    [House Hearing, 110 Congress]
    [From the U.S. Government Publishing Office]

                           CREDIT REPORTS: CONSUMERS'
                             ABILITY TO DISPUTE AND
                         CHANGE INACCURATE INFORMATION

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

                                    HEARING

                                   BEFORE THE

                        COMMITTEE ON FINANCIAL SERVICES

                         U.S. HOUSE OF REPRESENTATIVES

                           ONE HUNDRED TENTH CONGRESS

                                 FIRST SESSION

                                   __________

                                 JUNE 19, 2007

                                   __________

           Printed for the use of the Committee on Financial Services

                               Serial No. 110-41

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

                     BARNEY FRANK, Massachusetts, Chairman

    PAUL E. KANJORSKI, Pennsylvania      SPENCER BACHUS, Alabama
    MAXINE WATERS, California            RICHARD H. BAKER, Louisiana
    CAROLYN B. MALONEY, New York         DEBORAH PRYCE, Ohio
    LUIS V. GUTIERREZ, Illinois          MICHAEL N. CASTLE, Delaware
    NYDIA M. VELAZQUEZ, New York         PETER T. KING, New York
    MELVIN L. WATT, North Carolina       EDWARD R. ROYCE, California
    GARY L. ACKERMAN, New York           FRANK D. LUCAS, Oklahoma
    JULIA CARSON, Indiana                RON PAUL, Texas
    BRAD SHERMAN, California             PAUL E. GILLMOR, Ohio
    GREGORY W. MEEKS, New York           STEVEN C. LaTOURETTE, Ohio
    DENNIS MOORE, Kansas                 DONALD A. MANZULLO, Illinois
    MICHAEL E. CAPUANO, Massachusetts    WALTER B. JONES, Jr., North
    RUBEN HINOJOSA, Texas                    Carolina
    WM. LACY CLAY, Missouri              JUDY BIGGERT, Illinois
    CAROLYN McCARTHY, New York           CHRISTOPHER SHAYS, Connecticut
    JOE BACA, California                 GARY G. MILLER, California
    STEPHEN F. LYNCH, Massachusetts      SHELLEY MOORE CAPITO, West
    BRAD MILLER, North Carolina              Virginia
    DAVID SCOTT, Georgia                 TOM FEENEY, Florida
    AL GREEN, Texas                      JEB HENSARLING, Texas
    EMANUEL CLEAVER, Missouri            SCOTT GARRETT, New Jersey
    MELISSA L. BEAN, Illinois            GINNY BROWN-WAITE, Florida
    GWEN MOORE, Wisconsin,               J. GRESHAM BARRETT, South Carolina
    LINCOLN DAVIS, Tennessee             JIM GERLACH, Pennsylvania
    ALBIO SIRES, New Jersey              STEVAN PEARCE, New Mexico
    PAUL W. HODES, New Hampshire         RANDY NEUGEBAUER, Texas
    KEITH ELLISON, Minnesota             TOM PRICE, Georgia
    RON KLEIN, Florida                   GEOFF DAVIS, Kentucky
    TIM MAHONEY, Florida                 PATRICK T. McHENRY, North Carolina
    CHARLES WILSON, Ohio                 JOHN CAMPBELL, California
    ED PERLMUTTER, Colorado              ADAM PUTNAM, Florida
    CHRISTOPHER S. MURPHY, Connecticut   MICHELE BACHMANN, Minnesota
    JOE DONNELLY, Indiana                PETER J. ROSKAM, Illinois
    ROBERT WEXLER, Florida               KENNY MARCHANT, Texas
    JIM MARSHALL, Georgia                THADDEUS G. McCOTTER, Michigan
    DAN BOREN, Oklahoma

            Jeanne M. Roslanowick, Staff Director and Chief Counsel
                                C O N T E N T S

                                  ----------
                                                                       Page
    Hearing held on:
        June 19, 2007................................................     1
    Appendix:
        June 19, 2007................................................    53

                                   WITNESSES
                             Tuesday, June 19, 2007

    Bennett, Leonard A., Consumer Litigation Associates, P.C., on
      behalf of the National Association of Consumer Advocates.......    41
    Braunstein, Sandra F., Director, Division of Consumer and
      Community Affairs, Board of Governors of the Federal Reserve
      System.........................................................     9
    Fortney, Anne P., Partner, Hudson Cook, LLP......................    39
    Hendricks, Evan, Editor/Publisher, Privacy Times.................    33
    Parnes, Lydia, Director, Bureau of Consumer Protection, Federal
      Trade Commission...............................................     7
    Pratt, Stuart K., President and CEO, Consumer Data Industry
      Association....................................................    35
    Wu, Chi Chi, Staff Attorney, National Consumer Law Center........    37

                                    APPENDIX

    Prepared statements:
        Gillmor, Hon. Paul E.........................................    54
        Bennett, Leonard A...........................................    55
        Braunstein, Sandra F.........................................    94
        Fortney, Anne P..............................................   115
        Hendricks, Evan..............................................   139
        Parnes, Lydia................................................   154
        Pratt, Stuart K..............................................   177
        Wu, Chi Chi..................................................   208

                  Additional Material Submitted for the Record

    Frank, Hon. Barney:
        Articles from The Boston Globe...............................   253
        Letter from the National Association of Realtors.............   258
        Statement of the National Credit Reporting Association, Inc..   260

                           CREDIT REPORTS: CONSUMERS'
                             ABILITY TO DISPUTE AND
                         CHANGE INACCURATE INFORMATION

