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



 
                      H.R. 2622--FAIR AND ACCURATE
                    CREDIT TRANSACTIONS ACT OF 2003

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

                                HEARING

                               BEFORE THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION


                              JULY 9, 2003

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 108-47



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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



                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    July 9, 2003.................................................     1
Appendix:
    July 9, 2003.................................................    93

                               WITNESSES
                        Wednesday, July 9, 2003

Belew, Joe, President, Consumer Bankers Association..............    75
Bell, Kayce, Chief Operating Officer, Alabama Credit Union, on 
  behalf of the Credit Union National Association................    77
Brobeck, Stephen, Executive Director, Consumer Federation of 
  America........................................................    37
Dugan, John C., Partner, Covington & Burling, on behalf of the 
  Financial Services Coordinating Council........................    38
Duncan, Mallory, Senior Vice President, General Counsel, National 
  Retail Federation..............................................    30
Fischer, L. Richard, Visa U.S.A..................................    84
Hoofnagle, Chris, Deputy Counsel, Electronic Privacy Information 
  Center.........................................................    82
McEneney, Michael F., Partner, Sidley Austin Brown & Wood LLP, on 
  behalf of the U.S. Chamber of Commerce.........................    33
Muris, Hon. Timothy J., Chairman, Federal Trade Commission.......    10
Pratt, Stuart K., President, Consumer Data Industry Association..    41
Shelton, Hilary, Director, NAACP, Washington Bureau..............    78
Snow, Hon. John W., Secretary, Department of the Treasury........     8
Spriggs, William E., Executive Director, National Urban League 
  Institute for Opportunity and Equality.........................    34
Taylor, D. Russell, Chairman, America's Community Bankers........    81

                                APPENDIX

Prepared statements:
    Oxley, Hon. Michael G........................................    94
    Clay, Hon. Wm. Lacy..........................................    96
    Emanuel, Hon. Rahm...........................................    97
    Harris, Hon. Katherine.......................................    99
    Israel, Hon. Steve...........................................   100
    Belew, Joe...................................................   102
    Bell, Kayce..................................................   111
    Brobeck, Stephen.............................................   119
    Dugan, John C................................................   135
    Duncan, Mallory (with attachments)...........................   148
    Fischer, L. Richard (with attachments).......................   157
    Hoofnagle, Chris Jay (with attachments)......................   175
    McEneney, Michael F..........................................   195
    Muris, Hon. Timothy J........................................   207
    Pratt, Stuart K..............................................   224
    Shelton, Hilary..............................................   238
    Snow, Hon. John W............................................   243
    Spriggs, William E...........................................   248
    Taylor, D. Russell...........................................   253

              Additional Material Submitted for the Record

American Financial Services Association, prepared statement......   260


                      H.R. 2622--FAIR AND ACCURATE

                    CREDIT TRANSACTIONS ACT OF 2003

                              ----------                              


                        Wednesday, July 9, 2003

             U.S. House of Representatives,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The Committee met, pursuant to call, at 10:14 a.m., in Room 
2128, Rayburn House Office Building, Hon. Michael Oxley 
[Chairman of the Committee] presiding.
    Present: Representatives Oxley, Leach, Bachus, Royce, Lucas 
of Oklahoma, Kelly, Gillmor, Ryun, Ose, Biggert, Shays, Miller 
of California, Hart, Capito, Tiberi, Kennedy, Hensarling, 
Murphy, Barrett, Harris, Renzi, Frank, Waters, Sanders, 
Maloney, Velazquez, Ackerman, Hooley, Carson, Sherman, Lee, 
Inslee, Moore, Capuano, Hinojosa, Lucas of Kentucky, Clay, 
Israel, McCarthy, Baca, Matheson, Miller of North Carolina, 
Emanuel, Scott and Davis.
    The Chairman. [Presiding.] The Committee will come to 
order.
    The Committee meets today for a legislative hearing on H.R. 
2622, the Fair and Accurate Credit Transactions Act of 2003, 
the FACT Act, comprehensive legislation to reauthorize certain 
key provisions of the Fair Credit Reporting Act and make other 
needed reforms to our national credit reporting system.
    The bill was introduced just prior to the 4th of July 
recess by a bipartisan coalition of 32 members of this 
Committee, 18 Republicans and 14 Democrats, led by the Chairman 
of the Financial Institution Subcommittee, the hardworking Mr. 
Bachus, Ms. Hooley, Mrs. Biggert and Mr. Moore.
    The FACT Act grew out of an exhaustive series of hearings 
that Chairman Bachus's subcommittee has held on the FCRA over 
the past several months. Those hearings, which featured 
testimony from some 75 witnesses, representing every 
conceivable perspective on the FCRA, has laid the groundwork 
for this Committee to act, hopefully later this month, to 
preserve the benefits of the national credit reporting system 
and give consumers important new rights in the process.
    I commend Chairman Bachus and all of the members of the 
Financial Institutions Subcommittee for their diligent and very 
thorough approach to this complex issue. The legislation that 
the Committee considers today is a testament to their months of 
hard work.
    The subcommittee's hearings have, in my view, established a 
compelling case for reauthorizing the FCRA's uniform national 
standards. As one of our distinguished witnesses at today's 
hearing, FTC Chairman Muris, has stated, the ``miracle of 
instant credit created by our national credit reporting system 
has given American consumers a level of access to financial 
services and products that is unrivaled anywhere in the 
world.''
    According to the Federal Reserve Board, since FCRA's 
enactment, the overall share of families with general purpose 
credit cards increased from 16 to 73 percent, with low income 
families achieving the greatest increase.
    American families' ability to buy a home has also 
increased, with ownership levels growing significantly from 60 
to 68 percent, again with the largest gains achieved by lower 
income and minority groups.
    These improvements in the credit and mortgage systems have 
saved consumers nearly $100 billion annually, according to some 
estimates. The FACT Act is, first and foremost, an attempt to 
make sure that the considerable benefits of that system to 
consumers and to the U.S. economy do not go up in smoke at the 
end of this year when the FCRA's uniform national standards are 
set to expire.
    Let me highlight just a few of the provisions that I was 
particularly pleased to see included in this important jobs and 
economic growth bill.
    The FACT Act incorporates a number of provisions drawn 
largely from legislation introduced earlier this year by Ms. 
Hooley and Mr. LaTourette that aimed to reduce the incidence of 
identify theft and protect those who are victimized by this 
increasingly common form of criminal activity.
    The bill prohibits the printing of complete account numbers 
and expiration dates on credit and debit card receipts and 
requires verification of certain address changes so that 
consumers are less likely to have their accounts stolen.
    It helps consumers who fear they have been victimized by 
identify theft to place fraud alerts on their credit reports to 
ensure that criminals can't access their accounts.
    And it allows identity theft victims filing police reports 
to block any fraudulent information from appearing on their 
credit reports to protect their credit reputations from being 
destroyed.
    With these targeted reforms, the FACT Act will strike a 
serious blow against the identity theft criminals who have 
succeeded in victimizing millions of innocent Americans over 
the years.
    The FACT Act also contains a number of provisions 
strengthening consumers' ability to dispute the accuracy of 
incorrect or incomplete information that appears on their 
credit report.
    For example, perhaps the most fundamental protection the 
bill gives consumers is the right to a free annual credit 
report accompanied by an explanation of their individual credit 
score and what steps they can take to improve it. This will not 
only help consumers guard against identity theft, but will 
empower consumers to ensure they will not be unfairly denied 
access to credit or other financial products before the need 
arises.
    Let me again thank Chairman Bachus and the original co-
sponsors of this legislation for their leadership and exemplary 
work.
    Let me also indicate to members that I fully expect this 
bipartisan consumer protection legislation to continue to be 
perfected as it moves through the markup process.
    The ranking minority member, Mr. Frank, has stated that one 
of his priorities will be to ensure that the legislation 
includes heightened safeguards for consumers' health-related 
information. We have been working hard on that issue and I am 
committed to continuing to work with him in the same bipartisan 
spirit that has characterized the Committee's review of FCRA 
thus far.
    Other members on both sides of the aisle have thoughtful 
proposals addressing various aspects of the FCRA that also 
warrant the Committee's careful consideration.
    In closing, I want to welcome Secretary Snow and Chairman 
Muris before the Committee and thank them for their 
constructive role in this process. Just last week, Secretary 
Snow unveiled the Bush administration's proposal for 
reauthorizing FCRA's uniform national standards, which included 
sweeping new protections for the security of America's personal 
financial information.
    And under Chairman Muris's leadership, the FTC has recently 
begun implementing its national ``do not call'' registry--bless 
your heart--something that I and many members of Congress have 
long supported to limit unwarranted telemarketing phone calls. 
Judging from the millions of Americans who have signed up for 
it thus far--and I understand it is 20 million and counting--
this Bush administration effort appears well on its way to 
becoming one of the most popular consumer protection 
initiatives of all time.
    The Chair would add that pursuant to the Chair's prior 
announcement, he will limit recognition for opening statements 
to the Chair and ranking minority member of the full Committee, 
the Chair and ranking minority member of the Subcommittee on 
Financial Institutions and Consumer Credit, or their respective 
designees, to a period not to exceed 16 minutes evenly divided 
between the majority and minority. The prepared statements of 
all members will be included in the record.
    The Chair now recognizes the ranking member, Mr. Frank, for 
an opening statement.
    [The prepared statement of Hon. Michael G. Oxley can be 
found on page 94 in the appendix.]
    Mr. Frank. Thank you, Mr. Chairman. I appreciate the 
cooperative spirit in which we have been able to work so far.
    I think it is very clear from a wide range of conversations 
I have had that the votes exist, both on the Committee and in 
the House, to continue the existing FCRA, including the seven 
preemptions. I can't name them all. I think I can get more of 
them than of the seven dwarfs, but I am not sure, but I know 
them when I see them.
    [Laughter.]
    So that outcome is not in question. There are, I should 
say, within the responsible consumer community, on our side of 
the aisle here, some people who oppose that. And what I am 
giving now is not my personal preference, but my statement of a 
fact. It is clear to me that there is majority support for 
extending the preemptions. The question is, in what form?
    Now, we should accept reality. It is very clear that if the 
majority party in this House decides to pass something, it will 
pass. A lot of time may pass before it passes, as we learned a 
week ago, but it will pass.
    Things are obviously different in the Senate, and that is 
what is relevant here.
    Just briefly, our deliberations will decide, I believe, 
whether or not a bill passes the House extending the 
preemptions with 240 or 250 votes or 380 to 390 or maybe even 
400 votes. I think it would be better if it were the latter.
    One, I think it would be in the interests of the country 
and of the economy for us to pass a bill that extended the 
preemptions with increased consumer protections.
    And I should note that there is, I think, a very high 
degree of agreement among all of the members of the Committee, 
about the consumer protections. There is a very high degree of 
conceptual agreement, areas such as identity theft, medical 
information, better information for consumers about what is in 
fact happening to them. I am impressed with the degree of 
consensus.
    We have had a very good set of hearings and I congratulate 
the Chairman of the subcommittee and the ranking member of the 
subcommittee. I read the hearing opening statements over the 
break. I don't often read opening statements for hearings 
unless there is no other soporific available. But in this case 
I really found them cumulatively quite useful.
    So the question then is, can we translate this conceptual 
agreement on a lot of things into enough agreement so that we 
get a large vote? And the reason for a large vote is very 
important. Obviously, the United States Senate is going to be 
getting this bill, and there is a deadline of the end of 
December, so the bill will be one of the things being acted on 
along with appropriations bill at the end of the session.
    And as I said, I acknowledge that in the House the majority 
will be able to pass it. In the Senate, obviously, things are 
very different. I mean, I have explained to people that if a 
dog dies in the wrong place it can keep the United States 
Senate from acting. If a dog dies in the House it gets a rule 
and gets passed.
    [Laughter.]
    So, I mean, that essential difference between the two 
bodies ought to be kept in mind.
    The more we can achieve a consensus and a large vote in the 
House, the likelier we are to get a bill that can be signed 
into law in a way that won't be disruptive by the end of the 
year.
    Now, there is one particular issue. As I said, I am struck 
by the degree we have had a lot of agreement on more 
transparency, on identity theft, which is a problem both for 
the consumer and for the financial institutions. The consumer 
bears a great deal of the anguish and stress of this; the 
financial institutions bear a great deal of the burden.
    I think it makes sense to focus on the Fair Credit 
Reporting Act and not on Gramm-Leach-Bliley. There are issues 
to be addressed there. I think opening them up would be--I do 
not see how the United States House and the United States 
Senate can complete action on this between now and December 31 
with all the other business pending if we broaden this beyond 
the Fair Credit Reporting Act.
    There are a couple of areas that are particularly important 
to me. Our colleague from New York, Mr. Ackerman, has been 
raising the question of giving consumers notice when there is 
inaccurate information, they think, about them. We are all in 
agreement that people should be able to correct inaccurate 
information about themselves, but if you don't know it has been 
put there, then by definition you can't do anything about it. 
And waiting until you have been penalized for inaccurate 
information obviously imposes costs on the consumer that I 
think are unacceptable.
    In addition, there is one flaw in the system that I have 
seen. I do believe the consumer credit system works well. I 
think it works well on the whole. It obviously supports a 
considerable part of our economy. We have increased the extent 
to which people get credit. All those are good things.
    I think there is a problem in the extent to which 
individuals who are the victims of identity theft or simple 
error or whatever are able to get some redress. That is, I do 
believe that the existing procedures whereby a consumer who has 
been the victim of inaccurate information tries to get that 
corrected are not very good.
    I was told by one of the groups, ``Well, if you have 
information about you that is inaccurate we will include in the 
statement that we send out your statement that what we say 
isn't true.''
    So if I want to get some credit people will get a statement 
about how bad I am and a corresponding statement from me 
saying, That is not true, I am really a nice person.
    I think that is the equivalent of the newspaper that having 
printed an inaccurate obituary corrects that by printing a 
birth notice. Sending out information that is both accurate and 
inaccurate I think is unacceptable.
    I think we can do a better job of mandating that the credit 
furnishers and the credit reporting agencies take care of those 
cases where there is injustice.
    And I want to address specifically the argument that, well, 
there are people who think the system works very well and there 
are people who think it doesn't work well.
    I think it works well with the major exception that--and it 
is a relatively small number of individuals who are victimized 
by inaccurate credit, but I don't think it is acceptable to say 
to them that in the interest of the system as a whole they are 
going to have to bear that particular burden. I think we can do 
a better job of cleaning up their accuracy.
    So from that standpoint I hope that we will be able to 
proceed, as the Chairman has said, to take a basically 
reasonable approach and make it stronger, and I look forward to 
our being able to work together, and I hope that with that kind 
of approach we will be able to get a very large majority 
ultimately for a bill that extends the preemptions and protects 
consumers.
    The Chairman. The gentleman from Alabama?
    Mr. Bachus. I thank the Chairman.
    What we are dealing with here is a national delivery 
system, and that is our national credit reporting system. And 
like our national interstate highway system, like our national 
power grid, like our national communications system, they 
deliver an incredible amount of value and are very important to 
the economy.
    Consumers today are able to move from state to state, they 
are able to finance loans, get mortgages at low rates. And part 
of the reason is what they never see, and that is the national 
uniform credit reporting system.
    As much as anything, and I think Secretary Snow pointed 
this out in a press conference last week, we have seen the 
democratization of credit, where low and middle income families 
enjoy incredible access to credit today at unparalleled levels.
    And I think that no one on this Committee wants to 
jeopardize that. At the same time, Chairman Oxley earlier this 
year recognized that many of the uniform standards were 
expiring, that that was a threat to this national uniform 
system, and he made it the top priority of this Committee not 
only to reauthorize those national standards, but to also 
improve upon the system. And we can improve upon it, and that 
is what this legislation is all about.
    The ranking member, Mr. Frank, pointed out identity theft. 
That is the fastest growing white collar crime in America. 
Hundreds of thousands of victims. People used to rob banks, and 
then they found that it was easier to rob railroad or trains, 
because they weren't protected like the banks were.
    Well, the last thing that thieves have discovered is easy 
to rob is people's credit, because people's credit has a great 
deal of value to them, and people are now stealing people's 
identity and using that identity and the credit that goes with 
that identity to steal millions of dollars every day here in 
America.
    This legislation is the result of a bipartisan group of 
members--Ms. Hooley, Mr. Moore, Mr. Frank, even Mr. Sanders has 
had input and his stamp is on this bill, Chairman Oxley, Ms. 
Biggert. Really, you have got 14 co-sponsors on each side of 
this Committee, and every one of them has had a role to play in 
this legislation.
    This is a work in progress, as any legislation. We are at 
the beginning of the legislative process, we are at the end of 
the hearing process where we had 75 witnesses. We will continue 
to work with the members to refine this. We are aware of Mr. 
Ackerman's concerns. We are aware of concerns of other members.
    And what we will do as we address all these concerns, we 
will try to determine what is in the best interest of the 
American consumer, the public, and we will try to balance the 
concern with the benefit of the system as it now exists.
    And if we can tweak that system, if we can make refinements 
to that system without erecting barriers to our uniform 
national credit reporting system, we will do that, and where 
justice dictates, we will do that.
    Now, I want to end, Mr. Chairman, by saying that, as much 
as anything, this bill demonstrates that when the 
Administration works with the Congress what a benefit that is.
    The Treasury Department and the FTC have worked very 
closely with us. Witnesses on our first panel have been very 
helpful to us, and their agencies.
    But as much as anything else, this is a bill where 
bipartisan cooperation has come together, and we have all put 
aside some of our personal differences to come up with the 
legislation that is a starting point for renewing the uniform 
credit system. Thank you.
    The Chairman. I thank the gentleman.
    The gentleman from Vermont.
    Mr. Sanders. Thank you, Mr. Chairman. And I want to thank 
you and Ranking Member Frank for holding this important hearing 
on H.R. 2622, introduced by Subcommittee Chairman Bachus, and I 
want to thank Spencer Bachus for his openness in this entire 
process, and for his willingness to work in a non-partisan way. 
We appreciate that, and we look forward to continue working 
with him.
    And I also want to thank Secretary Snow for being with us 
today, as well as our other witnesses.
    And, Mr. Secretary, you and I will be meeting later on 
today to deal with another crisis, and that is the collapse of 
our pension system, which is affecting millions of American 
workers, and we look forward to that meeting, as well.
    Mr. Chairman, while this bill does include some modest 
consumer protections, H.R. 2622, as currently drafted, does not 
include a number of reforms that are needed to increase the 
accuracy of credit reports, reduce identity theft, and protect 
the medical privacy of consumers.
    Most importantly, H.R. 2622 contains a major anti-consumer 
provision that would permanently bar the States from passing 
stronger bad credit reporting laws designed to protect their 
citizens against any number of problems, including identity 
theft and the ability to protect consumers' access to credit by 
ensuring that the notoriously flawed credit reporting system is 
cleared up, and in my mind just that is not acceptable.
    Mr. Chairman, this issue is extremely important to 
consumers, which is why the National Association of Attorneys 
General, representing all 50 of our states, unanimously passed 
a resolution opposing this preemptive language.
    They, the Attorney Generals throughout this country, who 
are closest to the problem, know that to protect consumers in 
this country, they have got to have the ability, whether it is 
in Alabama or Ohio or Massachusetts or Vermont, the ability to 
respond quickly and effectively to the particular consumer 
problems of people in their own State. And we should not deny 
them that right.
    Mr. Chairman, this preemption provision is also opposed. We 
hear the word consumer very often, but we should be clear that 
this preemption provision is also opposed by every major 
consumer organization in this country, including the Consumer 
Federation of America, or ACORN, the Center for Community 
Change, Consumers' Union, Consumer Action, U.S. Public Interest 
Research Group, and the lower-income clients of the National 
Consumer Law Center.
    I look forward to working with Subcommittee Chairman 
Bachus, Ranking Member Frank, and Chairman Oxley, on improving 
this legislation before it reaches the floor.
    Let me also mention a few other concerns that I have. While 
HR 2622 does allow consumers to receive free credit reports 
annually, and that is a very important step forward, it is not 
clear that it does allow consumers to receive free credit 
scores, the most important information consumers need to find 
out if they qualify for credit.
    The language here is vague, and I look forward to working 
with the Chairman to improve that language, to make it clear, 
abundantly clear, that consumers who receive free credit will 
receive free credit scores along with their free credit report, 
including the key factors adversely affect the consumer's 
credit score.
    Further, Mr. Chairman, we must address the crisis in the 
credit card bait-and-switch scam, as recently reported by The 
New York Times, the Washington Post, ABC News and other media 
outlets.
    Credit card companies are penalizing customers who have 
always paid their credit card bills on time by, in some cases, 
tripling their interest rates due to information contained in 
the consumer's credit reports that were linked to other loans.
    In other words, people pay their bills on time, month after 
month, and because they may have borrowed money for a personal 
crisis, or for another reason, credit card companies around 
this country are doubling or tripling their interest rates, and 
that is not acceptable and we have got to address that issue.
    Lastly, Mr. Chairman, I also support the visions that would 
protect Social Security numbers from identity thieves, protect 
the medical privacy of consumers, protect the credit of persons 
in combat or activated to military service, provide 
notification to consumers when negative information is put on 
their credit reports, protect consumers by disclosing insurance 
clause, reduce the time frame available for credit bureaus to 
investigate and correct consumer reports, increase the 
penalties for companies that repeatedly report inaccurate 
information to credit bureaus, and prohibit credit and 
insurance clause for bringing reduced space on the number of 
credit inquiries.
    Finally, Mr. Chairman, credit is more important than ever 
in our society. Consumers need to know that both the Federal 
and State governments are working hard to protect their access 
to credit. We need a strong federal law with flexibility by the 
States to react to local problems.
    I thank the Chairman, and I look forward to working with 
him and Mr. Bachus to improve this bill.
    Thank you.
    The Chairman. The gentleman's time has expired.
    And the Chair would reiterate that all members' opening 
statements be made part of the record. Without objection, so 
ordered.
    We now turn to our distinguished panel, beginning with the 
Secretary of the Treasury, Mr. John Snow.
    And, Secretary Snow, it is good to have you back again 
before the Committee.
    And also to Chairman Muris from the Federal Trade 
Commission.
    We thank both of you.
    And, Mr. Secretary, whenever you wish, you may begin.

 STATEMENT OF HON. JOHN W. SNOW, SECRETARY, DEPARTMENT OF THE 
                            TREASURY

    Secretary Snow. Thank you very much, Mr. Chairman, Chairman 
Bachus, Ranking Member Frank, Member Sanders. It is a pleasure 
to be back here with you.
    In listening to your opening statements, for the most part 
I would say, as lawyers often say in proceedings, I stipulate 
to what you said and want to identify myself with it and adopt 
it as my own, because you have really hit on the high points of 
what this is all about, and there is hardly any reason for me 
to go through a lengthy statement.
    I have submitted a statement for the record, and I would 
ask that it be adopted----
    The Chairman. Without objection.
    Secretary Snow.----and included in the record.
    As Chairman Bachus said, the FCRA is the invisible 
infrastructure of the credit markets of the United States, and 
that invisible infrastructure makes possible the most extensive 
and widely available credit at the best rates anywhere in the 
world. And it simply wouldn't be possible without that broad 
sharing of information. And that is why it is so important, so 
important, critically important, that you take the steps to 
make those standards permanent.
    Consumers have two vitally important interests here. First 
is access to credit and other financial services. They also, 
though, have a vital interest in the accuracy and the security 
of their financial information. Good legislation is going to 
serve both interests, and any proposals, it seems to me, should 
be judged by those two standards: Does the proposal advance the 
availability of credit, and does it make the information more 
secure and more accurate?
    It is important to recognize, I think, as we think about 
the extension of the FCRA, how important it has been for lower 
income people and how many people at the lower portions of the 
income scales in the United States have credit today because of 
the FCRA and the information pooling that it makes possible.
    It is also important to recognize just how many people 
generally benefit from the national uniformed standards.
    The Council of Economic Advisers has done some studies in 
this regard that I have detailed in my submitted testimony. 
They estimate that without the national standards, 280,000 home 
mortgage applications that are now approved each year would be 
denied. And that is roughly $22 billion of new mortgage money 
made available, made available because of these standards.
    And as I say, this democratization of credit has especially 
benefited minority and lower-income families. And if you look 
at the credit numbers, you will see that credit extension, 
credit card extension, mortgages and so on have even grown even 
faster among minorities and lower-income people over the last 
decades than among the populace generally.
    Good as it is, it can be improved. And significant 
improvements are suggested by the Administration and are 
included in the legislation that is pending before you today. A 
critically important area where improvements can be made is in 
this area of identify theft that needs to be addressed. It is a 
terrible national problem. In my written testimony I have 
offered some examples illustrating the lengths that these 
identify thieves go to rob people of their financial identity, 
illustrating how clever they are, how adaptable they are, how 
heartless they are as they perpetrate these horrors on innocent 
victims. And one of the worst aspects of the identity theft is 
how quickly one's good reputation can be destroyed, and in turn 
how long it takes to get it back.
    Our proposals and your legislation addresses that issue. 
And it is important to recognize how important these national 
standards for sharing information can be in both reducing the 
prospects for identity theft and in correcting it once the 
crime has occurred. And I have detailed in my testimony the 
various ways we would suggest that be done.
    In closing, I want to congratulate the sponsors of this 
important legislation, the Bachus-Hooley-Biggert-Moore bill, 
all of whom I think I see here on the podium. This is 
legislation that is very much akin to the proposals that the 
Administration thinks makes good sense and the very proposals I 
talked about last week. And we are in very broad agreement, I 
want you to know, with what you were proposing in that 
legislation.
    We look forward to working with the members of the 
Committee, and the sponsors particularly, to move a strong 
package of reforms forward to ensure that the Fair Credit 
Reporting Act becomes an even more effective tool for meeting 
the financial needs of American consumers. I am confident that 
the legislation that is being proposed does that, and we want 
to see it become law.
    And I thank you for the opportunity to testify before you 
this morning.
    [The prepared statement of Hon. John W. Snow can be found 
on page 243 in the appendix.]
    The Chairman. Thank you, Mr. Secretary. And again, it is 
always good to have you here before the Committee. And thank 
you for your good work in this area.
    We now turn to Chairman Muris from the Federal Trade 
Commission. Mr. Chairman, welcome.

