going for a loan the 
first time, do you think it would be an appropriate thing at 
the time to, when you are giving the information to the lender, 
that you provide a free credit report to the person that is 
asking for the loan? Does that seem reasonable?
    Mr. Gambill. I don't know how doable it is. I would be glad 
to get a team to look at it under those circumstances and work 
with the committee on those kinds of ideas.
    Ms. Hooley. Okay. I would like any ideas that you may have 
that, again, trying to make sure that individuals have some 
responsibility, and then trying to deal with the accuracies, 
are huge issues for me.
    I have a question for Mr. Moskowitz. You mentioned in your 
testimony that there needs to be better notices and that should 
be part of the debate. Do you want to elaborate a little bit on 
what you mean by that?
    Mr. Moskowitz. Well, in our view, an informed consumer, a 
consumer who understands their credit file, the reasons for an 
adverse action is more likely, in the future to solve their 
credit problems and become a candidate to become a customer of 
ours.
    On the side of privacy, a desire for consistency in 
disclosure is nationwide and adds to that same debate, so we 
have long advocated national standards for clear and 
consistent, understandable disclosures on both of those topics.
    Ms. Hooley. What do we need to do to make those clear and 
understandable?
    Mr. Moskowitz. I think Congress needs to review and analyze 
the effectiveness of the disclosures that exist now, make 
improvements as necessary so that the information that is 
provided to consumers is understandable to them and is usable 
by them. And so for an example, in the context of adverse 
action, the reasons actually fit the reality and that the 
consumers then are armed with the information necessary to 
address any issues that they may have.
    Mr. Plunkett. Congresswoman, we have a substantive 
suggestion on that if I----
    Ms. Hooley. Okay. I am ready.
    Mr. Plunkett. We have found in our research that we would 
agree here, that the reasons that are provided are very vague 
and don't go to the specific problem, the specific trade line, 
as it is called, that is creating the problem or trade line. 
When you get explanations as vague as, serious delinquency or 
derogatory public record or collection filed, that is too 
vague. We need more specific information on exactly which 
account is the problem, so that you can then act and see if 
there is an error.
    Ms. Hooley. Do any of the credit reports come out--any of 
you can answer this--do any of the credit reports come out, 
have their score on it, what that score means? Do you know, any 
of you?
    Mr. Moskowitz. Well, I can comment on our ability to comply 
with California requirements that obligates Wells Fargo to 
describe or conclude in an adverse action notice, the 
requirements for basic drivers of a FICO score, and we provide 
that information. We have no evidence that that has actually 
added any value to consumers in addition to the value that is 
provided into generic action reason codes, or that consumers 
actually understand what that means.
    We are strong advocates of informed consumers, educated 
consumers and consumers who can take information that they know 
of themselves to increase their likelihood to obtain credit.
    Mr. Plunkett. I would respond by saying that if the 
information we are getting is that, yes, most people don't 
understand their credit score yet. But the first step is to 
provide them with the score and with an explanation of the 
major factors that are used in determining the score. And that 
is how you start the education process.
    So the California law is something that we would like to 
see nationally. This is an absolutely essential piece of 
information that consumers need to have, that then provokes 
them to ask questions about not just what the factors are, but 
how they are weighted: What is more important, a collection or 
a delinquency? And they start asking questions about the 
underlying data. Is there a problem? Has one a creditor made a 
mistake in listing a delinquency that is not a delinquency? How 
do I correct it? This is all information the consumer should 
have.
    Mr. Moskowitz. And I would add one last comment to that, 
which is that, no credit score and no FICO score has ever been, 
in our company, the reason for a loan being rejected. It is a 
reason for a loan to be approved. If those issues or factors 
arise in the context of evaluating a consumer, we delve more 
deeply, analyze the reasons, look at the other factors in the 
broader underwriting spectrum that need to be examined.
    Ms. Hooley. So I would assume----
    Chairman Bachus. We are actually over----
    Ms. Hooley. Okay.
    Chairman Bachus. Had a little over 10 minutes.
    Ms. Hooley. Sorry.
    Chairman Bachus. But I mean you have been a leader on this 
issue, so I want to give you some leeway.
    Ms. Hooley. Well, maybe some of these questions I can write 
them up and have them answer them afterwards. I am really 
looking for, how do we do this in a way that makes sense for 
the consumer? How do we make sense, so that again, we can try 
to prevent identity theft, and again get through the process 
and make sure that we have accurate reports so that people are 
not turned down for inaccurate reports? And how do we educate 
the public on the issue?
    Thank you, Mr. Chair, for your tolerance.
    Chairman Bachus. Thank you. Thank you, Ms. Hooley.
    One thing that I would say that we talked about sometime, 
the vagueness of the response, like delinquency or serious 
delinquency. I think that part of that is civility. We don't 
want to say, you don't pay your bills or you don't pay on time 
or the other thing is liability. You know, if you get specific 
in a report, say that someone doesn't do this or that; I am 
just wondering if that may not be some of the reasons.
    Mr. Meeks?
    Mr. Meeks. Thank you, Mr. Chairman.
    Let me ask, Mr. Gambill, first question is how much money 
does it cost anyway? How much money did it cost to send out a 
report?
    Mr. Gambill. We send out 8 million reports a year to 
consumers, and I said earlier, we have 4 million of them that 
ask us to re-verify issues or questions that they may have on 
those reports. We spend $60 million on that process.
    Mr. Meeks. And have you ever explored on, would it save 
money if you sent out some notification et cetera, 
electronically?
    Mr. Gambill. We send out as many as we can, electronically, 
Congressman. The issue becomes the rigor with which we need to 
authenticate somewhat electronically, but be sure that they are 
who they say they are. We don't want people to get credit 
reports that aren't theirs. So we have to be fairly rigorous in 
the questions that we will ask before we deliver the report 
electronically.
    We are now up to a point, where about 70 percent of the 
people that try to get their report electronically are 
successful at it. That will ultimately, I think, drive our 
price and cost down. But currently, that is----
    Mr. Meeks. As you move along and you begin to perfect it, 
that should help some cost down because, like my colleague from 
Oregon, I am concerned about identity theft, and I agree with 
also, Congressman Ackerman, who talked about when a person 
receives a negative credit information, it was hitting them, if 
the individual knows that a report is going to hit them 
immediately, number one, they can correct it, so that we don't 
have the of debt that was indicated by Ms. Hooley, where 
someone goes in for mortgage closing, or they go in for a job 
and they have a negative credit report, and then all of the 
sudden, they are hit with something they had no idea was there. 
And it takes time.
    But if they had a notification at the time it had hit the 
report that they had a negative report, then that would help 
them and prevent identity theft, saving billions of dollars, 
I'm sure, because I know from the credit card company, that is 
one of the major problems that they talk about, they are 
loosing all kinds of money. Is there anything that you can 
conceive or come up with that would make it logistically 
possible to have something where there is a hit and a consumer 
knows about it?
    Mr. Gambill. Those kinds of things are certainly possible 
if they are electronic. And we offer those kind of services to 
consumers on a subscription basis that can go through the rigor 
of being authenticated electronically so that we can, via e-
mail, give them some electronic notices as to when things 
change about their credit files.
    To wholesale mail, that kind of information out, I believe, 
would increase our exposure to fraud as a country, not decrease 
it, because I am sending information to some address about some 
individual, about some trade line, that hit some credit file, I 
have no real idea whether I have sent that to the right 
individual or not.
    Mr. Meeks. I just want to check, because someone told me 
that at a speech somewhere is it correct, that you said .6 
percent of your revenue would gain from selling the report to 
the public. Is that correct?
    Mr. Gambill. Well, your math is better than mine; it is 
about $30 million. I mean I will calculate that percentage if 
you would like.
    Mr. Meeks. Okay. Let me ask a quick question of Mr. 
Moskowitz.
    I asked that because Wells Fargo gets my money every month.
    [Laughter.]
    Mr. Meeks. Might as well make you----
    Mr. Moskowitz. Mine too.
    Mr. Meeks. There is this huge concern about the crafting of 
privacy notices and legislation on privacy by various States. 
We have heard the testimony here. What would be your 
recommendations for a uniform national privacy law that would 
simplify the issues for customers without completely opening--
and now is the big question--Gramm-Leach-Bliley? Is there any 
recommendation, you think? It took us such a long time to get 
there, you don't want to open the whole thing up. But do you 
have any recommendations?
    Mr. Moskowitz. Well, we agree that the possibility of 
inconsistent State privacy disclosures will confuse people, and 
we believe that regulators should be asked by Congress to 
improve existing annual notices and establish uniform 
disclosure requirements that make it clear how information is 
used by a company.
    We are strong supporters, though, as you know, of the 
ability of a company, like a bank, with its operating subs, to 
organize itself in the way that it wishes to and to be able to 
freely share information internally to accommodate the needs of 
customers without restriction, except that as provided by 
existing FCRA law.
    Mr. Plunkett. Congressman, I might just add--Congressman, 
this is Travis Plunkett.
    I might just add that, the privacy notices are already 
regulated nationally through the Gramm-Leach-Bliley Act. So we 
are not going to see that change. We think the notices need to 
be improved, but that is a national regulation right now.
    The folks who want to extend the affiliate sharing 
preemption, one of the eight preemptions under the Fair Credit 
Reporting Act, your question was how do we do this without 
messing with Gramm-Leach-Bliley. And unfortunately, the 
proponents of extension of the affiliate sharing preemption 
have brought Gramm-Leach-Bliley into play already because they 
have claimed that the prohibition on States passing affiliate 
sharing restrictions for credit reporting purposes extends 