                                  ----------

                             Tuesday, June 19, 2007

                 U.S. House of Representatives,
                       Committee on Financial Services,
                                                       Washington, D.C.
        The committee met, pursuant to notice, at 10 a.m., in room
    2128, Rayburn House Office Building, Hon. Barney Frank
    [chairman of the committee] presiding.
        Present: Representatives Frank, Maloney, Watt, Ackerman,
    Moore of Kansas, Clay, McCarthy, Baca, Green, Cleaver, Davis of
    Tennessee, Sires, Perlmutter; Bachus, Castle, Gillmor,
    Manzullo, Jones, Biggert, Shays, Feeney, Hensarling, Brown-
    Waite, Barrett, Price, Campbell, Bachmann, Roskam, and
    Marchant.
        The Chairman. The hearing will come to order. This is a
    hearing on the question of the extent to which consumers can
    successfully challenge inaccurate information in their credit
    reports. One of the great bipartisan accomplishments of this
    committee, under the chairmanship of Mr. Oxley, was the FACT
    Act, as it was called, which dealt with the ability of
    companies to deal with credit extensions. And one of the things
    we did in that was to expand the ability of consumers to get
    information about their credit reports. That was something of
    which we were very proud of, and it was an overwhelmingly
    bipartisan operation.
        Subsequently, and I want to give credit where credit is
    due, the Boston Globe in Massachusetts ran some articles in
    December which documented problems people were having in
    challenging what they believed to be inaccurate reports. I am
    going to ask unanimous consent to put those in the record.
    Currently, getting a free report is much less important than we
    had hoped it would be if it is inaccurate and you have problems
    in dealing with it.
        We did learn when we did that hearing that one of the
    problems was that people who challenged what they believed were
    inaccurate reports stemming from a dispute with a particular
    merchant or creditor were at a disadvantage. We were told that
    the practice of many of the merchants or creditors was simply
    to check their own paperwork, and if their paperwork showed
    that a charge was incurred, they insisted on it, with no
    opportunity, no forum in which someone could say, ``That wasn't
    me.'' Our purpose here is to look into this and to make sure
    that consumers who can document an error have a chance to do
    so.
        So that is the purpose of this hearing. We appreciate the
    representatives of the appropriate Federal agencies being here.
    It is the very strong view, I believe, of many of us on this
    committee, certainly myself, that consumer protection not only
    is not antithetical to the appropriate functioning of our
    financial system, but in fact needs to be an integral part of
    it. We want people, when they buy things, to have a sense of
    confidence. And if people do not feel confident in the fairness
    of the system, then that is an obstacle to their full
    participation. We want people to be able to shop online or use
    credit cards, do whatever they wish without any sense that they
    could be disadvantaged. That is an important part of protecting
    data privacy, which this committee will be dealing with later
    in the year, and it is an important part of today's subject.
        So again I want to stress this is not, as some would pose
    it, a case of consumers versus the businesses. This is a
    seamless system in which we want consumers to be confident
    enough to fully participate in the economic system, and one of
    the ways to do this is to deal with that. So that is the
    purpose of this hearing.
        I would hope this is something that could be resolved
    without any legislative action. If people tell us that is
    necessary, we will do that; we will be dealing with legislation
    later in the year where this could be appended. But I am hoping
    we will be able to come out of this today with some agreement
    about how to resolve this. It doesn't mean any consumer can
    automatically say, ``I am not paying,'' or ``That was wrong,''
    without any documentation, but there needs to be some way that
    consumers in a reasonable way can document the error.
        I now recognize the gentleman from Alabama.
        Mr. Bachus. I thank the chairman. As the chairman said,
    there have been recent articles in his hometown paper and in
    other papers highlighting the inability of consumers to dispute
    or correct their credit reports when there is erroneous
    information in those credit reports. And in many cases, they
    reported instances where they were denied credit or denied a
    good credit score or good credit rate. I was a sponsor of the
    Fair and Accurate Credit--the FACT Act or Fair and Accurate
    Transactions Act. And if the witnesses will recall, it passed
    with over 400 votes out of the House and only two negative
    votes in the Senate. The two negative votes in the Senate were
    Senators who said that it was not consumer friendly enough. But
    most of us agreed that the Act would empower consumers to have
    accurate credit reports and to be able to change their reports.
        I am very disappointed in the agencies. And let me say this
    to the witnesses. I am going to ask for your attention as I
    give my opening statement, because I want to tell you that I am
    very disappointed in the agencies and their inaction on
    fashioning regulations. The Act passed in 2000, yet the rules
    and regulations have yet to be finalized. They hadn't even been
    put out for comment, and I can't imagine why that is so. And I
    would ask the witnesses to maybe explain to us why that has
    happened.
        So today is a good opportunity for us to get some
    explanation for where we stand on implementing the Act. It
    governs the relationship between credit reporting agencies,
    credit information furnishers, and consumers. Currently, the
    Fair Credit Reporting Act requires consumer reporting agencies
    to investigate consumer disputes within 30 days of receiving a
    complaint from the consumer. The consumer reporting agencies
    must then inform the entity that furnished the disputed
    information, and the furnisher is in turn required to conduct
    its own concurrent investigation. If either the consumer
    reporting agency or the furnisher determines that the disputed
    information is inaccurate or cannot be verified, they must
    remove the information from the consumer's credit file.
        The FACT Act enhanced the ability of consumers to correct
    their credit reports in a number of ways. First, it required
    the Federal banking agencies and the FTC to write regulations
    establishing better procedures governing companies that furnish
    information on their customers to the credit bureaus to ensure
    that their reports are accurate; that hasn't been done. Also,
    the FACT Act directed the FTC and the Federal banking agencies
    to identify, through regulation, circumstances in which a
    consumer should be able to dispute the accuracy of information
    directly with the furnisher. That hasn't been done, either.
        Prior to the FACT Act, consumers could only initiate such
    disputes through the credit bureaus. While the Federal banking
    agencies, the FTC, issued an announced notice of proposed
    rulemaking in March of 2006, they have yet to take any further
    action. It is my belief that implementation of these provisions
    would go a long way toward making it easier for customers to
    protect their credit reports. And as I said at the start of my
    statement, I want to continue to urge your agencies to move
    quickly and to finalize these long overdue regulations.
        I also want to throw in one other thing which is
    tremendously frustrating to me. I have a son, and I have said
    this in other hearings, who is a member of the U.S. Marines.
    And because he is, he has friends, and I know some members of
    this body have gotten situations where they were transferred
    from one location to another under the Soldiers and Sailors
    Act. That Act is pretty clear that when they receive orders to
    report to Iraq, Afghanistan, or even to Texas or California
    from a location, say on the East Coast, they are supposed to be
    able to get out of their lease. I have two case files in my
    office where soldiers informed their landlords that they had
    been transferred to Iraq, the reserve officer then wrote a
    letter to the landlords saying that they were leaving after the
    landlord sent a collection letter or a letter threatening a
    lawsuit. In each case, the landlord did not pursue the case
    because legally they could not recover. One case we handed to a
    U.S. Attorney, who aggressively pursued it. But in both cases
    the landlords, large real estate holding companies, reported
    derogatory information to the credit bureaus. And I don't know
    if the FDIC is hearing these complaints, but to me it continues
    to disappoint me when we have soldiers who are in Iraq, we have
    an Act that says they will be excused from their leases, and
    people continue to put up obstacles in their faces. And I would
    like you all to sort of look and see if there is any rule that
    you all will develop that will treat that situation. I don't
    know what the credit reporting agencies are doing about it, but
    thank you.
        The Chairman. The gentlewoman from New York, the chairwoman
    of the Subcommittee on Financial Institutions, who would have
    jurisdiction over this if any legislative action proves
    necessary, is recognized for 5 minutes.
        Mrs. Maloney. I thank the chairman and ranking member, and
    I would like to welcome the witnesses, and thank you for
    holding this very important hearing on the important subject of
    credit reports. Just 4 years ago, with the enactment of the
    FACT Act, Congress updated credit reporting laws to address,
    among other things, the accuracy of credit reports and the
    rising epidemic of identity theft. While that law put in place
    good standards, the press reports suggest that they are not
    being followed or enforced adequately, so I look forward to
    hearing what you are doing about this.
        One study found that over three-quarters of credit reports
    contained errors, and that a quarter of them impaired the
    consumers' ability to get credit. This is totally unacceptable.
    Victims of credit report errors suffer consequences similar to
    victims of identity theft. It is very difficult to clear your
    credit. And you may be unable to buy a car or a house or get a
    credit card for years. Being denied credit based on incorrect
    information impairs a consumer's future chances of getting
    credit, and it makes it very difficult to overcome the error.
    So mistakes mushroom into very serious problems.
        Many States have responded to this threat by enacting laws
    that allow individuals to protect themselves by controlling
    access to their credit reports and the personal data it
    contains through a simple and low cost process. This concept,
    called file freeze, has been adopted by 27 States, including my
    home State of New York. And almost all of these State laws,
    including New York's, give the right to freeze access to their
    credit reports to everyone, so that people can protect