 STATEMENT OF TIMOTHY MURIS, CHAIRMAN, FEDERAL TRADE COMMISSION

    Mr. Muris. Thank you. Thank you very much, Mr. Chairman, 
and members of the Committee.
    I am certainly pleased to appear here today to discuss the 
FTC's legislative recommendations with respect to the Fair 
Credit Reporting Act. The FCRA has been a remarkably effective 
law and serves as a model for our efforts to protect consumer 
privacy.
    As the Chairman mentioned, the FCRA makes possible what I 
call the miracle of instant credit. This miracle occurs all 
over American every day. For example, if a consumer has good 
credit he or she can borrow $10,000 or more from a complete 
stranger and within an hour drive away in a new car. Now, I am 
told that you need a higher authority than a credit manager to 
bestow miracles, but it is a remarkable event when you focus on 
it.
    The flexibility of our credit markets is one of our great 
strengths as a nation.
    It is one reason why we are so large, strong, and 
prosperous.
    Since the FCRA was enacted, over 30 years ago, consumer 
credit has expanded exponentially and today accounts for two-
thirds of our nation's GDP.
    Since 1970, access to credit has greatly expanded as well. 
Thirty years ago, less than 10 percent of the least affluent 
Americans had credit cards. Today, more than half do.
    The FCRA has facilitated this growth while at the same time 
protecting consumers' sensitive financial data.
    Our recommendations for legislation will help fight 
identity theft and improve credit report accuracy. At the same 
time, they will preserve the benefits to consumers of the 
national credit reporting system.
    To begin, the Commission recommends that Congress renew the 
existing preemptions of Section 624 of the FCRA. The national 
character of our credit markets is a powerful argument for 
retaining these provisions. The current system functions well, 
and we believe there is no compelling justification for 
fundamental changes.
    This is not to say that the FCRA is perfect, and we have 
other proposals that we believe would improve the act.
    These proposals focus on getting credit reports more easily 
to consumers who want them, streamlining the dispute process 
and easing the burden on identity theft victims.
    I want to finish by highlighting our proposal to expand 
adverse action notices to consumers.
    In its basic operation, the FCRA is an extraordinarily 
insightful statute. Without the consent or choice of consumers, 
an enormous amount of information is collected, information 
that allows our national credit markets to function.
    Use of this information is strictly limited, however, to 
permissible purposes as defined under the statute.
    With all of the information, some inaccuracy is inevitable. 
Here to, the FCRA solution is ingenious. The FCRA requires that 
when credit is denied based even in part on a consumer report, 
the creditor must notify the consumer of one, the identity of 
the credit bureau from which the creditor obtained the report, 
two, the right to obtain a free copy of the report, and three, 
the right to dispute the accuracy of information in the report.
    Now, the self-help mechanism embodied in the FCRA scheme of 
adverse action notices and the right to dispute is critical to 
maximize the accuracy of consumer reports.
    It puts credit reports in consumers' hands when they are 
the most motivated to inspect the report for inaccuracies. That 
is, after they have been denied credit, employment, insurance, 
or another benefit based on the report.
    Moreover, adverse action notices help fight identity theft. 
An adverse action notice can alert a consumer that he may have 
bad marks on his credit that he doesn't know about.
    The subsequent free credit report helps consumers discover 
these accounts that an impostor may have opened.
    Enforcing the FCRA's adverse action provisions is at the 
heart of FTC action, but we believe there is room for 
improvement.
    Today, the FCRA requires an adverse action notice only when 
a consumer is denied credit based on his credit report. The 
consumer who is offered credit on less advantageous terms and 
accepts the offer gets no adverse notice.
    Ten years ago, consumers simply were denied credit based on 
their credit report. Today, however, with the prevalence of 
risk-based pricing, it is more likely that consumers are 
charged a higher rate rather than rejected outright.
    For this reason, we recommend that Congress give the FTC 
rule-making power to expand the circumstances under which 
consumers will get adverse action notice in these credit 
transactions.
    We make several other specific recommendations, which I 
will be happy to discuss in response to the Committee's 
questions.
    It is a pleasure to be here, and particularly to be here 
with Secretary Snow, and we support his proposals as well.
    Thank you very much.
    [The prepared statement of Hon. Timothy J. Muris can be 
found on page 207 in the appendix.]
    The Chairman. Thank you, Mr. Chairman.
    And let me begin with a couple of questions for Secretary 
Snow.
    Mr. Secretary, you testified that the Council of Economic 
Advisers estimates that if Congress doesn't reauthorize the 
uniformity under FCRA and the States pass significantly 
different laws, that as many as 280,000 mortgage applications 
per year could be denied, especially for first-time home 
buyers.
    Doesn't that make the legislation that is before us, the 
FACT Act, the top priority for our country and, indeed, 
guarantee our economic viability?
    Secretary Snow. Absolutely, Mr. Chairman.
    I couldn't agree more strongly. These national standards 
are essential to the way credit gets made available in this 
country. They have made for much more robust credit markets. 
Those robust credit markets lie at the heart of the success of 
the American economy. They are integral to the success of the 
American economy.
    As Chairman Muris said, consumers represent some 70 percent 
of all the activity in the American economy. And that depends 
on credit. And we have the best credit markets and the most 
available credit and the lowest cost credit in the world. And 
that is, in large part, due to these standards.
    So I would see the legislation pending here, making these 
standards permanent, an essential condition for the continued 
success of the American economy.
    The Chairman. Mr. Secretary, I was struck by some 
testimony, when Chairman Bachus had his series of hearings, as 
to how mobile our society really is, almost clearly the most 
mobile society in the world. Fourteen percent of Americans move 
every year.
    We indeed do have a national credit system that is, I 
suspect, the envy of most countries. And despite that, there 
are those who--including the gentleman from Vermont--who 
mentioned the attorneys general not wishing to have a uniform 
national standard.
    It just seems to me that based on this incredible 
infrastructure of credit that we have developed in a national 
marketplace and given the mobility that our people have that it 
is almost incumbent upon us to maintain that national system. 
Would you agree and expound on that?
    Secretary Snow. I would indeed. In some ways, credit is as 
American as apple pie. We lead our lives because credit is so 
readily available. And so many Americans are in the system 
because of widespread credit availability.
    Those numbers on mobility. I have seen that study. It is an 
astonishing thing. Americans move, on average, every 6 years. 
That is about 17 percent of the U.S. population in a given 
year. It is an astonishing number.
    There is no other country that has that sort of mobility. 
And that sort of mobility is central to keeping this economy 
fluid and flexible with people moving to where the jobs are.
    It is at the very heart of having flexible labor markets. 
And you can't have those flexible labor markets unless people 
have the credit to be able to buy the home in the new location, 
unless they can open checking accounts, unless they can shop.
    And these standards allow one to take your good credit 
reputation with you wherever you go. And that facilitates labor 
mobility and is a critical part of what defines the success of 
the American economy.
    So I agree entirely.
    The Chairman. It just seems that we have such a mobile 
society. They move because that is where the jobs are, which is 
exactly what you want in a vibrant economy. But it is one thing 
to move from Ohio to Arizona and get a job and then have 
problems getting credit, which really defeats the purpose 
behind the move in the first place.
    We appreciate the comments.
    Chairman Muris, how does our current system of credit 
reporting help to ensure that people who should not get credit, 
who are not qualified to get credit, do not get credit?
    Mr. Muris. Well, the system works, as I mentioned, not at 
the choice of consumers. Consumers who have bad credit can't 
hide that fact, and that is a very important part of why the 
system functions so well.
    In many parts of the world, so-called negative information 
is not allowed to be reported. We allow that to be reported, 
and that is of tremendous benefit to the people who have good 
credit records, that the absence of that negative information 
when it is reported.
    The Chairman. My time has expired.
    The gentleman from Massachusetts.
    Mr. Frank. I appreciate the testimony, and particularly, in 
both cases, I think, the witnesses represent what we need to 
do, which is to let us now start to get specific about 
improvements.
    Mr. Muris, I am particularly pleased to see a couple of 
things for that. As I said, my sense of this is that the one 
weakness that I believe most critical to address is that a very 
small minority of consumers about whom inaccurate information 
gets kind of locked in, and I think they are inadequately 
protected, and I think it is within our capacity in this large 
system to improve the protections for these individual 
consumers without burdening the system.
    I mean, people say it is going to cost more. Yes, we are 
socializing the cost a little bit, but when we are talking 
about the hundreds of billions of dollars that are supported 
here, I don't think we are out of the ball park. I am also, I 
have to say, joining the Chairman congratulating you on 
implementing the do-not-call list.
    When I read some of the concerns about some of the industry 
groups about some of the consumer protections we are talking 
about, they predict danger to the economy, damage to the 
economy, like the people who are in the call business predict 
from the do-not-call lists.
    And I don't think they were right there, and I don't think 
they are right here. That is, the gloom and doom we heard about 
the do-not-call list, I think, will soon be shown to be that I 
don't think the American economy has really been that dependent 
on bothering people's dinner.
    And I don't think that perpetuating inaccurate information 
in files is necessary to the consumer credit situation.
    You had a couple of very important specific suggestions, 
which I am going to be asking the people on my staff to be 
working on. One, on page 15, you recommend that the FCRA be 
amended to provide that disputes raised with furnishers receive 
the same treatment as disputes filed with a credit reporting 
agency.
    That is very important. To some extent, it is almost like 
sort of 18th century England: If you are the consumer, you must 
go through all the right forms, and if you don't go through all 
the right forms, you are penalized.
    In my conversations, I too often heard with some of the 
people who are in the business of furnishing credit or other 
credit reporting entities the argument, well, if the consumer 
does it all right then this or that can happen.
    With identity theft, or whatever, if you filed the police 
report, well, not everybody knows they are supposed to file a 
police report or can find it easy to file a police report, or 
in a lot of communities when they are having to lay-off cops 
you are going find a policeman to report it to, because he is 
busy out there trying to catch a bad guy who is trying to whack 
some guy.
    So, here the notion that you would not have a substantive 
right to get your reinvestigation because you didn't go to the 
FCRA, I think that is very, very important, and I appreciate 
it.
    I also was pleased in pages 10 and 11, with your specific 
endorsement of making it statutorily clear the resellers have 
the same responsibility as other people.
    I mean, I think we ought to be very clear. You have a right 
to complain, you have a right to a substantive reinvestigation, 
and you have that right with anybody who might be perpetuating 
the, or sending along the misinformation.
    And one of the things that strikes me here, and, well, I 
know we will probably wind up preempting going forward, the 
advantages of not having preempted prematurely seem to me to 
come forward.
    My own State of Massachusetts, and I was not previously 
familiar with this, it wasn't an area I had specialized in, is 
grandfathered in a piece of legislation which gives the 
furnishers and others a somewhat higher standard, and I am 
struck by that because apparently Massachusetts has been able 
to sell things.
    The existing of the higher standard in Massachusetts has 
not had the negative consequences that some of the furnishers 
predict. And so I am going to be looking at that, I think, in 
that we have some happy experience here in those three States 
that were grandfathered, and I look forward to working with 
your staff.
    As I said, I am going to be trying to translate these two 
into statutory language, we will look forward to you working 
together on that, and I appreciate your coming forward with 
that.
    So I thank you.
    Mr. Muris. Thank you.
    Mr. Frank. Mr. Snow, I also appreciate your testimony. I 
really want to talk to you about capital controls in Argentina, 
but we will do that some other time. Thank you, Mr. Chairman.
    [Laughter.]
    The Chairman. Gentleman yields back.
    The gentlelady from New York, Ms. Kelly.
    Mrs. Kelly. Thank you, Mr. Chairman. Secretary Snow, and 
Chairman Muris, I would like to thank you both for appearing 
before the Committee and voicing your strong support for H.R. 
2622.
    As you know, this legislation's been drafted after careful 
consideration by this Committee that included a multitude of 
views from many diverse witnesses. We actually began the 
process by investigating the issue of identity theft in several 
oversight subcommittee hearings, including a joint hearing that 
I chaired with Chairman Bachus in the beginning of April, and I 
am pleased that this legislation specifically addresses some of 
the problems we discovered in these hearings and hits at the 
heart of identity theft.
    In the past few months, in my subcommittee, we have also 
investigated another important security issue, the blocking of 
terrorist financing under the USA PATRIOT Act. I believe this 
legislation will further help law enforcement combat financial 
fraud and track down criminals and terrorists.
    However, there are some concerns about the privacy under 
this act. And as we move forward with consideration of the FCRA 
reauthorization, I believe we must also be concerned about the 
sanctity of privacy for the American people in this act.
    As we will hear from several witnesses today, medical 
information is readily available and easily identifiable on 
credit reports. I am currently exploring language that will 
protect medical information of individuals without disrupting 
the access to low cost credit and the security of information. 
In fact, I believe it enhances the security of personal 
information.
    To that end, I would like to ask a couple of questions.
    Chairman Muris, is it the intent of a credit report to 
specify information outside the realm of the credit-granting 
process? Would you support coding medical information in a way 
that would allow financial transactions to appear on a credit 
report, but not the actual names of the institutions or the 
entities that have provided those transactions?
    Mr. Muris. This is a problem or an issue that has recently 
been brought to my attention. First of all, I am not sure the 
extent to which there is a problem. We are looking, and we will 
be glad to work with you and the other members and your staffs, 
to see what the impact of that would be.
    I do know under the FCRA there are separate standards and 
separate procedures for getting medical information. And if you 
want to get a life insurance policy, for example, you will need 
to consent to the insurance company for the right to receive 
medical information about you. That is regulated to a certain 
extent by the FCRA.
    But the specific issue that you mention is one that has 
just been recently brought to my attention, and we would be 
glad to work with you on it.
    Mrs. Kelly. Let me just give you an example of what I am 
concerned about. In New York City we have a wonderful cancer-
treating institution called Memorial Sloan-Kettering. If I am 
being treated and I have a bill dispute with Memorial Sloan-
Kettering, the assumption would be that I am being treated for 
cancer and the assumption is in many people's mind still that 
cancer is almost inevitably problematic to the extent that it 
deeply affects your ability to work or can result and does 
result in death.
    My concern is if that name, like Memorial Sloan-Kettering, 
appears on a credit report, there may be an assumption made by 
someone who is looking at that credit report that I have a 
difficulty without understanding that I am there because I am 
actually going back in for a checkup and there was a discussion 
about that bill.
    I want to make sure that we work out a method so that the 
financial end of that could be presented, but the entity 
providing that service is not listed. That is my intent, that 
is the legislation that I am working on, and I am glad to think 
that you would be working with me on that. I would hope that 
you would support that.
    Mr. Muris. Well, yes, we would certainly be glad to work 
with you on it, and it may be easy to do that. I don't know 
what the ramifications are.
    I do know that in the situation that you are talking about, 
if someone currently, under the current law, is denied a 
benefit because someone drew an inference they didn't like in 
their credit report, the person has to be told that they were 
denied the benefit because of the credit report.
    The person has to be told that they were denied the benefit 
because of the credit report.
    So some protection already exists. And I would be glad to 
work with you on the additional issue.
    Mrs. Kelly. Recognizing that that protection does exist, my 
problem is that it is one more step that we simply, I don't 
believe, need to have people get involved in if we can stop it 
before it happens.
    Secretary Snow, in your testimony you discuss the integrity 
of information and note that one of your most important assets 
is your reputation. Do you believe that there needs to be 
specific medical information on an actual credit report? Or do 
you think it makes sense to consider coding the information in 
some way, as I have described?
    Secretary Snow. You raise a good issue, an important issue. 
And I don't have a fixed answer to it. I want to think about 
it, though, against the criteria that we set forth--I set forth 
in my statement, and that is how would a given proposal such as 
that, affect the accuracy and security of information to 
protect the individual, and how would it affect access to the 
credit?
    And I think your proposal is something to be looked at, but 
against those criteria. Today, of course, there is some sharing 
of medical information that grows out of so-called 
experiential, but not otherwise.
    And getting that line right, I think, is something that 
deserves attention. And like the Chairman, we would be pleased 
to work with you to try and get that balance right. But it is a 
critically important issue and a very sensitive issue.
    The Chairman. The gentlelady's time has expired.
    Mrs. Kelly. Thank you very much.
    The Chairman. The gentleman from Vermont, Mr. Sanders.
    Mr. Sanders. Thank you, Mr. Chairman.
    Gentlemen, the legislation that we are discussing today 
allows consumers to receive free credit reports annually, and 
that is something that some of us have fought for and we think 
is a real step forward. Unfortunately, the language in the bill 
is vague when it comes to providing free credit numerical 
scores along with a free credit report, including the key 
factors that adversely affect the consumer's credit score.
    So my first question to both of you is does the 
Administration support the right of consumers in this country 
not only to get free credit reports, but to get the scores and 
the explanation about adverse numbers that might impact the 
consumer? Mr. Snow?
    Secretary Snow. We would support, as we have said in the 
testimony, access to the credit bureaus of the data. We would 
also require that with the data go some help in understanding 
how the data is used, so that the individual consumer would be 
in a better position to understand what they might be able to 
do to improve their credit standing.
    The score I am more dubious on, and I will tell you why, 
Congressman. The score itself is a proprietary product. It 
comes from not the credit bureaus, of course you know, but from 
these private entities, who have invested a good deal of 
intellectual capital developing their algorithms and so on.
    Mr. Sanders. Mr. Secretary, you used the word 
``proprietary''; that is my information, that is my life that 
that information is about. And to suggest that it is an 
intellectual property right for somebody else when it is 
information about what the heart of what my life is about, I 
would suggest it is my information.
    Secretary Snow. But it is your information, but it is there 
methodology and their intellectual property.
    Mr. Sanders. But don't I have a right to know if three 
different credit companies, agencies, provide three different 
scores, don't I have a right to know how that came about?
    Secretary Snow. You will have the data under our proposal 
that they use; you will know what the records are. And you will 
be given assistance and help in trying to understand how that 
data would be applied. The scores comes from a different 
source.
    Mr. Sanders. Frankly, that is not good enough for me, and I 
think we have got to go further than that. And I look forward 
to working with you and with the majority to clarify that 
issue. I think consumers are entitled to more.
    Second issue, what I call bait-and-switch. As you know, 
right now if I have a credit and I responded to one of the 5 
billion applications that people get in this country at 3 
percent and then I take out a loan because my wife is ill, 
suddenly it can go up to 25 percent.
    I think that is an outrage. I think that is a ripoff of 
consumers in this country.
    Is the Bush administration going to be strong in protecting 
consumers against this ripoff and help us include strong 
language, strong language, in this bill?
    Secretary Snow. This is an area that the Chairman can speak 
to.
    Mr. Sanders. Thank you.
    Mr. Muris. It certainly is under our jurisdiction. To the 
extent it involves banks and credit cards, it is not. But to 
the extent it is under our jurisdiction and for a lot of 
lenders, it is.
    There are circumstances under which, I think, this raises a 
problem. We are looking at this issue specifically and, in 
general, the issue about unilateral modifications to standard 
form contracts. As an old contracts law professor, there are 
many circumstances in which those modifications should not be 
allowed.
    Mr. Sanders. Just a question. In English.
    I sign up with your credit card company at 3 percent. You 
are giving me this 1 year at 3 percent. Every month, I pay my 
bills on time. Suddenly, I am now paying, instead of three 
percent, five months later I am paying 25 percent although I 
have paid what I owe you every month promptly.
    Is that appropriate? Is that right? Or should we make sure 
that credit card companies cannot do that.
    Mr. Muris. I think, again, you would have to look at the 
circumstances. But if someone on their own, which is what 
unilaterally means, not bilaterally with the consent of the 
consumer, changes the terms in a one-sided fashion, that can 
easily be a problem.
    Mr. Sanders. Well, I look forward to working again with you 
and the majority on that issue. Lastly, I want to make a 
philosophical statement and let you respond.
    Your Administration is, admittedly, in a conservative 
administration, in my view, one of the most conservative 
administrations in the history of this country.
    Day after day, I hear on the television, hear on the radio, 
how the big, bad federal government should not be taking over 
the powers that folks closest to the people have, that we have 
got to protect States' rights, and so forth and so on. And yet, 
what I am hearing from you is that despite what the Attorney 
Generals of the United States want, despite what every consumer 
organization wants, you think that the federal government 
should crush the ability of state governments to protect 
consumers and fight and pass standards that are higher than the 
federal government.
    Why would a conservative administration that tells us how 
bad the big, bad federal government is want to crush States' 
rights in protecting consumers' needs.
    The Chairman. The gentleman's time has expired. The 
gentleman will respond.
    Secretary Snow. Congressman, I think you know we are not 
alone in this view that these uniform standards should be 
applied in the preemptive way that has been suggested.
    It has come to my attention that the Conference of State 
Bank Supervisors, that is all the state bank supervisors 
themselves, support the legislation that is pending here and 
the Administration proposal. And they do so because they 
recognize the greater good that comes from the existence of 
these----
    Mr. Sanders. Then, answer my question why a conservative 
administration----
    Secretary Snow. Well, because of the greater good.
    The Chairman. Gentleman's time has expired.
    Mr. Muris. Mr. Chairman, could I say something about that.
    The Federal Trade Commission has four Clinton appointees 
and one Bush appointee. And the recommendation to support these 
proposals is unanimous.
    Mr. Frank. Well, that would explain their disregard for 
States' rights.
    [Laughter.]
    Mr. Muris. Well, I would be glad to respond to that. It was 
a two-part question. One is how the conservatives--I don't 
think the four Clinton administration appointees--but could I 
respond to----
    Mr. Frank. That is my point. Sure.
    Mr. Muris. Just as one of the most important things that 
happened in our country was in 1787, when they formed the 
Constitution. One of the main purposes of that was because the 
States were preempting a national economy. The states had 
individual tariffs. They had individual standards.
    National credit standards, although not as important as 
prohibiting states from imposing tariffs, I think national 
credit standards are extraordinarily important. And it is that 
uniformity which provides enormous benefits for consumers.
    If we need more consumer protection, and I think we do, it 
should come as part of national standards.
    Mr. Frank. Just for 10 seconds. If you could, maybe, send 
me the reference in Bailyn's Debates on the Constitution to 
credit reporting, I would appreciate that.
    The Chairman. Gentleman's time has expired.
    The gentleman from Connecticut, Mr. Shays.
    Mr. Shays. Thank you. I thank both of you for your good 
work to our country and the sacrifices you make in serving our 
country.
    I just would like you to respond as clearly as you can to 
the consequence of not taking action.
    Secretary Snow. Well, I think, Congressman, that the 
consequences of not taking action would be to, in a far-
reaching way, undermine the performance of the American 
economy. I think these national standards are integral to the 
enormous success of the American economy, because they underpin 
credit, and we are a credit-based economy. They underpin, as we 
talked about earlier, labor mobility, and labor mobility is a 
hallmark of the success of this economy.
    The uniform standards make credit available to lots of 
people who otherwise wouldn't have it, which means they can get 
into the mainstream of economic activity in this country. And I 
don't have the econometric studies' results in my mind, but it 
is pretty far reaching, something like 3 percent reduction in 
the total credit availability in the country and something on 
the order of a 50-basis-point increase in the cost of credit. 
Fifty-basis-point increase in the cost of credit on a $7 
trillion credit economy, we are talking gigantic numbers and 
far-reaching negative impacts on the economy if these national 
standards aren't maintained.
    Mr. Shays. Yes, sir?
    Mr. Muris. Just to make a brief amplification, the economy 
compared to the rest of the world, our economy has a few simple 
reasons why it is so much better than many other economies, and 
two of those reasons are our labor markets are so flexible, and 
another is our credit markets are so flexible. And I think that 
flexibility crucially hinges on having national standards in 
the credit markets.
    Mr. Shays. I have had 13 years in the Statehouse, and I 
know the argument for states being allowed to pass its own laws 
and supersede what the federal government, and now I have had 
16 years in the federal level. But it seems to me this issue is 
so crucial that we can get into the ideology of States' rights 
versus federal, and in the process we risk, frankly, putting 
our economy in danger.
    I, Secretary Snow, want to just voice a concern about a 
lack of clarity on the Department of Treasury as it relates to 
Jesse's. And I want to understand what your position is as it 
relates to why we would allow Freddie Mac and Fannie Mae to not 
have the same kind of disclosures as any other Fortune 500 
company. And I would like to know when this lack of clarity 
will be clearer.
    Secretary Snow. Congressman, that is an issue that we are 
reviewing right now, and in the context of the recent 
disclosures that have made the news at Freddie Mac. We have 
always articulated the need for disclosure, and have been in 
the forefront of pushing for the disclosure under the 34 act. 
And I am pleased that Fannie Mae has now done that and is 
submitting the 34 act information. And once you go into 34 you 
don't come back out.
    Mr. Shays. Right.
    Secretary Snow. So they are permanently under 34.
    Mr. Shays. But what confuses me is you have Alan Greenspan 
making it very clear he sees no reason why they also shouldn't 
be under the 33 act. And I am just wondering why there would be 
any argument that they shouldn't be under it.
    Secretary Snow. Well, there doesn't seem to be any current 
difficulty with their issuances.
    But clearly, there needs to be transparency, disclosure and 
good transparency, and effective regulation.
    Mr. Shays. Well, I thank you all for looking at it.
    Secretary Snow. And that whole subject is, of course, being 
looked at by the Committee.
    Mr. Shays. Thank you. Thank you, Mr. Chairman.
    The Chairman. The gentleman's time has expired.
    The gentlelady from Indiana is recognized. Ms. Carson? No 
questions?
    The gentlelady from California, Ms. Lee.
    Ms. Lee. Thank you very much, Mr. Chairman. And let me say 
I, too, am very happy to be able to listen to this testimony 
today and have many of the same concerns that many members, of 
course, on our side have raised.
    One is I would like to ask Secretary Snow a little bit more 
with regard to the issue raised in terms of credit scoring, the 
proprietary information, and I think what Mr. Sanders indicated 
with regard to the fact that this is personal information, 
private information, that is now being packaged, really, and 
being sold.
    One is do consumers really know that this information is 
now a commodity and that their entire private information is 
actually a product, and that this product is being sold? Is 
that information we know?
    Secretary Snow. You know, I don't know what percentage of 
the general public knows that. I would distinguish between the 
credit report, the data that is in the file that the credit 
bureaus have, which you should have access to, and which under 
the proposed proposal you would have access to, free access to. 
All you have to do is request it.
    But I would distinguish that, and this is clearly something 
people can argue about, that and the score. Your information is 
your information, it is your records, but the score, which 
really comes from somebody else, is their application of their 
methodology, it is their undertaking, it is what they have done 
to evaluate those records.
    Now, we think people ought to understand more about how 
that is done, and how scores are set.
    Ms. Lee. Sure, but Mr. Secretary, what I am asking is do 
consumers have a right to know that this, whatever this 
methodology is is a methodology that is being packaged as a 
product to be sold to make money?
    Secretary Snow. Yes, they absolutely should have the right 
to know that their records are, and they should have access to 
those records.
    Ms. Lee. Access to the records is one thing, Mr. Secretary, 
but I am asking with regard to the right to know how this 
scoring information is being used in terms of the sale of it. 
Should they have a right to know that, and if they don't, then 
just, they don't.
    Secretary Snow. Well, they certainly have a right to know 
that people are putting scores on them.
    Ms. Lee. But that the scores are being sold?
    Secretary Snow. And there is a market in these scores.
    Ms. Lee. Sure.
    Secretary Snow. I mean, there are, these companies are 
selling these scores, and they will sell them to you, as an 
individual.
    Ms. Lee. Sure, but do consumers know that? All I am asking 
is should, and does the Administration and under the bill----
    Secretary Snow. You mean, should there be a disclosure?
    Ms. Lee. Should there be a disclosure that this scoring----
    Secretary Snow. That there are scores, that scoring goes 
on?
    Ms. Lee. That there are scores, and that the scores are 
proprietary information----
    Secretary Snow. I have no objection.
    Ms. Lee.----and that this proprietary information is being 
sold?
    Secretary Snow. Well, I think if you read the newspapers, 
that is daily fare in the newspapers.
    Ms. Lee. Well, Mr. Secretary, I really want to just know, 
do you think we should work on this a bit in this bill, and 
maybe tighten it up and make some----
    Secretary Snow. Well, I don't, I would not recommend 
mandating making the scores available for free. I would 
recommend, as we have, making available on request the records.
    Ms. Lee. But making available the information that the 
scores are being sold to make a profit, should consumers just 
know that as they apply for credit? They may choose not to 
apply.
    Secretary Snow. Well, I think sure. I don't see anything 
fundamentally wrong at all with disclosure: The data goes into 
the compilation of scores.
    Ms. Lee. Then we would like to work with you on an 
amendment, on a disclosure amendment.
    And let me just ask Mr. Muris one thing with regard to 
adverse actions. With regard to multiple credit inquiries, 
oftentimes consumers attempt to find the best deal, the best 
rate, the best terms. I know for a fact many individuals have 
called and indicated to me that as they do this they are 
notified that there is an adverse action now because they are 
attempting to find the best loan. Why is it that multiple 
credit inquiries become ultimately a negative on your credit 
report when really you are trying to find the best product? And 
what can we do to correct for that in this bill?
    Mr. Muris. Well, my understanding is this is an issue that 
only comes up--the credit's only concerned about if you are 
doing it a lot in a short period of time.
    And I can understand their concern if that is true. If you 
are applying with several people or making inquiries with 
several people at once, that is something that creditors would 
want to be aware of.
    Ms. Lee. So why would it be a negative when the consumer's 
attempting to find the best interest rate and the best terms?
    The Chairman. The gentlelady's time has expired. The 
gentleman may respond.
    Secretary Snow. Mr. Chairman, can I clarify one----
    The Chairman. Of course, sure.
    Secretary Snow. As I think we are in agreement on at least 
making available the scoring process. I mean, we support making 
available knowledge of the scoring process. So if you are 
asking do we want people to know they are getting scored, the 
data is being used to make scores, yes, we do. The only place 
that we may have a difference here is making the score itself 
available----
    Ms. Lee. But also making available the information that 
that is being sold----
    Secretary Snow. Well, sure. Because what we are proposing 
to do is to make a free report available along with the 
knowledge of how the scoring process works, so you will be 
informed that there is a scoring process with respect to these 
records.
    Ms. Lee. And that it is being sold.
    Secretary Snow. Well, sure, these people are in business.
    The Chairman. The gentlelady's time has expired.
    Mr. Muris. If I could respond?
    The Chairman. The gentleman may respond.
    Mr. Muris. Because I think I--right before Secretary Snow 
responded--I think I misunderstood your question. I was 
thinking of multiple applications. If it is multiple inquiries, 
I think you are correct. And I think the practice now is to 
treat multiple inquiries in a short period of time as one 
inquiry. If people are treating it otherwise, I think there is 
a problem----
    Ms. Lee. I would like to work with you on that, Mr. Muris.
    Mr. Muris. Sure, and I agree with you.
    The Chairman. The gentleman from Texas, Mr. Hensarling.
    Mr. Hensarling. Thank you, Mr. Chairman.
    Mr. Secretary, we have heard lots of evidence at the 
subcommittee level about the fact that as Americans we enjoy 
the greatest access and the lowest cost of credit available. I 
am not really sure that anyone cares to debate that proposition 
today.
    I have a specific question. Now, as a member of the 
subcommittee, I actually attended what I believed the Chairman 
described as the exhaustive six hearings, and actually learned 
something by attending these hearings. I heard evidence from 
the Hispanic Chamber of Commerce that 7 out of 10 small 
business in America are capitalized with less than $20,000, and 
that 45 percent of them use credit cards as a major source of 
financing for their capital formation or their capital for 
expansion. And so the question I have is, has Treasury seen 
similar data? And if so, do you have an opinion on the possible 
adverse impact on employment should we fail to reauthorize 
FCRA?
    Secretary Snow. Well, I am generally aware that credit 
cards play a critical role in the financing of small business.
    And the virtue of these uniform standards is that they 
allow the pooling of information, which reduces the uncertainty 
of the credit furnisher. And that particularly helps those who 
have the most difficult time getting credit. Some small 
businesses would certainly tend to fall into that category.
    So I think the failure to extend these standards and I 
would hope make them permanent, the failure to do that, extend 
the standards, I think would have a differentially adverse 
effect upon small business, certainly, and Hispanic small 
business would probably fall into that category particularly, 
yes.
    Mr. Hensarling. Chairman Muris, a lot of folks on the 
Committee obviously have a concern about identification theft, 
as do many of our constituents. I am actually one of the 
members of this Committee who has been victimized by 
identification theft. Frankly, I was one of the lucky ones in 
being able to recover the losses and to ensure that my credit 
rating was not adversely impacted.
    And although we have heard a lot of testimony, I think it 
really comes down to a critical question, and that is when it 
comes to the subject of ID theft are we better off with or 
without the reauthorization of FCRA? I am curious of your 
opinion and why you hold the opinion.
    Mr. Muris. Well, I certainly think in terms of the national 
standards we are better off. We are certainly better off with 
the ability of businesses to share within affiliates, for 
example, information freely. I think that helps in terms of 
identity theft.
    I do think there are some provisions where we can 
strengthen the law within the context of the national uniform 
standards, and we and Secretary Snow have proposed several. I 
think they would help on identity theft.
    There are things outside this bill or outside--criminal, 
increased criminal penalties, for example--we have supported, 
and I think that would help on identity theft as well.
    It is a very serious problem. We are charged by the 
Congress with providing assistance to consumers. We have taken 
a lot of steps.
    As a minor example, we publish a booklet that we can't keep 
in stock, because there are just so many people who request it: 
How to Deal with Identity Theft, How to Protect Your Good Name. 
We have recently just started publishing it in the last year or 
so in Spanish. And the consumer education is a very important 
part of what we do, but also the legislative proposals we have 
here, I think, will help on identity theft.
    Mr. Hensarling. Although I am a veteran of six of these 
subcommittee hearings, I still find it a little challenging to 
get my arms around the number of inaccuracies that may be 
appearing in a consumer's credit report. I am curious about 
what data you may have, because there have been some 
accusations that a huge number of reports contain inaccuracies.
    I am curious, Mr. Chairman, about what information you have 
on this matter. To the extent that these inaccuracies exist, is 
it mainly in the nature of a wrong telephone number or an 
address due to a fairly mobile society? What portion of the 
information may actually be used in an adverse action against a 
consumer?
    Mr. Muris. Well, I think the implication of your question 
is the materiality of inaccuracies is extremely important, and 
let me focus on that.
    But first there have been some recent studies, and although 
I generally get along and am supportive of and supported by my 
many friends in the consumer groups, this is an area where I 
disagree with some of the recent studies.
    What you have here are different companies with different 
standards, and if you pull a credit report on different 
individuals the information may be reported differently, there 
may be somewhat different information.
    The key to the Fair Credit Reporting Act we think is in the 
adverse action notice, which is why we support increased use 
for new techniques of adverse action notices, because what I 
call the self-help feature is extraordinarily important.
    The consumer needs to know when they are denied a benefit 
based on what is in their credit report, because then they are 
put on notice that if there is something wrong, you know, they 
say, well, there is nothing wrong with my credit, then they 
know that they should look at that report and dispute it.
    That is the heart, I think, of the very ingenious system 
that Senator Proxmire set up over 30 years ago. But I think 
because of changes in credit, we need to expand the use of 
adverse action notices, and we have made that proposal.
    The Chairman. The gentleman's time has expired.
    The gentleman from Illinois, Mr. Emanuel.
    Mr. Emanuel. Thank you, Mr. Chairman. Thank you for holding 
this hearing.
    My colleague from New York, Congresswoman Kelly, talked 
about health information. I actually have an amendment that 
when we get to marking up the Chairman's mark and offering it. 
It is a bipartisan amendment that deals with, in fact, health 
information, which I think we need in the area of health 
information to provide consumers, I think, this safe harbor. 
And it gets beyond the issue of the opt-in and opt-out, but 
creates what I call a blackout as it relates to health 
information, particularly when it is in the credit granting 
process or in the selling of relevant financial information or 
services. Obviously, if it is relevant to life insurance, that 
is one thing, but it is not relevant--there should be a 
blackout on health information.
    I think that is essential to giving some consumers in a 
changing environment that we have and the technology's that 
advancing, that safe harbor that that information that is 
relevant, that their health information not be used against 
them in the credit process.
    And I know it wasn't in the Administration's bill of 
recommendations, but your openness to that, I think, is 
essential. We have a bipartisan amendment. I think it is based 
on common principles that your health information should not be 
used against you in this process.
    Secretary Snow. Congressman, I think I indicated in 
response to Congresswoman Kelly that we would be open to 
talking to you about that and working with you on that score.
    But it should be looked at in terms of those criteria that 
I laid out. What does it do for the security and accuracy of 
information? What does it do for general credit availability?
    Mr. Emanuel. To that standard is what does it do to help 
our consumers? Because my view is if you can't give the 
consumers in this changing world some sense of a safe harbor, 
it also has an impact.
    This bill has been developed in a bipartisan fashion, we 
continue that effort here. It is one of the things that Ranking 
Member Frank and also Chairman Oxley have talked about the 
importance here. I think this amendment would go a long way 
toward doing that and meeting the standards that you have set 
out.
    Secretary Snow. We would look forward to working with you 
on that.
    Mr. Emanuel. Okay. The other matter is I also want to 
compliment you, although unrelated to this subject, is working 
with you on the Earned Income Tax Credit and the ability to 
deal with making it simpler so we get more people involved, 
reduce fraud, and simplicity. And want to compliment you and 
your agency and the people involved for working with you on 
that very important matter.
    Secretary Snow. That is another area where we want to 
continue to work with you.
    Mr. Emanuel. If this continues we are going to start 
singing Kumbaya at some point.
    [Laughter.]
    So with that, I have no other questions.
    The Chairman. Don't push your luck.
    Mr. Emanuel. You know the words?
    [Laughter.]
    Do you think he knows the words, though? We give you a 
little cheat sheet on that.
    [Laughter.]
    The Chairman. The distinguished Chairman of the 
subcommittee, Mr. Bachus.
    Mr. Bachus. Thank you, Mr. Chairman.
    One of the ways to combat identity theft that we are using 
in this legislation--in fact, the Administration and the 
agencies have also talked about--the use of so-called red flags 
to detect or inhibit identity theft. And there has been a 
debate on this Committee as to how we best institute the use of 
these red flags.
    We have seen cases where when we have too rigidly 
proscribed what the financial institutions will do that it 
actually inhibits their efforts to combat identity theft, 
because they don't have flexibility. You know, they have a lot 
of knowledge. They have a lot of experience in how to identify 
these things themselves.
    And I notice that, Secretary Snow, many of your proposals 
rely on best practices approach or an approach that allows the 
regulators to come up with the use of red flags. But although 
it gives specific direction to the financial institutions, it 
provides them with flexibility to achieve the desired result.
    What are the dangers of prescribing a rigid approach, as 
opposed to leaving flexibility in dealing with the financial 
institutions in exactly what they do?
    Could it actually hurt our efforts if we are too rigid, or 
we prescribe too much?
    Secretary Snow. Well, that would be our view, Mr. Chairman. 
Because we need to be continually creative and find new and 
better solutions to deal with the creative people who are out 
there on the other side trying to engage in criminal behavior.
    They are determined, they are smart, they are capable and 
they are ruthless, and the red flag idea should be embraced by 
the banking community, but improved upon.
    I mean, it seems to me they are the experts on the use of 
internal financial information and how best to use it to 
accomplish the objective they have in mind, and their consumers 
have in mind.
    If somebody is likely to be a victim of this, spread the 
information quickly, raise the red flags, get it out there. And 
I think the banking institutions themselves are probably better 
at evolving the best way to deal with that.
    That has been a rule that was written at a point in time 
that can't by its very nature evolve. That would be our basic 
thinking.
    Mr. Bachus. Right. In fact, yes, I have heard from talking 
to some of the financial institutions, and actually some of the 
law enforcement community, that sometimes the law, if it is too 
structured, it is 20 years behind the criminals, or that they 
actually use the definition of, you know, if it is too 
carefully prescribed, and they know what that definition is, to 
get around it.
    And I would hope that the Committee would give 
flexibilities to the regulators, and that you, in turn, would 
give flexibility to the financial institutions.
    Secretary Snow. That is very much where the Administration 
is coming from.
    Mr. Bachus. Thank you.
    Chairman Muris, some have suggested that this 30-day time 
frame for investigating consumer disputes about accuracy of 
information contained in their credit reports is too long and 
should be shortened to 15 days.
    Does the FTC have a position on such proposals? Are there 
any negative consequences to the uniform credit reporting 
system that might flow from truncating this reinvestigation 
process down from 30 days?
    Mr. Muris. Well, we have not taken a position on 
shortening. We are supporting the law as it is. My personal 
view is that there could be serious consequences from reducing 
the time, particularly by that dramatic of a reduction.
    First of all, this is a voluntary system.
    And a second problem is that we see something called credit 
repair scams, and one of the things that these people tell you 
to do is to dispute everything in the hope that the clock will 
run out. And if we shortened the system that much, I think that 
might facilitate that sort of tactic, which doesn't do, you 
know, the majority of consumers who pay their bills any good at 
all.
    Mr. Bachus. I thank the panel.
    I would like to say to the members, and to the panel, that 
the legislation as drafted, and I have discussed with Mr. Moore 
and Mr. Davis, as far as credit scores, it was the intention in 
drafting this legislation, that is the credit reporting 
agencies had credit scores that that would be revealed. Not 
only would the credit report go to the consumer, but also the 
credit scores. So there is some concern that has been expressed 
here earlier that the legislation may not do that.
    It is an intent, and we will continue to work, because if 
the consumer is not given the credit score along with the 
credit report, much of the philosophy behind allowing consumers 
to be able to have, to be educated and improve their credit 
scores. If they don't know what their score is, it is pretty 
impossible to improve that score.
    So it is our intention that they do receive their credit 
scores, and I will work with members on both sides to see that 
that is done.
    The Chairman. Thank you. The gentleman's time has expired. 
The gentleman from Georgia, Mr. Scott.
    Mr. Scott. Thank you very much, Mr. Chairman.
    Secretary Snow, I would like to ask you a couple of 
questions on two of the points that I think have been sort of 
points of contention here, one, the scoring, and the other, the 
free credit report.
    First of all, we are all aware, and I think you mentioned 
in your remarks, the need for consumers to be educated about 
their credit scores. Chairman Bachus has just indicated the 
willingness to work on this issue a little more.
    But I would like to call your attention to the fact that 
too often consumers are not even aware that they have a credit 
score until that credit has been denied.
    What efforts specifically can the Administration take to 
educate consumers and raise awareness about their credit scores 
before that credit is denied?
    Secretary Snow. Well, the proposal that we have very 
similar to what Chairman Bachus talked about, would give 
consumers the opportunity to review their credit reports for 
accuracy and for completeness. They would also be given more 
information about their credit scores and would be informed on 
what they can do to improve those scores, improve effectively 
their credit profiles. I am not sure where the differences are, 
if any, between where the Committee bill is the Administration 
on that, but I will look at that. I don't think we are very far 
apart at all on that.
    We want people to know their credit reports. We want them 
to know that this information is being used to create scores. 
We want them to have a sense of how the scores are being 
created. We want them to have a sense of what they can do to 
improve their credit profiles. And it seems to me, you go to 
the identity theft issue, it is very important they have these 
records so they can correct them if they are wrong, and wrong 
information doesn't continue to be circulated in the credit 
system.
    Mr. Scott. Let me ask you another question, because my time 
is slipping, and we have to go vote. But I want to ask you 
something about the expanded use of giving free credit reports, 
which is very important, we support.
    But there is another side to this. There is some concerns. 
In my district we have Equifax. You are familiar with Equifax 
as a company, very reputable company in my district and a 
leader in this whole credit reporting industry. They have 
raised concerns with me, and I would hope that they have with 
you and, if not, I am sure that they will, but, I hope, we need 
to address that, about the potential cost of complying with the 
requirements as they are now drafted and written into the law, 
that there has not been an adequate benefit cost-analysis being 
given to that. And in order for this very important tool of 
accessing a free credit report, I think it has to be done 
within a way that the industry that is in this business can do 
it in a successful way.
    It appears to me right now that the regulations, or the way 
it is written, are rather loose, that not only would it make it 
somewhat difficult and problematic for those businesses that 
are in this business and make their business giving credit 
reports, put this requirement on them, but not do the job that 
we needed to be done, to do what needs to be done if the 
industry that has to give these free reports is not done in a 
way in which they can maintain their business as well.
    And I would like for you to address that in terms of how 
the benefits might outweigh the costs, and specifically if you 
could address Equifax's concerns.
    Secretary Snow. Well, Equifax is one, as I understand it, 
one of these three major credit bureaus that do such a good job 
of collecting this information and then making it available to 
credit issuers. And they play a very important part in all of 
this.
    Today, under a variety of circumstances, free reports are 
available. We are expanding some upon requests. How many 
requests will be made? I don't know. Certainly, if you have 
been turned down for credit, you can get it free today. Or if 
you failed to get a job because of a financial credit report on 
you, you can get it free today. We would propose expanding it. 
The Bachus bill would propose expanding it as well.
    I don't think on a cost-benefit basis, Congressman, this 
will fail to be advantageous to the credit bureaus, because 
they have such a stake in accurate information.
    And what the free reports will do is give anybody who has 
got a question about his credit report a chance to go back and 
look at it, understand how it was created and then try and get 
it corrected. I know there is some concern among the reporting 
agencies that this will be unduly costly. I would hope they 
would look at the benefits they would get, because they have 
the biggest stake of anybody, next to the consumer himself, in 
making sure these reports accurate.
    The Chairman. Gentleman's time has expired.
    The Chair would announce there are two votes on the House 
floor. It would be my intention to recognize two more members 
for this panel, then dismiss this panel and reconvene at 1:00.
    So we will now recognize the gentleman from California, Mr. 
Royce----
    Mr. Royce. Thank you, Mr. Chairman.
    The Chairman.----for four minutes, hopefully.
    Mr. Royce. Appreciate that.
    Welcome Secretary Snow. And I wanted to ask you 
specifically, I know from public statements that you and your 
team are studying the issue of government-sponsored enterprise 
regulatory reform.
    Secretary Snow. We are.
    Mr. Royce. And with that in mind, I am not trying to get 
you to comment specifically on the topic before you all 
complete your study; however, I would like to know, in your 
view, what are the attributes of an effective world-class 
regulator in respect to GSE oversight.
    Secretary Snow. Well, Congressman, I think the attributes 
would be the ability to understand the risks in the enterprise, 
the ability to understand the business, a command of the facts 
of a business, a command of the facts with respect to the risks 
that the capital structure of a business poses, the ability to 
get at the information you would need to have to know that.
    So transparency, disclosure, and as with all regulators, 
the ability to hold the attention of the regulatee, to bring 
sanctions for conduct that poses risks to the system, to the 
financial system. So ability to lay in credit standards, risk 
standards, capital standards, and then sanctions to see that 
the standards are observed.
    Mr. Royce. The other question I was going to ask of you, I 
was pleased that the SEC recently approved the New York Stock 
Exchange and Nasdaq rules that require companies that are 
listed on those exchanges to obtain shareholder approval for 
stock compensation plans, for management or for their 
employees.
    Do you see the need for additional compensation reform, or 
do you believe that the new corporate governance rules are 
sufficient to protect shareholders from potential excess in the 
system?
    Secretary Snow. Congressman, you are now speaking 
generally, corporate America, right?
    Mr. Royce. About corporate America in general.
    Secretary Snow. Yes. I think the issue of corporate 
compensation ultimately has to be a critical priority for 
boards, and particularly compensation Committees, because 
ultimately they have to make these decisions on how to retain, 
how to attract and how to motivate senior management.
    So I would not be in favor of highly prescriptive set of 
rules, but I would hold boards of directors, and particularly 
compensation Committees, to very high standards of conduct.
    The Chairman. Gentleman's time has expired.
    The gentleman from Kansas, Mr. Moore.
    Mr. Moore. Thank you, Mr. Chairman.
    Very quickly, Secretary Snow, the Administration proposal 
includes a direction to the FTC and bank regulators to make 
opt-out notices for pre-screened credit officers simpler and 
easier to understand. And I really appreciate the 
Administration's position on that.
    Several of my colleagues, and I recently wrote a letter to 
the regulators asking them to create a simple, understandable 
privacy notice. Would you agree that it might be--can you agree 
that it might make sense to have both of these in simple 
English that consumers could understand and have an 
understandable right to opt out in both areas?
    Secretary Snow. Congressman, I am all for plain English.
    Mr. Moore. And I am a lawyer. So am I.
    Secretary Snow. And we get too little of it, I think. So 
that people understand the rights and privileges that are being 
made available to them.
    And I would be happy to look at what you have in mind, and 
give you my comments on it.
    Mr. Moore. Very good. We will do that. Thank you, Mr. 
Secretary.
    The Chairman. I Thank the gentleman. The gentleman's time 
has expired.
    Gentlemen, we most appreciate Mr. Secretary and Mr. 
Chairman for an excellent presentation, and the Committee 
stands in recess until 1:00 p.m., at which time we will take up 
the second panel.
    [Recess.]
    Mr. Bachus. [Presiding.] I want to welcome you all back 
from the noon break.
    At this time we are going to call the second panel. The 
Committee is meeting today, the Financial Services Committee, 
to hear testimony on H.R. 2622, which was introduced by 
Representative Hooley, Representative Biggert, Representative 
Moore and myself, and has 28 co-sponsors on the Committee: 14 
Democrats and I think now 17 Republicans, so a balanced group.
    I very much look forward to the testimony of our second 
panel. From left to right I want to identify the panelists. We 
have Mr. Mallory Duncan, Senior Vice President and General 
Counsel for the National Retail Federation; Mr. Michael F. 
McEneney, partner, Sidley Austin Brown & Wood. And you are 
testifying on behalf of the U.S. Chamber Of Commerce--we 
welcome you--Dr. William Spriggs, Executive Director of the 
National Urban League Institute for Opportunity and Equality; 
Mr. Stephen Brobeck, Executive Director, Consumer Federation of 
America; Mr. John C. Dugan, a partner in Covington & Burling, 
on behalf of the Financial Services Coordinating Council; and 
Mr. Stuart K. Pratt, President, Consumer Data Industry 
Association.
    I want to welcome all of you gentlemen. We have no ladies 
on our second panel. So I want to welcome each of you all.
    And at this time, Mr. Duncan, we will start with your 
testimony.