beyond that and actually affects the Gramm-Leach-Bliley Act and 
doesn't allow the explicit provision in Gramm-Leach-Bliley that 
allows States to go further with privacy loss. It doesn't allow 
those States to deal with affiliate sharing.
    So we already have a linkage that folks who want to extend 
this affiliate sharing preemption have made the Gramm-Leach-
Bliley, so it is hard to deal with the affiliate-sharing 
problem, and we think it is a problem, without bringing Gramm-
Leach-Bliley into play.
    Mr. Moskowitz. And we don't think there is an affiliate-
sharing problem at all. We believe that the ability to share 
information for appropriate purposes within a company that has 
chosen to organize itself in separately organized corporations, 
which could be organized that way for both expertise reasons, 
for regulatory purposes and liability purposes, is a primary 
driver of the efficiency of the market that has lowered 
interest rates for consumers.
    It has allowed companies like Wells Fargo to develop 
innovative products that have allowed us to become the primary 
lender, the number one lender to low-to moderate-income groups 
and in low-to moderate-income communities, and to ethnic 
minorities. And those efficiencies are undermined by our 
inability to share information internally in a way that 
addresses those communities' needs.
    Mr. Plunkett. And we have said we would simply like 
consumers to have the option to stop sharing of that 
information. And if they see an economic advantage, they will 
certainly allow it.
    Mr. Moskowitz. And consumers have the ability to opt out--
--
    Mr. Plunkett. Not on affiliate sharing.
    Mr. Moskowitz. Yes, they do.
    Mr. Meeks. This is my last question, gentlemen, on 
affiliate sharing. Should the same be true of major 
corporations that provide completely different services, for 
example, commercial banking and investing banking?
    Mr. Moskowitz. The ability of a company that has unrelated 
business?
    Mr. Meeks. Yes.
    Mr. Moskowitz. Well, we believe that the most efficient way 
for a company with multiple businesses is to organize itself as 
the way it chooses to do so and to provide services to 
consumers in a way that is consistent with that organization, 
and not be forced to reorganize in a way that could accommodate 
that sharing and that is inconsistent with its own internal 
business model.
    Mr. Plunkett. See, I don't think many consumers know about 
the affiliates of their bank, for instance. Many banks now have 
lots of affiliates. So the bank is also has an affiliate in the 
insurance business or the security business, I think, polls 
show again and again, consumers want the choice. They will 
consider the cost and the benefits, but they want choice to 
stop the sharing of that information between the bank 
affiliate, the insurance affiliate and the security affiliate.
    Mr. Moskowitz. And that choice could impact the ability of 
a company to control fraud, to manage its servicing portfolio 
and could be able to deliver its products to Wall Street in a 
way that reduces inefficiencies and increases cost.
    Mr. Meeks. Thank you. I yield back.
    Chairman Bachus. Thank you. I think that concludes our 
testimony of the first panel. I appreciate your testimony and 
commend you on your answers, and it has been very valuable to 
us as we consider this important matter.
    First panel is discharged, and we will go right to our 
second panel at this time.
    We want to welcome our second panel, from my left to right.
    First panelist, Mike Vadala, president and CEO of Summit 
Federal Credit Union, located in Rochester, New York. Summit 
has $275 million in assets, 42,000 members from over 500 
companies. Probably more importantly, he is the secretary of 
NAFCU. More importantly, I see you are active on the alumni 
board and the management advisory council of Syracuse 
University. I commend you on your NCAA basketball win, except 
for your victory over Auburn, which you got very lucky there.
    [Laughter.]
    Chairman Bachus. But other than that, you probably deserved 
to win every game. And very active in various charities in the 
Rochester area. I welcome you back before the committee. I 
think you have testified, actually, in 1997 on credit cards and 
other different issues.
    Our next panelist is Rusty Cloutier. He serves as a 
director of the New Orleans branch of the Federal Reserve Bank 
in Atlanta. President, CEO of MidSouth Bank, Lafayette, 
Louisiana, a bank of $365 million asset bank. Earned a 
Bachelor's in Science from Nichols State. Is that where Billy 
Tauzin went?
    All right, so we know that is a very good institution.
    He also served as a member of Fannie Mae's National 
Advisory Committee. Again, director of Our Lady of Lords 
Regional Medical Center, Chamber of Commerce and chairman of 
the Community Bank, Bankers of Louisiana. I welcome you to this 
hearing.
    George Loban, co-chairman of FSF Financial Corporation and 
First Federal FSB, $560 million stock institution in 
Hutchinson, Minnesota.
    Where is Hutchinson, Minnesota?
    Mr. Loban. Hutchinson is just west of the Twin Cities, 
about 40 miles----
    Chairman Bachus. I see.
    Mr. Cloutier.----40 or 50 miles, Minneapolis, St. Paul.
    Chairman Bachus. Then, a member of the board of directors 
of America Community Banks since 1998, serves on various 
committees for them. A chairman of the board of the Minnesota 
League of Savings and Community Banks, and served two terms as 
chairman and two terms as the member of the board of the 
Federal Home Loan Bank in Des Moines. So, welcome you and quite 
an experienced background.
    Robert Manning is a Caroline Gannett Professor of 
Humanities, Rochester Institution of Technology, Rochester, New 
York. That is the same town that our first panelist is from, so 
we have two from Rochester. Professor Manning recently wrote 
Credit Card Nation, which has gotten a lot of publicity. He has 
testified extensively before the Senate and the House on 
lending issues, credit issues, and sub-prime and predatory 
lending issues.
    We welcome you back. I think this committee's well aware of 
your experience.
    Dr. Manning is a past Fulbright lecturer to Mexico, Ph.D. 
from John Hopkins, Northern Illinois University, M.A. and B.A. 
from Duke University.
    Our next panelist is Evan Hendricks, editor and publisher 
of Privacy Times, a Washington-based newsletter specializing in 
privacy acts and what else?
    Mr. Hendricks. Fair Credit Reporting Act, medical records, 
employment records.
    Chairman Bachus. Privacy issues and various policy issues. 
He served as consultant on privacy and business issues for 
major corporations, including Ericsson, a Swedish-based 
wireless company. And since August 1998, served on the Social 
Security Administration's panel of experts. He was a paid 
consultant for CNN, Multi-State Tax Commission and various 
other commissions. He is quoted regularly in major and small 
newspapers including The Washington Post and The New York Times 
and ABC Nightline and is a familiar face on the nightly news. 
So we welcome you.
    At this time, to introduce the general counsel for global 
consumer group for Citigroup, I am going to yield to the 
gentlelady from New York.
    Mrs. Maloney. I thank you for giving me the honor of 
welcoming one of my constituents from the great State of New 
York and the great city of New York. And I would like to 
introduce Mr. Martin Wong, and he is from Citigroup, one of our 
important financial institutions and he is general counsel of 
Citigroup's Global Consumer Group, and he has worked in various 
positions at City since 1987. He earned his B.A. in public 
administration from Loyola and J.D. from the University of 
Baltimore.
    And we welcome him and thank him for taking the time to be 
with us. Thank you.
    Chairman Bachus. And our last panelist, Mr. Scott 
Hildebrand. He is vice-president, Direct Marketing Services for 
Capital One. He has had various responsibilities there, but 
direct marketing probably describes most of them. Prior to 
joining Capital One, Scott was vice-president at Epsilon, a 
leading database, marketing firm, formerly owned by American 
Express.
    While there, he advanced customer relationship marketing, 
had a number of Fortune 500 companies improving customer 
retention, cross-sell and profitability. In addition, he served 
as a consultant for 80 little PepsiCo's Frito Lay and Kentucky 
Fried Chicken business units and the Marriott Corporation. He 
attended Georgetown University, B.A. degree.
    And then he received his MBA, in marketing and finance, 
from the Kellogg School of Management at Northwestern 
University.
    So all-in-all, a very competent panel. We look forward to 
your testimony.
    And at this time, we will just go right to testimony.
    Mr. Sanders. I will be just very brief.
    Chairman Bachus. Well, actually, Mr. Sanders.
    Mr. Sanders. Thank you very much, Mr. Chairman.
    This is a very important panel dealing with a very, very 
important issue. The reality is that right now, in my view, 
among other problems with the industry, a major scam is being 
perpetrated on large numbers of Americans. And that scam, as I 
mentioned earlier, Mr. Chairman, and one of the underlying 
points that we have to reiterate, Mr. Chairman, is that not 
every American is all that sophisticated in all aspects of 
financial transactions. Bottom line is that companies promise 
people, or at least indicate that they are promising people, 
credit at a certain interest rate. And if I say to you, Mr. 
Bachus, I am going to charge you six percent for a year, your 
expectation is that if you pay your bills to me on time, that 
is going to be six percent.
    That is usually the way we do business in America. And yet, 
increasingly, what we are finding is that those interest rates 
are zooming up despite the fact that the consumer is paying his 
or her bill to the credit card company on time.
    But I can understand if I am late in paying the bill, you 
say, Hey Mr. Sanders, there is a penalty, they will raise your 
interest rates. If I pay the bill to you every month, on time, 
I have a right to believe that my interests are going to remain 
the same. And with the growth of sophisticated information 
acquisition, what credit card companies are learning, is that 
maybe 3 years ago, I was late in paying an auto loan. Or even 
more egregious, there was an illness in my home. I pay my bills 
on time. There was an illness and I have to borrow money to 
provide to pay the medical bills. And because I borrow more 
money, because I borrow more money, not because I am late in 
any of my payments, credit card companies say, well he is now a 
greater credit risk. He is more in debt. But maybe I pay my 
bills on time.
    And arbitrarily and often, in fact, without the knowledge 
of the consumer, interest rates go way, way up: 25 percent, 30 
percent, usurious rates, which are leading to bankruptcy and 
terrible situations for large numbers of the American people.
    Mr. Chairman, I hope that we can work together on 
addressing this rip-off. Large multi-billion dollar companies 
should not be involved in a scam like that. They should be 
embarrassed. And I hope that we can discuss this today and vote 
in a bipartisan way, tripartisan way, in addressing this issue.
    Mr. Chairman, thank you very much.
    Chairman Bachus. I thank the gentleman.
    Mike, Mr. Vadala, you will lead off.