    themselves from wrong data or identity theft, suffering the bad
    consequences of many times incorrect information in credit
    reports.
        In the last Congress, I introduced a bill that would make
    file freeze a Federal right without preempting State laws, and
    I am introducing that bill again this week. File freeze should
    be available to everyone, because it is the only tool available
    to prevent wrong information from continuing to ruin your
    credit, just as it is the best way to fight identity theft.
        A credit report freeze works because it actually stops the
    granting of new credit without the consumer's express
    permission, and thus prevents continuing errors and identity
    theft. If a consumer freezes his or her report while working
    out errors, it provides credit rating agencies an incentive to
    get the problem solved. The file freeze bill does not affect
    the use of credit cards or existing credit lines. It only
    prevents the issuing of new credit unless the individual
    requests it. The credit reports will be sent to a particular
    lender. This gives individuals control over their credit
    report, and allows them to protect themselves from the effects
    of errors in their report and from criminals who may want to
    use this information.
        It is not a complete solution, because of course, the
    consumer then has to get the error corrected, but it does stop
    the problem from getting worse in the meantime. And that can be
    quite a long period, as the press has noted in recent reports.
        I look forward to the witnesses' comments on this and other
    solutions to correct the problems of errors and misuse of
    credit card information, and credit information in general. I
    thank the witnesses for being here, and my time has expired.
        Thank you.
        The Chairman. On the list the ranking member gave me, next
    the gentleman from Texas, Mr. Hensarling, is recognized for 3
    minutes.
        Mr. Hensarling. Thank you, Mr. Chairman, and thank you for
    holding this hearing. I want to thank the ranking member as
    well. As we enter this hearing, I hope my colleagues will once
    again very much keep in the forefront of their minds that any
    perceived or any proposed cure should not be worse than the
    perceived illness that we study today. From the evidence I have
    seen, with all of its shortcomings, with all of its
    limitations, I still believe we have the world's premiere
    credit reporting system, and a system that has played a vital
    role in ensuring over the last couple of decades that
    underserved populations, millions and millions of people, now
    have access to credit to make a down payment on their first
    home, to launch a small business, to buy a used car to go to
    and from work. Twenty years ago that might have not been the
    case. And this system, even with its limitations, has played a
    vital role in that change in America.
        I am sure in the keeping and processing of hundreds of
    millions of records, no doubt mistakes are made, although some
    of the studies that have come across my desk are somewhat
    suspect on the methodology. I am looking forward to hearing
    more testimony to know exactly how many mistakes might be made.
    Certainly, we want to ensure that consumers have a right to
    know, and that they have a right to challenge inaccurate
    information in their records. That is one of the reasons I
    thought we passed the FACT Act in 2003, and I would like to
    associate myself with the comments of the ranking member.
        I am a little curious, given that Act was passed in 2003,
    why vital rulemaking is still left undone. One phenomenon,
    though, that I do believe we should all recognize, is that
    along with many consumers who want to correct inaccurate
    information, there are also, unfortunately, many consumers who
    are attempting to correct accurate information. We often talk
    about the whole phenomenon of predatory lending in this
    committee, but we must also recognize the phenomenon of
    predatory borrowing, and examine how people may abuse the
    process with phony requests to correct unflattering but
    accurate data, which could leave the bulk of people who pay
    their debts in good faith ultimately to have to foot the bill.
        So I look forward to hearing from the witnesses, and I
    think this is a very worthy use of the committee's time. And
    with that, I yield back the balance of my time.
        The Chairman. The gentleman from Texas, Mr. Green, is
    recognized for 4 minutes.
        Mr. Green. Thank you, Mr. Chairman, and I thank the ranking
    member also. This is indeed an important hearing that we are
    having today, and I thank the witnesses for appearing. It is
    important because with 79 percent of those surveyed finding
    that their reports contained mistakes, and then 25 percent of
    these mistakes impairing the ability of persons to acquire auto
    insurance, possible medical coverage, bank accounts, apartment
    rentals, and being denied credit, and even sometimes the
    opportunity to have a job, this is an important hearing.
        Many persons are being impacted by their credit scores.
    Many of them are not aware that they are being impacted by
    their credit scores. Given that we live in a cashless society,
    or we are moving toward a cashless society, or maybe
    appropriately I should say I have moved toward a cashless
    society--not always by design, I might add; sometimes it is
    just not available to me. And because the credit card and the
    credit report has become so important, it is important that
    this information be accurate. It really is. And I have had
    accounts of persons coming to tears because they were having
    difficulties trying to get their credit report corrected.
        So this is an important hearing, and I am really concerned
    about the credit score itself, how is it calculated? I actually
    had a case in my office where a person had a negative removed
    and the score went down. The score went down after the negative
    was removed from the report. So I am interested in knowing how
    it is calculated, and I am also interested in knowing what is
    it that we can do to encourage greater expediency in the
    process of correction, the correction process itself. Because
    it seems that it can take a little longer than it should, based
    on the cases that I personally have been involved with, to make
    these corrections.
        So I am honored that the chairperson and the ranking member
    have assembled us for this hearing, and I look forward to
    hearing from the witnesses. I yield back the balance of my
    time.
        The Chairman. The gentleman from Georgia, Mr. Price, on the
    list given to me, is now recognized for 3 minutes.
        Mr. Price. Thank you, Mr. Chairman. I wish to thank you and
    the ranking member, Congressman Bachus, for holding what I
    believe to be a remarkably timely hearing on the accuracy of
    credit reports and the consumer dispute process. Under the Fair
    Credit Reporting Act, I think it is clear to all of us that in
    an economy that is increasingly reliant on credit, the accuracy
    of these reports is of the utmost importance. False or
    inaccurate information can certainly cause a consumer to pay a
    higher rate of credit. It can affect everything from home loans
    to home mortgages, credit cards, etc., not just now but for
    many years to come, as my colleagues have said.
        The Fair Credit Reporting Act was amended in 2003 by the
    FACT Act. The Fair and Accurate Credit Transactions Act
    comprehensively regulates both accuracy and reinvestigation of
    consumer reports, including credit reports by consumer
    reporting agencies, including the three national credit
    reporting bureaus. As a result, I think consumers have an
    increasing number of ways in which to ensure the accuracy of
    their credit reports. They are entitled to receive a free
    report annually, plus a free report any time that the report is
    used to make an adverse decision about the consumer. And
    consumers can pay a nominal charge to obtain their report at
    any other time. Consumers' ability to inspect their reports has
    never been higher from my perspective, a fact that I think
    further promotes the accuracy in these reports.
        There is also a dispute resolution system, which consumers
    may use to challenge information in their report at any time
    free of charge, and consumer reporting agencies must
    investigate and respond within 30 days. If an item in a
    consumer report is inaccurate, or even if the item, regardless
    of its accuracy, cannot be verified by the furnisher within 30
    days, then the item must be deleted.
        It appears that we have dramatically increased consumer
    protections and ensured the accuracy of consumer credit. So I
    would be interested in both panel members' opinion as to why
    they believe that has indeed occurred.
        I share Congressman Bachus's concerns about the lack of
    rule promulgation, although I understand that some of that is
    because of certain time limits put in the original bill by
    Congress that may have made it so that the priority of the
    agency was placed in different areas for a period of time.
        As Congress and the regulators continue to add tools to the
    consumers' toolbox increasing their ability to monitor their
    credit reports and dispute erroneous charges, there is an
    aspect of personal responsibility that has been seemingly
    lacking from the discussion. Consumers must perform their own
    due diligence. We have heard stories before this committee that
    lament debt taken on without any mention of personal
    responsibility, and we must never forget the importance of
    that. I am struck or bemused by some here who have been angered
    by the debt taken on by certain folks, while at the same time
    crying out about the difficulty of obtaining credit.
        That being said, financial literacy is increasingly
    important, and consumers must take responsibility for not only
    knowing the terms and conditions of their credit accounts, but
    also knowing the information that goes on the credit report
    that determines the costs that they end up paying for their
    credit.
        Let me just close by thanking the members of both panels
    for coming today and testifying before us this morning. I look
    forward to hearing your statements and asking a few questions,
    and I share the chairman's desire, and I am hopeful that we
    will all conclude that no additional legislation is needed at
    this time. I yield back.
        The Chairman. The witnesses will now be able to talk, and
    we look forward to what they have to say. This is a follow-up
    in many ways to the FACT Act, of which I said this committee
    was I think justifiably proud in taking on a difficult subject
    and putting together a bill that had in the end strong support
    from the financial service industry, from others in the
    economic field, as well as from consumers. And we will begin
    with Lydia Parnes, who is the Director of the Bureau of
    Consumer Protection at the Federal Trade Commission. Ms.
    Parnes, please go ahead. And without objection, all of the
    statements and any supporting material from these witnesses and
    those on the second panel will be printed in the record.
        Please.