  STATEMENT OF MALLORY DUNCAN, SENIOR VICE PRESIDENT, GENERAL 
              COUNSEL, NATIONAL RETAIL FEDERATION

    Mr. Duncan. Thank you, Mr. Chairman.
    My name is Mallory Duncan. And I am testifying today on 
behalf of the National Retail Federation, where I serve as 
Senior Vice President and General Counsel. NRF is the world's 
largest retail trade association. We greatly appreciate the 
opportunity to present our views on H.R. 2622, the FACT Act of 
2003.
    I would like to preface my discussion with a brief 
illustration of the credit underwriting process. The seven 
preemptions currently contained in the FCRA are the 
underpinnings of the modern credit granting system. If we have 
a clear understanding of the underwriting process, it is much 
easier to analyze the vital role of the policies contained in 
the FCRA.
    For example, attached to my written testimony there are two 
simple revolving loan portfolio examples, each containing 100 
loans of $1,000 a piece and each paid off within a year. One 
has an interest rate of 5 percent, the other a rate of 18 
percent. If one loan in the 5 percent portfolio were to 
immediately default, whether because of identify theft, 
consumer bankruptcy or poor judgment on the part of the lender, 
it would take the interest payments from approximately 41 
performing loans to compensate for that default. The credit 
granter can, if it has enough capital to make 41 new loans, and 
hope that they all perform, or the credit granter can live with 
a much lower rate of return.
    If as few as three borrowers default, the credit granter is 
completely under water and will lose money even before facing 
the expense of maintaining those 97 other loans.
    If one loan in the 18 percent portfolio defaults, it takes 
the interest from 12-plus performing loans to compensate for 
that one default. Even if that credit granter gets it exactly 
right 92 percent of the time, no matter how well those 92 other 
consumers pay their bills, the credit granter is in serious 
trouble. That is why retailers expend so much effort to get it 
right.
    Now, the complicated part in my example occurs when trying 
to fit the maximum number of borrowers in that continue of rate 
between 5 and 18 percent while keeping defaults to a minimum. 
Anything that enhances this process is obvious consumer 
benefit. Since 1996, the seven preemptions of the FCRA has 
enabled retailers and other lenders at a national level to take 
advantage of the technological advances to serve their 
customers while greatly refining their ability to fit the 
borrower to the right rate.
    Mr. Chairman, as you indicated, in effect, the FCRA and the 
1996 amendment have created an interstate credit superhighway 
that has done an outstanding job of delivering unprecedented 
volume of credit more cheaply and more quickly to more people 
at all income levels.
    Is the system perfect? No. There are bumps, potholes and 
accidents along the highway, but very few overall, and 
especially so given the magnitude of the system and the speed 
at which it operates.
    It seems to us that the policy question today is how much 
do we want to impede credit traffic flow and increase costs for 
highway users in hopes of further reducing the number of 
accidents and bumps? We have reviewed the provisions of H.R. 
2622 with this in mind, along with the criteria suggested by 
the Department of Treasury. And I would like to just briefly 
make a few comments there.
    The NRF applauds the inclusions in H.R. 2622 of the 
critically important amendment that makes permanent the 
national uniform standards under FCRA. The bill also includes a 
number of provisions to address specific scenarios that involve 
identity theft. For example, the bill imposes new obligations 
in connection with certain address changes, fraud alert and 
address discrepancies. The NRF supports efforts to address 
these issues and looks forward to working with the Committee to 
functionally strengthen these proposals.
    A common theme of our recommendations to these provisions 
centers on maintaining flexibility to address these potential 
identity theft scenarios. In particular, we are concerned, as 
you mentioned, that if the methods for addressing identity 
theft are rigidly specified in the bill, credit granters will 
be forced to devote resources to complying with those methods, 
even if they become ineffective or if more efficient 
alternatives become available.
    Therefore, we recommend that the bill maintain its approach 
of specifying a particular method for addressing each potential 
identify theft problem, but also include new provisions that 
would enable credit granters to develop reasonable alternatives 
with guidance from the federal agencies. This is the approach 
taken in the USA PATRIOT Act, Section 326, designed to combat 
terrorism, at least as important a problem.
    In short, we need to maintain the flexibility to change our 
method as rapidly as the criminals change their scheme.
    Now, some examples where the bill would benefit from this 
approach include the provisions for investigation of change of 
addresses and those governing conflicts where consumer fraud is 
present. Retailers are particularly concerned if the bill's 
provisions do not inadvertently frustrate consumer's ability to 
use their existing accounts or open up the opportunity for 
unscrupulous credit people to manipulate the system, to the 
detriment of millions of honest consumers. We submitted 
suggestions to the Committee and look forward to working with 
them on this very important issue.
    In closing, I would like to emphasize the retail industry's 
strong support for permanent reauthorization of the seven areas 
of preemption contained in Section 624. Without the extension 
of nearly uniform national standards, it would be harder to 
judge with any confidence the credit worthiness of each 
individual. It would slow the credit process and lending rates 
would rise. Consumers have come to expect instant access to 
credit when purchasing everything from automobiles to consumer 
goods, such as furniture, appliances and apparel.
    In the final analysis, we in the retail industry have a 
real concern that a more fragmented approval process for credit 
underwriting would negatively impact consumers and, as a 
consequence, retail sales, ultimately costing jobs and hurting 
the economy as a whole.
    Thank you again for this opportunity. Be happy to answer 
any questions.
    [The prepared statement of Mallory Duncan can be found on 
page 148 in the appendix.]
    Mr. Bachus. Thank you, Mr. Duncan; and Mr. McEneney?

 STATEMENT OF MICHAEL MCENENEY, PARTNER, SIDLEY AUSTIN BROWN & 
      WOODS LLP, ON BEHALF OF THE U.S. CHAMBER OF COMMERCE

    Mr. McEneney. Thank you, Mr. Chairman and members of the 
Committee.
    My name is Mike McEneney, and I am a Partner at the law 
firm of Sidley, Austin Brown & Wood.
    I am pleased to have the opportunity to appear before you 
today on behalf of the U.S. Chamber of Commerce. I would like 
to commend the members of the Committee for their efforts to 
protect the security of consumers' personal information and 
ensure access to credit at low cost. I would like to commend 
the sponsors of H.R. 2622 for their leadership in crafting an 
important foundation for addressing identity theft and FCRA 
issues.
    The FCRA and its national uniform standards have provided a 
robust framework for the most advanced consumer credit and 
insurance markets in the world. Indeed, the benefits of the 
FCRA were highlighted in a recent information policy institute 
study, which found that the national uniform standards 
established by the FCRA have contributed significantly to the 
consumer benefits of the current credit marketplace.
    The study concluded that the loss of the existing framework 
of uniformity would threaten the current consumer benefits and 
that Congressional action is necessary to ensure the continuity 
of our national standards.
    We applaud the sponsors of H.R. 2622 for taking such 
action. The national standards established by the FCRA are also 
an important component of protecting the security of consumers' 
personal information. For example, the national uniform 
provision under the FCRA ensure that financial institutions can 
have access to reliable credit report information for identity 
verification and other identity-theft prevention measures.
    Although renewal of the FCRA national standards is an 
important step, we agree with the Committee that more can be 
done. The proposal legislation includes provisions to address a 
number of potential scenarios involving identity theft. The 
Chamber strongly supports efforts to address these important 
issues and appreciates the opportunity to provide comments on 
the legislation.
    In general, we believe that there is a common theme that 
may be helpful in guiding consideration of provisions to combat 
identity theft. In particular, as Secretary Snow mentioned 
earlier, the methods used to address potential identity-theft 
scenarios should be flexible, allowing companies to utilize the 
most efficient means to thwart identity thieves.
    We believe that this goal is embodied in several provisions 
in the bill. For example, the legislation includes a provision 
requiring federal banking agencies to develop so-called red 
flags for use in detecting identity theft. This provision 
relies inherently on recognition that a one-size-fits-all 
approach may not work.
    The red flags presented by identity thieves will invariably 
change over time, and the tools used to combat the thieves 
should change as well. The legislation takes important steps in 
the direction of providing this flexibility, and we hope that 
this theme can be further explored.
    The bill also addresses the important issue of a consumer's 
ability to access his or her credit report. The Chamber 
welcomes consideration of how to make credit reports more 
available to consumers.
    We believe, however, that this issue requires careful study 
before next steps are taken. In particular, there should be a 
full examination of the cost associated with a free report in 
order to ensure that there are no unintended consequences, 
particularly for consumers.
    Moreover, the frequency and volume of demand for free 
reports will be difficult, if not impossible, to predict since 
a widely circulated press report or e-mail could drive 
extremely high volumes in short periods of time. Given the 
inherent unpredictability, it is unclear how credit report 
companies would be in a position to adequately manage this 
problem. For example, even the most basic issues, like 
establishing adequate staffing levels, are difficult to address 
when you cannot predict the volume of the demand.
    The Chamber is pleased that the bill includes the provision 
that would make it clear that companies can conduct 
investigations of wrongdoing in the workplace without the 
inappropriate application of the FCRA. Because of the 
difficulties in conducting an investigation while complying 
with the FCRA's requirement, the FTC interpretation on this 
issue deters employers from using experienced and objective 
outside organizations to investigate workplace misconduct.
    While the FTC's interpretation affects all businesses, it 
is particularly damaging to small and medium businesses that do 
not have in-house resources to conduct these investigations 
themselves.
    Once again, I would like to commend the Committee for its 
efforts to maintain the consumer benefits of our current 
financial marketplace, while also protecting the security of 
consumers' personal information.
    The Chamber looks forward to working with the members of 
the Committee as the legislation moves forward, and I thank you 
again for the opportunity to appear before you today. I would 
be happy to answer any question you may have.
    [The prepared statement of Michael F. McEneney can be found 
on page 195 in the appendix.]
    Mr. Bachus. Thank you, McEneney. And Dr. Spriggs, we 
welcome your testimony.