  STATEMENT OF MICHAEL VADALA, PRESIDENT AND CEO, THE SUMMIT 
FEDERAL CREDIT UNION, ON BEHALF OF THE NATIONAL ASSOCIATION OF 
                     FEDERAL CREDIT UNIONS

    Mr. Vadala. Thank you, Mr. Chairman.
    Ranking member, Sanders, members of the committee.
    I think I am glad we lost to Auburn in football this year, 
and I wanted to remind you of that so that we----
    Chairman Bachus. I had forgot about that.
    Mr. Vadala. My name is Mike Vadala, and I am here today on 
behalf of the National Association of Federal Credit Unions to 
express our views on the Fair Credit Reporting Act. I am 
president and CEO of the Summit Federal Credit Union, 
headquartered in Rochester, New York. The Summit currently 
serves over 42,000 members in all 50 States. Due to the 
complexity of the different laws that exist on a State by State 
basis, the Summit does not offer real eState loans outside the 
State of New York, but we do offer credit for all other 
consumer purposes to our members. If the FCRA preemptions are 
not extended, it is likely that the Summit will not make any 
loans outside of New York.
    The foundation of America's National Consumer Credit system 
is FCRA, enacted by Congress in 1970 to streamline credit 
reporting and to provide consumers with protection from 
inaccurate and inappropriate disclosure of the personal 
information by consumer reporting agencies. In 1996, the FCRA 
was amended and now contains seven specific Federal preemptions 
to ensure that the National Consumer Credit System remains 
viable and can continue to deliver affordable and accessible 
credit and financial services to consumers.
    NAFCU agrees with Federal Reserve Board Chairman Alan 
Greenspan that Congress should permanently reauthorize the 
preemption provisions of the FCRA. Doing this, will give credit 
unions the ability to continue to offer their members credit in 
a timely manner and at a fair market price. It would also 
codify the ability of credit unions to share certain member 
information with our affiliates, thus making credit union 
members aware of the opportunity to obtain additional financial 
services.
    Failure to reauthorize these preemptions could drastically 
change the way a credit union conducts business. A credit union 
such as ours could be forced to incur additional costs 
necessary to comply with several new and changing State laws.
    As you may know, credit unions, on average, are small 
financial institutions and may not have the resources necessary 
to comply with differing laws across the States. They would, 
therefore, be forced to forgo lending in many States in which 
they have members. This could result in the potential of 
millions of consumers loosing a viable lending option and may 
make smaller credit unions even less competitive.
    Credit scoring and credit reports are two important factors 
in evaluating the creditworthiness of borrowers. Combined with 
our loan office experience in judgment, credit scores and 
credit reports have contributed to a very successful lending 
program at the Summit. We acknowledge that at times there are 
errors in credit reports, but we are pleased with the 
improvement that we have seen in recent years as a result of 
National Standards and improved technology.
    We have also found that many times, well-trained credit 
officers can find these errors. Errors aside, credit reports 
are very valuable in verifying that a member has listed all of 
his or her debts on a loan application. These reports also 
provide details as to the payment history on those debts. With 
more members opening credit lines in multiple States, it would 
be unquestionable or unreasonable for the requirements 
reporting to vary from State to State.
    A consistent method of credit reporting allows us to get 
the information that is necessary to extend credit responsibly 
to our members.
    Credit scores are also an important part in the extension 
of credit. At the Summit, we have found that the credit scoring 
modules are statistically valid, and that the accuracy of 
credit reporting and credit scores are much improved over what 
they were prior to 1996. We use credit scores to offer 
automatic approval on loans and to determine loan rates on 
several loan products. We find those with lowest credit scores 
have the highest delinquency rates.
    There are many factors that contribute to credit scores 
including, repayment history, amount of credit owed, credit 
history, new debt and credit mix.
    In general, people know that when they don't manage their 
debts properly, it will show up on their credit report and hurt 
their credit rating. But even so, more needs to be done to 
educate consumers about credit. As an institution owned by our 
members, the Summit's vision is to educate our members so that 
they understand their credit scores. Today, we are doing so on 
a case-by-case basis, if members ask for explanations.
    Mr. Chairman, in conclusion, growth in the credit union 
community is strong and the safely and soundness of credit 
union is second to none. We are providing credit to more 
Americans in more locations than ever before. We urge the 
subcommittee to reauthorize the preemptions included in the 
FCRA so that we can continue our unique role in serving 
America's consumers, while strengthening our economy.
    NAFCU thanks the subcommittee for the opportunity to appear 
before you today and comments the House Financial Services 
Committee for examining this important issue. Thank you.
    [The prepared statement of Michael Vadala can be found on 
page 197 in the appendix.]
    Chairman Bachus. Thank you, Mr. Vadala.
    And at this time we will hear from Mr. Cloutier.

  STATEMENT OF C.R. CLOUTIER, CHAIRMAN, INDEPENDENT COMMUNITY 
                       BANKERS OF AMERICA

    Mr. Cloutier. Mr. Chairman, I had the honor, a week ago, to 
be with the Community Bankers of Alabama, and they talked a lot 
more about football between Auburn and Alabama than we did 
about banking, but it is my pleasure to be here today and I 
appreciate the invitation from you and ranking member, Sanders 
and the members of the committee.
    My name is Rusty Cloutier. I am chairman of the Independent 
Community Bankers of America and president of MidSouth Bank 
National Association, a $400 million community bank located in 
Lafayette, Louisiana. I am glad to be here today on behalf of 
the Independent Community Bankers of America, representing over 
46,000 small community banks across America that want their 
voice heard.
    ICBA supports the FCRA uniform national standard that will 
expire on January 1, 2004, and we strongly urge the committee 
to make these provisions permanent. Within the text of FCRA, 
Federal preemption is essential to ensuring constant uniform 
standards. FCRA is an important tool in promoting economic 
growth and uniform credit reporting standard also insure the 
availability of credit, especially to the low and moderate-
income borrowers that are so important in my State of 
Louisiana.
    If Congress fails to renew the uniform standards, the 
current system will be undercut by the enactment of a myriad of 
State laws with potential conflict standards. This will result 
in increasing costs to the industry and a significant impact on 
a bank's ability to evaluate the creditworthiness of its 
customers.
    We live in a highly mobile society. Customers often move 
frequently and live in several different cities and States. 
Some community banks serve customers in neighborhood States and 
allow customers to apply for credit over the Internet.
    Certainly, a bank does not have to consider a customer's 
State or States of residence when reviewing his or her credit 
report in order to understand what, where and when and how the 
information was reported. The information reported in my credit 
report is based on the same Federal standard as the information 
in yours. Without uniform national standards, how and when 
information, such as loan delinquency, payment history is 
reported, would detrimental, would be determined by each State.
    A borrower from Louisiana would then have a credit report 
with different standards and containing different information 
from that of a borrower from the State of Alabama or the State 
of Mississippi. And if that borrower had lived in each of the 
States, his credit report would contain the information 
reported, based on the standards of each of these States. This 
would be overwhelming for both the bank and the consumer to 
understand. Community Banks want clear and consistent policies 
and standards.
    The history in the success of community banking in this 
country is predicated on the extension of credit. Our current 
system is fair and effective. Consumers have grown accustomed 
to the availability of quick low-cost credit. Stricter consumer 
protections on a State-by-State basis will ultimately be 
detrimental to the consumer who may experience delays in credit 
decisions and banks may lose the opportunity to extend credit. 
Reauthorization of FCRA uniform provisions will benefit both 
consumers and community banks.
    Let me turn for a moment to a very important issue of 
identity theft. It is the nation's fastest growing crime and 
resulted in at least $1 billion dollars in losses to banks last 
year, including mine. FCRA plays a major role in this fight. 
Therefore, it is essential that the current national system of 
credit reporting is maintained. ICBA strongly supports measures 
to thwart identity theft.
    We would also support measures to allow customers to obtain 
a copy of their credit report free of charge annually. The 
benefit to community banking and having a customer who has been 
able review his credit report outweighs the cost of lost 
opportunities to extend credit to that customer due to 
inadequate or incorrect credit file information that may take 
several months to correct. Our customers should not have to be 
faced with denial of credit before they are able to receive a 
free credit report.
    Information sharing is also an important topic in this 
debate. ICBA strongly urges the committee to maintain an 
appropriate balance between the critical protection of a 
consumer, financing privacy and the community banks' legitimate 
information sharing needs, that insures our customers have the 
essential products and services they need. The use of 
outsourcing in joint agreement with trusted long-term partners 
is vital to our ability to compete.
    The joint agreement business model that we use is the same 
as the affiliate model for large banks and should be treated 
the same. Treating these business models differently would be 
unfairly discriminated against community banks in small 
communities that they serve, because of their regular size and 
corporate structure.
    Please remember that it was not the community banks who 
started the discussion on privacy by selling their information.
    A consumer opt-in requirement would be detrimental to the 
community banks and to their customers. Thus far, only 5 
percent have opted out of having the information shared with 
affiliate third-party, so it is likely that opt-in rates would 
be similarly as low.
    In conclusion, FCRA and the nation's credit reporting 
system, helps ensure that customers can easily access complete 
competitively priced products. The reliability of credit 
information, in maintaining, by the credit bureaus is critical 
to this goal.
    ICBA strongly urges the committee to support the permanent 
reauthorization of the uniform national standards that will 
sunset on January 1, 2004.
    Thank you for the opportunity to testify today and I will 
be glad to answer any questions at the appropriate time.
    [The prepared statement of C.R. Cloutier can be found on 
page 73 in the appendix.]
    Chairman Bachus. I appreciate that, Mr. Cloutier.
    And Mr. Loban, if you will testify?