        STATEMENT OF LYDIA PARNES, DIRECTOR, BUREAU OF CONSUMER
                  PROTECTION, FEDERAL TRADE COMMISSION

        Ms. Parnes. Thank you, Chairman Frank, Ranking Member
    Bachus, and members of the committee. I am Lydia Parnes,
    Director of the Bureau of Consumer Protection at the Federal
    Trade Commission. I appreciate the opportunity to testify today
    about the important issues of credit report accuracy and the
    process by which consumers can dispute inaccurate information.
    The 2003 FACT Act included several new accuracy-related
    provisions. Congress assigned the Commission, either alone or
    with other Federal agencies, the task of issuing about 30
    rules, forms, notices, studies, and reports.
        To date, the Commission and its sister agencies have
    completed seven rulemakings, seven studies, five model forms
    and notices, and one national identity theft education
    campaign. We have also issued six notices of proposed
    rulemaking, and have made substantial progress on a complaint
    sharing program. We are close to completing two additional
    studies.
        I note that the Commission has completed 17 of the 20 tasks
    assigned to it alone. We have made FACTA implementation a high
    priority, but we can do more and we will. This week I am
    personally reaching out to my counterparts at the FACTA-
    implementing agencies to establish a timetable for completion
    of all FACTA requirements. We are committed to acting quickly.
    I know this is true for the FTC, and I am certain that it is
    true for my colleagues at the other agencies as well.
        Our work to implement FACTA has been robust. One example is
    the Commission's 2004 rule effectuating consumers' rights to
    free annual credit reports. As of December 2006, the nationwide
    consumer reporting agencies have provided over 52 million free
    reports to consumers. That is the good news. The not so good
    news is that some companies selling various services try to
    exploit this new right. We sued ConsumerInfo.com, doing
    business as Experian Consumer Direct, for deceptively marketing
    free credit reports. In the settlement of those charges,
    ConsumerInfo.com agreed to pay redress to deceived consumers,
    refrain from deceptive and misleading claims about free offers,
    disclose terms and conditions of any purportedly free offers,
    and give up $950,000 in ill-gotten gains.
        In short, we have sought to protect consumers' right to
    receive a free credit report so that they can have a greater
    and more meaningful opportunity to spot and correct errors in
    their credit reports.
        Two highly significant FACTA tasks are still in progress.
    These require joint interagency agreement, which we are seeking
    to achieve. The tasks include two rulemakings relating to data
    furnishers: the accuracy rule, which will set guidelines for
    furnishers to follow to improve the accuracy and integrity of
    the information they transmit to consumer reporting agencies;
    and the dispute rule, which will establish the circumstances
    under which consumers can dispute inaccurate credit report
    information directly with the furnisher. These rules must be
    made either jointly or in coordination with five other Federal
    agencies. The agencies issued an advanced notice of proposed
    rulemaking for both rules in March of 2006. The comments we
    received raised a number of difficult issues. Our major
    challenge is to devise standards that are appropriate for the
    vast array of entities that will be covered by the rules,
    ranging from large multinational financial institutions to
    local landlords. The agencies are analyzing these issues and
    discussing them in depth.
        Law enforcement also plays a critical role here. The
    Commission has brought numerous cases against the key
    participants in the credit reporting system, the CRAs, the
    furnishers, and the users of consumer reports. These cases have
    addressed, among other things, the failures of the CRAs to
    comply with their accuracy and dispute obligations, the
    provision by furnishers of inaccurate information to CRAs, and
    users' violation of adverse action notice requirements. The
    Commission will continue to vigorously enforce the FCRA. In
    tandem with its enforcement efforts, the Commission's consumer
    and business education programs are designed to foster greater
    compliance with the law, and to help consumers help themselves.
        The Agency maintains and disseminates an extensive library
    on FCRA rights and responsibilities, including comprehensive
    guidance to ID theft victims whose credit files often are
    corrupted by thieves. Too many consumer reports contain
    inaccuracies, and too many consumers encounter unnecessary
    obstacles in getting these errors corrected. Such system
    failures can take a heavy toll on consumers not only
    monetarily, but in time and frustration.
        We are committed to doing everything possible to minimize
    these problems. We look forward to continuing our work with
    this committee on these issues, and I would be happy to answer
    any questions you might have about these activities.
        [The prepared statement of Ms. Parnes can be found on page
    154 of the appendix.]
        The Chairman. Thank you, Ms. Parnes. Next, Ms. Sandra
    Braunstein, who is the Director of the Division of Consumer and
    Community Affairs at the Board of Governors of the Federal
    Reserve System.

       STATEMENT OF SANDRA F. BRAUNSTEIN, DIRECTOR, DIVISION OF
       CONSUMER AND COMMUNITY AFFAIRS, BOARD OF GOVERNORS OF THE
                         FEDERAL RESERVE SYSTEM