  STATEMENT OF WILLIAM SPRIGGS, EXECUTIVE DIRECTOR, NATIONAL 
      URBAN LEAGUE INSTITUTE FOR OPPORTUNITY AND EQUALITY

    Mr. Spriggs. Thank you, Mr. Chairman. My name is William 
Spriggs. I am the Executive Director for the National Urban 
League's Institute for Opportunity and Equality.
    The National Urban League is the nation's oldest and 
largest community-based organization dedicated to moving 
African-Americans to the economic mainstream.
    We are very encouraged by the language in H.R. 2622 that 
seeks to ensure that consumers can get a summary of their 
credit score and information on how it was derived so that the 
score can be approved.
    We applaud the Committee for that step. And I was very 
encouraged by your comments earlier in the first panel that you 
also meant the credit score to be available along with the 
credit report.
    We would like to see the Committee go one step further, 
however. Credit scores have now dominated the way in which home 
mortgages are made. Home mortgage is, of course, important to 
home ownership, and home ownership is at a record level in the 
United States.
    While 75 percent of white non-Hispanic households are home 
owners, for African-Americans that is only 47.7 percent, and 
for Hispanics it is 46.7 percent.
    Part of that differential seems to be a persistent gap in 
access to home mortgage, and the loan denial ratio 
unfortunately has stayed constant for African-Americans, at 
around 2 to 1, and for Hispanics at 1.5 to 1, compared to 
whites, this despite the fact that in 1995 there was a 
mushrooming of the use of credit scores.
    Many people believe that credit denial took the form of 
differential treatment using credit scores everyone is now 
convinced has not just been for differential treatment, but we 
must remain on guard for differential impact.
    So it is not just access to the scores; it is access for 
the Committee and for the FTC and for the American citizens, 
and to understanding the accuracy--not just the tendency, not 
just the averages, but the accuracy of the scores themselves.
    We need to have transparency of the score creation in the 
same way that we have transparency with HMDA data. This has 
allowed us to look behind the veil at how home mortgages are 
done. We need to be able to look behind the veil of the credit 
scores, as well.
    Now, the credit scores is a statistical thing, and it is 
subject to all sorts of statistical problems. I just want to 
mention a few of them. They really aren't race-specific, they 
really deal with consumers.
    You have had a series of reports presented to you on levels 
of accuracy. All statistical models assume that the data is 
accurate. It is very difficult to deal with statistical models 
when you start with data that has measurement error in it.
    It is important for outside researchers, it is important 
for Congress, it is important for the FTC to understand how the 
scoring industry treats this measure and error, because how 
that gets treated is very important as to whether there would 
be an introduction of bias into the system.
    Missing data. You have also heard information presented to 
you at other hearings that for a number of reasons, either 
credit card information, or sub-prime loans in the mortgage 
industry, don't get reported to the credit bureau.
    So how does the industry handle missing data? Again, there 
can be a great introduction of bias when it comes to what is 
the way in which missing data is handled.
    Finally, there are omitted variables, variables that you 
would imagine ought to be in the model, things like employment, 
things like even regional variations in terms of the economy's 
performance.
    But they aren't in the model. And it is not possible for us 
to understand, for instance, if there is a slow-down in 
manufacturing in Illinois, as an example.
    Are those workers' credit records really the same if they 
fall behind as an employed worker living in northern Virginia, 
where the unemployment rate is 0.1 percent, who falls behind?
    Do they really present the same credit risk if we are 
looking forward? Probably not. But the way that the scores get 
treated if we don't understand the model means that we could 
have unexpected differences in credit scoring across the 
country that are unintended. But we need to be able to have 
access to that information.
    Now, what is the importance here, as people would say that 
the credit scores now allow people to get credit? But it is 
credit at different prices. So accuracy matters. Just 
yesterday, when I was preparing, I looked at the Fair Isaac Web 
page. The difference between a 699 score, which is a decent 
credit score, not great, and 720 would be 0.66 points on your 
mortgage. That is enough everybody here would rush out and 
refinance their mortgage over 0.66. That is just 21 points 
different in your credit score.
    So it is really important that the FTC, that Congress, that 
government have access, bring some sunshine to these models, 
and then provide us with a report card so that consumers, so 
that regulators have a better understanding of what has been 
going on.
    In that respect, we have a series of things we would like 
to see the FTC report in this report card. We want to make sure 
that there isn't a disparate impact of the credit scores, and 
we have not liked the information that has been provided so far 
on that.
    The issue isn't average tendencies, it is not just that, 
yes, the models will predict equally well the average tendency 
for default rates, it is the mean prediction error. Is it the 
same for all subgroups? And if it is not, why models have been 
considered, which ones ended up on the cutting room floor, 
which ones ended up being the models that were used? And if we 
look at the mean prediction error of those models by subgroup, 
is it possible that some of the scoring methods that aren't 
used were better for some subgroups? We need to have that 
information.
    We need to have information on how errors were handled. We 
need information on the relative performance of the models that 
were rejected but not accepted. All of that needs to be in 
place so that we can understand what is going on.
    The day has now changed. Getting your credit report doesn't 
tell you anything anymore. This credit explosion is really the 
result of the ability to use credit scores. And the credit 
information industry has in many ways now moved beyond the 
legislation. So giving information to consumers on what is on 
your credit report doesn't give them what they need. They need 
the credit score, and then we need the information on the 
accuracy of those credit score models.
    And I will be happy to answer any questions.
    [The prepared statement of William E. Spriggs can be found 
on page 248 in the appendix.]
    Mr. Bachus. Thank you.
    Mr. Brobeck?

  STATEMENT OF STEPHEN BROBECK, EXECUTIVE DIRECTOR, CONSUMER 
                     FEDERATION OF AMERICA

    Mr. Brobeck. Thank you, Mr. Chairman.
    Mr. name is Stephen Brobeck. I am Executive Director of the 
Consumer Federation of America. And my testimony today is on 
behalf of my own organization and Acorn, Center for Community 
Change, Consumer Action, Consumers Union, U.S. PIRG, and the 
low-income clients of the National Consumer Law Center.
    At the outset, we want to commend the Committee for holding 
the comprehensive series of hearings on the Fair Credit 
Reporting Act. These hearings have established the huge and 
growing influence of credit reporting in the lives of Americans 
related to consumer access to affordable credit, insurance, 
rental housing, utilities and even to employment; to consumer 
vulnerability to socially unacceptable invasions of privacy 
involving medical information, as well as financial 
information; and to consumer vulnerability to the horrific 
experience of identity fraud.
    The extent, frequency and severity of problems in these 
areas, well documented in your hearings, must never be 
forgotten in seeking solutions that are considered by financial 
services providers to be inconvenient or even somewhat 
disruptive.
    At the outset we also want to commend you and other 
sponsors of H.R. 2622 for including in your legislation 
important new consumer protections. For example, there is no 
question that measures designed to curb identity theft would 
reduce its incidence. While we believe these measures need to 
be strengthened, they would require credit bureaus and lenders 
to make more serious efforts to reduce this theft.
    Similarly, the requirement that bureaus make available a 
free credit report annually would increase the ability of 
consumers to detect and correct errors.
    While we believe more adequate government regulation of 
bureaus and lenders is also needed, the greater involvement of 
consumers in what is largely a self-regulated system would 
ensure a more accurate, fairer system that would benefit 
lenders in the long run, as well as consumers.
    We also believe, however, that these protections could be 
improved in ways outlined in our written testimony that would 
further reduce abuses against consumers while not imposing 
unreasonable burdens on credit bureaus and lenders.
    Let me give just two examples. It is not enough to give 
adversely impacted consumers free access to their credit 
reports and scores through credit bureaus. It would not only 
greatly increase consumer access to the actual reports used by 
lenders, but would actually ease the burden on credit bureaus 
if lenders were required to provide to adversely impacted 
credit applicants the merged files and scores that served as 
the basis for their decisions.
    Typically in the purchase of mortgage and installment 
loans, this would require nothing more than a loan officer 
handing to the applicant a copy of the file. In most cases, 
they would probably also help explain this file, urge the 
applicant to check for errors, explain how to correct any 
errors and perhaps even assist in this correction. After all, 
lenders would prefer to make, not deny, loans.
    Second, consumer remedies against inaccuracies and abuse 
need to be more effective. Certainly, regulators need to be 
given more responsibility and authority for addressing credit 
reporting abuses against consumers, but they cannot conceivably 
resolve more than a small fraction of individual problems. It 
is also essential to empower consumers to resolve their won 
legitimate grievances. That could be largely accomplished by 
giving them the ability to seek first, minimum statutory 
penalties of, say, $100 to $1,000 per violation and, second, 
injunctive relief to stop reporting agencies from spreading 
false information.
    In our opinion, however, the greatest weakness of H.R. 2622 
is its permanent limiting of the ability of states to pass 
needed protections. The states need this ability to address 
regional concerns, to respond quickly to new credit reporting 
problems, and to experiment with protections not contained in 
federal law. Any increase in efficiency, whose claims we 
believe to be wildly exaggerated by credit bureaus and lenders, 
is a small price to pay for the many benefits of the ability of 
states to remedy abuses. And we do not understand why the 
legislation would also make preemption permanent when it 
directs agencies to undertake studies that are intended to 
examine problems and remedies.
    At the very least, the preemption should be sun-setted 
shortly after the completion of these studies. Principally for 
this reason, we cannot endorse H.R. 2622 despite its many 
merits, but we would urge its sponsors, as well as all members 
of this Committee, to reconsider this provision as well as the 
others that were the subject of our written testimony.
    In conclusion, because both industry and consumer groups 
basically support the passage of legislation, Congress has an 
historic opportunity to reduce serious and growing abuses in 
the credit reporting system. It may not have this chance for 
many years to come.
    Thank you for the opportunity to provide this testimony.
    [The prepared statement of Stephen Brobeck can be found on 
page 119 in the appendix.]
    Mr. Bachus. Thank you, Mr. Brobeck.
    Mr. Dugan?

  STATEMENT OF JOHN DUGAN, PARTNER, COVINGTON AND BURLING, ON 
     BEHALF OF THE FINANCIAL SERVICES COORDINATING COUNCIL

    Mr. Dugan. Thank you, Mr. Chairman.
    My name is John Dugan. I am a Partner with the law firm of 
Covington and Burling. I am testifying today on behalf of the 
Financial Services Coordinating Council, the FSCC, whose 
members are the American Bankers Association, the American 
Council of Life Insurers, the American Insurance Association, 
and the Securities Industry Association. These organizations 
represent thousands of large and small banks, insurance 
companies and securities firms that, taken together, provide 
financial services to virtually every household in America.
    The FSCC strongly support H.R. 2622, which renews and 
strengthens the Fair Credit Reporting Act. We believe its core 
provisions strike the right balance in preserving the FCRA's 
uniformed national standards in adding strong new provisions to 
deter and remedy identity theft. Our member trade associations 
pledge to work hard for the enactment of this critical yet 
measured approach to FCRA reauthorization.
    While the FSCC recognizes that the legislation is still a 
work in progress, we believe it is imperative that it retains 
this balanced approach throughout the legislative process.
    For example, we would strongly oppose addition of the types 
of restrictions, however well intended, that would 
substantially increase consumer costs without commensurate 
consumer benefits, or ones that would deter financial 
institutions from making the type of full and voluntary 
information submissions to credit bureaus that they do now. At 
the same time the bill's provision should preserve adequate 
flexibility for the industry to address legitimate concerns in 
the most efficient manner possible.
    In addition, our members have technical concerns with some 
of the bill's provisions that we hope can be addressed. Let me 
now provide detail about each of these points.
    Title 1 of H.R. 2622 makes permanent the uniform national 
standards that underpin the FCRA. These standards make our 
extraordinary credit insurance markets truly national, which, 
in turn, have brought unprecedented benefits to Americans 
throughout the country. By virtually any measure, the 7-year 
experiment with uniform national standards has been a 
resounding success, stirring strong industry competition that 
has resulted in, among other things, more and cheaper consumer 
credit and insurance, a wider variety of consumer products and, 
most fundamentally, economic growth.
    By improving the performance of the entire market, as 
described in more detail in my written statement, FCRA's 
uniform national standards have lowered the cost of credit and 
increased the numbers of Americans who qualify for credit.
    Accordingly, the lynch pin of the FSCC's strong support of 
H.R. 2622 is the permanent extension of all of the FCRA's core 
uniform national standards.
    Let me now turn to identity-theft provisions and other key 
provisions in the bill.
    Stopping identity theft before it occurs and resolving 
those unfortunate cases that do occur is of utmost importance 
to the financial services industry. As technology and the 
Internet have made more information readily available, 
financial institutions have redoubled efforts to help educate 
consumers about how to prevent and resolve cases of identity 
theft.
    That said, the financial services industry has no illusions 
about the enormity of this problem. The FSCC fully appreciates 
why the Committee is now considering the identity-theft 
provisions in this bill, which are woven through the fabric of 
most of the title.
    In addition, several of the bill's provisions provide 
consumers with greater access to credit report information and 
address related consumer protection provisions.
    Before commenting on these provisions that affect our 
financial institution members most directly, let me note that 
many of the bill's other provisions impose new responsibilities 
on consumer reporting agencies. While the indirect effect of 
these credit bureau provisions could result in significant new 
costs for our members, we believe the credit bureaus 
themselves, who are also testifying here today, are in the best 
position to address practical issues or concerns that are 
raised by such provision. We do implore the Committee, however, 
to recognize that none of these provisions, however beneficial 
to particular consumers, comes without cost. And these new 
costs must ultimately be borne by consumers.
    The FSCC believes that, before taking action on any of 
these credit bureau provisions, the Committee should weigh 
carefully the expected all-end cost to consumers as well as 
expected benefits because, in some cases, the ultimate consumer 
cost may, in fact, be quite substantial.
    Section 201 includes specific statutory procedures that 
require a credit card issue or that receives a request for an 
additional credit card within 30 days after receiving a notice 
of a change in address to notify the cardholder of the request. 
While FSCC supports the intent of this provision, one possible 
improvement would be to delegate greater authority to the 
Federal Reserve to craft regulations to address the problem, 
which could be adapted to changing circumstances over times 
much more easily than could specific standards codified in 
statute.
    Section 202 addresses fraud alerts, which the FSCC agrees 
are a critical tool for containing the magnitude of losses 
caused by identity theft. We believe the provision should be 
clarified, however, so that once a fraud alert is placed in a 
file, it does not require separate authorization each and every 
time a consumer uses a credit card, which we think would be 
unworkable.
    Instead the provision should apply to the making of a new 
loan or a new credit account. Further clarification would also 
be useful regarding the duration of the fraud alert.
    The FSCC also supports Sections 203, requiring truncation 
of credit and debit card numbers, and 206 requiring regulators 
to issue red flag guidelines to identify possible identity 
theft.
    In connection with the guidelines, however, the provision 
should be modified so as not to duplicate the account opening 
requirements imposed by the banking regulators under the USA 
PATRIOT Act.
    The FSCC also supports Section 301, regarding coordination 
of consumer complaint mechanisms, and Section 303, which 
requires a study of investigations of disputed consumer 
information.
    In both cases, we would urge more direct coordination and 
cooperation between the Federal Trade Commission and the 
federal banking regulators, and with respect to the study, we 
believe the financial services industry should be provided the 
opportunity to provide input before it is finalized.
    Finally, Section 402 would prevent furnishers from 
providing information to a credit bureau where the furnisher 
knows or has reason to believe that the information resulted 
from fraudulent activity.
    The FSCC remains concerned that the reason-to-believe 
standard, while seemingly sensible, would in fact be triggered 
too easily in some circumstances where a financial institution 
was truly acting in good faith.
    We believe that is not the Committee's intent, and we hope 
to work with you and your staff in the coming week to see if 
there is an appropriate way to address this concern.
    Indeed, since our credit reporting system depends on 
voluntary submissions of information to credit bureaus, it 
would be counterproductive to impose restrictions on furnishers 
that would make them more reluctant to provide information in 
the first instance.
    As described at the outset, our hope is to provide 
additional comments on provisions in the bill as it proceeds to 
its first markup. Again, the thrust of our comments will be to 
preserve adequate flexibility for provisions to adapt over time 
to changing circumstances, to weigh carefully potential costs, 
as well as potential benefits, and to preserve the incentives 
for information furnishers to voluntarily provide full 
information to credit bureaus.
    And with that, thank you very much.
    [The prepared statement of John C. Dugan can be found on 
page 135 in the appendix.]
    Mr. Bachus. Thank you. At this time, Mr. Pratt, actually as 
our witness representing the credit bureaus, and I hate to 
segment that testimony, but Mr. Pratt, you all have sort of 
been singled out for a lot of----
    [Laughter.]
    A lot of the burden of this legislation is going to fall on 
the credit bureaus. And, in fact, I think we are pretty far, 
pretty close to the line, if we are not over the line, on you 
being able to handle that burden.
    But we do have votes on the floor, we have about three and 
a half minutes left, so we are going to dismiss the hearing at 
this time. we will come back and we will hear your testimony, 
and then we will have questions.
    So at this time we are recessed, hopefully for about, let 
us just say until 2:15 p.m. Thank you.
    [Recess.]
    Mr. Bachus. We welcome the second panel back.
    And at this time we will hear the testimony from Mr. Stuart 
Pratt, who is the President of the Consumer Data Industry 
Association; to most people that means the credit bureaus. And 
as I said before the break, many of the burdens and 
requirements are going to fall quite heavily on the credit 
bureaus, and I know that there is quite a bit of concern there. 
So we recognize you for your testimony, Mr. Pratt.