   STATEMENT OF GEORGE LOBAN, CO-CHAIRMAN AND PRESIDENT, FSF 
FINANCIAL CORPORATION AND FIRST FEDERAL FSB, HUTCHINSON, MN, ON 
             BEHALF OF AMERICA'S COMMUNITY BANKERS

    Mr. Loban. Thank you, Chairman Bachus, Ranking Member 
Sanders and members of the committee.
    My name is George Loban. I am the co-chairman and president 
of FSF Financial Corporation and First Federal Bank. We are a 
$560-million stock institution based in Hutchinson, Minnesota. 
I am testifying today on behalf of America's Community Bankers, 
where I serve on the board of directors and as chairman of the 
Privacy Issues Subcommittee.
    I appreciate this opportunity to testify on the role of the 
Fair Credit Reporting Act and the credit granting process. The 
FCRA aids uniform national standards allow community banks and 
others to make prudent credit decisions quickly and 
inexpensively wherever a customer may reside. They insure that 
credit reporting information is consistent from State to State, 
facilitating a national market for credit and risk management. 
This, however, is scheduled to change if Congress does not, by 
the end of this year, reauthorize the FCRA's uniform national 
standards.
    Failing to act could result in a patchwork of conflicting 
State laws and substantially erode the quality and integrity of 
our credit reporting system.
    More importantly, a lapse in reauthorization could 
drastically impact a wide variety of players in our economy.
    For example, my institution serves consumer mortgage 
customers in over 40 States. Yet, we are by no means, a large 
business. If we were forced to comply with 40 different State 
laws, we would be forced to either to hire a team of compliance 
specialists, or else we would have to turn away out of State 
customers. The FCRA's uniform national standards allow First 
Federal to service mortgage customers effectively nationwide, 
and at a lower cost.
    Our story is just one real life example of why Congress 
must reauthorize this year's FCRA's uniform standards on a 
permanent basis.
    We also urge that laws regulating information sharing 
practices not discriminate against financial institutions based 
on size or corporate structure. Community banks often work with 
third parties affiliated and nonaffiliated to offer our 
customers new financial products. Where no affiliation exists, 
there is a contract dictating how and what information may be 
shared.
    The disclosure and opt-out requirements of the Gramm-Leach-
Bliley Act treat certain disclosures of information between 
financial institutions and a third-party identically. 
Regardless of whether the two institutions are affiliated, ACB 
urges that any prospective laws follow suit.
    Our system of credit, however, is not without it glitches. 
The rising number of identity theft cases is creating enormous 
hardships on victims and community banks. This disturbing trend 
indicates that something more needs to be done to safeguard 
information from perspective identity thieves.
    ACB urges Congress to pass legislation to increase 
sentences for identity thief crimes and make it easier for 
prosecutors to prove identity theft. We also look forward to 
working with the subcommittee on additional legislation to help 
combat identity theft.
    Finally, improvements should be made to the credit 
reporting system itself to help protect consumers. During 
debate on the regulatory release bill, representative Gary 
Ackerman sponsored an amendment requiring Federally insured 
depository institutions to notify a customer every time it 
furnishes negative information to a consumer reporting agency.
    This amendment would result in billions of new notices sent 
to consumers monthly. This would greatly increase cost and 
paperwork burden of financial institutions and their customers.
    ACB and others opposed a similar amendment last year. But 
while we disagree with Representative Ackerman's proposed 
solution, we recognize that he may have identified a problem.
    The continued integrity of the Federal Credit Reporting 
System demands that credit reports be as accurate as possible. 
ACB supports empowering consumers by providing them access to a 
free annual credit report, and enhancing their ability to 
correct errors on their credit reports, especially those 
resulting from incidence of identity theft. While we recognize 
that these tools do not come without some cost to the industry, 
we believe these costs can be balance against the benefits 
provided to consumers.
    Again, thank you for this opportunity to testify. I look 
forward to any questions you may have.
    [The prepared statement of George B. Loban can be found on 
page 132 in the appendix.]
    Chairman Bachus. I appreciate that, Mr. Loban.
    Our next panelist, Dr. Robert Manning--Dr. Manning?

STATEMENT OF ROBERT MANNING, PROFESSOR OF HUMANITIES, ROCHESTER 
                    INSTITUTE OF TECHNOLOGY

    Mr. Manning. Thank you, Chairman Bachus for providing the 
opportunity to share my views with the committee on this 
increasingly important topic of credit card industry policies 
and the protection of consumer rights under the Fair Credit 
Reporting Act.
    Also like to commend Ranking Member Bernie Sanders for his 
efforts in protecting consumers from deceptive marketing and 
contract disclosure practices of the credit card industry.
    These twin issues of rising consumer debt and shockingly 
low levels of financial literacy, which includes, a lack of 
understanding of consumer rights which have grave implications 
that the continued well-being of the nation, especially as 
Americans cope with these increasingly perilous economic times.
    Today, I would like to direct my focus on the impact of 
Federal deregulation on banking as it affects consumer lending, 
specifically, revolving credit. How the enormous profitability 
of the industry has created institutional pressures to increase 
its client base, consumer debt levels and especially escalating 
penalty fees. And then, conclude by examining specific abuses 
that are facilitated by the FCRA and its implications of 
statutory reform.
    I think what is critical to our understanding is that we 
have gone from a system of community banks to one of national 
and global conglomerates where the demand for crossmarketing 
with affiliates through such merges as Travelers and Citibanks 
have lead to increasing strain on consumer privacy and the 
availability of consumer financial information.
    In this period of the last 20 years, the best client has 
been transformed from installment lending contracts with people 
who had low debt levels, to today, the best client is someone 
who will never repay their loan, specifically through unsecured 
or revolving credit.
    Credit cards have played a pivotal role in the transforming 
of the structure of the financial services conglomerates, and I 
show you in chart one, it gives a lot of the empirical 
background for my presentation, but the key is, since 1977, we 
have gone from 50 banks controlling about half of the market to 
today, 10 banks control 80 percent of the credit card market.
    And this, I believe, is critical as we look at the rise of 
the nationally chartered banks that through their process of 
consolidation it has severely reduced the role that local and 
State level legislation plays, and that this lack of regulatory 
control over issues such as, State usury laws, fee caps, 
mandatory arbitration, meaningful notice of disclosure has 
really shifted the emphasis now about Federal preemption, and 
its role now moves increasing to Congress, especially to this 
committee.
    We all know the enormous profitability of the credit card 
industry today, even during this recession, even though we have 
heard many complaints that the industry is suffering. In fact, 
and over the last 10 years, the credit card industry's 
profitability has more than doubled, and the banking industry 
as a whole. And recently, we can look at it terms of the sale 
of credit card debt, from 18.4 percent premium paid last year, 
actually risen to 19 percent today.
    In terms of FCRA, I think what is critical here is that the 
institutional pressure to recruit new people, and particularly 
people with the least knowledge of their rights under FCRA, and 
especially in terms of the terms of their contracts, has lead 
to a dramatic increase of fee revenue, from $1.7 billion in 
1996 to $7.3 billion in 2002.
    Who are some of these people that we see now that with some 
of the amendments of the 1996 FCRA, that are being increasingly 
solicited? What we have seen is, a tremendous increase in the 
working-poor, households with less than $10,000; senior 
citizens and college students. And I refer to the charts that 
show the dramatic increase in working-poor households where 
average debt of a recent survey of the University of Michigan's 
Consumer Finance Survey shows that the biggest increase in 
credit card debt is among those households with less than 
$10,000, from less than $600 in 1989 to over $24,000 in 1998.
    And in my comments, I included a case to show the abusive 
contracts that have been offered in this process, where a 
$400.00 credit limit includes $371.00 in fees. We looked at 
seniors who, for the first time, are now being aggressively 
solicited, 65-year-olds, we are seeing that their average 
credit card debt is more than doubled in this period of time.
    And I refer to my most recent survey of college students, 
which shows now, the shifting of the marketing permitted now. 
With under the 1996 amendment, that we seen a dramatic shift, 
not from upper classmen, but to freshmen and even high school 
students, where the supposed ability of students to pay for 
their loans neglects the debt component where you will see from 
the data that more increasingly, three-fourths of college 
students with student loans are using them to their credit 
cards. Sixty percent of freshmen are actually using, have maxed 
out on their credit cards and using one credit card to pay for 
another.
    So I want to conclude with three specific cases that I 
think are particularly germane to today's discussion. One is 
the issue of prescreening that enables banks to look at a 
client's accounts with other banks. When is a fixed loan really 
a fixed loan over the term of the contract? And I refer to 
cases where people specifically have had their interest rates 
raised from 0 percent to 25 percent because of outstanding debt 
balances on other accounts.
    I would like to emphasize also, with my participation in 
some FCRA litigation, that there needs to be an extension of 
the period of time for filing litigation. Many consumers 
clearly do believe that banks and the credit reporting agencies 
will respond to their requests, and for those who fall through 
the cracks, we really need to accommodate their special 
circumstances.
    And I want to conclude with a final case that I feel is 
particularly important to those both that link both issues of 
credit cards and housing. And that refers to the case of 
Household Finance versus ACORN, where the screening process was 
specifically to seek two criterion, people with high credit 
card debts and people who own homes. And the point of this 
marketing program was to upsell, that is to consolidate credit 
card debt into the home mortgages, and through this process of 
consolidation, these higher interest rates meant that there 
could not be a possible home refinance nor could the home be 
sold, because it had negative equity.
    So for these and other reasons, I hope that the committee 
will carefully examine the impact of FCRA reauthorization, not 
only for process of fairly granting, but also fairly 
administering consumer credit accounts.
    Thank you.
    [The prepared statement of Robert Manning can be found on 
page 138 in the appendix.]
    Chairman Bachus. Thank you, Dr. Manning.
    At this time, I have to go out and make a statement. So I 
am going to switch chairs with the gentleman from Ohio, Mr. 
Tiberi who will chair the hearing.
    And Mr. Hendricks, we will start with your testimony.