        Ms. Braunstein. Thank you. Chairman Frank, Ranking Member
    Bachus, and members of the committee, I appreciate the
    opportunity to testify before you on the accuracy of credit
    reports and the furnisher rules required under the FACT Act.
    The accuracy of credit reports is vital because inaccuracies in
    credit reports can result in a consumer being denied credit or
    paying higher rates for credit. Inaccurate information can be
    introduced into credit reports in a variety of ways, such as
    the reporting of fraudulent accounts opened as the result of
    identity theft, the mixing or commingling of the files of
    consumers who have similar names or Social Security numbers,
    mistakes in public record data used by consumer reporting
    agencies, and data processing errors made by furnishers in
    connection with the information they provide.
        Furnishers and consumer reporting agencies share
    responsibility for ensuring the accuracy of credit reports. The
    Fair Credit Reporting Act, or FCRA, currently imposes duties on
    both consumer reporting agencies and furnishers with regard to
    the accuracy of information in credit reports. Similarly, the
    FCRA's existing dispute process allows consumers to dispute the
    accuracy of credit report information with the consumer
    reporting agency, although furnishers must assist in the
    investigation of the dispute, and must correct any errors in
    the information they furnished.
        Despite these existing consumer protections, Congress
    concluded that more needed to be done to enhance the accuracy
    of consumer reports and improve the dispute process. The FACT
    Act amended the FCRA to give consumers the right to request a
    free annual copy of their credit reports from each of the
    credit bureaus. This change allows consumers to play a more
    active role in monitoring the accuracy of their credit reports.
    Other FACT Act provisions supplement the duties of furnishers
    to ensure the accuracy of the information they furnish to
    consumer reporting agencies.
        Under the FACT Act, the Federal banking agencies, the
    National Credit Union Administration, and the Federal Trade
    Commission must establish guidelines for use by furnishers to
    ensure the accuracy and integrity of the consumer information
    they furnish to a consumer reporting agency, as well as
    regulations requiring furnishers to adopt reasonable procedures
    to implement the guidelines.
        The statute also requires the agencies to identify the
    circumstances under which a furnisher must investigate a
    consumer's dispute about the accuracy of credit report
    information based on a direct complaint from a consumer. The
    FACT Act required the Board and the FTC to study the current
    dispute process and jointly submit a report to Congress, which
    was completed in August 2006.
        The two interagency rulemakings regarding the duties of
    furnishers have not yet been completed. An advanced notice of
    proposed rulemaking for these interagency rules was published
    in March 2006. The agencies are currently working to develop a
    proposal. There are two reasons why it has taken so long to
    complete the furnisher rules. One reason has to do with setting
    priorities. Given the complexity of many sections of this
    statute and the large number of rulemakings that Congress has
    assigned to the agencies, it was necessary for the agencies to
    set priorities in terms of which rules to address first. The
    agencies gave priority to rulemakings for which Congress set a
    statutory deadline for completion, and the agencies also gave
    priority to rulemakings where they saw the biggest gaps in
    existing consumer protection law.
        A second reason has to do with the interagency process
    itself. Interagency rulemakings ensure that different
    perspectives are taken into account in developing a rule and
    that all agencies have a say in the outcome. On the other hand,
    the interagency rulemaking process is not the most efficient
    way to develop new regulations. It can be challenging to
    achieve a consensus among the different agencies.
        In summary, the Board is committed to enforcing the FCRA
    furnisher rules against State member banks, investigating
    consumer complaints against State member banks relating to
    their furnishing activities, and working with the other
    agencies to complete the interagency furnisher rulemakings as
    expeditiously as possible.
        Thank you.
        [The prepared statement of Ms. Braunstein can be found on
    page 94 of the appendix.]
        The Chairman. Thank you. I appreciate this recognition
    about the need to move on section 312 rules, which are really
    the heart of this. And I do want to acknowledge, and this
    became clear to us at the time, that the credit bureaus are not
    the source of all of the difficulty. And I was disappointed as
    we had the hearings, and as I had discussions with people as we
    dealt with the FACT Act, by the attitude of some of the
    creditors, which was that errors are going to happen, there is
    not much you can do about it, and you had better learn to live
    with them. The accuracy of the data that is presented to the
    credit bureaus is really a big part of the problem, and that is
    one we need to focus on.
        I just want to understand--and I realize we gave you a job
    that is perhaps compounded by the fact that all of the banking
    agencies, the Credit Union Administration and the FTC have to
    jointly do the rulemaking. But this is a very high priority.
    And you have said, and I appreciate it, that you try to affect
    the priorities. The fact that we singled this one out for
    hearing, I hope, will be an indication that there is a great
    sense of a priority here.
        Do we have any timetable for when this could be done, Ms.
    Braunstein?
        Ms. Braunstein. We don't have an exact timetable. As I
    said, we did put out an ANPR. We are going through that
    information. We hope to have a proposal as soon as we can, but
    I can't really make a time commitment. It is hard to do that
    when there are so many other agencies involved over which I
    have no control.
        The Chairman. I appreciate that, and that is one of the
    things I want to get to. Maybe we have to designate a lead
    agency. That may have been our problem.
        I understand trying get all the agencies to work together
    can be difficult, and one of the things I think we will think
    about is designating a lead agency to deal with this. Because
    what do we have? Is it seven agencies or six? It is the Fed,
    the FDIC, the OCC, the OTS, the NCUA, and the FTC, so we have
    six agencies.
        Well, I think that is one of the things that I will consult
    with my colleagues about, because there is a need to do this.
        Let me ask what is then going to be the tough, substantive
    question, and I think for one thing--well, there are two
    aspects. One of the things that was frustrating to me when I
    read the Boston Globe articles and then looked into this some
    more was--and the gentleman from Georgia, who is not here now,
    said, well, people need to take responsibility for their own
    debt. But part of the problem here, as documented in those
    articles, was people being hit with debt that they never
    incurred, identity theft debt.
        Now one representation was, well, they would correct it as
    of ``X'' date of complaints. But as inaccurate data kept coming
    in, it was automatically registered.
        Now I assume that is one of the things that you are going
    to deal with, the credit report. The credit bureau said, ``Oh,
    well, yes, we straightened that out.'' But if the identity
    theft was ongoing, as the new information came in, it was
    automatically registered.
        I will be asking the credit bureaus about that. But I hope
    that when the rule comes in, it is going to have some
    substantive procedures by which we can adjudicate these
    disputes.
        And I do want to be clear with you, I guess there are
    several things: there is identity theft; there is just plain
    error; and then, there are also the disputes in which people
    say they bought something, it didn't work, etc. What do you
    have in mind for mechanisms by which we can do that? Because I
    guess the hardest thing for all of us is the, ``he said, she
    said'' kind of disputes. Will you be reaching out, Ms. Parnes,
    in the rules?
        Ms. Parnes. Chairman Frank, a couple of things.
        First of all, as you know, there are special rights that
    are set in FACTA for victims of identity theft. And you
    mentioned victims of identity theft can, for example, block
    that kind of information that keeps on appearing again and
    again, as you mentioned.
        The Chairman. Is that effective? Do we know? Part of the
    reports were that it had not been effective in some cases.
        Ms. Parnes. Well, you know, I have looked at the Boston
    Globe article myself. I am not sure that the two individuals
    whose problems were discussed in those articles believed that
    they were victims of identity theft or filed identity theft
    victims reports, got police reports. I just wasn't sure from
    reading the articles.
        One of the things that we found is that FACTA sets up a
    pretty comprehensive set of rights and remedies for identity
    theft victims, but the victims themselves have difficulty
    pursuing them. And as part of the President's Identity Theft
    Task Force, which the chairman of the Commission, the FTC co-
    chaired, we have come up with some proposals for providing
    specific assistance to identity theft victims.
        We have reached out, for example, to the American Bar
    Association to set up a special ID theft victims pro bono
    program so that victims of identity theft have attorneys that
    they can go to and get this kind of assistance on a pro bono
    basis. We also plan to do outreach to other organizations.
        The Chairman. You don't need any action by us. Those are
    things you can implement.
        Ms. Parnes. Exactly. We can implement those.
        The Chairman. I appreciate it.
        I notice my time has expired, but I think we have to be
    careful. We can set up the rights, but then figuring out how
    they are in fact accessible to the people in practice is
    important. We can't put too many obstacles in the way, and that
    is one of the things we will continue to look at.