 STATEMENT OF STUART PRATT, PRESIDENT, CONSUMER DATA INDUSTRY 
                          ASSOCIATION

    Mr. Pratt. Mr. Chairman, Ranking Member Frank and members 
of the Committee, thank you for this opportunity to testify 
before you today on the subject of H.R. 2622, the Fair and 
Accurate Credit Transactions Act of 2003.
    For the record, I am Stuart Pratt, and I am President and 
CEO of the Consumer Data Industry Association. And Mr. 
Chairman, as you indicated, we do our represent what are 
sometimes called the big three consumer credit reporting 
systems in this country. We represent all of the major check 
acceptance system, all of the major mortgage reporting systems 
in this country as well. So a lot of different companies 
involved in this consumer credit marketplace, providing the 
information that has been in large part the subject of the many 
hearings that you held over the course of June. That was quite 
a marathon.
    We join with everyone else who has applauded you and the 
Committee at large and those who have sponsored the bill for 
the introduction of H.R. 2622, and in particular for Title 1, 
Section 101, which does reauthorize and make permanent the 
national uniformed standards which are so essential to the 
continued success of our nation's economy.
    Reauthorizing and making permanent these standards under 
FCRA ensures that consumers can continue to enjoy $30 billion 
in additional disposable income per year, due to increased 
competition and due to the availability of credit that we see 
today in the marketplace.
    Your bill also looks at and takes a serious look at the 
question of identity theft. And we agree with many other 
panelists that identity theft is a serious problem. It is one 
that requires serious solutions. And we applaud a number of the 
ideas that are provided for in the FACT Act, including the idea 
that fraud alerts can be an excellent deterrence. We agree with 
that. Our members do administer fraud alerts, and we see value 
in that being codified on a go-forward basis.
    We do believe, like others, that the fraud alerts should be 
time limited on the file, because they should operate more like 
a red flag. They should operate during a period of time when 
there is a heightened sense of urgency, of concern. If they 
stay on the file in perpetuity, we begin to have a cry-wolf 
kind of effect, where they stay on forever and eventually a 
lender has to try to pull apart the wheat and the chaff, and 
that becomes progressively more difficult. So we suggest that 
there is a time limitation for fraud alerts if they are to 
remain on the file.
    You suggest a summary of rights for consumers relating to, 
candidly, some of the changes you are making in this act and 
also relating to the Fair Credit Reporting Act and other acts 
as well. Consumer reporting agencies are always willing to 
deliver the right notices to consumers that explain their 
rights under, particularly the FCRA.
    Some of the other statutes that were cited simply are not 
statutes that regulate us. If consumers were to receive a 
notice from us about those laws, our consumer relations folks 
just wouldn't know how to answer questions about those.
    I think some of that may be covered under the FTC ID theft 
clearinghouse and the fact that they, too, provide a great deal 
of information. That might be a better solution for how some of 
the notices are delivered.
    Blocking information with police reports, I think, is a 
good idea. It is one that we can effectuate for the national 
credit reporting systems in our marketplace. It is an idea that 
works well for that type of consumer reporting system. You will 
find throughout our testimony and throughout our work with the 
Committee, there are times where consumer reporting agencies of 
various types don't fit as well with one duty or another duty. 
And that these duties will have to be custom fit to the type of 
consumer reporting agency that we really want to focus on.
    Coordination of consumer complaint investigations in 
Section 301, again, makes sense for nationwide consumer 
reporting agencies. It allows us to allow a consumer to make a 
single phone call and to have fraud alert information, if you 
will, transferred between other nationwide agencies.
    Your bill does have some proposals in it. The bill does 
suggest some things that we want to visit with you about here 
today in the time I have remaining. In particular, two items 
under Section 5, Sections 501 and 501, propose free reports for 
consumers and a score disclosure requirement of sorts for 
consumers, as well. And I think there has been some discussion 
today of the intentions of that provision relative to scores. 
And let me just share a few thoughts on each one.
    Free reports are provided widely today. In fact, 16 million 
free file disclosures are given every year in this country. The 
1996 amendments to FCRA did address free file disclosures for a 
wide range of consumers who had particular need. And we think 
that that was the balance that was necessary then, and we think 
that is roughly the balance that is necessary now.
    That law, in our mind, is working very well because, again, 
16 million consumers every year are getting their files for 
free. The vast majority get it free of charge. Very few 
consumers seem to be harmed or impaired by the way the act is 
operating in that area.
    Score disclosure concerns us because in fact, we don't own 
many of the scores that I guess consumers think we have or that 
others think we have. And in fact, in many cases, we would have 
to purchase scores from others if score disclosure was to take 
place. And that is one of the points of confusion.
    That, plus in our testimony we do offer some context for 
how the marketplace seems to be providing consumers quite 
frequently to scores, access to advice, access to how scores 
are analyzed, credit history information and so on and so 
forth.
    So you will find us looking forward to continue to work 
with you on the file disclosure issues, the score disclosure 
issues. And we applaud the fact that this bill does, again, 
make permanent and reauthorize those national standards under 
the FCRA. And we thank you for the opportunity to testify here 
today.
    [The prepared statement of Stuart K. Pratt can be found on 
page 224 in the appendix.]
    Mr. Bachus. Why, thank you.
    With that, we will go to questioning. And I think my first 
question will be actually to you, Mr. Pratt. What I think Title 
5 of the bill says is that if you have those credit scores, you 
disclose them. So, you know, if you have them, you would be 
required to disclose them. Obviously, I don't think we can 
require you to disclose something you don't have. That would be 
my interpretation.
    We have heard from your members about their concerns about 
the cost of providing the free credit reports.
    And I think, as you have said, the present law requires a 
broad range of free credit reports: people that have been 
denied credit, been denied a job, several other exceptions. Do 
you have any idea how much it would cost to supply these 
reports? And what if they were done online? What are some 
provisions?
    Mr. Pratt. Two questions: Let me break that down, if I may, 
Mr. Chairman. We are still trying to run the numbers based on a 
whole range of factors that we tried to outline here in our 
testimony, but let me go through some of those. Some of the 
factors are simply the fact that if free is free for everyone, 
National Media could create spikes of activity. By parallel 
example, today even with the opt-out number we use for 
prescreened offers of credit, an e-mail circulates every year. 
During any given year, the opt-rate spikes by as much as 
fourfold from what it is today.
    We estimate that we might have as much as a fourfold 
increase in files disclosed for a range of reasons. Security 
breeches, which we have discussed in a hearing that, in fact, 
you co-chaired earlier this year. We talked about the fact that 
a single security breech cost our members each respectively 
about $1.5 million. I think we are approaching numbers that are 
a quarter of a billion dollars in incremental cost increase for 
the cost of file disclosures.
    Mr. Bachus. How much?
    Mr. Pratt. A quarter of a billion.
    Mr. Bachus. A quarter of a billion? Okay.
    Mr. Pratt. And that is based on the information I have. I 
have been visiting with the CEOs of the major systems. And this 
is based on what we know are the unit costs for disclosure and 
the estimated number of disputes that would follow and the 
servicing and the requirements of law that we know that we must 
comply with today. And it doesn't entirely allow us--even that 
doesn't really tell us whether we are going to be successful.
    If, for example, we have a rush of consumers who decide to 
make a phone call, and you can look at the parallel of the 
numbers of folks who have been trying to us the new FTC Do Not 
Call List----
    Mr. Bachus. Of course, that was a one-time----
    Mr. Pratt. It was. And candidly, I guess, the question is, 
how often will we have that sort of one-time event to occur 
over and over again?
    Mr. Bachus. But maybe we could build something into the 
legislation to----
    Mr. Pratt. Maybe so. Those are the kinds of issues I think 
our members--we are not trying to be arbitrarily against 
access. We are all for access of files.
    Mr. Bachus. You have been very cooperative. Your industry 
has been very cooperative in working with us on this 
legislation.
    Mr. Pratt. To your other question, certainly delivery 
online is going to be vastly less expensive than the production 
of paper.
    Mr. Bachus. But would that hurt you competitively? For 
instance, if you could get that information online, some of the 
people that you now sell reports to, institutions, could they 
not go online and get those reports? Is there a danger of that?
    Mr. Pratt. You know, that is a good question. I don't know. 
I suppose large institutions tend to have very high-tech 
hookups between the national systems that are highly secured 
and encrypted. And I don't know that would happen.
    Absolutely, some smaller institutions would probably think 
that maybe pulling a free file disclosure would be the way to 
go, and that would be perfectly fine for their credit lending 
purpose. And so, yes, that could poach on traditional business. 
That kind of idea would poach on the current, direct to 
consumer marketplace, and some companies estimate tens of 
millions of dollars in lawsuits from that as well.
    Mr. Bachus. Right.
    Mr. Dugan, I think, you and Mr. McEneney have both 
mentioned idea of not too rigid of standards, flexibility built 
into the system. And I believe that is going to be a key to 
being able to modernize and keep up with the criminals in ID 
theft cases. I think if we adopt too rigid of standards, we 
really put our law enforcement efforts and our efforts to 
identify these people in a straight jacket.
    And as you know, we have just addressed check truncation in 
this Congress, this session, even though the marketplace has 
probably been there for 20 years. So it is sometimes not 
encouraging how long it might get around to us if we put 
something in concrete, it might actually inhibit efforts.
    Mr. Dugan. Well, that is exactly our concern, Mr. Chairman.
    And we know that in the provision that does the red flag 
guidelines, that does have quite a bit of flexibility and 
vision that you are not trying to proscribe those things at 
once. It will have to evolve, and you have given authority to 
the regulators to do that. That is the kind of thing in some 
places that we think is a useful way to look at things.
    Mr. Bachus. Your testimony, I think, has been very helpful 
in identifying areas that we need to address.
    You all have followed the hearing and where we are going on 
this, and we do get suggestions for provisions on almost a 
daily basis.
    It might help one consumer in a particular circumstance, 
but when we run that down and we balance it, we find that the 
end result of that would be shutting down our national uniform 
credit reporting system as we know it now today.
    And that would have a detriment on literally millions of 
consumers each day. In an earlier panel, and I think someone 
that needs bearing in mind, is that today in America you can 
walk in and you can get a car loan in an hour, or thirty 
minutes.
    You can get credit extended in a matter of 30 seconds. In 
countries, in Europe particularly, where they have much more 
stringent requirements, credit availability, particularly to 
low-and middle-income citizens, is simply not there like it is 
here.
    If it is there, it is at a much greater cost, and they may 
be able to get credit, but the result may be at a 1 or 2 
additional percentage differences.
    So we certainly want to establish some meaningful 
standards, but give the regulators, the financial institutions 
and even the credit bureaus flexibility to address these 
issues. One thing that I think we have seen from these hearings 
is the you all are very motivated to address these issues 
because they affect you, too.
    Even when we have had our two identity theft witnesses, 
both said they had lost over $40,000. Now, when they said that 
actually a credit card company in both cases took 90 percent of 
the actually that $40,000 of bad charges, the credit card 
companies took those hits.
    Now, they did have quite a considerable expense. It was a 
nightmare situation for them. But everybody took a hit. I mean, 
the institutions took a hit, the credit card companies took a 
hit, and they took a hit, so there is quite a bit of identity 
of interest there.
    So I think that as we go forward you can help us to refine 
this approach, and then I would hope that we would maintain 
flexibility.
    At this time, we recognize Mr. Frank.
    Mr. Frank. Thank you.
    Mr. Bachus. I was hoping to recognize you before you were 
prepared to go home.
    Mr. Frank. That is okay. I was going to defer, I was going 
to be outside, but I will be quickly here. To Mr. Brobeck, and 
I apologize for not being able hear all the testimony, but I 
have made a point of reading it.
    You address, what seems to me to be the biggest current 
weakness of the system now, which I believe generally works 
well. But there does seem to be this weakness.
    You talk about the failure to guarantee the accuracy of 
credit reports. Now, the knowledge I have gotten from both from 
reading and talking is that people acknowledge that there are 
situations where you the consumer learn that there is 
inaccurate information about you. And one of the good things 
about the bill, and there is a great agreement that we should 
give the consumer more information, so as a result the consumer 
is likely to be able to discover that there was inaccurate 
information.
    The problem then comes is, okay, well, what can you do 
about it? And I am beginning to think in some of these cases 
from the peace of mind of the consumer she might be better off 
not knowing, because in some cases she just can't do anything 
about it.
    And I am told that there are situations in which you the 
consumer learn, and I am working with the gentleman from New 
York and others, make the going even more quickly, that there 
is some inaccurate information about you, but that there are 
really no adequate means for you to combat that in every case.
    That is, you can contest it, as I understand it, you 
contest it to the consumer reporting agency, and you can submit 
a lot of documentation, and the consumer reporting agency 
individual may have literally only a few minutes to review your 
information, then sends a two-letter code to, in some cases, 
the furnisher of the information. I must say, as I thought 
about that, various combinations of two letters came to mind to 
describe what was happening, but, then the credit furnisher, in 
effect, checks his or her own arithmetic and spelling.
    And if the credit furnisher determines that, yes, I did 
tell the credit reporting agency that, that is considered to be 
the reinvestigation, and that is where we stand.
    Now, and I am told that in many cases the credit reporting 
agency will then accommodate the consumer by accompanying the 
negative information with the consumer saying, it ain't so.
    Am I correct that there is not now in the system a way for 
you to document the inaccuracy and to show that even though 
they may have correctly reported what they had reported, that 
the underlying data was incorrect? And if that is true, what 
can we do? What is a way to break out of that?
    As I said, I think it probably occurs in a fairly small 
percentage of the cases. But I would say to those on the 
industry side, the smaller the number of cases, the less you 
have to worry about it. The less the burden ought to be. But it 
just is unacceptable to say that the few individuals--of 
course, a few when you cover the whole country is tens of 
thousands, hundreds of thousands--won't have to pay that 
burden.
    So, Mr. Brobeck, am I accurate in the facts? And what do we 
do about it?
    Mr. Brobeck. Certainly, there are inaccuracies that are 
detected in a small minority of cases. We would argue that 
there are a number of inaccuracies that adversely affect 
consumers, who purchase sub-prime mortgages, other sub-prime 
loans, or are denied credit, who are not aware of these 
inaccuracies. And that that number is far larger than the 
number----
    Mr. Frank. Right. We now understand. With credit, it is not 
just either-or, but more-or-less, and that it has been a 
conceptual view that credit was an either-or situation, but we 
are now into a more-or-less situation.
    Mr. Brobeck. So there is no question there is a minority, 
but we think it is a larger minority than most people assume 
currently. And it is true that even the minority have trouble 
getting redress. So how do we fix the problem?
    Well, there is no magic bullet. One way is a combination to 
give everybody the ability to access their credit report for 
free and if they find, in fact, that there are a large number 
of errors, that will basically create a pressure group for the 
industry to fix the problem. And if they don't, we will be back 
here in 7 years.
    It comes down to, they have to make a sufficient 
commitment. That is to say, you have got to require them to do 
certain things, including spending enough money to correct any 
inaccuracies. We have heard estimates of what seems to me to be 
far too large an expenditure, but even that $250 million 
suffers in comparison with the tens of billions of dollars----
    Mr. Frank. What is his number, $250 million?
    Mr. Brobeck. It is $250 million to basically provide 
everybody with a free credit report. I can't believe that----
    Mr. Frank. In the context of all the great good that this 
does for the country, after all, the economy in the United 
States is, apparently, from what I read, substantially 
dependent on this. What was the gross domestic product? What 
percentage of the gross domestic product is $250 million? It 
seems to me we are talking about rounding errors.
    Mr. Brobeck. Some mountain track will be socialized 
throughout the systems, and all lenders will pay a little bit. 
And then, consumers will end up paying a little bit. And nobody 
will really feel the difference.
    So even if it is high, it is $250 million, always keep in 
mind the cost of tens of billions that consumers----
    Mr. Frank. I understand, but I really want to focus.
    Are there things we can do in this bill that would mandate 
a better performance in the collection process?
    Mr. Brobeck. Yes. Consumers need better, stronger 
individual remedies. And we would recommend a couple here.
    They need the ability to obtain injunctive relief. And 
instead of having to prove that there are damages, there should 
be statutory violations of relatively small amounts, $100 to 
$1,000, that would act as an important deterrent to the 
repositories and the lenders.
    Mr. Frank. Let me ask you. This would have to be in federal 
court. Right? Because this is a totally federal operation.
    Mr. Brobeck. I am not certain.
    Mr. Frank. Part of the problem is that we don't have 
jurisdiction over the remedies. I almost wish we could create 
sort of a small claims court to deal with this. Because this is 
really what we are talking about. And that may frustrate us to 
some extent because the Committee on Judiciary would have 
jurisdiction over some of the remedies.
    But I would be interested, from you or anyone else, and 
that includes people in the industry. Remember, I want 
suggestions for how to fix this. If the suggestions for how to 
fix it only come from the consumer groups, then the industry is 
going to say they are too harsh. So the way to deal with that 
is to send me your solution.
    But I will fight very hard against allowing this bill to go 
forward if we don't do something to improve the ability of 
consumers to deal with this. We are doing a lot in the bill, I 
believe, and will do a lot better to inform consumers about the 
inaccuracies. And I don't think the inaccuracies are rife, but 
I do think that we need to tell people.
    We give incentives. You give incentives for people to get 
the data a little bit right in the first place.
    So I agree with you. This is the cost which when socialized 
throughout the entire economy, is bearable. And I would be 
welcoming of any specifics about how we improve the process by 
which corrections are made.
    I don't know of any other place where I have been involved 
as a public official where I have been told, well, you have to 
tell people that the answer is ``tough,'' that in the interest 
of the old system, there may be some inaccuracy about them, and 
there really isn't any way that they are going to be able to 
prove that it is an inaccuracy. But we will manage to tell 
people that they think it is inaccurate.
    I would not be content for it to rest that way.
    Thank you, Mr. Chairman.
    Mr. Duncan. Congressman, may I take a quick stab at that?
    Mr. Frank. Yes, sir.
    Mr. Duncan. And that is if you look at the bill, there are 
really three things going on, the current and the FACT Act.
    The first of those, of course, is that there is this 
dispute process you mentioned. The consumer can avail 
themselves of that, and many, many disputes are resolved in the 
consumer's favor.
    The second thing is that as a retailer, we have multiple 
reasons to want to have someone shop in our stores. You do not 
want a situation----
    Mr. Frank. Multiple reasons?
    Mr. Duncan. Multiple reasons. I mean----
    Mr. Frank. I was thinking of one, but it is a pretty big 
one: money.
    You like their company? You are lonesome? You are there to 
make money. That is a good thing. Don't apologize.
    Mr. Duncan. But the bottom line is that is you have someone 
as a credit customer, you also have them as a retail customer. 
And if that customer complains that there was something and 
they file a dispute, most retailers will put a thumb on the 
scale in favor of that customer because they want to keep that 
customer as a shopper in their store. So it is more often than 
not, it is going to be resolved in the customer's favor.
    And then the third thing is this unusual ``he said, she 
said'' situation, which occurs very seldom as you mentioned. It 
is often the result of identity theft. One of the advantages of 
2622 is that there is now a provision that would allow someone 
to follow the port and have that trade line blocked so that no 
one would get what they claimed to be that false information.
    So we think there really is a remedy right here.
    Mr. Frank. Well, I agree. But the fact that it is sometimes 
as a result of identity theft strengthens my view that we have 
to be very protective of the consumer.
    Yes?
    Mr. Pratt. My only addition was that the bill does require 
a study of the re-investigation process to make sure that it is 
working well.
    Mr. Frank. I have great faith in a variety of studies 
around here, but that is still not nearly as reassuring to me, 
as it apparently is to you.
    Mr. Pratt. Well, I don't know if it is reassuring to us 
either, but I think the most important part of this that re-
investigations can be complex, particularly in the situation 
that Mr. Duncan described. We think a study is the best place 
to try to look at that issue to try to pull it apart and 
understand the----
    Mr. Frank. The effect of a study is status quo.
    Let me say. I might be willing to go along with a study if 
the extension of the preemptions was co-terminus with the 
period of the study. But if you get a permanent extension of 
the preemptions, then the study becomes less attractive because 
the leverage to enact the results of the study is attenuated.
    So if you wanted to have a short-term extension of the 
preemption while we study this and decide what to do, okay. But 
a permanent extension of the preemption attenuates the value of 
a study because given the way this works--you know, people talk 
about, well, money is the most important thing in the 
legislative process, politics is the most important thing in 
the legislative process.
    We don't talk about that inertia is the most important 
thing in the legislative process. And once these preemptions 
are made permanent, that is the end of the ball game. So the 
study doesn't do me any good at that point.
    Mr. Bachus. I thank the gentleman.
    One thing that, as Chairman, and I know Chairman Oxley is 
committed to continuing to work with you and with Mr. Ackerman 
and Mr. Sanders and others to try to come up with wording on 
improving--I think we can probably do that. I appreciate that. 
I think we will do that.
    Our problem, I think Mr. Brobeck, you know, we have not 
been able to come up with that magic solution or the wording at 
the present time that doesn't impact the delivery of credit 
reporting, of reports and the free flow of information. So we 
are still searching for the solution.
    Gentlelady from Illinois, Ms. Biggert.
    Mrs. Biggert. Thank you, Mr. Chairman.
    One of the questions that I had wanted to ask Secretary 
Snow when we had to adjourn, in a recent appearance he had said 
that ``Another goal of the uniformed standards of the Fair 
Credit Reporting Act is to help consumers learn how to manage 
their credit to obtain the best outcomes for their personal 
finances. In the modern American economy, smart credit 
management is an elementary lesson in financial literacy.''
    And I would like to ask you if you think that the FACT Act 
does adequately address this issue? For anyone that would like 
to respond. Dr. Spriggs?
    Mr. Spriggs. If I may, Congresswoman? That is my concern 
where the legislation doesn't go far enough in looking at 
credit scoring. Because the reality is that with consumers 
today, their score is so much more important than just the 
report. And as you heard just a moment ago, you are directing 
the credit bureaus, but they don't own the credit scores.
    And earlier questions got to the issue of who owns the 
credit score, they get to sell them, et cetera. This is a 
portion of the industry that is not being adequately covered 
here.
    And for a consumer to make a difference in their home 
mortgage, as an example, the example I gave when I talked 
earlier, it means a 21 point difference in your credit score 
means a lot of money to a consumer. And so, I think we have to 
bring the credit scoring industry in the same way that we are 
very concerned about what the credit bureaus do.
    And we have asked them to be accurate, but we have no data 
or measurement made public about the accuracy of the credit 
scoring mechanism. Some of the concerns about inaccuracy within 
the credit bureau data get magnified in ways we don't know 
within the scoring, because we don't know what the weights 
exactly are.
    So I think if we want to educate consumers, we have to have 
a far more transparent scoring system so that consumer groups 
or that the government, so that others can talk about: What are 
the indicators? What are the real ways that you can clean up 
that score? Because the score has now become so much more 
important than the report itself.
    The Consumer Federation of America's report points out--and 
I think some you have experienced this when you go to refinance 
your home--you can get three or four different credit scores on 
yourself and they are all over the place. So you know, 
different scoring companies will score you differently.
    And without having the transparency, without the overlay so 
that you can talk about what do those differences mean. It is 
very hard for consumers to get that education to manage that.
    Mrs. Biggert. Well, in the legislation then, how would you 
propose putting that in? Is that just elementary financial 
literacy for consumers? Or is there something that needs to 
make sure that an agency doesn't have to report a score or 
explain a score when they really don't have the proprietary 
rights over that?
    Mr. McEneney. Congresswoman, could I----
    Mrs. Biggert. Mr. McEneney?
    Mr. McEneney. Yes, if I could just make a comment here. 
This hearing is obviously to focus on the Fair Credit Reporting 
Act. But there is another statute here that I think is 
relevant, and that is the Equal Credit Opportunity Act, which 
prohibits discrimination in any aspect of a credit transaction.
    And also has that same effect in the context of the use of 
credit scores. Any credit scoring model has to be developed in 
a way so that includes only factors that are neutral, don't 
include race or any other prohibited basis.
    The banks that use those credit scores are examined for 
compliance with those standards. So the agencies are looking at 
these issues.
    Also, you mentioned that it might be helpful to have a 
mechanism for consumers to understand how these scores affect 
them. Well, the Equal Credit Opportunity Act does that as well. 
One of the things it provides is that if a consumer is denied 
credit, that consumer is entitled to receive the principal 
reasons for the denial.
    Now, if a credit score was involved in that denial, what 
that consumer must have access to under the ECOA are the 
principal reasons that went into that score that created the 
denial for the consumer. And the idea behind that is to focus 
the consumer in on the most important information, which are 
the principal factors that are holding back the consumer score.
    Mr. Brobeck. Congresswoman?
    Mrs. Biggert. Mr. Brobeck.
    Mr. Brobeck. In terms of educating consumers, making 
available a free copy of a credit report will do more than just 
about anything that I can think of for two reasons. First of 
all, it would generate an enormous amount of media coverage, 
which people will have difficulty avoiding. It will also 
stimulate a great deal of consumer demand for information about 
the data in the credit report and scores. And if that is 
properly explained by the repositories, that will represent a 
very useful educating mechanism.
    And then we would also, as I indicated in our testimony, 
recommend that those consumers who are adversely impacted by a 
credit decision be given the file that is used by the lender 
and the score used by the lender. And in most cases, because 
lenders are interested in lending money, not denying credit 
applications, they will probably help the applicant to 
understand their credit file and perhaps even advise the 
applicant about how to improve the accuracy of that file.
    Mr. Pratt. If I could just respond to the--we continue to 
talk about the file disclosure. And we have always agreed as 
the industry that access to files is important for consumers. 
It is part of how I learn about all the different--in fact, 
sometimes consumer discover they have more open lines of credit 
than they may have remembered just because some are less active 
and maybe not in their wallet as frequently.
    We are still struggling with why the current approach that 
the law has in it is not working. We are giving away 16 million 
files a year to consumers. That is a good number of files for 
consumers. They are educating a lot of consumers. We think the 
educable moment is quite often, and Mr. McEneney referenced 
this to one extent, is the point I want to look at my file when 
something has happened, when there is a question that I have 
about what my record looks like.
    What we seem to be losing track of is the literally tens of 
millions of transactions that go through successfully every 
year in this country. And the system does work well. And of 
course, all of us have a right of access to our file. And the 
fee is capped and determined by the Federal Trade Commission 
under the current FCRA.
    There is a lot of free file disclosures that are available 
today. We are just still struggling with why free seems to be 
the panacea solution for all the ills that we seem to be 
suffering when it comes to financial literacy. We don't think 
that is the case because consumers certainly can have access to 
files and certainly can, in many cases, free and in some cases 
not.
    Mrs. Biggert. Still the question that you had was the 
proprietary that is not right.
    Mr. Pratt. That is more difficult, that is true. We can't 
disclose another company's score. And that is so important for 
the Committee to know that. Our members do develop scores 
ourselves. We compete in that marketplace. But we can't 
disclose another company's score, their intellectual property.
    It is just the way the law works. I think and generally 
that is probably the right way for the law to work.
    Mr. Spriggs. Excuse me, Congresswoman.
    And again, that reiterates my point that that is the 
industry that is not brought to the table here and why the 
credit score access for consumers needs to be there. But if the 
FTC could issue a report card--it is not enough--unfortunately, 
the Equal Credit Opportunity Act doesn't get enforced properly 
on this issue of the credit score because of the issue of 
disparate impact.
    A consumer who gets denied who may think that there was 
some racial bias on the score gets their report and is told 
maybe this is the key ingredient. But they don't get a report 
card that says if I look at the Fair Isaac model, if I look at 
somebody else's model and I see three different credit scores 
for myself, I don't get the objective view of someone like the 
FTC might be able to provide and say, look, if you look at how 
well this one predicts and how well this model predicts and 
these are the key elements and this is how they handle errors 
and this is how they handle missing data. That gives me a lot 
of clues as a consumer, and to you as policy makers, about well 
what do we think is wrong here and what can we improve.
    Currently, because we don't have that on the table, we 
can't even really talk about some of those elements. So I think 
the first thing is that we need that report card from the FTC 
evaluating the score, the different score companies. And then 
if they sell my score in the same way that we stick it to the 
credit bureaus and say if someone looked at my report, they 
have to give me the report, then the scorers need to give me my 
score.
    And that--and if I get that score with the FTC report 
attached to it, that is going to give me a lot of clues as a 
consumer about how my credit rating really works. Because, 
again, if I get that credit report and I haven't used five 
lines of credit in the last 10 years, I maybe got a credit card 
when I was in college and I left it open, I don't know about 
it. That hurts my credit score.
    Now, as a consumer and I look at that and I say, well, I am 
not even using it. It has got a zero balance. What is the 
problem here? I don't see why I am being denied credit. Okay, I 
have got 10 lines of credit out there, but I am not using any 
credit cards.
    As a consumer, I am not really being made intelligent 
enough about it until I see a credit score that says, boom, 
that is bad. You are being a bad boy. You don't need 10 lines 
of credit.
    And so, that is why, again, you need to bring the credit 
score in, regulate them like you regulate the bureaus, if 
someone gets that information or uses the credit score, then 
they have to be as accountable as the credit bureaus and say, 
okay, you got denied because of the score, here is your score, 
here is the FTC report card with all the different scoring 
mechanisms, here is how these models work, here is how they 
predict, and that will inform the consumer.
    Mr. Hensarling. [Presiding.] The gentlelady's time has 
expired. The Chair now recognizes Mr. Sanders.
    Mr. Sanders. Thank you, Mr. Chairman. Let me ask, to start 
off, Mr. Brobeck, over the weeks we have been hearing an 
enormous amount of testimony from the industry, and today from 
the Secretary of Treasury, that Western civilization would 
collapse as we know it if states were given the full power to 
protect consumers in this area.
    Do you think civilization would collapse, or do you think 
maybe consumers might get some benefit if we had attorneys 
general throughout this country, and legislatures and 
governors, who wanted to stand up and pass a stronger consumer 
protection law than Congress is apt to protect? Can you comment 
on that, please?
    Mr. Brobeck. Mr. Congressman, I don't even think a small 
part of civilization would collapse. After all, before 1996 a 
number of states passed some very strong measures that were 
grandfathered into the 1996 law, and the sky did not fall, the 
industry adapted. In fact, they ought to be better able to 
adapt now because of technological improvements.
    In the area of provision of social services, because of 
computers, we have dramatically lowered cost. I can't imagine 
that those cost savings are not available to the industry, as 
well.
    And there is going to be a small cost here, some 
inefficiency, but I would urge this Committee to ask the 
industry whenever they allege that the sky is going to fall on 
them that they document carefully the cost of interventions by 
the States that they have already taken, that are enforced 
right now, and that they then compare those costs with the 
benefits that have accrued to consumers as a result of those 
interventions.
    Mr. Sanders. Now, what am I missing, Mr. Brobeck, when I 
think that if there are particular problems in a state, whether 
it is Alabama or Vermont or California that the legislatures 
and the Attorney Generals of those states might be able to 
respond more effectively and quicker at the statewide level 
than waiting for the United States Congress to move? What am I 
missing in terms of the needs of consumers?
    Mr. Brobeck. We don't think you are missing anything. In 
fact, our federal system is wonderful because it gives the 
States an ability to respond more quickly, which they often do, 
because there are 50 of them, rather than just one U.S. 
Congress, to problems that arise.
    Sometimes those problems are local or regional, so there is 
more interest in that state in responding to a problem than 
there is, say, in Washington.
    But, I mean, where is the harm? We have, we have seen the 
macro-economic analysis that ascribes the growth in our economy 
in the 1990s to the credit reporting system.
    I would argue that there are many other far more important 
factors. One could even perversely argue that the credit 
reporting system is somehow related to the rise in consumer 
bankruptcies, because, after all, if consumers' scores are 
inaccurately high, then they are more likely to take on credit 
that will lead to default.
    If they are inaccurately low, the creditors will turn 
around and charge them higher rates. In both cases, that will 
tend to drive borrowers into insolvency.
    Mr. Sanders. Let me take that statement and lead to a 
second question, and Mr. Spriggs, Dr. Spriggs, or anyone else 
can comment on it, but let me address it to Mr. Brobeck again.
    I have been concerned about a scam which I call switch and 
bait, bait and switch, by which companies, credit card 
companies say, we are going to give you, Mr. Brobeck, 3 percent 
for a year.
    You pay every month faithfully what you owe the credit card 
company, and lo and behold, after four months of paying on 
time, suddenly your interest rates have gone from the 3 percent 
they promised to 25 percent.
    And the reason that they will explain to you is that you 
borrowed more money because your wife was ill, and so forth and 
so on. What do you think about that type of action, and what 
should Congress do to address it?
    Mr. Brobeck. Well, we think that is unfair. What is driving 
that is that in a certain sense credit card markets have become 
more competitive, and the so-called traditional rates, they are 
basically tiered rates, the promotional rates being under 5 
percent, typically, traditional rates, traditionally were 18 
percent, but now they are as low as 10 or 11 percent.
    And then you have the penalty rates. Well, competition in 
middle markets and upper markets basically drove the 
traditional rates down. That squeezed the margins of the 
creditors, so they looked for other income opportunities, and 
what they did is they raised the fees and they created this 
penalty rate category, and now what they are doing is figuring 
out clever ways to move people from the traditional rates into 
the penalty rates.
    And unfortunately, they are using credit scores as an 
excuse to do that, or other material in credit records.
    Mr. Sanders. Right. Dr. Spriggs, do you want to comment on 
that?
    Mr. Spriggs. Well, I did, because it gets right back to the 
issue of the credit scores, because that drives the market so 
much more than just what comes out of the credit bureau.
    And that intermediary effect is what gets you out of that, 
allows them their out, because probably in that fine print that 
you didn't observe.
    It is not as unilateral as it may appear is something to 
deal with your credit standing. And the moment that extra loan 
came, your score changed. So they may not be making as 
unilateral a switch as it at first appears.
    That issue is important because we don't know what is in 
the models. We don't know--maybe after you looked at the 
models, you might say I see their point, it looks valid. But 
you may also look at their models and say, well, if you modeled 
it different, and here is a different scoring company that 
models it differently, they wouldn't have scored me that way. 
Why does this model say that that is bad?
    We could have that exchange. But we can't have that now, 
and so we need to get them out of that loophole by making this 
more transparent.
    Mr. Sanders. Does anybody have an idea--I am kind of 
curious, that when--we understand that about 5 billion 
applications, credit card applications, are sent out a year, 
which is an astronomical number. I would be curious to know if 
we have some figures on what percentage of people who sigh up 
for one promotion or another end up paying higher rates than 
was on the original promotional application. Does anybody have 
a guess on what percentage? I mean, if they come to me and they 
say, Mr. Sanders, you can have 3 percent for a year and they 
raise me to 20 percent, what percentage of the American people 
are in that box?
    Mr. McEneney. You know, Congressman, I don't know. But I 
just want to mention that I think there is a law on the books 
today that squarely addresses the issue that you raise in the 
context of the potentially bait and switch scenario. The Truth 
in Lending Act requires, pursuant to a recent Federal Reserve 
Board amendment to Regulation Z, that any credit card account 
that offers an introductory rate, that introductory rate has to 
be disclosed on those Schumer box disclosures and the penalty 
rate has to be disclosed as well.
    Under those--and the circumstances under which the penalty 
rate may be imposed must be disclosed also.
    Mr. Sanders. Excuse me, let me just ask you for 
clarification. Is the penalty--if I borrow money from another 
source, is that considered now a penalty?
    Mr. McEneney. Well, actually I think what you are referring 
to is risk-based pricing.
    Mr. Sanders. Yes.
    Mr. McEneney. And what can happen in a risk-based pricing 
scenario is a creditor obviously has one view of a particular 
consumer's experience with that creditor. What it will do, in 
some circumstances, is go out to a consumer report to see if 
there is a more complete picture that gives a better 
understanding of that consumer's risk.
    In some cases they may find that the consumer has defaulted 
on several other loans, therefore presents higher risk. And the 
creditor at that point has a couple of choices. It can either 
allow the other consumers in the portfolio to pay for that 
consumer's risk or can price that consumer's product, so that 
that consumer pays for the risk that consumer presents.
    Mr. Sanders. Bottom line, let me ask you this, and then I 
will give back the mike here. Is that if I signed up with your 
credit card company and I faithfully pay you every month what I 
owe you, do you believe you have the right to double or triple 
my interest rates even though I have never missed a payment 
with your company?
    Mr. McEneney. Well, I can't get into the doubling or 
tripling.
    Mr. Sanders. That is what happens.
    Mr. McEneney. But I am aware that what will happen is that 
when that introductory offer is made, what will be disclosed to 
the consumer is the fact that this rate, this introductory 
rate, may go away under certain circumstances. And under the 
Truth in Lending Act, the creditor has got to describe those 
circumstances before the consumer even applies for the account.
    Mr. Sanders. But sometimes those--that language is written 
in very, very tiny writing, is it not?
    Mr. McEneney. Well, actually, these disclosures, under that 
recent Federal Reserve Board amendment I mentioned, have to be 
in a certain type size.
    Mr. Sanders. Thank you, Mr. Chairman.
    Mr. Pratt. Mr. Sanders, if I could just respond to one 
comment that was made about the credit reporting industry as 
though it was somehow responsible for bankruptcies in this 
country. And I just can't leave the record void on that.
    That literally 2 billion consumer reports are sold every 
year in this country. Sixteen million consumers look at their 
files every year in this country. Less than half those 
consumers ever even call the credit bureau back, although they 
have toll free numbers and access to live personnel. And for us 
to be left with the impression here on this hearing record that 
somehow whole cloth credit reporting systems are vastly 
inaccurate and somehow contributing to bankruptcy is just a 
falsehood.
    Mr. Sanders. Well, I think Mr. Brobeck was attempting to do 
what some in industry have done and suggest that if we give the 
States the right to protect consumers, somehow this will be 
causing devastation. He was being a bit hyperbolic, I guess, is 
the word, right.
    Mr. Brobeck. I was trying to analyze the last 7 or 8 years 
and suggesting that was one plausible explanation for the rise 
in consumer bankruptcies. One of many.
    Mr. Sanders. Okay. Thank you very much.
    Mr. Gillmor. [Presiding.] We will go to Mrs. Kelly.
    Mrs. Kelly. Thank you, Mr. Chairman.
    Gentlemen, I, in my subcommittee, held two hearings on 
this. This is now the sixth hearing that we have held on this 
topic in this subcommittee. The problem--it is obvious that 
this is a pretty sticky wicket. And I would like to address 
something that was just said.
    One of the problems is that the public does have access to 
a lot of information right now. The problem we, I believe, have 
is that we have a financially illiterate population in the 
United States of America. I think we need to also ask you all 
to go back and do everything you can to teach people to protect 
themselves with regard to some of these issues.
    This is a very sticky wicket with people who want to have 
credit. They want to get life insurance. They want to get 
mortgages. And to do that, they are going to have to give up 
some information.
    But one of the interesting things here that Mr. Sanders was 
just talking about was the fact that we need more transparency. 
We need it in A, B, C. We need it so that people can read it, 
understand it and grab hold of that information and use it in 
the way it should be used.
    My concern here goes to the other part and that is the 
blocking of a certain amount of information. I believe that 
when you order a credit report, there ought to be a way that we 
can block certain specific things. One of them is the medical 
information.
    And I would like to ask you, Mr. Pratt, because I am 
concerned about that, if, for example, if an employee okays the 
information being delivered.
    And that employee's investigation goes on into the credit 
history by the employer. I would like to know what you think 
about the trade lines for the health care providers that were 
showing up, like a cancer center, or a substance abuse clinic, 
don't you think that could create a possibility of 
discriminatory treatment here?
    And don't you think it would be possible for us to encode 
things like that, so that, on the trade line report, so that it 
gets the information that is necessary with regard to financial 
information, gets there, but we are able to encode on the trade 
line report the names that get provided to the users other than 
the consumer?
    Mr. Pratt. I think we share your concern about making sure 
that information like that doesn't end up easily displayed on a 
credit file today.
    Very few health care providers are reporting any kind of 
regular information to credit bureaus. The majority of data 
that might have some medical information on it, I suppose, 
would be through debt collection.
    Even there, we provide advice to all data furnishers in the 
marketplace about how to make sure that they do not give us 
information that would otherwise be an indicia of some sort of 
treatment that consumers, you and I both individually, would 
prefer not to have on a credit report.
    We also have tables of key words that are used to scan 
incoming data to strip out data like that, so, for example, 
psychiatric, cancer, and those sorts of tables are used today 
to strip data out of the credit reports, which I think tells 
you that we, in essence, share your concern about trying to 
make sure that a credit report is for the decision at hand, but 
that the medical aspect of it is not relevant, in our opinion, 
either.
    It would be up to lenders to decide how else they might 
need to use medical information, but that would not be found on 
a credit report, the way our credit reports operate today.
    Mrs. Kelly. Having once in my very far distant past started 
out programming on computers, it seems to me that there are 
possibilities, we can do things with that type of information 
as it is transferred around to help get the amount of 
information to the people who need it without indicating 
certain things about people that they would rather not have 
known.
    And I would like to work with you, if possible, on some 
wording that I think might very well solve this problem. I 
think that words are a nice thing, but I think there may be a 
way that my concern also attends to the liability of who is 
doing the reporting, and I want to make sure that we have very 
clear indications of that liability, as well.
    So perhaps you would be willing to work with me on some 
language. We have some, and perhaps you would review it for 
this.
    Mr. Pratt. We would be happy to work with you to see----
    Mrs. Kelly. I thank you very much. I really appreciate this 
panel being here. Your testimony has been very interesting. It 
is, as I said, a sticky wicket. I hope we can get there. I 
think we have a pretty good bill here, it perhaps needs a 