       STATEMENT OF EVAN HENDRICKS, EDITOR, PRIVACY TIMES

    Mr. Hendricks. Thank you, Mr. Chairman and Congressman 
Tiberi.
    My name is Evan Hendricks, editor and publisher of Privacy 
Times.
    I come today prepared to discuss solutions to some of the 
problems.
    And yes, we have what may be the best credit reporting 
system in the world, but the great thing about this country is 
we never stop trying to improve it. I think, more importantly, 
there is substantial evidence of potentially deep flaws in the 
system that are harming consumers, and also new evidence that 
marketing of credit services might be facilitating identity 
theft. I intend to explore those.
    With the advent of the national credit reporting system, we 
realized we needed a Fair Credit Reporting Act. We enacted one 
in 1970.
    In 1990, problems with inaccuracies in credit reports was 
the leading cause of complaints to the Federal Trade 
Commission, so it took 6 years to upgrade the law. It should be 
no surprise right now that we need to continue to advance 
consumer protection in this area, and we need a strong national 
floor, and that the States play a very important role in 
consumer protection.
    The main purpose of the 1996 amendments was to make the 
correction of mistakes in the credit report, a routine process 
and to articulate a higher standard of care, to make it so you 
don't have file a lawsuit to get your credit report corrected.
    Unfortunately, that goal has not yet been achieved, as I 
have seen in too many instances how, that the only way a 
consumer could get a credit report corrected was by going to 
court. That is clearly not the policy we want running this 
country, and when we are trying to cut down on litigation. Yet 
the practices of some furnishers and some credit reporting 
agencies actually encourage litigation for those that really 
care about protecting their good name.
    Another reason behind the 1996 amendments was inaccuracy. 
Clearly the CFA study, along with the Federal Reserve Board 
study, documents serious problems with inaccuracy. And I think 
Chairman Greenspan and his staff should read their own report, 
before they address this issue again.
    The dispute numbers at the CRAs, Credit Reporting Agencies 
are running, typically, 7,000 to 10,000 disputes per day, and 
this allows, with the number of staff they have and the number 
of disputed items per report, sometimes they really only have 
two minutes or so to deal with every dispute.
    Credit grantors, like Capital One, are seeing their 
disputes go up from 1,000 a day about 18 months ago, to now, 
4,000 disputes a day. They deal with this by having an 
automated dispute problem.
    One of the things that can cause inaccuracies in credit 
reports is the use of partial matches, and I have seen this 
over and over again, where a credit bureau will say, if your 
Social Security number's not the same, if there is one digit 
difference, sometimes they will assume that if there is enough 
common letters in the first name, then they will assume it is 
the same person, and they will merge that information together. 
And so, it is this use of partial matches of both partial name 
matches and partial Social Security numbers, which causes great 
deal of inaccuracy. And I have detailed this in my statement.
    They deal with the high volume of disputes by using an 
automated system to have basically this exchange of messages 
between the credit grantor and the credit bureau, in which the 
credit bureau asks, after a dispute, Did you say this? And the 
credit grantor comes back and says, Yes, that is what we 
reported. But they don't really try and investigate in a true 
sense of the word to get to find out what the truth is.
    In my statement, we have talked about a lot of the damages 
that come to consumers in this area. I have also urged this 
committee to try and hold hearings, at least spend a morning or 
so, listening to the victims of mixed files and identity theft, 
so you can get a full range of the damages that people have to 
undergo when they are pitted with problems in the system. Not 
only can inaccurate data lead to credit denials, but it also 
can lead to price-hikes in the age of risk-based pricing, and 
cause the emotional distress of trying to correct a credit 
report mistake that was not of your making. The damages are 
extensive.
    In three of the seven areas, where there is preemption, one 
of the areas is prescreening. I have just begun an 
investigation into this area, and with two phone calls, I have 
found that there are major criminal gangs across the country 
that are hitting mailboxes, trying to get any personal 
information they can get, including pre-approved credit card 
offers, also convenience checks, bank statements, so that they 
can take this personal information and use it to facilitate 
identity theft.
    There is quite a range of sophistication among these 
groups. Some try and use the pre-approved credit cards or 
convenience checks to get money instantly. Others take the 
personal information and sell it to fences that are more 
sophisticated in counterfeiting and identity theft.
    I think in this area I think that we need a stronger 
national standard, because if you look at your prescreened 
offers, you will see that even though the law says the notices 
are supposed to be clear and conspicuous, they are neither 
clear nor conspicuous, and that we need to go beyond that and 
to have basically a national opt-out registry for credit offers 
through the mail, just as we have a registry to stop junk phone 
calls.
    The duty on furnishers, is also a preempted area. But this 
is a very weak standard that basically sets up too many hoops 
the consumers must jump through in order to facilitate simple 
correction of their errors. I detailed in my statement some of 
those hoops they have to jump through and why a stronger 
standard is necessary. If Congress is unable to enact the 
stronger standard, then we need to let the States feel free to 
move forward and protect consumers in this area.
    The final area is affiliate sharing, and despite all the 
talk of the need for a national standard, the FCRA sets no 
standard for affiliate sharing. It just says that the States 
will not enact anything in this area. So basically, it favors a 
national standard in an area where there is no national 
standard.
    Now, Gramm-Leach-Bliley has some national standards to the 
sharing of financial data, which is simply a very weak and 
watered-down opt-out for sharing with third parties. Yet it too 
does not set a standard for affiliate sharing.
    And so, the FCRA provisions are being invoked by Wells 
Fargo and Bank of America in litigation against localities and 
ordinances to try and stop those places from protecting their 
citizens with stronger privacy protection.
    In closing, I would like to say that this is an extreme 
importance to the American consumers. The top complaint back in 
the 1990s was about credit reports; now it is about identity 
theft. It leads the complaint list about all sorts of other 
issues that involve out-of-pocket losses.
    I think it is very important to the people of America to 
protect their good name. I think that is a major item that this 
law is all about and that is why there is a grave 
responsibility to this Congress to enhance consumer protection.
    Thank you.
    [The prepared statement of Evan Hendricks can be found on 
page 109 in the appendix.]
    Mr. Tiberi. [Presiding.] Thank you, Mr. Hendricks.
    Mr. Wong?

  STATEMENT OF MARTIN WONG, GENERAL COUNSEL, GLOBAL CONSUMER 
                     GROUP, CITIGROUP, INC.