        The gentleman from Alabama.
        Mr. Bachus. I will ask both Director--is it Parnes?
        Ms. Parnes. Yes.
        Mr. Bachus. --and Braunstein?
        Ms. Braunstein. Braunstein.
        Mr. Bachus. --Braunstein, since the Act has passed,
    consumers are requesting--they are getting more credit reports.
    Has this--what is your sense? As they are getting these credit
    reports, are their credit reports becoming more accurate as
    they report inaccuracies?
        Ms. Parnes. That is one of the things that we are trying to
    determine. Certainly the free credit report is an important
    right for consumers to have to access this credit report, to
    see if there are inaccuracies and to make changes to their
    report. But, as you know, Congress also gave us the
    responsibility to conduct an accuracy study. That is a long-
    term project that the FTC is engaged in. Under the statute, we
    have 11 years to complete the study, and so that is an issue
    that we are working on.
        Mr. Bachus. Do you think that you will have rules out
    before that, though? You are not waiting on that study to
    have--
        Ms. Braunstein. I would certainly hope so.
        Ms. Parnes. I can say that I am certain we will have rules
    out before then.
        Mr. Bachus. My sense is that the one thing that the Act has
    done is it has allowed people to raise their credit scores, and
    I think that is a primary result of them paying off debts, some
    of which they really had forgotten they had, or didn't know it.
        But there was a debate in this committee, although we
    reached a consensus and everybody yielding some of their
    opinions, I was concerned about retailers having to continually
    do reinvestigations and that that might be a burden for them.
    They certainly expressed that concern. What is your opinion on
    whether retailers are overburdened?
        Of course, if they report accurate information to start
    with, it lessens maybe the need for reinvestigations. But there
    are always going to be people who are going to claim things are
    inaccurate when they are not. What is your sense there?
        Ms. Parnes. I think that is exactly the issue that we are
    addressing, to ensure that the rules that we set for
    investigations can apply to both the large financial
    institutions as well as small retailers, and can apply fairly
    to both.
        Ms. Braunstein. Can I just comment on that?
        Mr. Bachus. Yes.
        Ms. Braunstein. I think that is correct, that is one of the
    issues that we are facing. And the danger in that is if a
    system is set up that is too prescriptive or too burdensome,
    then some of the smaller retailers will stop being furnishers,
    since we have a voluntary system. And a lot of times, in
    particular for low- and moderate-income people, the majority of
    their credit information may be held in these nontraditional
    furnishers. That could adversely affect their ability to get
    credit, so that is something that we are very cognizant of in
    writing these rules.
        Mr. Bachus. In fact, I think Chairman Oxley at that time
    and the ranking member, when I raised my concerns about
    retailers maybe having their burdens of doing reinvestigations,
    they did point out that they didn't have to supply that
    information.
        And, also, I think it will encourage retailers to keep
    records. Once they report a record, particularly something
    derogatory, they do need to establish a way to go back and
    easily find that. And the big retailers can. I have noticed
    that they can very quickly do that.
        The chairman mentioned maybe establishing a lead agency.
    Would that be helpful?
        And, number two, are there certain provisions in the law
    that you think are problematic or should be amended?
        Ms. Parnes. At least from my perspective, I think that the
    agencies--we are meeting on a very regular basis, and I think
    we have divided up the work so that each agency is taking lead
    responsibility for different tasks assigned in FACTA.
        Ms. Braunstein. Yes, I think it would depend how it was
    structured with a lead agency. You still would not--the problem
    is--and this is both a benefit and a problem, it is both
    sides--is that the agencies do have different perspectives a
    lot of times based on who it is that they supervise and
    regulate. Because different organizations obviously operate
    differently. And I don't think those differences would go away,
    even with a lead agency, unless that lead agency had the
    ability to actually overrule everybody else and make a decision
    on moving forward on the rulemaking.
        Mr. Bachus. Let me just close by making a statement.
        Mr. Chairman, I think one of the greatest benefits I have
    seen--and I want to commend the credit reporting agencies.
    Prior to us passing the FACT Act, one of the frustrations
    people had is that they would correct their report with one
    agency, and they had to do that with all three agencies. And
    sometimes, all of a sudden, that information showed back up
    years later. I have not heard that has happened; I think there
    is greater coordination between the credit reporting agencies.
        You have a comment on that, or if you do--
        Ms. Parnes. I think we would agree that is a benefit for
    consumers.
        Mr. Bachus. Okay. Thank you.
        The Chairman. Before I turn--I would ask unanimous consent
    to insert into the record a letter from the National
    Association of Realtors signed by Pat Combs, the 2007
    president.
        Briefly quoting: ``NAR took an active role in helping to
    enact the Fair and Accurate Credit Transactions Act. We are
    particularly concerned that the system created to investigate
    and correct inaccurate information in a timely fashion is not
    working.''
        I ask unanimous consent that this letter be inserted into
    the record. There being no objection, it will be.
        The gentlewoman from New York is recognized for 5 minutes.
        Mrs. Maloney. I thank the chairman for yielding.
        This committee and my subcommittee have held a number of
    hearings at which one of the problems identified seems to be
    that the Fed has not used its mandate to protect consumers, or
    if they do use it, they do it very late. And whether the issue
    is subprime lending or credit card practices, bank fees or,
    today, credit reports, the problem of Fed inaction seems to be
    a consistent theme, and I would say that you have done some
    very important things. The Fed's leadership on subprime, coming
    forward with the guidance that you don't give loans unless
    people can pay it for the full term of the loan, was very
    important. And Reg Z was very important, although we need to go
    further in that area. I think you have done a great job there.
        But I am very concerned that the mandate is very important.
    It is outlined in congressional law in a number of areas, and
    it is embodied in many, many places, and it is clearly part of
    the Fed's mission. And today I would like to ask the Fed's
    representative, Ms. Braunstein, can you identify concrete steps
    that the Fed is taking in this area, credit card reports, to
    carry out that mandate through regulation, guidance, or other
    action?
        And I would like to follow up on the chairman and ranking
    member's comments that one of the reasons that you are lacking
    the progress in this area is that we haven't set a deadline. So
    should we do so? Should we set a deadline? Three years is just
    too much. And since you can't give us a timeline, which was one
    of the chairman's questions, should we set a deadline so we can
    actually get this to take place?
        Also, I would like to ask the Fed for your response on
    assigning a lead agency, as the chairman suggested, in order
    that we could get this done. I mean, I think we all agree that
    so many years to accomplish a congressional task is really
    ridiculous and unacceptable.
        Ms. Braunstein.
        Ms. Braunstein. Yes. First, I would like to assure you that
    this is very important to us. This is a priority for us, and we
    have been working on these rulemakings. There are a lot of
    rulemakings that were assigned through the FACT Act. This is
    one of them. We have been working with the other agencies, and
    we will continue to do so.
        In addition, we supervise State member banks who are
    furnishers, and in that supervision process, we do look at
    their furnishing responsibilities. In fact, we have cited
    violations when we find them in State member banks. So we are
    actively engaged in making sure the information that is
    furnished is accurate.
        Mrs. Maloney. But, again, when can this be completed? How
    long have you been working on it? Three years now?
        Ms. Braunstein. Well, we issued the ANPR in 2006.
        Mrs. Maloney. So when do you think this could be completed?
    A year, 2 years, 10 years? When do you think this should be
    completed?
        Ms. Braunstein. I could not give you a timeframe, as I say,
    because we are not the only agency involved.
        Mrs. Maloney. Do you think Congress should give you a
    timeframe? Could this be completed in a year?
        Ms. Braunstein. I think that is a matter left up to
    Congress to decide.
        Mrs. Maloney. And again the question of a lead agency. If
    there was one agency in charge, would that coordinate and make
    things happen in a quicker way?
        Ms. Braunstein. Well, as I said, I think we are working on
    this, and I think that might take care of some of the issues
    but not all of them. It is not going to take away the
    differences of opinions between the agencies even to have a
    lead agency, unless that lead agency was invested with the
    authority to overrule everybody else and move forward
    regardless if there was agreement or not. So that is--
        The Chairman. Will the gentlelady yield?
        Mrs. Maloney. Absolutely.
        The Chairman. That could happen.
        Mrs. Maloney. And I would like to ask Ms. Parnes, you
    mentioned that victims of identity theft have protections and
    that these protections are already in place. But why not allow
    everyone to have the protections so that you can protect them
    before identity theft takes place, such as the file freeze
    concept that I mentioned earlier? Your comments on that.
        Ms. Parnes. Well, actually, a file freeze is something that