little more tweaking and this is one area where I would like to 
do that.
    Thank you. I yield back the balance of my time.
    Mr. Gillmor. The gentlelady yields back. The gentleman from 
New York, Mr. Ackerman.
    Mr. Ackerman. Thank you very much, Mr. Chairman. I have a 
quick question, I think, for Mr. Pratt. Under the Fair Credit 
Reporting Act, the credit bureaus are required to remove 
inaccurate information from a consumer's credit report, the 
word is in the law, promptly.
    Mr. Pratt. That is right, sir.
    Mr. Ackerman. Is there a definition for promptly?
    Mr. Pratt. Not that I am aware of. In other words, case law 
might give you some indication of promptly, if there was case 
law in that area. I just don't have that information at my 
fingertips to be able to give you a more, a finer point, if you 
will, on what that means.
    But promptly means promptly. You need to get it into the 
file, obviously, in order to ensure that the consumer's file is 
brought back to a correct standing.
    Mr. Ackerman. And you would be amenable to putting some 
kind of reasonable definition in the law on what promptly might 
mean?
    Mr. Pratt. We would be happy to have that discussion with 
you in order to understand how that would work.
    Mr. Ackerman. If promptly meant taking it out as promptly 
as the average for putting in negative information, you would 
be in favor of that?
    Mr. Pratt. Promptly for us means taking inaccurate 
information out of the file in a timely manner in order to 
ensure that the consumer's file is brought back to accuracy.
    Mr. Ackerman. If somebody reports negative information and 
that gets reported to the credit bureau and is made public 
through the agency within a matter of two weeks or 60 days or 
30 days, and that was the average, it is pretty prompt to get 
it in there, would it be fair to say that we should be taking 
it out if it is inaccurate----
    Mr. Pratt. Well, I think the law----
    Mr. Ackerman.----within that same time frame?
    Mr. Pratt. Well, I think the law sets the outer limit. We 
have got to get this done in 30 days. That was something that 
was done in 1996, because prior to that----
    Mr. Ackerman. So you would be in favor, if 30 days was not 
the outer limits for promptly, you would be in favor of 30 
days, at least?
    Mr. Pratt. I think it is the wrong place for me to be 
negotiating the details of an amendment, but if you are saying, 
are you interested in looking at the issue of promptly, and is 
there something better than the word promptly, we are happy to 
have that discussion. But I can't start negotiating an 
amendment here.
    Mr. Ackerman. We will schedule it promptly, then. On the 
FICO and other related scores, this is for the whole panel, I 
don't know if anybody here can help me, I don't know if anybody 
wants to, but it is still very perplexing as to what goes into 
this, and why people are interested in it from other agencies, 
such as the Transportation Security Administration.
    I am in the process of refinancing some properties, and was 
told that my FICO score was in the, let me just say, the high-
700s, and my wife's was in the mid-700s.
    I don't know what went into my score that is different than 
her score, because basically everything is, but this has caused 
a lot of family tension, and she thinks I am holding out on 
her.
    [Laughter.]
    And I don't know what is in her report that is not in my 
report, but everything is joint, and all that kind of stuff. 
And if it is the same formula by the same company, it gets 
confusing to a lot of people, and to make her a better consumer 
she would like to know what she would have to do to, because 
she is very competitive, to at least have the same score that I 
have, and nobody can tell me; although you can tell me the 
ingredients, you can't tell me the exact recipe.
    The use of the FICO and other scores like that by the 
transportation people to make determinations as to who are 
better risk to put on the transportation system is baffling.
    I don't recall any question of it being asked when I 
applied for a credit card or a mortgage or a car loan or 
anything like that that would give away whether or not I ever 
hijacked a plane or derailed a train or committed an act of 
piracy on the high seas. I don't know that you put down that I 
was late in paying for my latest shipment of nerve gas or 
something. I could understand that being a clue to those 
people.
    But what is it in your reports, or the reports? Is it just 
that people who are not as economically or financially 
dependable are greater risks for terrorists? What is in--to be 
terrorists? And if my score was so high, can I get upgraded to 
first class? I mean, you know, what is their interest in this?
    Mr. Spriggs. If I can, Congressman, I mean, what people 
have done with the scores is the scores, in many instances, 
have replaced the credit report. It is viewed as an objective 
way of summarizing the information and taking away the 
discretion that some people felt, maybe even me, was 
discriminatory in the way that people might have evaluated that 
information. In that sense, they may be putting a lot more into 
the score than what deserves to be in the score.
    The fact that it is proprietary, to me, again, if not 
excuse enough, we need to have transparency. We need to have 
the FTC scoring the scoring cards. Maybe if they understood it 
over at TSA, they would rather have the credit report and not 
have the credit score, because again, the credit score is going 
to include judgments about whether in the future you would 
default on the loan, which may be different than the type of 
reliability, responsibility that was implicit in----
    Mr. Ackerman. We are in total agreement. I just don't know 
what people think is in there, and I don't know what is in 
there because nobody is really telling me, that would indicate 
that a person might be a greater risk to be a terrorist if he 
missed a payment on his car loan.
    Mr. Spriggs. And the score may not be telling that at all.
    Mr. Ackerman. Darn, I missed that--they repossessed my car, 
I think I will go blow up a boat.
    Mr. Spriggs. But again, the score may not be even telling 
you that you missed a payment. Your score can be lowered for a 
number of factors dealing with how that model predicts your 
total outstanding liabilities to your income whether you access 
that credit line or not.
    Mr. Ackerman. You cited before the Equal Credit Opportunity 
Act and that prohibits discrimination. Now, why can--if that is 
the case, why can the federal air transportation security 
people discriminate against somebody with a low FICO score?
    Mr. Spriggs. Well, again----
    Mr. Ackerman. Is somebody going to, you know, make me take 
my shoes off again because I missed a mortgage payment this 
week or something?
    Mr. Spriggs. The problem is I don't think that--given we 
don't ask the right information of these credit scorers, I 
don't think that we know whether they comply with the Equal 
Credit Opportunity Act. Because the issue isn't just do they on 
average not discriminate and have an average disparate impact, 
to measure whether they have a real disparate impact, you would 
have to know the mean prediction error by each subgroup that is 
protected under the Equal Credit Opportunity Act.
    And we don't have that kind of information. We don't have 
information on how they use missing data. Many credit cards, 
many mortgages aren't being reported.
    Mr. Ackerman. Well, you and I are on the same wavelength. 
There is a complete lack of transparency. But the people who 
are looking into terrorism and, you know, blowing up planes and 
things like that seem to think that there is a message in that 
score for them. And I don't know that they just think that 
poorer people or people with less credit or people who can't 
meet their financial obligations as quickly are more 
predisposed to be terrorists. I have not seen that study.
    And you know, maybe those people who know what is in the 
report here can tell us what the indication is that they are 
looking for. What is it that helps them?
    Anybody?
    Mr. Duncan. Congressman, I cannot speak on the use of the 
scores by the TSA. And it is quite possible that they are 
misusing scores. But the broader issue is what is a score? And 
I think Ms. Kelly was on the right track when she said we need 
broader information and broader education for consumers.
    Now, one way that might be accomplished is similar to 
methods used in California, is to come up with a composite 
score and explain how that composite score is developed so 
consumers can get a sense of what the factors are they should 
be looking at in seeing those scores develop and how your wife, 
for example, might drop one of the credit lines that is in her 
name and not in yours, and that might change your score.
    But we don't need to have the specifics of each and every 
score that is developed in order to provide general information 
any more than we need to have each college that admits people 
go into great detail about the factors they use in making a 
decision as to whether to weight your grade point average 
versus your SAT versus your outside academic activities.
    So a general education is needed, but not this great 
specificity.
    Mr. Ackerman. Without beating this issue to death, it would 
seem to me you are absolutely right. And we are not getting a 
lot of help from the industry as to how one might improve that 
score, as far as educating the public. I would like to know, 
and I think this information that can be provided by some of 
the people here, how many files of scores have been actually 
requested and turned over to the Transportation Security 
Administration?
    You probably don't know that, anybody, off the top of your 
head. But could I ask those of you who have access to that 
information to provide it to the Committee? Not just FICO, but 
any of the like kinds of scores.
    Mr. McEneney. I can say that we would absolutely be willing 
to follow up. I am not aware that TSA has access to any of 
these scores, but be happy to follow up and see what we can 
learn on that and get back to you.
    They have interpreted the PATRIOT Act as allowing them not 
just to access banking financial information, which was the 
intent, but to go to any agency that does any kind of record-
keeping. And the Transportation Committee staff has been 
briefed. And unless their member was on both that Committee and 
this, they are much more in the dark about FICO scores. They 
didn't even know what it meant.
    But the answer to your presumed question is yes, they say 
they have the authority under the law. They have found that 
loophole. And being that the briefing took place, it is 
presumed by us that they have made the request.
    And my request to each and every one of the panelists is to 
go back, find out what has been requested. We don't need the 
names or any of the specific details, but how many files 
actually were turned over.
    I know that we can buy that list. If I wanted to get 
everybody that was 65 or over, you probably will sell it to me, 
with the names and addresses.
    Mr. Gillmor. The gentleman's time has expired.
    The Chair will recognize himself for some questions.
    I want to deal with one area. And that is something which 
surprised me and, I think, a lot of other people when I learned 
it. That your score is lowered if somebody makes an inquiry 
about your credit.
    I guess to me, I see no relationship between somebody 
making an inquiry about credit and the likelihood of repaying. 
Could somebody explain to me or justify or condemn, as 
appropriate in their view, why that happens and what is the 
justification?
    Mr. McEneney. I would be happy to respond.
    There are, I think, questions about the circumstances under 
which an inquiry will result in an impact on a credit score. 
And there are variations in terms of how scoring models look at 
those developments. But let me give you one example of how this 
can be relevant to someone's credit history.
    If a creditor has a relationship with a consumer, obtains a 
consumer report on that consumer, and learns that the consumer 
is applying for a variety of different credit accounts in 
fairly rapid fashion in a short period of time, that may 
indicate that the consumer is overextending himself or herself 
and thereby presenting a risk to the creditors.
    That is one situation where that can occur. Now in the 
past, there have been concerns about issues that might occur 
with somebody shopping for a home mortgage, for example. In a 
home mortgage context, I may go to three or four or five 
different lenders in a short period of time. And those lenders 
may make inquiries to the bureau, separate inquiries to the 
bureau.
    What is happening today, as I understand it, is that 
creditors are identifying those multiple inquiries of the type 
I just described, that happened quickly, and treating them as 
one, recognizing them for what they are, somebody shopping 
around for the best deal, treating them as one and not creating 
that adverse, potential impact on somebody's credit score that 
might happen in other situations where the multiple high 
velocity of inquiries suggests a risk.
    Mr. Spriggs. Again, Congressman, because the models are not 
transparent, neither you nor I can say with certainty what they 
are really doing. And that is the problem.
    If we saw their model and saw the explanation, then we 
might agree with the explanation we just heard, that this is a 
risk factor because this is someone who is trying to extend 
their credit.
    We might look at their model and go, You are kidding me?
    But without the data to analyze the model and see whether 
the introduction to that variable adds anything measurable or 
not and what is the bias of that? Does it affect all subgroups 
in the same way? Does it affect first-time home buyers as folks 
who already have mortgages who are out refinancing?
    We need that transparency. We need the FTC to have the 
specific scores. It is not enough for consumers to get a 
general process. I think most consumers can get the general 
process quickly. But because of the type of question you just 
asked, a lot of consumers will do some things like that because 
they don't know specifically what is in the model. And you may 
look at your credit score and go, I pay my bills on time. How 
did this happen?
    Because maybe it took you five months to look for a house, 
and so it didn't clump. Maybe you had three inquiries here and 
three there and three there, and suddenly you found your score 
lowered.
    Without the transparency, we can't have that kind of 
debate. It would be the same as if the credit bureaus were 
being asked, just to say, we got a report on you, and it was 
blank. That would be the equivalent.
    Well, the answer to the question was that it would only 
apply if those inquiries were bringing out evidence of other 
things, which is multiple application for credit. But we don't 
have any assurance that that is true. It may be just somebody 
inquired, or that different people inquired.
    Do you want to respond to that?
    Mr. McEneney. There are different types of inquiries. One 
inquiry, for example, occurs when a consumer's file is accessed 
for pre-screening. Another inquiry is an inquiry is registered 
when an existing creditor, for example, obtains a consumer 
report on the individual, not at the consumer's initiation, but 
because the creditor wants to assess risk with respect to the 
consumer.
    Those two types of inquiries are set aside. The consumer 
has access to those. But other creditors or other users of the 
consumer report don't. So they do not impact in any way the 
consumer's credit score or credit history. But obviously, the 
consumer is entitled to see who is looking at the account.
    So that leaves, in large part, the types of inquiries that 
I talked about where the consumer initiates some contact with 
someone is seeking to obtain some financial product or service. 
And that organization, after being contacted by the consumer 
makes an inquiry on the consumer.
    Mr. Gillmor. But you cannot ensure me that in arriving at 
these scores that nobody is just taking an innocent inquiry and 
lowering the score, can you?
    Mr. McEneney. If I understand the question correctly, is it 
possible that there are some out there who have scoring models 
that when I go and visit one consumer, one creditor, rather, 
and that creditor pulls a single report? If what you are asking 
me is might it be the case that another creditor looking at 
that single inquiry might have a scoring model that treats that 
single inquiry as risky, I can't assure you that that doesn't 
happen. I am not aware of it happening. I would be happy to 
look into it and see if we can't find whether that is the case.
    Mr. Gillmor. Well, suppose somebody wanted to--didn't like 
you or somebody else and the orchestrated multiple inquiries 
just to drive your credit down? You can't assure me that 
wouldn't be successful, can you?
    Mr. McEneney. Well, actually, I think the existing law 
provides strong assurances that that doesn't happen. Under the 
FCRA, a person is entitled to obtain a consumer report only for 
limited permissible purposes. And the example you described 
clearly would not be a permissible purpose. That would be 
someone obtaining access to a consumer report without 
permission and there are significant penalties under the FCRA 
for doing so.
    Mr. Spriggs. But again, Congressman, your question is no 
point. If I am searching for a job and my employer, as we heard 
about TSA, requires a credit report on me and it is not clear 
whether the modeler is being fine tuned enough to say, you 
know, here is a company making a credit request on this person. 
They got five out there because I am looking at five different 
potential employers. We don't know whether the modeler is 
discerning those credit inquiries differently than they would 
any other credit check on me.
    So again, we have to have the transparency. We don't let 
the credit bureaus give us blank reports, and we can't really 
let the scoring companies give us the blank reports that they 
give us. We have to have an understanding of is that what you 
did? Is that in your model?
    And then we could get into an agreement or a disagreement 
with as to whether enough added reduction in error from adding 
that variable was present so we could feel comfortable that 
maybe we could live with the one or two times that might 
happen. Maybe we might look at their model and say for the 
increased accuracy of adding that, we think there are so many 
more costs that we don't agree with why that is in your model. 
That is why we have to have the transparency.
    Mr. Gillmor. My time--over my time. I will just follow up 
with one thing. Just very briefly, how would you assure that 
transparency which you describe?
    Mr. Spriggs. I think to give some respect to the 
proprietary nature of the data, that the FTC was required to 
run their model, was required to give us a report card and let 
us know which variables were in, how those variables were 
treated, what they do with missing values, what do they do with 
discrepancies, if they get a report that says that the 
delinquency was being disputed.
    If we could get a report card so that we would have enough 
information on the various models that are out there, how they 
were making their decision, then we could be able to have a 
better discussion about what would need to be regulated about 
that industry.
    Mr. Gillmor. Yes, I think nobody has any problem with 
really relevant information. But when you have a bad score 
partly dependent on irrelevant information, it is a real 
injustice.
    The gentlelady from Texas.
    Ms. Lee. Thank you, Mr. Chairman.
    And I would like to follow up with that line of 
questioning. I don't want to be redundant, but I want to 
continue to pursue this whole issue with regard to credit 
scoring, and I guess it also could speak to financial literacy 
in terms of the public, one, knowing up front that credit 
scoring is proprietary information and that in fact this is a 
product for sale.
    Now, those who are financially literate may know that. But 
I think that it is very important that somehow as we move 
forward that those disclosures are somewhere on credit 
applications so that a consumer who may or may not know this 
may or may not want to apply for credit.
    I mean, I would like to get, I guess from Mr. Pratt, your 
feedback on that because certainly this is a business. Some of 
us know this, many don't. And when you have such personal, 
private information that is packaged for sale, certainly 
minimally the consumer, I think, should know that it will be 
sold.
    Mr. Pratt. Well, I think we are going to probably revisit 
some of the ground we have covered previously, but only because 
I want to make sure I am answering the question properly along 
the way.
    The credit file that you and I have in the credit reporting 
systems has all the information about how I pay my bills and I 
suppose, how I don't pay my bills if I happen to be somebody 
who chose to do that. And the scoring model is this 
mathematical algorithm over here. And Dr. Spriggs has talked 
quite a bit about how he would like to see or understand more 
about that model.
    And so when a lender orders a credit report and a score, or 
orders a score, the score--the credit file data--is run through 
the scoring model and a score then pops out on the other side, 
if you will. That is sort of the layman's version of it, which 
is good enough for me.
    So the score itself doesn't contain personal information 
about you. It just looks at your credit report and looks at 
risk factors, statistically validated risk factors, and says 
this is the level of risk we think you have with this consumer 
based on the credit report.
    Ms. Lee. But it is a formula that provides that 
information.
    Mr. Pratt. Well, the formula doesn't--the information that 
is in your credit file, so in that sense, you have 
transparency. You can look at your file, you have the right to. 
We know that, we have it under law today. You can access your 
file and you can see it and you can look at it and dispute it 
and correct it and so on.
    If you wanted to look at them, the mathematical model is 
just that, it is just a formula on a page, or on pages and 
pages, depending on how complicated it is.
    It wouldn't tell you, you may be a mathematician, it 
wouldn't tell me a lot, because it is just a mathematical 
formula which is used to then analyze the data.
    Ms. Lee. Yes, I understand that. All I am saying is that we 
need to go one step farther, and at least provide information 
to consumers that, in fact, this score is being sold. It is a 
product.
    Mr. Pratt. Or being used. Is your interest in the use of 
it, meaning a lender using a score, or----
    Ms. Lee. Well, how does the lender get the score? It gets 
the score, it pays for it, right?
    Mr. Pratt. Well, lenders may have scores on their own 
technology platforms that they built themselves, lenders may 
buy what might be called a credit bureau score, a credit score 
from a bureau.
    The bureau actually doesn't own that score in all cases, 
sometimes that is a score developed by Fair Isaac.
    Ms. Lee. Who owns the score?
    Mr. Pratt. Fair Isaac, for example, would build a score, 
and the credit bureau would, it would be built based on credit 
history data, but FICO, the common term for the company, owns 
the intellectual property, which is this mathematical formula.
    And so, every time the bureau a file is ordered, the credit 
bureau, in order to use that score, actually pays a royalty to 
Fair Isaac.
    Ms. Lee. All I am saying is don't we have a right to know 
that? Don't consumers have the right to know that? Or shouldn't 
they know that?
    Mr. Pratt. I think the idea of making sure consumers 
understand scores are used in the marketplace seems like a 
good----
    Ms. Lee. Yes, that is all I am saying.
    Mr. Pratt. I don't, you know, we are working hard at this 
to get there, but----
    Ms. Lee. Yes, that is all I am asking. I would think that 
people----
    Mr. Pratt. Using scores are very common, and having 
consumers understand that scores are used is very common. In 
fact, there is a whole marketplace of Web-based, you know, 
scoring systems where I can go and I can learn about a score 
and I can----
    Ms. Lee. So a notation saying that your credit score will 
be, could possibly be, sold is very sensible.
    Mr. Pratt. I don't----
    Ms. Lee. Okay. What prevents the sale of credit reports 
that are really faulty? I mean, how----
    Mr. Pratt. Well, the Fair Credit Reporting Act does two 
things. I mean, the FCRA has always said that a consumer 
reporting agency must employ reasonable procedures to assure 
the maximum possible accuracy of the report.
    And that would be the liability, if you will. That is the 
duty, and hence the liability for the credit bureau. In 1996, 
the Congress enacted a new section of law which said that the 
data furnisher, the company that provides data to the credit 
bureau, and this would be the basis for your credit report, 
those companies, too, have a liability for the accuracy of the 
information.
    Ms. Lee. So can a consumer seek injunctive relief now? Can 
they go to court?
    Mr. Pratt. Well, they do have private rights of action 
under the FCRA for willful and negligent standards, and states 
attorneys generals all have enforcement rights under the 
federal FCRA, as well. And the FTC has enforcement.
    Ms. Lee. Mr. Brobeck, let me ask you, what is your response 
to that in terms of consumers seeking injunctive relief through 
the court system for the----
    Mr. Brobeck. My understanding is that they have to prove 
damages, and that is very difficult to do in many cases. And so 
it doesn't happen. And as a result, there are massive amounts 
of inaccurate information that is distributed, despite the best 
efforts of the repositories.
    Ms. Lee. Okay, and finally, Mr. Chairman, let me just close 
with regard to going back to the multiple applications, or 
multiple inquiries. I know there is a difference between 
multiple applications and multiple inquiries.
    But in terms of adverse actions, again, Mr. Spriggs, I 
understand what you are saying in terms of transparency, and I 
certainly think we need to get there, but I also think we need 
to know sooner or later, I mean, before, because this is going 
to take a while, but I think very soon, and maybe with this 
bill we should at least provide the consumer the ability to 
understand the fact that if they do apply three or four times 
within two weeks they are going to get an adverse action on 
their credit report. Or how do we make sure that people know 
that they will get dinged if, in fact, they are trying to find 
the best interest rate, the best terms, if, in fact, they do 
apply to Visa, Discovery, MasterCard, to see which credit card 
company has the best terms?
    I mean, that is a reasonable way to live. You are, I mean, 
right now, it is assumed that the consumer, it is on the 
negative, they are overextending themselves, they may be a 
risk, without giving them the benefit of the doubt.
    I mean, this gives the credit card company, or the 
financial institution, the benefit of the doubt. And so I am 
trying to figure out how we can make sure that in this bill we 
change that.
    Mr. Spriggs. The language currently asks for a credit score 
with the waits and the explanation of how you might improve the 
score. And if the language gets, I don't think you want the 
language to get too specific, because these models do change.
    The Fair Isaac model today isn't the Fair Isaac model 5 
years ago, so I don't know that I want to have you get too 
specific. But you may want to get a little more specific as to 
what you mean by waits and what the consumer could do to 
improve their credit score.
    Now, the other problem you have, though, is that, as Mr. 
Pratt pointed out, they don't, the credit bureaus, don't always 
own the score. They don't own the FICO score.
    And so I think you may want to look for a provision that 
said, if a negative action was taken because of the score, and 
you have to get creditors to, try to get lenders, to be more 
honest about whether they were looking at the credit bureau 
report or whether, as many of them are doing now, getting much 
more mechanistic and looking at the score, if a negative effect 
was taken on the score then you got to give me the score----
    Ms. Lee. But I am not talking about----
    Mr. Spriggs.----and tell me what were the waits and what do 
I need to do. Because if they did that, then when I get my 
report I would see these are negative factors, applying too 
many times for credit, having too many balances, even if they 
are zero balances, even if you pay them all on time you have 
too many balances out there.
    I mean, those types of things should be with that score to 
the consumer, so I just don't know how specific I would want 
you to get in that language.
    Ms. Lee. But that is after the fact, after a consumer has 
been denied. What I am saying is, on the front end, Madam X 
wants to apply for a mortgage from financial institution A, B, 
C and D, to see which financial institution provides the best 
rate and terms.
    By the time Madam X gets the to financial institution four, 
financial institution five that she is getting ready to apply 
to says, Oh, you have already, you know, put in four 
applications, and so you are a credit risk.
    And at that point I would have to----
    Mr. Spriggs. If the FTC gives us that report card sooner 
rather than later, we can have that information out there.
    Mr. McEneney. Congresswoman, I actually think the level of 
detail that Dr. Spriggs is talking about could, if you give it 
to the consumer, be counterproductive, but I hear exactly what 
you are saying, and I think the key is educating consumers.
    Now, there are a variety of ways to do that, but if you 
look at the protections that exist under the FCRA, the 
consumers actually are empowered today to do almost everything 
you are talking about.
    They can go and whenever they want gain access to the 
information the credit bureaus have on them, and it is that 
information that forms the basis for the credit scores.
    So they can look at that. There are products out there that 
help educate consumers on what a score means. Today, and I know 
this is after the fact, but today if a consumer gets denied 
credit, and it is based on a score, the creditor has to make 
available to that consumer the principal reasons that went into 
the score, so that the consumer can do two things, one, figure 
out whether there is any discriminatory issue that resulted in 
the decline, but two, in this context focus on those aspects of 
their credit history that are causing the score to decline.
    And just to use your example, if one of the reasons that 
the score failed to enable the consumer to get credit was too 
many inquiries, the consumer would have to be told that.
    Ms. Lee. That is after the fact. They have been denied.
    Mr. McEneney. Absolutely, so then I think the key is----
    Ms. Lee. The purchase of a home would be put on hold.
    Mr. McEneney. I agree with you, Congresswoman. The key is 
educating consumers on what tools they have under the FCRA 
today, because I think it gets them pretty much where you want 
them to go on this under existing law.
    Mr. Gillmor. The gentlelady's time has expired.
    Mr. Brobeck. Could I----
    Mr. Gillmor. Very briefly.
    Mr. Brobeck. I am going to address your question, as well, 
Congressman.
    There is a fundamental issue here, and that is the 
actuaries are really interested in establishing strong 
correlations, not causal relationships. And though it may be 
beyond the scope of the legislation, and we have had this 
debate in the insurance area for decades--we need to establish 
the principle. That there needs to be causation before a factor 
is considered to be a risk factor that affects pricing.
    Ms. Lee. Thank you.
    Mr. Gillmor. Thank you.
    The gentleman from Texas?
    Mr. Hensarling. Thank you, Mr. Chairman.
    As a veteran of the subcommittee, I have sat through six 
different hearings and this full committee hearing will be my 
seventh. I have heard a wide range of testimony as we consider 
the reauthorization of FCRA. Obviously the Committee is focused 
on a number of consumer protections.
    Paramount to me is the consumer protection of having a 
competitive market place for the extension of credit. I think 
the testimony has been overwhelming that we do enjoy the 
greatest access to credit at the least cost of any nation in 
the world.
    That one principally seems to be off the table.
    Another concern we have obviously is identification theft. 
I have said before that I am a member of this Committee who has 
actually been victimized by this. It is something I take very 
seriously.
    But at least at the subcommittee level we have heard 
testimony from a number of different law enforcement officials, 
as well as the Federal Trade Commission, all who seem to be of 
the unanimous opinion that we are better off with the 
reauthorization of FCRA as a tool to combat identity theft. 
Perhaps there is still some debate on that.
    That really leaves us to the questions of accuracy and 
privacy. I would like to focus, Mr. Pratt, as representing the 
credit reporting industry, on one of the questions I asked at 
the subcommittee level. I am still grappling with this 
somewhat, but you hear a variety of opinions on the extent of 
inaccurate information contained in these credit reports.
    And so from the credit reporting industry standpoint, what 
measurement do you have?
    Mr. Pratt. We actually recently have looked at a couple of 
different measurements. Let me share those with you. And if you 
would like me to provide more information in writing, we can do 
that for the record or in some way that you might like.
    We recently asked one of our resellers or several of our 
resellers who are in the mortgage reporting area to look at 
credit reports as they went through their systems, because they 
are in fact in this situation where there is greater 
involvement with the mortgage broker, the realtor, the loan 
officer. It is more labor intensive. It is a different system, 
although maybe more mechanistic than it has been historically.
    And we had--we asked the reseller to do two things. One was 
to say, How often are you dealing with the file because 
something is accurate that needs to be updated, versus, how 
often is it really wrong because it was just reported wrong in 
the first place? The account never should have been on the file 
or the balance was never right, or I never missed a payment, 
according to the consumer?
    Out of the 500 and some odd files that were reviewed, about 
32 percent of the time there was an update of information that 
the reseller was engaged. And I think that speaks well for our 
reseller members in our association, who provide a valuable 
service of making sure in the mortgage lending process data is 
as updated as possible.
    But it also--in only 1 percent of the cases was there an 
actual identified inaccuracy.
    We then went back and looked at several populations of 
consumers, because similarly the consumer groups have often 
said, Well, let us sit down with consumers and have consumers 
look at reports and see how those reports look. And let us try 
to identify what is right or wrong with those. And in this 
case, we picked out several sets of data, gathered one over a 
24-month period of time. And these were consumers who, at the 
rate of 100,000 a month were in fact ordering credit files, 
their file disclosures, because they were concerned about 
fraud. And we asked the question, How many ever contacted us 
afterwards?
    In other words, these are consumers who really looked at 
their files. That is a good measure. And only 10 percent of the 
consumers ever called us back, even called us back, not 
necessarily disputed something, but called us back to ask a 
question.
    We looked at another population of consumers, 180,000 
consumers. And we asked the same questions and we said how--
they got their files. They literally ordered them. They were 
not adverse action oriented. In other words, these aren't 
consumers who got a negative notice saying that, You are 
getting this file because of adverse action.
    And again, we asked the question, How many of you called us 
back? The rate was 5 percent.
    Now we drill down and look at the rate of disputes and then 
you can--there is a lot of other data. And I don't now how far 
you want me to go into this. We aggregated those several sets 
of data to begin to get a better sense of what accuracy really 
means. And we did it from a market perspective with mortgage 
reporting. We did it from a consumer's perspective, using 
populations of consumers who literally order their files, 
exercise their rights under FCRA and looked at their file.
    They had access to toll-free numbers. They had access to 
live personnel. It was not a complicated process for them to 
have disputed information. And again, the percentage response 
rates were quite small in these two populations.
    Mr. Hensarling. Mr. Duncan, you represent the National 
Retail Federation, which I assume has countless, countless 
members across the nation. My assumption would be that those 
who use credit reporting services, have an interest in those 
reports being accurate. Do you perceive that there is has been 
competition among the players in the marketplace, in the credit 
reporting services?
    In other words, would a company that consistently produced 
inaccurate information to your membership, would they be 
punished by the marketplace?
    Mr. Duncan. There is actually quite a bit of competition in 
the marketplace for accuracy of scores. And you are absolutely 
correct, the major bureaus come to our members all of the time 
arguing that their reports are slightly more accurate than the 
next guys report, or much more accurate than the next guys 
report.
    And there is quite a bit of competition. And our members in 
fact will sometimes pull two or three and compare them and run 
models themselves to determine which might be more accurate. 
And they may find that that varies slightly from area to area 
within the country.
    Mr. Hensarling. So the people who are using these reports, 
like your membership, have an interest in accurate information 
as well as the people who produce the report, assuming they are 
logical profit-making ventures.
    And assuming the consumer wants to receive the credit that 
he feels he is due, he has an interest in seeing that there is 
accurate information in the system. I guess I am trying to 
figure out who has the incentive to put a lot of inaccurate 
information in the system?
    I see that my time is just about to run out. Let me ask one 
more question.
    And that is to you, Mr. Pratt. The issue of offering free 
credit reports has arisen. And I believe you gave testimony 
that, if I heard you correctly, the vast majority of credit 
reports that are issued today already are free. Did I hear you 
correctly?
    Mr. Pratt. Yes, sir. About 95 percent of the 16 million 
files that are given to consumers each year are given free of 
charge.
    Mr. Hensarling. Well, I certainly have an open mind on the 
issue, but I am just curious, if that is indeed accurate data, 
if this is maybe a remedy in search of a problem, considering 
we already have 95 percent of the credit reports being issued 
for free, in the first place. Obviously, identity theft is a 
very serious matter, but increasing the cost in the system that 
would raise the cost of our credit or make it less accessible 
is still an open question in my mind whether this is a good 
method by which to attack that problem.
    And with that, I will yield back the balance of my time, 
Mr. Chairman.
    Mr. Gillmor. The gentleman yields back.
    The gentleman from Washington.
    Mr. Inslee. Thank you.
    Just following up on what Mr. Ackerman brought up a while 
back about access to credit reports for use by the 
Transportation Safety Administration for deciding who gets on 
airplanes, I just want to tell you at least one member has a 
real concern about that because the whole TSA system is broken. 
And we are keeping people off airplanes right now because of 
the failures in our system?
    We had a city administrator and a police chief from a 
little town, Bothell, Washington, where I am from, couldn't get 
on a airplane because the computer system is so fouled up with 
the TSA and the airlines cannot guarantee the correct identity 
of the decision whether to let you on an airplane or not. And 
if you happen to have the name of somebody who is under 
suspicion, you have had an identity theft and a sort of travel 
theft by the U.S. government.
    So I want to tell you there is real sensitivity about this. 
And we are--at least I am going to try to work to make sure 
that we don't allow this system to get out of hand as it is 
right now preventing people from getting on airplanes.
    But I want to ask you a deeper question and that is whether 
the fair credit reporting system is really just going to become 
a nullity, give the consolidation in the industry? And the 
reason I ask you that question is that we have substantial 
rights for consumers that are guaranteed by this act as long as 
there are not affiliates involved in interpreting or scoring 
their credit or providing their services.
    But where we have--and which I believe we will now have 
very significant consolidation in the industry where we have 
affiliates both involved in lending and selling insurance and 
providing securities and a whole host of other services, we 
don't have that same level of protection, or any of those 
protections for consumers, either from the sharing of 
transactional experience amongst affiliates, which consumers 
can't stop even if they wanted to, under federal law. And the 
situation where they are going to get opt out notices that 
nobody can read or understand.
    And basically, all of the protections that all of the 60 
members of this Committee that are assiduously trying to 
protect aren't going to exist for a significant number of our 
consumers once they become customers of a consolidated 
industry.
    Essentially, basically, what we have told consumers is you 
don't have these rights vis-a-vis any credit authorizing or 
granting organization that has affiliates as to transactional 
experience. And as to all of your other experience, unless you 
are smart enough to read a five page disclosure opt-out 
statement to opt out of that, you won't have any rights in that 
regard.
    So we are really going to a two-tier system of consumers in 
this country. Those who deal with non-affiliated credit 
authorizing and issuing organizations, they have certain rights 
under the statute. But those who deal with other consolidated 
parts of the industry do not in real life.
    Now, is that a valid concern? And if it is not, why not? 
And if it is a concern, how do we move to a situation where the 
general thrust of the whole credit reporting protecting system 
will include those consumers who deal with what I believe are 
efficient systems of consolidating these multiple 
organizations?
    It is a big question. I will just throw it open to the 
panel.
    Mr. McEneney. Congressman, if I may provide some feedback 
on that.
    First of all, I don't see a situation where affiliated 
entities would ever be in a position to forego the information 
that is provided by credit bureaus. And the reason I say that 
is even the largest affiliated entities only have limited 
contact with their customers. They need, for risk assessment 
purposes, including identity theft and credit control purposes, 
to access the other portions of a consumer's record which they 
don't have. And the source of that information is the credit 
bureaus.
    So I don't see it being at risk for consolidation where 
those with affiliated entities can forego the products that are 
subject to the protections of the FCRA.
    In the context of affiliate sharing, though, it is clear 
that in 1996 Congress set up a mechanism where affiliates could 
share information amongst themselves about individuals so long 
as they gave those individuals certain rights, namely the 
notice and opt out right that you mentioned.
    Now, the FCRA notice and opt out right is a simple one. I 
understand that there have been some complications as a result 
of other disclosure requirements that perhaps have reduced that 
simplicity. But in at least one respect, consumers in an 
affiliate sharing context have a more powerful tool than exists 
for them with respect to more traditional FCRA situations. And 
that is the tool to opt out, to say, affiliated entities, you 
may not share these types of information at all with your 
affiliated entities. It is a very powerful consumer protection 
tool.
    The other thing I would point out is that the whole reason 
for affiliate sharing is to try and enhance and expand customer 
relationships. And so these affiliated entities have very 
powerful incentives to make sure that the way they use this 
information meets those goals. And I think that is a 
significant impediment to the sorts of problems arising that 
might arise in other contexts like where you have a credit 
bureau that doesn't have customer relationship with the 
individual.
    Mr. Inslee. Let me--since you volunteered for this duty, 
let me just ask you a follow-up question. What do we tell 
consumers--I have just read some testimony in the Senate 
Banking Committee by a particular financial group, I won't name 
them here. And it says that ``It is able to use the credit 
information and transaction history that we collect from 
affiliates to create internal credit scores and models that 
help determine a customer's eligibility for credit.''
    Now, I understand what they are saying is that they are 
able, if I understand the testimony, they are able to create 
internal credit scores and models that determine credit 
worthiness and whether or not to issue certain products, 
whether to actually make a solicitation for a product, without 
being subject to the protections to consumers that are outlined 
in this act.
    And I suspect that that will increase over time with the 
further consolidation in the industry. If that is true, 
shouldn't we be concerned to somehow expand these protections 
to this increasing, what I understand to be, internalization of 
this credit worthiness in the recording system?
    Mr. McEneney. Well, I am familiar with the testimony of 
which you speak. And my understanding of how that works is as 
follows.
    Yes, it is possible to use this information, shared among 
affiliates, to develop models, for example, to decide who you 
may want to market to. Now, the decision of whether or not to 
solicit somebody for a product typically is not viewed as 
adverse action. In fact, there are some consumers out there who 
may view not being solicited as a positive thing.
    I am also aware that what typically happens in the 
affiliate sharing context is once the solicitation goes out, 
there has been information that may be shared amongst 
affiliates. And a consumer responds. Typically, what happens is 
a credit report will be pulled from the credit bureau to make a 
fresh assessment as to whether or not the consumer meets the 
risk profile based on the consumer's entire credit history, not 
just what was had by the affiliates up front.
    And of course, under those circumstances, all of that 
information in the credit report is subject to full protections 
under the FCRA. And if that credit report results in adverse 
action, the consumer receives an adverse action notice 
indicating that the report was used for the adverse action and 
tells the consumer the consumer's got the right to a free 
report by going to the credit bureau that furnished the report.
    Mr. Gillmor. The gentleman's time has expired.
    Mr. Brobeck. There is a risk that among these large 
financial institutions that they will try to identify sub-prime 
borrowers, and they will use their own credit scores that may 
not be accurate as a basis for targeting customers to try to 
sell them high-priced loans. And then, if they do not utilize 
the credit scores and the information in the repositories, the 
consumers will not have the right to that information that is 
in the repositories and they will not know that, perhaps, the 
reason that they were only offered a sub-prime loan, is because 
of inaccurate information within that large financial 
institution.
    Mr. Gillmor. Mr. Dugan.
    Mr. Dugan. The premise of the question is that it is 
somehow a bad thing to share information from one affiliate to 
another to offer another product to the consumer. And I think 
that is the thing that our industry would take issue with.
    Mr. Inslee. I am not saying that.
    Mr. Dugan. Well, I guess the kind of thing that we see is 
someone has a loan with a bank, for example, and realizes that 
if they share that information with their mortgage lending 
affiliate, based on the information that they know about their 
consumer, they could put them into a loan, a home equity loan, 
say, at a lower interest rate that is tax-deductible, that is 
in the consumer's interest. And that is exactly the kind of 
thing that affiliate sharing allows. It is a good thing.
    And the distinction between the bank and its affiliated 
mortgage bank is not one that we think the consumer is aware 
of, thinks is a meaningful distinction, treats it all as one 
entity, and is appropriate. That is the reason why diversified 
companies are able to offer those sorts of products. And we 
think it is a good thing, not a bad thing.
    Mr. Duncan. If I may amplify on just one point that Mr. 
McEneney made. And that is typically retailers use affiliate 
sharing to extend their reach to the customer, to expand on the 
services offered.
    I am aware of one retail creditor, a traditional retailer 
who has credit in the back operation. They have an affiliated 
catalogue operation. What they will do is that if a consumer 
who doesn't quite have a high enough score to qualify for a 
credit card with them, they will look at their affiliated 
entity, in this case the catalogue operation, and say, This is 
someone who has been shopping with us regularly through the 
catalogue. This is someone we would like to have a long-term 
relationship.
    And they will give them a few extra points so that they 
will qualify, thus bringing more people into the credit market 
and more people into the system.
    The goal in affiliate sharing is to become closer to your 
customer, certainly for retailers and I know it is true for 
others in the business as well.
    Mr. Inslee. Sir, can I make one brief comment.
    I respect all you said about the benefits of affiliate 
sharing and the marketing incentive that folks have. I just 
think there is a valid concern here while the combination of 
greater use of transactional information together with what I 
consider sort of a defective process of opting out will not 
assure the consumer that the correct information is used in 
credit, life insurance and other decisions. And I just think 
there is some fat process we need to go into to assure that.
    Thank you.
    Mr. Gillmor. I thank the gentleman. The gentleman's time 
has expired. All time for this panel has expired.
    And I want to thank all of our panelists for your very 
helpful testimony. And we will proceed to the third panel.
    I would like to welcome panel three. And without objection, 
all of your written statements will be a part of the record. 
And you will be recognized for five minutes to summarize your 
testimony.
    Mr. Joe Belew?