    Mr. Wong. Good afternoon, Chairman Bachus, Congressman 
Tiberi, Ranking Member Sanders and members of the subcommittee. 
Citigroup thanks Chairman Bachus and Chairman Oxley for their 
leadership and holding these hearings.
    Today, I want to emphasize the importance that Citigroup 
attributes to reauthorizing the national standards contained in 
the Fair Credit Reporting Act. FCRA provides a national 
framework for the credit reporting system, which has been shown 
to work well and to provide substantial economic benefits to 
consumers. These benefits include affordable credit, wide 
credit availability and protection against fraud and ID theft.
    FCRA appropriately balances a wide range of consumer 
protections, with the crucial need for creditors to have access 
to a uniform national database on which to make credit 
decisions. It is essential, therefore, that Congress act to 
preserve the national framework that is scheduled to expire at 
the end of this year. While maintaining national standards for 
all seven of the key provisions is crucial, I want to highlight 
a few areas that are especially important to Citigroup and 
explain why they affect our ability to continue to serve our 
customers well.
    First, affiliate sharing. Citigroup shares information 
among our affiliates for many important reasons, such as 
control and credit risk, credit monitoring and fraud control. 
It also is important in identifying products and opportunities 
that may be beneficial to customers. Sharing information among 
affiliates greatly assists in the prevention and detection of 
ID theft. It helps to detect unusual spending patterns and 
habits that are used to identify fraud and allows us to 
promptly notify the customer.
    The ability to share information among affiliates also 
conforms to customer expectations. For example, a Citibank 
customer expects to be recognized and demands a certain level 
of service and accountability whenever visiting a Washington, 
D.C., Citibank branch of our Federal thrift, or a New York 
Citibank branch of our national bank. The legal distinction 
between the two affiliated Citibanks is not relevant to the 
customer, and it should not affect his or her ability to obtain 
products and services.
    In 1996, Congress struck the appropriate balance between 
the consumer protection and business needs by allowing 
customers to opt-out of having certain information shared among 
affiliate entities. If different States were allowed to pass 
laws governing the exchange of information among affiliates, it 
would significantly disrupt out seamless nationwide system of 
serving our customers. Complying with a patchwork of State and 
local laws would be extremely burdensome and costly for 
lenders, and ultimately for consumers.
    Second, and I want to talk about prescreening. Prescreening 
is essential for targeted marketing. Credit card issuers and 
other lenders use prescreening to substantially reduce the cost 
and increase the efficiency of identifying potential customers.
    For consumers, targeted marketing is vastly preferable to 
the most likely alternative, blanket marketing. Most new 
entrants and major competitive initiatives in the credit card 
industry in the last 20 years were based on prescreening. These 
competitive initiatives have provided consumers with lower 
interest rates, cards without annual fees and an array of new 
discount and bonus features. Prescreening allows institutions 
to control their risk by targeting those individuals that meet 
certain credit standards.
    Accounts obtained through prescreening have lower loss 
rates and less fraud than other forms of account acquisition. 
The prescreening provisions appropriately balance the need for 
consumer protection by providing consumers with the ability to 
opt out for a single toll-free call. If States were allowed to 
adopt different rules for prescreening or prohibit 
prescreening, consumers would not be able to enjoy the same 
benefits derived from robust national competition that they 
receive today.
    Finally, I want to talk about the provisions dealing with 
the content of credit reports. Uniform national guidelines for 
credit report information allow creditors to price risk more 
accurately, which results in lower cost for all consumers and 
more credit availability.
    If the FCRA provisions that dictate the content of credit 
reports were allowed to sunset, an individual State could pass 
a law prohibiting creditors from reporting to credit bureaus 
until borrow payments were at least 90 or even 180 days past 
due.
    For credit grantors, the result could be disastrous. It 
would grant credit to consumers who appear to have unblemished 
credit, but in fact, would have a very high risk of default. 
The universal response of lenders to increase credit losses is 
to raise interest rates and to reduce credit availability. This 
is not a desirable result for our credit society.
    Thank you again, for the opportunity to appear before the 
subcommittee.
    [The prepared statement of Martin Wong can be found on page 
207 in the appendix.]
    Mr. Tiberi. Thank you for finishing before your time even 
expired.
    Mr. Hildebrand?