    the Federal Trade Commission and the other identity theft task
    force agencies are looking at to assess whether--how all of the
    State file freeze laws are working and to come up with some
    thoughts about whether--what would work best in a Federal law.
    So you know, I think it may be very reasonable to apply this to
    all consumers.
        We just don't have the sense yet--the State laws, as you
    mentioned, are different. Some apply only to ID theft victims,
    others apply to all consumers; some impose fees for unfreezing
    the credit reports, and others don't. And we would just like to
    have a better sense of what we think should apply more broadly.
        Mrs. Maloney. My time has expired. Thank you very much.
        The Chairman. The gentleman from Texas is recognized for 5
    minutes.
        Mr. Hensarling. Thank you, Mr. Chairman.
        I had to step out during some of the testimony, so forgive
    me if part of this is redundant.
        But the first question I have really goes to what is the
    scope of the problem? We heard in some of the opening comments
    some members reference some studies that would tend to indicate
    that there are upwards of 70 percent of errors contained in
    credit records from the credit reporting agencies. To the
    extent I have seen some of these studies, the methodology has
    been questioned. But I am interested in what the FTC and what
    the Fed has determined of what is the scope of the problem, and
    to the extent there are errors in records, to what extent are
    they material and having an adverse impact on the availability
    and cost of credit? Ms. Parnes?
        Ms. Parnes. I think, from the perspective of the FTC, we
    are not yet in the position to really respond to that question
    with numbers.
        One of the tasks we were given was to conduct this accuracy
    study. We have already conducted a pilot project. We have
    submitted two reports to Congress on the study. The idea here
    is for the Commission to conduct a national study to assess the
    accuracy of credit reports, and at least on the basis of our
    pilot study, there really is no nationally projectable
    information that we can supply.
        Mr. Hensarling. Ms. Braunstein?
        Ms. Braunstein. I don't have data either, but I can say
    that we did do some research, Federal Reserve economists did,
    into accuracy of credit reports. And I think what is important
    here--I mean, the numbers you hear are all over the place, and
    some of them are very high. But it is important to recognize
    that there are different types of errors in credit reports, and
    some of them may affect someone's ability to get credit, but
    some of them do not. So, you know, some of them are just errors
    that are made in the report that really don't affect the
    evaluation of credit. So I think somehow that needs to be
    sorted out further.
        Mr. Hensarling. Ms. Braunstein, I think I heard in an
    answer to an earlier question by a colleague I think you said
    something along the lines that, in our voluntary reporting
    system, that if we were to increase costs unduly upon the
    smaller furnishers of credit they may just choose to no longer
    participate in the system. Could you elaborate on that
    phenomenon, please?
        Ms. Braunstein. Yes. Well, there are a number of
    furnishers. You know, there are certainly the large banks and
    credit card operators. And they, you know, have systems, good
    systems set up. But there are also a number of furnishers who
    are small retailers and even utility companies and landlords
    and people like that where they don't have necessarily
    sophisticated systems set up. And if the system becomes too
    burdensome, since it is voluntary, they may choose not to
    furnish information.
        In particular, this could be harmful going forward to low-
    and moderate-income people, who have been shown to have thinner
    credit files. They may not have only sources of credit that are
    in the more traditional, mainstream sources but may be using
    some of these smaller operations to support their credit
    records. If they stop furnishing, that could be harmful in
    particular to them. So we just want to be cognizant of that in
    terms of moving forward on these rules.
        Mr. Hensarling. I have peeked ahead. There is some of
    testimony of the second panel, and I think that there will be
    at least one, perhaps two panelists who seem to assert that the
    credit reporting agencies either, one, do not have an incentive
    to keep their records accurate, or I believe one witness may
    actually posit that the credit reporting agencies have
    incentive to make them inaccurate so they can generate fee
    revenue off dispute resolutions. To the extent you all have
    observed the market, do the credit reporting agencies have
    incentives to keep accurate records in your opinion? Ms.
    Parnes?
        Do I take that as, I don't know?
        Ms. Parnes. I would certainly hope we have a system that
    creates incentives for accuracy. And I--I think that at least
    the system does create those incentives CRAs can compete on
    accuracy, if there are systems that are fundamentally flawed
    the FTC has, and will bring enforcement actions.
        Mr. Hensarling. Ms. Braunstein?
        Ms. Braunstein. We don't supervise agencies--we can't
    really speak to that other than in a general way. I think it is
    in their best interest to function well and to maintain their
    credibility, so I would think, just in terms of that, they
    would have an incentive to make sure their systems are as
    accurate and complete as possible.
        Mrs. Maloney. [presiding] Thank you.
        The Chair recognizes the gentleman from New York, Mr.
    Ackerman, for 5 minutes.
        Mr. Ackerman. Thank you, Madam Chairwoman. Are all file
    supplier furnishers--
        Ms. Parnes. No. Suppliers furnishers provide information.
    But files can be accessed by lenders, for example, if a
    consumer is applying for a loan, that lender can access the
    consumer's file.
        Mr. Ackerman. Can those lenders share the files with
    others.
        Ms. Parnes. They may in certain circumstances. If there
    are--
        Mr. Ackerman. Somebody who is a lender who doesn't
    participate in the system can get a copy of everybody who has
    borrowed $10,000 on a home equity and do solicitations?
        Ms. Parnes. I think not.
        Mr. Ackerman. How would you know they are not doing that?
    Is there a prohibition against them doing that?
        Ms. Parnes. I believe that a lender who obtains that
    information can only use it for certain specified purposes.
        Mr. Ackerman. How many requests are there on an annual
    basis on the part of Federal agencies for access to files? How
    many files would that be, FBI, CIA, Homeland Security, any
    other Federal agencies?
        Ms. Parnes. I don't know.
        Mr. Ackerman. Do you know why there would be a correlation
    between somebody's score and whether or not they are a
    terrorist risk or should be looked at a little bit more
    carefully by airlines, and whether or not they should be
    allowed to fly?
        Ms. Parnes. I don't.
        Mr. Ackerman. Insurance companies--should there be some
    Federal guidelines as to that?
        Ms. Braunstein. As to terrorists?
        Mr. Ackerman. The different agencies have different
    requirements, evidently with different guidelines or no
    guidelines as to compliance with requests on the part of
    Federal agencies for access to people's files.
        Should there be some guidance to them as to how loosely
    they comply or standards of compliance such as warrants or just
    complying with any request from any agency?
        Ms. Parnes. Congressman, as far as I know, there is no
    permissible purpose under FCRA for law enforcement.
        Mr. Ackerman. There is under the PATRIOT Act. Under the
    PATRIOT Act they can access your--
        Ms. Parnes. Credit report.
        Mr. Ackerman. --credit report and your scores. Presumably
    this is a connection they make between your scores and whether
    you are a risk of some kind. Perhaps we should be looking at
    that and perhaps there should be some guidelines.
        The same with libraries. There are some libraries that will
    give any agency that asks, and there are some libraries that
    have adopted policies. At the end of the year, they burn
    everybody's borrowing records so that they don't have to
    comply. But that's different, a different level of concern
    about people's privacy rights than the financial community
    seems to have.
        What is the correlation between somebody's credit score and
    whether or not they are an insurance risk? Insurance companies
    obviously use people's credit score to determine whether or not
    they are going to put in an insurance claim, people who have
    low scores are presumed to be presumptively more apt to put in
    an insurance claim.
        Ms. Parnes. Right, that's the subject of a study that the
    Commission is finalizing right now.
        Mr. Ackerman. Are poor people poorer drivers, more careless
    homeowners?
        Ms. Parnes. One of the things the study is looking at is
    whether there is any connection.
        Mr. Ackerman. When is that study due and who is doing it?
        Ms. Parnes. The Federal Trade Commission, Bureau of
    Economics, is conducting that study. We hope to have the report
    completed this summer.
        Mr. Ackerman. These things are very serious and affect
    people's lives in very, very important ways. It seems that any
    supplier of information can get the information into somebody's
    credit report, any crappy piece of information, erroneous or
    otherwise, and it automatically gets recorded as part of a
    person's financial life.
        If that person is adversely affected, she or he has a
    tremendously difficult time in getting that information removed
    as wrong and inaccurate as it is. And some of us believe that a
    person has, or should have, control at least over the facts of
    their life, not necessarily interpretation, but the facts, and
    it is so difficult.
        And I don't know if either of you have had the experience
    of having erroneous information removed. I tell some of my
    friends, when I try to call them, who own small businesses,
    call yourself, you will get caught in voice mail hell, or
    whatever, and your system is all screwed up. Some of them are
    shocked to find out.