     STATEMENT OF JOE BELEW, PRESIDENT, CONSUMERS BANKERS 
                          ASSOCIATION

    Mr. Belew. Thank you, Mr. Chairman.
    In the interest of time, I am going to drastically shorten 
my testimony.
    Mr. Gillmor. All will be very grateful and appreciative.
    Mr. Belew. My name is Joe Belew.
    Mr. Gillmor. And give your testimony much more weight 
because----
    [Laughter.]
    Mr. Belew. I thought it might be taken more seriously.
    My name is Joe Belew. I am President of the Consumer 
Bankers Association here in Washington. Our members include 
most of the nation's largest bank holding companies, as well as 
regional and super-community banks. Those members collectively 
deliver about two-thirds of all bank-issued consumer credit in 
the United States.
    Thank you very much for the opportunity to testify on the 
importance of extending and improving the Fair Credit Reporting 
Act. This is one of CBA's top priorities, if not the top 
priority this year.
    We do have numerous suggestions for improvements in the 
bill to refine it. But the authors and co-sponsors really are 
to be congratulated for the incredible amount of time and 
effort that has gone into this so far. They are also to be 
congratulated for trying to move this piece of legislation 
which is so critical because of the sunset provisions.
    The two most important items for us are that the bill 
recognizes the need for an efficient, nationally uniform credit 
reporting system, and it also provides new tools to fight 
identity theft. We also are pleased that the bill addresses the 
ways that disputed credit information is handled, the accuracy 
of credit files and the issue of credit scores. We should note 
that we have also written a letter to Speaker Hastert asking 
that he be on the ready to provide floor time in a speedy 
fashion when the Committee has, with all due process, 
considered the legislation and hopefully passed it out.
    Let me talk for a moment just about national uniformity and 
rules governing credit information and procedures, because they 
truly are essential. They ensure that lenders have consistent 
information about consumers throughout the country that can be 
used to make fair and equitable credit decisions on highly 
competitive prices and terms. Without preemption, the States 
could establish different rules for the reporting of late 
payments, defaults or other information in a well-intentioned, 
but mis-directed, effort to protect their consumers.
    Lenders today can rely on the accuracy of reports, and that 
is why we have record rates of home ownership and greater 
access to credit by all sectors of society. This is especially 
true for low and moderate income borrowers.
    I do want to go on the record as pointing out that far from 
being a ``grab of power'' by the federal government, there is 
no new preemption. We are simply extending the status quo. 
There are no new restrictions on the States.
    Secondly, thank you very much for addressing the issue of 
identity theft. CBA and its members have been actively working 
with the Treasury Department, the banking agencies and other 
industry groups on this critical subject. We would remind the 
members that we have financial concerns, as well as altruistic 
ones, since our members must absorb the losses from these 
frauds. We also want to spare our customers the serious 
problems that follow ID theft. And regrettably, we also must 
make sure that the solutions we end up with don't actually aid 
the fraud artists.
    The bill's formalized system for fraud alerts on credit 
reports is an important part of any solution. They will warn 
financial institutions and other lenders of past identity theft 
and we endorse this concept.
    Again, however, there is a cautionary note. Consumers must 
be forewarned that fraud alerts are serious and they should 
only be used where it appears that ID theft has actually 
occurred. These alerts will likely impede the consumer's 
ability to get the fast credit that they have become accustomed 
to. Still, we support the concept.
    The bill helps consumers keep fraudulent information from 
being placed in their file, which is good, through Section 205. 
Again here, CBA members have one caution. We also must 
acknowledge the existence of unscrupulous so-called credit 
repair clinics that try to delete accurate but unfavorable 
information in credit files. This area may need still more 
scrutiny.
    We support and encourage the development of best practices 
and especially enhanced efforts for consumer education. CBA in 
particular has been in the forefront of tracking and 
encouraging financial literacy efforts by financial 
institutions. And in this regard, the Federal Reserve Board 
should also be recognized, along with the FTC, for their good 
work to date.
    Third and last, we would ask that particular attention be 
given to coordinating this bill with existing law and with the 
banking regulators' roles. For example, one section directs the 
federal banking agencies to establish procedures for banks to 
spot possible identity theft. We really need, as has been 
mentioned earlier today, to coordinate that with Section 326 of 
the PATRIOT Act.
    And I will offer one other example: in Title 3, banking 
regulators, and not just the FTC, should be charged with 
developing model procedures for consumers to contact creditors 
and agencies regarding fraudulent information in their files.
    Mr. Chairman, as you know, we have a great number of other 
comments. They are in the written record. But we congratulate 
you and the Committee and will certainly take questions when it 
is appropriate.
    Thank you.
    [The prepared statement of Joe Belew can be found on page 
102 in the appendix.]
    Mr. Gillmor. Thank you.
    Ms. Kayce Bell?

   STATEMENT OF KAYCE BELL, CHIEF OPERATING OFFICER, ALABAMA 
     CREDIT UNION, ON BEHALF OF THE CREDIT UNION NATIONAL 
                          ASSOCIATION

    Ms. Bell. Thank you, Chairman Gillmor.
    Good afternoon. And as did Mr. Belew, I will strive for 
brevity.
    It is an honor to be here to present testimony for you 
today on the Fair and Accurate Credit Transactions Act of 2003. 
I am Kayce Bell, the chief operating officer of Alabama Credit 
Union in Tuscaloosa, Alabama. I am here on behalf of the Credit 
Union National Association, which represents more than 90 
percent of the nation's 10,000 credit unions and their 84 
million members.
    My written statement submitted earlier addresses most of 
the provisions of this important legislation in full detail. 
But because of time constraints, I would like to address only 
certain portions of the bill.
    CUNA and America's credit unions wholeheartedly support 
Title I of H.R. 2622, which makes permanent the reauthorization 
of the expiring uniform national standards of the Fair Credit 
Reporting Act. If the broad set of preemptions that apply to 
the seven key provisions of FCRA are not reauthorized, 
consumers will be subject to a confusing and overwhelming 
patchwork of requirements.
    Consumer's personal information would be less accurate and 
secure in a Balkanized, patchwork national system. And there 
could be proportionately greater harm by lack of access to 
credit for those of low to moderate incomes and for small 
business owners.
    CUNA therefore applauds the Committee's efforts to make the 
uniform national standards permanent. We also commend the 
sponsors of this legislation for addressing the very serious 
problem of identity theft. We support the identity theft 
provisions of H.R. 2622 in general and think that they will 
significantly reduce the occurrence of identity theft. With 
regard to some of the specific provisions, the Section 201 
investigation of changes of address will be a sound identity 
security practice. However, we will need some time to change 
our systems and would recommend 1 year before this provision 
would become effective.
    Section 202 requires the consumer reporting agencies to 
include a fraud alert in the consumers file, when requested, 
and to notify all users of the existence of that fraud alert. 
We support this provision because it provides protection to 
consumers.
    However, we would like to draw your attention to the fact 
that Section 202 does not address under what circumstances and 
procedures the fraud alert would be removed and the users would 
no longer be subject to Subsection 3.
    Section 203 calls for the truncation of credit card and 
debit card account numbers, and we feel this is another sound 
security practice.
    Section 205 calls for the blocking of information by the 
consumer reporting agencies resulting from identity theft. We 
support the provision, but we are concerned that some consumers 
may file bogus police reports to either remove or correct 
derogatory information on their credit report to obtain credit.
    We recommend that the consumer reporting agency also be 
required to notify the furnisher of information when the agency 
declines or rescinds the block under this section.
    Section 206 requires the establishment of procedures for 
depository institutions to identify possible instances of 
identity theft, i.e. red flag guidelines.
    The red flag guidelines will be a very useful tool, but we 
request that there be a good-faith standard in any compliance 
requirement imposed on depository institutions to protect 
against unwarranted liability.
    Section 301 requires the FTC to prescribe rules for the 
coordination of consumer complaint investigations. We think 
this idea is an excellent one, particularly if it results in a 
system whereby the victim need only report the identity theft 
to a single entity.
    We support Title IV, as well, pertaining to accuracy of 
consumer records in general. Section 402 provides that 
furnishers may not report information to CRAs if the furnisher 
knows or has reason to believe it resulted from fraudulent 
activity, including identity theft.
    While we certainly understand the intent, we are concerned 
that the reason-to-believe language is problematic and may well 
result in an interpretation that leads to more lawsuits and/or 
enforcement actions.
    We support Title V in general, too, and commend its 
sponsors for providing consumers, upon request, with a credit 
report and credit scores, including a summary of how the scores 
were derived and how the consumer can improve the scores at no 
charge and on an annual basis.
    We fully recognize that providing consumers upon request 
with the aforementioned information will result in indirect 
costs. We believe, however, that such costs will be 
significantly outweighed by the benefits to our members in 
terms of a better understanding of their credit status.
    In conclusion, CUNA strongly supports the permanent 
extension of the preemptive provisions of the Fair Credit 
Reporting Act. In that regard, we also welcome the 
Administration's support of this important goal, as well as 
several of their ID theft suggestions.
    Although the consumer groups do not support preemption, 
their testimony does include several suggestions worth serious 
consideration. But making these national standards permanent is 
a critical claim in assuring that our nation's consumers have 
easy access to credit, and to ensure that they receive fair and 
appropriate protections of their financial information, is 
extremely important to us.
    And nearly as important are the provisions to provide 
greater protection to our consumers against identity theft. Our 
economy depends on it, and our citizens deserve it.
    Thank you, and I will be happy to answer any question of 
the Committee.
    [The prepared statement of Kayce Bell can be found on page 
111 in the appendix.]
    Mr. Tiberi. [Presiding.] Thank you. Mr. Hilary Shelton, 
thank you.

STATEMENT OF HILARY SHELTON, DIRECTOR, NAACP, WASHINGTON BUREAU

    Mr. Shelton. Thank you. Thank you for inviting me here 
today, Chairman Oxley, ranking Member Frank, ladies and 
gentlemen of the Committee. As you mentioned, my name is Hilary 
Shelton, director of the NAACP's Washington bureau.
    The NAACP is our nation's oldest and largest and most 
widely recognized civil rights organization in our country. 
Over 2,200 membership units across our country, 500,000 card-
carrying members and branches in each of the 50 states in our 
nation.
    Credit and the ability to obtain credit is crucial to our 
nation today. Thus, I was especially pleased to be invited by 
the Committee to talk to you about the unique problems faced by 
racial and ethnic minority Americans in obtaining and 
maintaining a solid credit rating.
    Despite years of civil rights progress, laws and education, 
racial bias and discrimination are still crucial problems in 
the United States today.
    It is in our nation's financial arena that this is 
especially true. Race, national origin and gender continues to 
control the type and terms of credit availability to any 
individual.
    Unfortunately, there seems to be a quiet acknowledgment and 
acceptance on the part of credit report providers that credit 
scorers, the lenders and the regulators that racial and ethnic 
minorities on average have significantly worse credit reports 
and lower credit scores than their Caucasian counterparts.
    This, in turn, means that lenders today disproportionately 
reject racial and ethnic minority applicants, or on the whole 
racial and ethnic minority Americans end up paying more for 
credit.
    In the spring 2000 edition of the Federal Reserve of 
Boston's newsletter, Peter McCorkell, the executive vice 
President and General Counsel of Fair Isaac and Company, was 
asked if credit scoring resulting in higher rejection rates for 
certain racial and ethnic minorities than whites.
    His response was, yes. He then went on to justify this 
response by stating that, unfortunately, income, property, 
education and employment are not equally distributed by race or 
national origin in the United States.
    Since all of these factors influence a borrower's ability 
to meet financial obligations, it is unreasonable to expect an 
objective assessment of credit risk to result in equal 
acceptance and rejection rates across socio-economic or race, 
national, origin lines.
    This assumption, that low-income and racial and ethnic 
minority Americans are less likely to meet their financial 
obligations, is simply wrong.
    Studies have shown that the majority of low-income people 
pay their bills on time, and that, in fact, low-income 
Americans have lower default rates on their loan and credit 
card bills than their wealthier counterparts.
    This acceptance of the existing racial bias furthermore 
also failed to recognize the fact that many middle-and upper-
class income Americans are subject to predatory lending at a 
higher rate than low-income white Americans.
    When racial and ethnic minority Americans are blocked out 
of receiving loans or are charged more in interest, they have 
less to invest and their wealth-building capacities are 
diminished.
    Thus, not only is the current system blatantly unfair to 
racial and ethnic minorities, but it is self-perpetuating, as 
well.
    In my written testimony, I have provided just a few of the 
many reasons that we can identify that are behind the racial 
and ethnic disparities that exist in credit reporting and 
credit scoring.
    For the sake of time, I will not repeat them here. But I 
hope that all of the members of this Committee will take the 
time to review my written submission.
    In summary, let me just say that disparities in credit 
reporting and credit scoring is becoming more and more 
problematic as credit reports and credit scoring are being used 
increasingly for more than mortgages. They are also being used 
now to determine if homeowners or automobile insurance will be 
underwritten and at what rate, for car loans, house or 
apartment rentals, utilities and in some cases, even hiring 
decisions.
    Lastly, while I was invited here today to primarily discuss 
the impact of credit reporting and credit scoring on racial and 
ethnic minority Americans, as well as some of the reasons 
behind the unfairness, the NAACP would also like to make a 
recommendation for improving the process.
    It has long been the contention of the NAACP that openness, 
transparency and sunlight help us understand what we are up 
against. It also intends for companies to be more sensitive to 
the needs of racial and ethnic minority communities.
    The NAACP would love to see the process behind credit 
reporting and credit scoring more open, better regulated and 
better understood by the American public, the people being 
rated and scored.
    Specifically, the NAACP joins other groups such as the 
Center for Community Change in recommending that the Congress 
establish an effective federal oversight process of all 
statistical scoring systems. Such oversight should be conducted 
on a regular basis, and should focus on fairness and the 
validity of all systems. We also support any and all 
initiatives that create credit reports making them more 
available to individuals on a consistent basis.
    If we are a nation--if we as a nation are going to meet our 
full potential, we need to ensure that the opportunities are 
made available to all Americans regardless of their race, 
national original, gender or age.
    Ensuring that they have access to credit would be a big 
start.
    I would like to again thank the Committee for the 
opportunity to be here with you today and to discuss the impact 
that credit reports and credit scoring has on racial and ethnic 
minorities.
    I join with the leadership, the staff and the general 
membership of the NAACP in offering my assistance to develop 
national policy that will help all Americans regardless of 
their race, age, gender, ethnic background or other to obtain a 
solid credit rating.
    I also thank you for the opportunity to be here today, and 
welcome the opportunity for questions.
    [The prepared statement of Hilary O. Shelton can be found 
on page 238 in the appendix.]
    Mr. Tiberi. Thank you, Mr. Shelton, for your testimony.
    Mr. Taylor?