STATEMENT OF SCOTT HILDEBRAND, VICE-PRESIDENT, DIRECT MARKETING 
                     SERVICES, CAPITAL ONE

    Mr. Hildebrand. Thank you, Chairman Bachus, Ranking Member 
Sanders, Congressman Tiberi and members of the subcommittee.
    My name is Scott Hildebrand. I am appearing here today on 
behalf of Capital One Financial Corporation, where I serve as 
the vice president for Direct Marketing Services. On behalf of 
Capital One, let me express my thanks to you, Mr. Chairman, and 
Chairman Oxley for the leadership that you have shown on this 
important issue.
    At Capital One, we believe that permanent extension of the 
national standards contained in the FCRA is essential to the 
continued health of our nation's economy. Capital One's one of 
the top 10 largest credit card issuers in the nation and a 
diversified financial services company with over 48 million 
customer accounts and $68 billion in managed loans, 
outstanding.
    In many ways, Capital One is a creation of the competitive 
environment established by the uniformity provisions of the 
FCRA itself. This competitive environment commenced 30 years 
ago with the passage of the FCRA and accelerated greatly with 
the amendments to the Act in 1996. We would not have seen 
today's level of competition in the balkanized, localized 
credit card markets of 30 years ago. Even as late as 1987, the 
credit card market was mired in a one-size-fits-all approach, 
characterized by across the board rates of 19.8 percent and 
annual fees of $20.00.
    That market was ripe for innovation, and companies like 
Capital One saw an opportunity to utilize the information 
provided by the national credit reporting system to customize 
product offerings to customers based on particular needs, 
interests and risk profiles.
    Our founders realized that a one-size-fits-all approach 
made little sense in an environment where each consumer 
possessed vastly different needs and characteristics. While 
some consumers are risky, many more were not.
    Either way, consumers suffered. The less risky customers 
were simply paying too much and for the rest, credit was hard 
to come by, if available at all.
    Capital One was able to utilize information within the 
legal framework provided by the FCRA to make significant 
advances in underwriting, better distinguishing the risk 
characteristics of our customer base. Capital One and other 
companies were also able to utilize information to create 
profound innovations in the marketing and product design of 
credit cards. Our company, for instance, lead the charge with 
new product ideas, like balance transfers.
    By 2003, the moribund competition, the flat pricing 
structure of old, was no more. In its place, came fierce 
competition with fixed rates as low as 6.9 percent and no 
annual fees commonplace. According to Robert Turner, in his 
testimony last week, this price competition produced $30 
billion in annual savings for consumers across the country.
    Capital One has been able to take this market-leading 
approach in reinventing other lending businesses as well, 
including auto finance. We have pioneered innovations, such as 
a unique auto refinance product, that allow consumers to take 
advantage of lower rates like they do when mortgage rates 
decline.
    With regard to specifics of FCRA, two major provisions 
warrant further explanation. Data credit consistency and 
permitted uses of credit data. The credit data consistency 
provisions strike a sensible balance that enables companies 
like Capital One to construct highly accurate credit models on 
a nationwide basis. Based on the voluntary nature of the 
system, it is a frustrating argument for those of us who use 
the data as part of credit granting process that, the argument 
being, that we do not have a significant stake in the accuracy 
of that information provided on consumers. Put most simply, at 
Capital One, our models do not work if the information 
contained in the bureau reports is not accurate.
    The permissible use provisions enable companies like 
Capital One to use information to reach potential customers and 
to make prudent credit decisions. Prescreening reduces risk. 
Losses from customers obtained through prescreened offers of 
credit are significantly lower than losses of customers 
obtained through other non-prescreened channels. This provides 
a vital tool in ensuring the continued safety and soundness of 
consumer lending institutions.
    Prescreening fosters competition by allowing financial 
services firms to identify the credit characteristics of 
individuals and offer them credit products with tailored terms 
and conditions specifically designed to beat the competition. 
Prescreening fosters innovation. Extraordinary ancillary 
benefits, such as airline miles and cash rebates attached to 
modern credit card products are largely a function of 
prescreening.
    Prescreening is transforming other businesses as well. Our 
highly successful auto refinance product, which can save 
consumers up to 4 percent on their loans, is made possible 
through prescreening.
    Prescreening reduces identity theft. Our data demonstrates 
that rates of fraud are 5 to 15 percent times lower for credit 
granted through prescreening than from credit generated through 
other channels.
    Our credit system is the envy of the world. Consistent 
national credit data is the foundation of this system, ensuring 
that Americans have more access to credit at lower prices than 
our counterparts around the globe.
    Our best credit card customers today enjoy a fixed rate as 
low as 6.9 percent, with no annual fee. The variety of programs 
and rewards available simply boggle the mind. These tremendous 
innovations have saved borrowers billions of dollars.
    The FCRA is a vital instrument, preserving the vitality of 
our credit granting system and equally, a vital instrument in 
preserving the vitality of our modern economy.
    We urge you to reauthorize these provisions and to extend 
permanently, our national uniform system of credit reporting.
    Mr. Chairman, Mr. Congressman, members of the subcommittee, 
thank you very much for the opportunity to testify before you. 
I will be happy to answer any questions you have at this time.
    [The prepared statement of Scott Hildebrand can be found on 
page 122 in the appendix.]
    Mr. Tiberi. Thank you. I don't think I have seen two 
panelists in the same panel ever complete their testimony under 
time. I congratulate both of you.
    Let me just begin asking a question relating to something 
you just said with respect to prescreening, that prescreening 
lowers the fraud rate. Can you explain why you believe that is 
or why Capital One believes it is?
    Mr. Hildebrand. And it is a great question, Congressman. It 
is true, it is about five to 15 times lower fraud in 
prescreening, depending on the segment of the population. 
Primary reason being that this is a known individual. That is 
that we have a peek into their credit records through 
prescreening, we offer it out to them, the application comes 
back to us. In a non-pre-approved environment, we do not have 
all the checks and balances that prescreening affords us. So it 
is another data point on the consumer.
    Also, there are fraud tools that are available that, when 
an application comes in, there are certain indications on an 
application that it may or may not be fraudulent. After looking 
at millions and millions of applications through prescreening, 
we have been able to model these, and so when applications come 
through that look a little bit out of the ordinary, our models 
squeeze those out and we flag those for fraud. We then proceed 
to make a verifying phone call to the true name person, to 
verify that, indeed, they did apply for credit.
    Mr. Tiberi. I have heard a little bit more about the use of 
prescreening being critical of the underwriting and the use of 
prescreening as a risk management tool. What is your sense of 
that?
    Mr. Hildebrand. Oh, it clearly is. Prescreening is indeed 
an underwriting tool. In effect, what we were doing is we are 
ensuring that the folks, the consumers that we are going to 
offer credit to, are credit worthy.
    The last thing that we want in our industry is to have 
people get overburdened, get in trouble, because we have to 
foot the bill for that. So prescreening affords us the 
opportunity to pre-select those customers who we think are most 
creditworthy and offer them products tailored to their 
situation.
    Mr. Tiberi. And those who would criticize prescreening, as 
Mr. Hendricks did, your response to that would be?
    Mr. Hildebrand. Prescreening is much, much more than a 
marketing tool. It is indeed an underwriting tool.
    Mr. Tiberi. And if we didn't have prescreening today, what 
would be the outcome to Capital One customers, in your 
judgment?
    Mr. Hildebrand. Well to our existing customers, no impact. 
To prospects, I hearken back to Mr. Gambill's testimony earlier 
today. I believe there would be much, much more mail on 
America, because we are still going to try to acquire new 
customers. I believe that--I can't speak for Capital One, 
because we have not modeled this behavior--the general 
consensus in the industry is that there would be less credit 
available. That it would probably be more expensive, because 
marketing costs would go up dramatically, based on the fact we 
are trying to reach many more people, not understanding the 
credit risk behind those folks, as prescreening affords us.
    Mr. Tiberi. Thank you.
    Mr. Wong, you mentioned affiliate sharing from Citicorp's 
point of view. Can you give some specific examples how 
affiliate sharing proactively and positively impacts me as a 
customer?
    Mr. Wong. Absolutely, Congressman. Congressman, if you walk 
down the street into one of our Citibank branches, you may be 
interested in a variety of financial products. He may be 
interested in a deposit account, such as a checking account. He 
may be interested in a credit card, mortgage or even, perhaps, 
an investment account to purchase a bond. Each of these 
products are being offered by different affiliates of 
Citigroup, and if we did not have information sharing, as you 
open each of these accounts or purchase one of these products, 
you would have to go to an elaborate opening account process 
because we couldn't share the information.
    Mr. Tiberi. How would you categorize the ability of 
affiliate sharing to help crack down on identity theft within 
Citicorp?
    Mr. Wong. Very simple example: You, in your pocket, may 
have two credit cards issued by Citigroup. You may have an 
American Airlines Citibank credit card, or you may have a Shell 
card for your gasoline purchases. Those are two different 
affiliates within Citigroup. If we were to detect a fraud on 
one of your accounts, unusual spending habits, for example, and 
it confirmed that it could be a fraud with you, we would then 
alert all the other affiliates within the Citigroup and could 
place a fraud alert.
    Mr. Tiberi. If we restrict or eliminate the use of 
affiliate sharing, what impact would that be to a customer?
    Mr. Wong. Tremendous. I think the customer, for one, would 
not have the ability, in the case of product innovation, to get 
the benefits that Mr. Hildebrand described in his statement. 
Annual fees, doing away with annual fees and credit cards 
mileage programs, all of those things are innovations as a 
result of affiliate sharing looking at what customers want from 
a broad spectrum of customers. The seamlessness of conducting 
business with a customer would go away. It would be painful for 
a customer to buy more than one product within the Citigroup 
family of companies.
    Mr. Tiberi. Thank you. My time has expired. I will yield 
time to Mr. Davis.
    Mr. Davis. [Presiding.] Thank you, Mr. Tiberi.
    Let me welcome all of you this afternoon. There are three 
of us who were here that here listening to you. So I apologize 
for not having a larger crowd than that.
    Let me follow up, Dr. Manning, on something that you talked 
about earlier, and that is the problem, or perhaps it is not a 
problem from everyone's perspective on the panel, but the issue 
of college students and then the secondary issue of very low 
income people being singled out for a lot of the prescreenings, 
for a lot of the solicitations.
    And I will ask you all to educate me a little bit as a 
matter of economics on this issue. To a lot of us, I think that 
it is somewhat counterintuitive that two of the groups of 
people who are singled out are those who are probably least 
likely in some ways to be durable credit card customers, or if 
they somehow become durable credit card customers, they are 
among the most likely people to have default issues or to have 
difficulties paying their accounts off.
    Dr. Manning, some of your data really caught my attention. 
You said that roughly 60 percent of students who get credit 
cards, the overwhelming majority of those, I assume get them 
after some kind of prescreening solicitations, max out during 
the freshman year. A significant number of those who don't max 
out are having to use allowance from Mom and Dad or some other 
source to provide payments, and that, in effect, the first 
significant debt that a lot of young people incur now is not 
their student loans, frankly, it is the credit card bills.
    Any one of you, I suppose, but in particular Mr. Wong and 
Mr. Hildebrand, tell me why economically it becomes so 
beneficial for the credit card companies to solicit people who, 
on their face, appear to be very high-risk customers, 
particularly with respect to college students?
    Mr. Wong. May I?
    Mr. Davis. Yes.
    Mr. Wong. We believe that the credit card is a important 
payment tool in society today. Credit cards are needed for a 
variety of things from getting a reservation in a hotel room to 
acquiring a ticket online, an airline ticket.
    College students, we do lend to college students. Our 
experience of college students do not suggest at all that this 
is a population of borrowers that are a greater credit risk to 
themselves or to us.
    Mr. Davis. What is their default rate?
    Mr. Wong. The default rate of credit of college students, 
and I don't have precise numbers, but I will be happy to share 
that with you.
    Mr. Davis. Do you know that, Mr. Manning? Do any of you 
know the default rate for college students?
    Mr. Manning. I would love to. That is information the 
industry doesn't share with me.
    Mr. Wong. But we can tell you that the default rate of 
college students is no greater than the general population of 
credit card holders in our customer base. And we obviously 
tailor the product to college customers to make sure that they 
are within their affordability in lines of credit. So 
obviously, it gives them great consideration.
    Mr. Davis. Dr. Manning, what is your perspective? 
Obviously, we have the industry's perspective, I assume. That 
they are tapping a relatively untapped market. What is your 
perspective on this? Obviously, you have identified it as 
something you view as something of a social problem that a 
class of people are being targeted who are assuming a fairly 
large debt burden as they move into society.
    How big a problem is this, in empirical terms?
    And number two, what is the practical solution? I mean, 
presumably no one advocates it. I don't see a vehicle to 
prevent these companies from prescreening college kids, but 
they certainly have rights. They are legal adults. But what, 
from a policy standpoint, would you have this institution do if 
it wanted to address this matter?
    Mr. Manning. Well, first, there are a couple of issues.
    Number one, the very fact that you are a college student is 
the prescreen, and that the industry puts on its head the 
underwriting criteria. If you have an 18-year-old that makes 
$5,000 and is not in college, most likely he or she will get 
rejected for a credit card. But if you are in college, you are 
going to get access to multiple thousands of dollars of credit 
cards during your collegiate career. So point number one is we 
need consistency for the industry.
    Number two, of course, the Citibank now is very active in 
the student loan market. And in terms of affiliate sharing, we 
have some very serious issues here, that one affiliate knows 
that the other affiliate can get paid through this borrowed 
money.
    I want to make it clear I am a very strong supporter of 
credit cards. I would like to see every student get a credit 
card with a $500 credit limit, if their parent will not cosign 
for them. But that limit could not be raised at the end of the 
year unless there has been prudent use of that credit card.
    So I am not trying to discourage use of credit cards. I am 
trying to promote its effective use.
    But I think the data here is unambiguous about the 
seriousness of the problem. We are no longer talking about 
marketing seniors who have some degree of economic background 
or real life experience. As you can see from this 
representative sample of a major public institution in 
Virginia, the marketing of college students has shifted from 
seniors and juniors now to freshman, to even high school 
students.
    I have received quite a few complaints from a Wells Fargo 
campaign in California, where representatives----
    Mr. Davis. Let me cut you off for one second, if the Chair 
will yield me an additional 30 seconds or so.
    What is wrong with that? Just from a policy standpoint, in 
terms of following your analysis, I suspect that the gentlemen 
on this end, Mr. Wong and Mr. Hildebrand, have the perspective 
that, well, there is some discrimination in the sense that one 
class of people are favored over another. But it is not really 
invidious discrimination. It is discrimination based on 
favoring people who are likely to be long-term market 
participants versus those who are not.
    I mean, to say that seniors are not targeted, they are 
obviously not going to be long-term customers. To say that 
people who aren't in college who are young aren't targeted 
isn't such a major proposition, I suppose. You are targeting 
people who are likely to be high-income earners versus people 
who aren't. I am sure that is the rationale of Mr. Wong and Mr. 
Hildebrand.
    So what is wrong with that? I mean why should we expect 
this particular market to operate in a more evenhanded way than 
most markets do in this country?
    Mr. Manning. Well, I think anybody who has found themselves 
unexpectedly unemployed in this recession would certainly 
question the expectations of the industry in offering credit to 
an 18-year-old that their risk assessment model would predict 
that most of them will get a certain income when they are 
freshmen, when there is a robust 5 percent unemployment rate, 
and when they graduate there is an 8 percent unemployment rate, 
and they are suddenly saddled with $15,000 in credit card debt 
and $20,000 in student loan debt, with the expectation that 
they would get a $48,000 job.
    Students and people in general assume levels of debt based 
on their expectations of the future. And students at 18 years 
old who do not have real life experience, have not had a full 
time job and have not managed a budget, are making expectations 
based on a 5 year future, that they don't necessarily have 
realistic expectations.
    Mr. Davis. I think my time is expired, Mr. Chairman. Thank 
you.
    Chairman Bachus. [Presiding.] Thank you.
    Mr. Manning, I was reading different things here, but one 
thing that you said that you might want to propose is to have 
parents sign off before a college student can have a credit 
card?
    Mr. Manning. No, what I said was that every student, I 
think, should have a credit card with a $500 credit limit, 
unless their parents were willing to cosign for a higher limit, 
if they were unemployed.
    Chairman Bachus. You know, what strikes me is that it would 
be a pretty big dose of big government, wouldn't it, telling a 
large segment of our population that they couldn't have credit 
above $500?
    Mr. Manning. That is only if they don't have an income. If 
you look at the credit authorization of college students in the 
late 1980s, the industry standard was that parents cosigned 
unless the applicant had a certain income level. I am 
suggesting that for students that have no income that we 
should, at least, assure them of a learning curve of a credit 
card with no more than $500.
    Chairman Bachus. You say parents, unless their parents sign 
on. You know, some parents refuse to help their children at all 
while others finance their children's education. So you 
basically would be taking maybe, let us say you had a young man 
or woman whose parents either were unwilling to sign on, or 
weren't willing to help them at all. They might actually 
benefit from, let's say, $1,000 or $1,500 credit card.
    Mr. Manning. Well, my proposal was one that would increase 
$500 per year. I was referring to freshmen when they first 
started college, where by the time they graduated they would 
have $2,000 in a credit line.
    Also, that would not preclude their options for a Federal 
and private student loan.
    Chairman Bachus. In your book, you are talking about the 
wide use of credit cards. I notice the Federal Reserve 
estimates that 50 percent or more of all transactions in the 
U.S. involve cash. Checks are the second most popular form. And 
it says that checks total 72 percent of non-cash transactions 
in the United States. Now this was in 1997, credit cards were 
18 percent of non-cash transactions.
    Is there any statistical evidence from the Federal Reserve, 
the FDIC, that youth are having a greater default level today 
than, say, other than anecdotal, than say 5 or 10 years ago?
    Mr. Manning. Well, that is obviously proprietary 
information from the industry, and I would be happy to examine 
it.
    Chairman Bachus. Well, maybe I would ask the industry. Are 
we having larger default rates this year than we were 5 years 
ago? And has there been an increase in lending to college 
students?
    Mr. Hildebrand. Mr. Chairman, I do not know if we have a 
higher default rate than we did a few years ago.
    I do, however, want to take the opportunity to correct 
something that Mr. Hendricks said. He implied that most of the 
marketing to college students was prescreened. As a matter of 
fact, the only marketing that we do to college students is 
through prescreening. The only way that a college student can 
be on a prescreened file from the bureau is if they have 
already established a credit record.
    So these people have, in some way or another, entered the 
commerce system of America already when we go out to offer them 
credit.
    There are other forms of marketing to college students, 
tabling, T-shirts, things like that. Capital One does not 
partake in those. We treat college students and our 
underwriting of college students the way we treat the general 
population of America.
    Chairman Bachus. All right.
    Mr. Hendricks. Just for the record, that is Mr. Manning, 
and I am Mr. Hendricks.
    Mr. Hildebrand. I am sorry. I apologize.
    Mr. Hendricks. We have a mis-merge here.
    Mr. Hildebrand. I apologize.
    Mr. Manning. I don't think I used the term that most 
college students are prescreened. I said that there is a policy 
within which there is a preference given to people of a certain 
age if they are a college student versus not being a college 
student.
    Chairman Bachus. Let me ask you this. The FDIC recently 
said this in their spring 2000 report, that the credit card is 
one of the best innovations of the 20th Century. Do you all 
generally agree with that statement?
    Mr. Manning. I would certainly say that the transactional 
superiority of credit cards in general from a convenience level 
certainly in the average everyday life has been a great 
advantage. The problem, of course, is that the cost of using a 
credit card has increased dramatically, especially for those 
who can least afford it.
    Chairman Bachus. You are talking about the cost, but here 
is another: Dr. Thomas Durkin, Federal Reserve Board, Division 
of Research and Statistics, this is in a study issued in 2000: 
``Although one can usually find anecdotes to illustrate a 
point, consumers who are unaware of the cost of credit cards, 
for instance, or consumers who overspend because of the wide 
availability of credit, such examples can never lead to a 
definitive understanding of issues having broad social and 
economic impact.''
    You know anecdotal evidence. Do any of you have statistics 
one way or the other that we are----
    Mr. Manning. My understanding of that survey was that there 
were a lot of very critical comments that consumers reported in 
the use of credit and the cost of credit and the resolution of 
conflicts, and that there was a real concern about whether that 
survey instrument was accurately measuring the true criticism 
the average American has on credit cards, or whether we need a 
better measurement instrument.
    Chairman Bachus. Well, I guess that is my point. Or are the 
default rates going up? I think we all agree that there is more 
credit availability, which is what FCRA has really brought, is 
availability of credit to a larger number of consumers, easily 
available credit.
    I saw another statistic where loans in low-income areas 
have gone up 50, 60, 70 percent, to low-income Americans. 
Lending to borrowers in low-income neighborhoods has gone up 
significantly since 1993, when we adopted these changes.
    Particularly the two gentlemen I think that are 
representing consumers, do you have any statistical evidence, 
not anecdotal evidence, but statistical, that we are seeing 
soaring default rates?
    Mr. Manning. Well, certainly we can look at----
    Chairman Bachus. The interest rates, are they much above 
what they were, say, 5 years ago?
    Mr. Manning. Well, if you look very clearly at the spread 
between the cost of borrowing money from the banking industry 
and the cost that they are loaning out to consumers, that fair 
share of reduction in costs hasn't been adequately shared with 
consumers in that benefit.
    Chairman Bachus. Has been shared?
    Mr. Manning. If you look at table four, which is industry 
data, we see very clearly that the cost of funds went down 28 
percent over $7.5 billion between 2000 and 2001, and yet the 
interest that was charged went down less than 1 percent, even 
though that the total portfolio only went up 8 percent.
    Mr. Hendricks. Mr. Chairman?
    Chairman Bachus. Yes?
    Mr. Hendricks. I didn't come prepared for that, and that is 
not my area of expertise.
    I did try to provide statistics in my statement about what 
appears to be a dramatic rise in consumer disputes arising from 
inaccuracies in their credit reports, and some of those are 
credit report related.
    Chairman Bachus. I apologize. I think, to a certain extent, 
this is kind of off the issue. There are less than five minutes 
left on the vote on the House floor.
    Mr. Tiberi. Mr. Chairman, can I just make one statement in 
response to Mr. Manning's comments, the last comments you made, 
with respect to the credit card industry. I wish my father were 
here. My father is an immigrant with no formal education of 
America, sixth-grade Italian education. He has got a credit 
card that he pays no annual fee on that he uses all the time 
now. He pays it off every month, and the end of the year he 
gets money back. He thinks this is a great country because of 
that.
    So it is just bizarre to me that you can kind of paint this 
stroke about an industry and people who have a lack of 
education, because my father would tell you he has no 
education, and he has figured it out, and he is probably a loss 
leader for the credit card industry.
    Mr. Manning. There are a lot smarter people than me working 
on marketing campaigns that I can't understand, so I am 
assuming that most Americans when they read their contracts are 
at least as uncertain about the consequences as I am.
    Mr. Tiberi. Well, Mr. Chairman, with that----
    Chairman Bachus. Thank you.
    At this time, we will discharge the second panel.
    I very much appreciate your testimony. Your written 
statements, which we had yesterday, have been very helpful to 
us. Thank you.
    [Whereupon, at 2:20 p.m., the subcommittee was adjourned.]


                            A P P E N D I X



                             June 12, 2003
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