 STATEMENT OF D. RUSSELL TAYLOR, CHAIRMAN, AMERICA'S COMMUNITY 
                            BANKERS

    Mr. Taylor. Yes, good afternoon. Thank you, Mr. Chairman. 
And thank you to the Committee.
    My name is D. Russell Taylor. I am the President and CEO of 
a state-charted mutual savings bank located in New Jersey, a 
$431 million state-charted mutual savings bank located in 
Rahway, New Jersey, and have the privilege today of testifying 
on behalf of America's Community Bankers, serving this year as 
its chair.
    I would like to thank you for the opportunity to testify 
today on H.R. 2622, the Fair and Accurate Credit Transactions 
Act of 2003. ACB wholeheartedly endorses H.R. 2622 and urges 
Congress to pass this legislation expeditiously.
    First and foremost, ACB supports Title I's permanent 
reauthorization or the FCRA's uniform national consumer 
protection standards. The preservation of these uniform 
national standards is imperative to maintain the efficiency of 
consumer credit markets and the competitiveness of the economy 
as a whole.
    FCRA is too often evaluated in the context of large 
financial institutions. This does not paint the whole picture. 
For example, the Rahway savings family of companies includes 
both the bank and an insurance agency. We are by no means a 
large financial institution. Yet FCRA's uniform national 
standards helps small and medium-sized companies like mine 
better serve our communities.
    As both a bank executive and also a victim of identity 
theft, I also appreciate the tools provided in Title II for 
banks and consumers to address the growing problem of identify 
theft. We are concerned, however, about the new legal 
liabilities Section 202 would place on the users of credit 
reports.
    Credit reports currently include an alert facility allowing 
consumers to indicate they have been victims of identity theft 
and to caution lenders that credit applications could be 
fraudulent.
    Because their alerts have a variable degree of accuracy or 
completeness, lenders should not be bound by specific 
instructions found in the fraud alert.
    Instead, lenders should be permitted to use whatever 
reasonable and practical measures are appropriate to verify the 
identify of the person, rather than blindly adhering to 
specific instructions found in the fraud alert, which may or 
may not be complete.
    Section 202 should also be clarified such as the new 
penalties apply only to credit fraud, and not to legitimate 
credit applications.
    ACB understands that the accuracy of credit report 
information is the foundation upon which our national credit 
reporting system is built.
    It is in the best interest of all parties that information 
be as accurate as possible, errors be corrected quickly and 
consumers identified theft claims be handled in an efficient 
and timely manner.
    We believe that title four will help improve the accuracy 
of credit information.
    The continued integrity of the national credit reporting 
system demands that credit reports be as accurate as possible. 
In our June 12 testimony, ACR supported empowering consumers to 
proactively manage their credit information by providing them 
access to free annual credit reports. Such access is already 
available in six States, including my home State of New Jersey.
    We are pleased that this bill will offer this to all 
Americans as well as provide consumers with information on how 
a credit score is derived, and how their credit score may be 
improved.
    ACB also believes that H.R. 2622 should include a general 
effective date of 1 year following the bill's enactment. For 
provisions of the bill requiring the issuance of regulation, 
the effective date should be 1 year after the regulations are 
issued. The removal of the sunset provisions in Title I of the 
bill should take effect immediately.
    Given that the FCRA's uniform national standards for 
consumer protections are scheduled to expire by the end of the 
year, we sincerely hope that consideration of other issues will 
not slow down or threaten the passage of this legislation.
    One subject the Committee will likely consider is an issue 
previously raised by Congressman Gary Ackerman. ACB and others 
in the industry have significant concerns about the impact this 
amendment would have on paperwork burden, operational costs, 
and the continuing commitment of furnishers to provide accurate 
credit report information.
    We continue to work with members of the Committee to 
resolve the concerns on both sides.
    ACB believes that provisions in the bill, such as access to 
free annual credit reports and the threat of stronger penalties 
on both users of credit reports and furnishers of credit report 
data, will help address the concerns raised by Representative 
Ackerman.
    In conclusion, ACB believes that H.R. 2622 strikes the 
appropriate balance of protecting consumers and properly 
regulating information sharing practices. We commend the 
authors of this legislation for crafting a fair, balanced and 
effective bill to improve FCRA and our nation's credit system.
    ACB strongly endorses H.R. 2622, and urges the Committee in 
the 108th Congress to pass this measure as expeditiously as 
possible.
    Again, we thank you for the opportunity on behalf of ACB to 
be able to testify today, and we look forward to your 
questions.
    Thank you.
    [The prepared statement of Hon. D. Russell Taylor can be 
found on page 253 in the appendix.]
    Mr. Tiberi. Thank you. You get bonus points for finishing 
for under five minutes.
    Thank you very much.
    Mr. Hoofnagle?

 STATEMENT OF CHRIS JAY HOOFNAGLE, DEPUTY COUNSEL, ELECTRONIC 
  PRIVACY INFORMATION CENTER AND MR. L. RICHARD FISCHER, VISA 
                             U.S.A.

    Mr. Hoofnagle. Thank you, Mr. Chairman, for extending us 
the opportunity to testify today on H.R. 2622, the FACT Act of 
2003.
    My name is Chris Hoofnagle, and I am deputy counsel with 
the Electronic Privacy Information Center. We are a Washington-
based research group that was founded in 1994 that concentrates 
on privacy and civil liberties.
    Our written statement for the record today has been 
endorsed by the Privacy Rights Clearinghouse, Junkbusters 
Corporation, Computer Professionals for Social Responsibility, 
Privacy Times, Consumer Action, Privacy Activism, the 
Electronic Frontier Foundation and the National Consumers 
League.
    We are unified today in stating that the FACT Act does not 
go far enough to address the problems identified in the House 
and Senate hearing records. The record shows that there is a 
widespread public concern about the relationship between 
information sharing and identity theft, that there is a desire 
amongst the public for real protections for privacy, and that 
there is a renewed concern that credit scores undermine the 
openness principles of the FCRA.
    We believe that the Congress can address these problems and 
urge the Committee to go farther, to create more protections in 
2622.
    First, we recommend that Congress should not tie up state 
legislators by preempting State law. We strongly believe that 
the case has not been made for permanent preemption. As was 
pointed out by previous witnesses this year in the hearing 
record, the 1996 amendments themselves create an uneven State 
landscape. The 1996 amendments specifically exempt three States 
from some requirements. And they also allow the settlements of 
the attorneys general to stand.
    There is not a nationwide standard for credit reporting. We 
should not pretend that it exists. Nor should we pretend that 
creating a nationwide standard promotes consumer protection 
principles.
    We have heard a lot of talk about this issue today, but I 
would point out that there are seven separate provisions that 
are going to be preempted if this bill passes. And there hasn't 
been an analysis of all these seven provisions and whether or 
not all of them are appropriate for preemption.
    Take the example of pre-screening, it would be very easy to 
comply with an uneven landscape, where different states made an 
opt-in standard for pre-screening. However, representatives of 
the industry have made it sound like compliance with an opt-in 
system would be impossible. And that is simply not the case.
    We have also heard that the industry would like flexibility 
and that they don't want a one-size-fits-all solution for 
identity theft. But at the same time, they are asking consumers 
to accept a one-size-fits-all standard for affiliate sharing 
and for other preempted provisions.
    They get flexibility whereas consumer protections are cut 
off on their procrustean bed. Eliminating States' ability to 
develop additional safeguards for privacy is a dangerous 
precedent, and it has only occurred in a few privacy statutes.
    By and large, federal privacy laws operate and allow 
states, the laboratories of democracy, to develop innovative 
safeguards as required. Accordingly, we strongly recommend the 
Committee remove Section 101 from the bill in its entirety.
    Second, substantive privacy protection should be added to 
the FCRA to protect individuals against identity theft. H.R. 
2622 does not include these protections. Let me suggest some 
just briefly.
    If credit grantors were required to spend just a little bit 
more time before granting credit, evaluating accuracy of the 
application, a lot of identity theft would be prevented. Beth 
Givens of the Privacy Rights Clearinghouse estimates that, 
perhaps, the majority of identity theft could be prevented if 
credit grantors were simply required to inspect credit 
applications more carefully and make sure that there are not 
inconsistencies with information on the CRA file.
    We also strongly recommend that consumers receive notice 
whenever suspicious activity occurs on their report. Suspicious 
activity includes multiple inquiries in a short period of time 
or when negative information is furnished to the CRA. Giving 
notice to the consumer will allow the consumer to take 
proactive steps to protect privacy.
    Our third recommendation is to make substantive 
improvements to the credit reporting systems to minimize 
inaccuracies. Documents obtained by EPIC under the Freedom of 
Information Act indicate that the number of consumer complaints 
to the Federal Trade Commission regarding the credit reporting 
agencies is increasing dramatically.
    In 2001, the FTC received over 8,000 complaints. Last year, 
it received over 14,000. We received these documents just a few 
days ago, and we request they be placed in the hearing record.
    In our written statement, we detailed the frustration that 
consumers face when dealing with the consumer reporting 
agencies. In sworn statements before courts that we have 
included in the record, former employees of the CRAs claim that 
they were required to handle 100 consumer files a day. That 
means that they only had four minutes to dispose of each 
consumer's case file.
    Clearly, investigation and reinvestigation cannot be done 
in four minutes. We think that there is an opportunity in the 
FACT Act to improve reinvestigation duties.
    As I am running out of time here, let me conclude by urging 
the Committee to carefully reconsider the record based on this 
debate. We think that the FACT Act fails to even mention many 
of the problems raised by the public interest community. It 
simply tends to require studies, rather than the creation of 
new rights and responsibilities. Consumers deserve and need 
more to protect themselves from identity theft, to protect 
their privacy and to ensure accuracy and fairness in the credit 
reporting system.
    [The prepared statement of Chris Jay Hoofnagle can be found 
on page 175 in the appendix.]
    Mr. Tiberi. Thank you.
    Mr. Fischer.

          STATEMENT OF L. RICHARD FISCHER, VISA U.S.A.

    Mr. Fischer. Good afternoon. The last panelist in the last 
panel.
    My name is Rick Fischer. I am a Partner in the law firm of 
Morrison and Foerster. I am pleased to be here on behalf of 
Visa.
    Visa is the largest consumer payment system in the world. 
There are more than 1 billion Visa branded cards in use. And at 
the present time, Visa transaction volume now exceeds $1 
trillion annually.
    I have submitted a very detailed statement, so that I am 
not going to repeat it here. What I am going to do is focus on 
two or three points and then comment on some of the things that 
I have heard in this panel and other panels very briefly.
    First of all, Visa supports the Committee's important work 
on H.R. 2622, particularly Title 1, which we think is 
essential, the reauthorization of the uniformity provisions of 
the FCRA, for the many reasons stated earlier, which I won't 
repeat.
    Also, Title II establishing workable identity theft 
prevention measures is critical. Visa has long been active in 
protecting consumers from ID theft. You will see that set forth 
in the statement and the attachment. And obviously, Visa 
applauds the Committee strongly for its efforts in this area.
    The fraud alerts, in particular, I think can be very 
helpful in this regard. But I do want to post one warning in 
that respect, because of the expectation that credit grantors 
will not grant new credit if a flag is posted without first 
talking with the consumer about it, or contacting the consumer 
in some way.
    I think that that is perfectly appropriate with respect to 
new loans and new accounts. But with respect to existing 
accounts, it really is impractical.
    For example, currently, Visa handles as many as 4,000 
transactions a second, every second of every day. And while 
Visa successfully employs sophisticated neural networks to 
detect fraud, and in fact, many of you probably received calls 
at merchants or thereafter checking on fraud, it is simply not 
possible to check fraud alerts and to contact consumers in some 
separate fashion, certainly not 4,000 times a second.
    Finally, in this respect, it is very important that the 
rules established under Title II be uniform across the country. 
It is simply not possible to have multiple rules dealing with 
fraud alerts, customer notices, locking of accounts. If we 
really want ID theft to be effective, then there has to be one 
set of rules.
    Now, in terms of comments by others, I want to actually 
reemphasize a point that Mr. Hoofnagle raised just a second ago 
when he said that the FCRA is not uniform nationwide. And I 
applaud him, frankly, for saying that. That is absolutely 
right.
    The point here, though, is that there are seven key areas 
of uniformity. Those are the ones up for reauthorization. I 
think it is critically important that they be reauthorized. And 
there still is plenty of room for the States to act in other 
areas, enforcement, score disclosures, additional notices 
beyond the seven areas. So there really is much room for the 
States left by the federal government.
    Now, also, Mr. Shelton mentioned a Pete McCorkell study. I 
am familiar with that study. It is actually a statement that 
was made by Mr. McCorkell that was published on the Web site of 
the Federal Reserve Board--Federal Reserve Bank of Boston, I 
should say. I think it is very important that the Committee 
consider that report in its entirety.
    The principal focus of the report was whether credit 
scoring is accurate even for minorities. And went into great 
detail to establish the fact that it is. And that, I think, is 
the critical factor here.
    What is also important is what we heard earlier from 
Secretary Snow, and that there has been on the increase in the 
availability of credit for minorities. You have heard that 
repeated. There are also studies by HUD and the Federal Reserve 
Board that go to this point directly, which I think are very 
important.
    But Mr. Shelton said one point that is very important. And 
that is we have not done enough. And that frankly, I believe is 
true. He focused on predatory lending. And I would like to 
correlate predatory lending with ID theft, because they both 
get to the same point.
    You both have wrongdoers. The predatory lender, the ID 
thief, they both hurt consumers. They both impact on consumer's 
credit bureau files. And therefore, they both impact adversely 
on credit scores. But I think the goal here really should be to 
get to the evil: the predatory lenders and the ID thieves and 
not really to focus on credit scoring as a wrong in this 
context, because, in fact, it is accurate.
    Until we get at that, we won't get scores, that are equally 
appropriate for all. In this context, for example--and there 
have been questions that have been raised about who is looking 
at the credit scores in this particular context--I think the 
primary answer to that are the regulators. That the banking 
regulators, at least for financial institutions, will look at 
them regularly.
    Thank you.
    [The prepared statement of L. Richard Fischer can be found 
on page 157 in the appendix.]
    Mr. Tiberi. Thank you for your testimony, last but not 
least.
    Mr. Fischer, expand on something that you have in your 
written testimony. And you say that, in your written testimony, 
that banks have ``an adequate incentive to prevent identity 
theft.'' Don't banks just internalize the cost of identity 
theft? Can you expand upon that?
    Mr. Fischer. I would be happy to.
    Without any question, if a bank suffers a loss, then it 
must absorb that loss. So in that sense, they are going to 
internalize the loss. And for example, Visa has a zero 
liability rule. If there is fraud on credit cards or debit 
cards, zero liability. And that was mentioned earlier today. So 
banks are going to suffer those as well.
    But to suggest that ID theft and fraud losses are 
acceptable because they are a cost of doing business, I think 
is not correct. And that is one of the reasons, for example, 
Visa strongly supports Title II. There are two victims. In 
fact, Chairman Bachus mentioned this, as did Chairman Oxley, 
the banks and the consumers. In this case, the banks need Title 
II as much as the consumers do.
    Mr. Tiberi. I apologize for coming late to this hearing. 
Mr. Fischer, just one more question for you.
    Past hearings we have heard from witnesses somewhat--and 
this is about the evils of affiliate sharing--can you comment 
on your perspective of affiliate sharing? How it might be evil 
and how it might be harmful if we eliminate the ability to 
affiliate share?
    Mr. Fischer. I would be pleased to.
    First of all, I will give you just a couple of examples. 
Obviously, given the industry that I represent, it is not 
surprising that I support affiliate sharing, and, in fact, 
support it strongly.
    The example that I will give you is a client, of course 
that I will not name, that came to me many years ago with the 
ultimate program that they had set up for a single unit within 
the holding company that would service customers from all of 
the companies and then could cross market at the same time.
    Consumers called in and one unit could handle it on behalf 
of all.
    And of course to do that they would need information from 
all of the organizations. And I said, Well, I am sorry, but it 
doesn't work. This was in 1992. It doesn't work--this was 
before the 1996 amendments--because either you are going to 
take all of this information and use it only for permissible 
purposes under the FCRA, and therefore you can't use it for 
marketing, or you can't have the information at all.
    And I think one of the wonderful things, the benefits of 
the 1996 amendments, is the customer management, relationship 
management systems that exist today that could not exist 
otherwise.
    In terms of possible evils, I think most of those were 
addressed in the 1996 legislation itself. There was a concern 
that people would not be told if decisions were made, adverse 
decisions, based on information from an affiliate. And that was 
corrected in the legislation. There is a notice requirement in 
that respect.
    And the concern that perhaps information in those files 
might become stale over time--and I think that that was 
addressed in part in the last panel by the fact that financial 
institutions know that--to the extent that they have this 
information, they can make initial decisions about someone's 
possible qualification. But they really can't make decisions at 
all until they go back, get a new credit report or credit 
score, to make that decision.
    And so I think the combination of possible evils, if you 
will, or problems that might develop have been addressed.
    Mr. Tiberi. Thank you.
    Mr. Belew, I am sorry I missed your testimony. Can you kind 
of, expand upon the issue of your companies--your member 
companies interest in fighting identity theft?
    Mr. Belew. On what?
    Mr. Tiberi. Identity theft, fighting identity theft.
    Mr. Belew. Identity theft, indeed.
    To amplify what Mr. Fischer just said, it goes beyond just 
the cost of doing business. Our members oftentimes are in the 
position of trying to help their customers, their good 
customers, get through this. We have been very interested in 
finding additional expedited procedures, both through our 
member banks using the credit bureaus and the entire system.
    I have here something I would be happy to give you for the 
record. We did a little survey, certainly not statistically 
accurate, but a summary of some of the major banks' efforts. 
They have undertaken work in three areas: prevention, serving 
the customer needs and monitoring inside the bank.
    In prevention, they are looking at all of their 
authentication practices and looking at record destruction. For 
the customers, they are doing ID theft awareness kits and 
remedial and preventative advice. And then they are also even 
doing what they call footprinting, which is fencing off 
employees on a need-to-know basis, almost like the Central 
Intelligence Agency.
    There is a lot going on out there. We take it very, very 
seriously.
    Mr. Tiberi. Thank you.
    Final question for Ms. Bell. We have credit unions 
throughout the Hill complex here. If a member of a credit union 
today, if I went to apply for a car loan, my understanding, and 
I haven't done that here, my understanding is I could get it 
pretty quickly done if my credit was okay.
    What happens for a typical credit union member if we don't 
extend the preemptions past the end of this year? If they 
expire and I go in and get a car loan, or try to get a car 
loan? Can you talk me through the process?
    Ms. Bell. Unfortunately, it will delay that process.
    Mr. Tiberi. By how long?
    Ms. Bell. For example, just as you maintain a permanent 
residence in another state, so do many of our other members. 
The credit union then would have to have a relationship with 
credit reporting agencies, that could be up to three credit 
reporting agencies in that state, plus any other states where 
you may have conducted business. Unless you disclose those 
states to us, it may suppress important information that we 
need to use to make a credit decision, or credit pricing 
decisions.
    So although the loan would still be obtainable, it could 
slow down your opportunity to buy the car that you just saw 
that you would really like to have for the weekend, or to take 
advantage of a cruise that you would like to give to your 
spouse for an anniversary gift. It slows the process down. It 
could be extensive.
    Mr. Tiberi. How long does it take for an average credit 
union member to get a car loan today?
    Ms. Bell. They can occur instantaneously. Our Internet 
lending site, for example, returns a response in as few as 15 
seconds.
    Mr. Tiberi. That is pretty quick.
    Ms. Bell. We strive to be fast. Our members ask us to make 
credit available to them quickly and inexpensively.
    Mr. Tiberi. Thank you.
    I had more questions. I ran out of time and I am going to 
yield five minutes to the gentleman from New York.
    Mr. Ackerman. Thank you very much, Mr. Chairman.
    I have a question for Mr. Taylor, actually, who referenced 
the likelihood of an amendment that I would be offering to the 
bill next week, and the likelihood is very good that I will be 
doing that.
    And I am sorry I missed your presentation, but I did read 
your testimony. Could you be specific as to what the concerns 
are that you have that you can----
    Mr. Taylor. Certainly, Congressman.
    To begin with, let me say we think that you have identified 
an issue. So it is not to suggest that the issue doesn't exist. 
It is a concern that is raised about how we might deal with the 
issue.
    To begin with, for example, within the FCRA, there is the 
provision that consumers would have access to their credit 
reports. We are seeing that happen in New Jersey over the last 
few years. And we recognize that that has worked quite well. We 
feel it has worked quite well in New Jersey. When consumers 
have the ability to look at that credit report and judge 
whether or not anything----
    Mr. Ackerman. We are on the same track there. But 
specifically, what are the problems in----
    Mr. Taylor. Okay, specifically on that would be that there 
are certain operational issues within different institutions 
which may not allow that easy implementation. For example, I 
may have some loan products that I do not send out a monthly 
statement on, so I may not be able to provide that without 
additional costs or additional operational setup.
    I may have another mechanism. Example, in my institution, 
not meant to be representative of the industry, but I would 
send out a late notice, perhaps, which I do, in letter form. In 
that letter I can certainly advise the consumer, and I already 
do, that what they are doing with their loan by not paying it 
on time could adversely affect their credit.
    So it may be the mechanism or the manner in which consumers 
get that information that we just would like to deal with you 
and your staff on and talk a little bit more about it.
    Mr. Ackerman. Let me in return say that you have 
identified, as well as others in the industry, some concerns 
that we did not anticipate in the drafting of the amendment. 
And we greatly appreciate the cooperation we have been having 
from various parts of the industry that have been sitting down 
and meeting with us. And as a matter of fact, Mr. Davis of your 
organization has been a part of that ongoing discussion, Bob 
Davis, and expressing what those concerns are.
    And I think we have basically come to a point--and it is 
good that we are in the same room at the same time today 
because maybe we can come to a better understanding of where we 
are on this--the point you raise in your written testimony is 
the paperwork burden, the operational costs.
    And I think those are the two.
    Mr. Taylor. Yes, those are the main issues. Just that----
    Mr. Ackerman. Let me just tell what we have done on that 
and where we are. And we are just waiting for a sign-off from 
you and a couple of others on specific language that would be 
suggested to be reported.
    We have obviated the necessity of any costs of mailing 
other than the mailings that are currently done. And we have 
basically said in the legislation as contemplated, the 
amendment as contemplated, that in the statement prior to 
notifying the credit bureaus or even within 30 days after the 
credit bureaus have been notified, if I were on the business 
end of this, on your end, or on Mr. Fischer's end, and he was 
sending out a statement to somebody he wasn't getting paid 
from, that last statement, then I would even put it under the 
last three statements, leading up to the final time that I am 
about to report you to the, you know--if we don't get payment, 
and if you are not in compliance by such and such a date, we 
will report you to the credit agency.
    I look at this not as punitive, but as a businessman. I 
used to be on that side of the table. But as businessman, you 
have got to be bottom line focused, and not say, The son of a B 
didn't pay me and I am going to get him somehow.
    But the object is to get my money. And if you put in a 
statement in there that I am about to turn you over, people get 
into compliance a lot quicker knowing that there is a date 
certain. And they all know the rules and regulations. They all 
know it is going to affect their credit. They all believe 
somehow you are not going to pull the trigger on it.
    So if there is some kind of a statement, which clearly I 
put it in a neon sign in the biggest light that I could shine 
on it, and even on the envelope saying, On August 2, we are 
turning you over to the credit bureau if we don't hear from 
you.
    And the worst thing that is going to happen is you are 
going to get paid.
    It is the same effect of putting a police car on the side 
of a highway that has ongoing traffic. Everybody gets into 
compliance. You know it is about to happen.
    So additional mailing is necessary. Put it on the same 
statement. Not even an additional piece of paper.
    The entire statement is computerized. They program it; you 
know how late the guy is. There will be a statement there in 
some form where people will see it that says, Hey, you ain't 
going to pay this bill, good things are not going to happen 
next week.
    But we have taken care of the cost of all that, the 
paperwork, et cetera. And it is just a computer function that 
gets done automatically just as everybody's individual interest 
and payment, the number and what they do is report it.
    Mr. Taylor. I couldn't agree with you more. It is a good 
business decision and one that we practice in my institution to 
make sure that those concerns are alerted. The only thing we 
wish to bring up with that was to make certain that there 
wasn't a mechanism in place that put some at a disadvantage, 
i.e., those that might not do a monthly statement. They may do 
something that alerted the consumer, but make sure that we 
weren't in a technical non-compliance situation----
    Mr. Ackerman. If you send out statements every two months, 
it could be two months, that could before--I would do a 
countdown, three months before, two months before. You know, 
Your time is up, buddy.
    Mr. Taylor. Right.
    Mr. Ackerman. You know, we are turning you over. You know, 
the idea is for you on the lending end is to get your money out 
rather than secretly turn the guy in----
    Mr. Taylor. Absolutely.
    Mr. Ackerman.--to somebody that is not going to help you, 
because he is not going to pay it if he doesn't know you have 
reported him, and probably believes half of the time that he is 
getting away with it.
    Mr. Taylor. Yes.
    Mr. Ackerman. So I think that you will find that very 
helpful, like the insurance people now who fought second 
opinions before going for surgery now won't even let you do 
anything until there is a second opinion, because they 
discovered the bottom line is helped tremendously by that which 
was forced upon them at a time.
    But I thank you and others in the industry who have brought 
all of these kinds of concerns to the table that we didn't 
anticipate. We want this to be as quest free as possible, and 
as bottom line productive as it can be.
    Mr. Taylor. Thank you.
    Mr. Ackerman. Thank you very much.
    Mr. Tiberi. Thank you, sir.
    The Chair notes that some members may have additional 
questions for this panel which they may wish to submit in 
writing.
    Without objection, the hearing record will remain open for 
30 days for members to submit written questions to these 
witnesses and to place their responses in the record.
    I would like to thank all six of you for patience and for 
your testimony today. And we begin next week marking up this 
bill in subcommittee.
    But for this day, this hearing is adjourned.
    [Whereupon, at 5:05 p.m., the subcommittee was adjourned.]


                            A P P E N D I X


                              July 9, 2003


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