        Have you ever tried to get something removed from your
    credit report?
        Ms. Braunstein. No, I have not.
        Mr. Ackerman. It is exceptionally frustrating and
    difficult, even if you are a Member of Congress.
        The Chairman. Did you get a response?
        Mr. Ackerman. If there is a response.
        Ms. Braunstein. I said, no, I have not.
        Mr. Ackerman. I would strongly suggest you do that and find
    out what the frustrations are, of the public. It is next to
    impossible to clear something up.
        Has my time expired?
        The Chairman. Yes.
        Mr. Ackerman. Thank you very much.
        The Chairman. Next, has the gentleman from Georgia been
    recognized yet?
        The gentleman from Georgia is recognized for 5 minutes.
        Mr. Price. Thank you, Mr. Chairman. I want to thank the
    members of the panel for coming today.
        I think, Ms. Parnes, you said that there were 52 million
    credit reports requested. That is since the FACT Act; is that
    correct?
        Ms. Parnes. That is correct, 52 million free credit reports
    have been distributed.
        Mr. Price. And that is a significant increase over before,
    I assume?
        Ms. Parnes. Right, the free credit reports were very
    limited before this amendment.
        Mr. Price. Have you noticed or has it been noticed that
    there are greater reports or concerns about inaccuracies,
    unfairness on behalf of the reporting agencies?
        Ms. Parnes. We don't have a basis for comparing those
    issues before this amendment, and the accuracy study, as I
    mentioned, is something that we will be looking at over the
    next several years.
        Mr. Price. I would be interested in the thoughts of each of
    you about the definition of an error in a credit report and the
    difference between an error and a dispute over a credit report
    and how you reach a conclusion as to whether something is an
    error or a disputed report. Would you care to respond?
        Ms. Braunstein. Well, I think in the sense of what is
    disputable or what a furnisher could be held accountable for,
    what would be a violation of the rule, a violation in terms
    of--well, first of all, let me back up.
        Furnishers do make errors from time to time, but not all of
    them are violations. In order for an error to be a violation,
    the furnisher would have to have known, or you could reasonably
    assume that they knew, the information was inaccurate when they
    furnished it.
        Sometimes mistakes happen, and they are corrected, and they
    were not intentional, and there was--they did not know that it
    was bad information when they furnished it. In that case, there
    is no violation of the law at this point.
        Mr. Price. Ms. Parnes, do you have any comment?
        Ms. Parnes. Nothing further to add.
        Mr. Price. So if there is a dispute and it is corrected,
    then that is not considered an error; is that correct?
        Ms. Braunstein. Well, no, if it is found that the furnisher
    knew that the information was wrong when they furnished it,
    then it would be a violation. I know in terms of our
    supervision we would cite that.
        And also we investigate consumer complaints against
    furnishers. And again, in investigating those complaints, if we
    find there are violations where they knowingly furnished bad
    information, we cite violations, and we have done so.
        Mr. Price. There has been a lot of talk about the rules not
    being promulgated to this point. I wonder if either of you has
    anything you would like to add or say to us about whether--if
    we change our rules to you in the middle of the game, how does
    that affect what you are able to do in response to the current
    requests that are already on the table.
        Ms. Braunstein. Well, I think that we are making progress,
    and like I said, we did put out an ANPR along the lines of what
    the statute currently says. We are going through that
    information and trying to fashion a proposal. So I don't know--
    I wouldn't have any recommendations for you at this point in
    terms of changing anything in the statute.
        Ms. Parnes. I would agree that we have made significant
    progress in terms of all of the FACT Act tasks that the
    agencies have.
        The one thing that I would add is, I think that we meet--
    the agencies meet on a regular basis. As I mentioned in my
    statement, I plan--I talk to my colleagues at the Fed and we
    will talk to our colleagues at the other agencies, and I think
    that we can come up with a timetable for completing the
    remaining tasks.
        Mr. Price. So the light is at the end of the tunnel?
        Ms. Parnes. I hope so.
        Mr. Price. Allowing file freeze by the consumer, do you
    have any thoughts about the consequences or are there any
    consequences of that on commerce and the general individual
    consumer activity that might be adversely affected by that.
        Ms. Parnes. It is something that we are looking at right
    now. We understand that in some States file freezes have to be
    unfrozen within a very short period of time; in other States
    there is no time limit, and it may take longer. So, for
    example, if a consumer wants to purchase a car and they have a
    file freeze, they may have to take steps to unfreeze their file
    several days before they purchase the car or else they wouldn't
    get credit immediately.
        But I think all of those--and those can have implications;
    it can burden consumers. We think that consumers just need to
    understand what they are getting into if they opt for a file
    freeze.
        Mr. Price. Thank you, Mr. Chairman. My time has expired.
        The Chairman. Thank you.
        The gentleman from Kansas.
        Mr. Moore. Thank you, Mr. Chairman. Ms. Braunstein, if a
    consumer disputes the information that has been furnished and
    the other side has tried to correct it, but not made very much
    effort to correct it, what happens in that situation?
        Ms. Braunstein. Well, first of all, I should say we
    supervise the furnishers, some of the furnishers, the ones that
    are State member banks; we don't supervise the credit reporting
    agency, so it depends on who is correcting it. Certainly if
    there was a dispute of information that was given or furnished
    by one of our supervised entities, we would take steps with
    that entity to make sure that that was corrected. We don't have
    any authority over the reporting agencies.
        Mr. Moore. Who has responsibility over the credit reporting
    agency?
        Ms. Parnes. We have responsibility over the credit
    reporting agencies and over many of the furnishers as well. So,
    for example, the FTC has taken actions against furnishers for
    failing to provide accurate information to the CRAs.
        Mr. Moore. Failing to provide accurate information.
        What if the credit reporting agency believes the
    information is accurate, but in fact it is not, and they keep
    furnishing the same information?
        Ms. Braunstein. Well, if that information is disputed,
    that, even if the furnisher still thinks it is accurate, they
    must note it on the files.
        Mr. Moore. That is provided to the requestor?
        Ms. Parnes. Yes, the consumer has a right to include on
    their credit report their statement of what they think is
    accurate.
        Mr. Moore. And no further responsibility than by the
    provider of the information, except to note that the consumer
    has disputed this?
        Ms. Braunstein. No. There are investigations that are
    undertaken, depending where the consumer goes. If the consumer
    goes directly to the furnisher, then what we have heard is that
    many of the furnishers--right now there is no obligation for
    the furnishers to undertake investigations from direct
    complaints, but most of them do. If the con--
        Mr. Moore. Should there be an obligation for those who
    don't?
        Ms. Braunstein. That is part of what the rules will do. If
    the consumer complains to the credit reporting agency, the
    credit reporting agency does go back to the furnisher. The
    furnisher is obligated to investigate that dispute; they have
    30 days to do so and to either provide information as to why
    that information is correct, or if it is inaccurate, then they
    have to remove that and they are prohibited from furnishing
    that to anyone else.
        Mr. Moore. But there are investigations and there are
    investigations. Some are good and some kind of just go through
    the motions.
        How do we deal with the furnishers who just kind of go
    through the motions and really don't have any incentive, or
    appear to have no incentive, to correct the situation if in
    fact the consumer has been wronged? How do we deal with that
    situation?
        Ms. Braunstein. Well, I can again only speak to State
    member banks. If--we usually find out about these things
    through consumer complaints; we would certainly investigate
    that matter with the furnisher and make sure that a Federal
    investigation was done of that. And if it seems that there was
    some--that it was knowingly furnished, and they knew it was
    inaccurate, we would cite a violation.
        The Chairman. The gentleman has done a very good job at
    getting to the heart of the matter. I sort of fumbled around
    with it. If he would just allow me--
        As you do the regulations under section 312--it seems to
    me, the gentleman hit the key--and to some extent the credit
    bureaus have taken a hit for the furnishers and for others. The
    key has to be a procedure whereby a consumer who learns of
    something he or she believes is inaccurate can contest that
    with the furnisher. And I hope that that will be a central part
    of the rule.
        The gentleman has, I think, correctly talked about it. It
    can't just be all procedure; there has to be a dispute
    resolution method for the consumer, who finds an inaccuracy, to
    talk to the furnisher.
        I thank you.
        Mr. Moore. I thank the chairman and the witnesses. I am
    finished.
        Thank you, Mr. Chairman.
        The Chairman. The next gentleman from Connecticut.
        Mr. Shays. I wrestle with this issue. First, there is the
    issue of being unfairly reported. There is also an issue of
    being fairly reported but not having the knowledge to know how
    the credit rating impacts you.
        I have a staff member who was literally on welfare and
    ended up being able to buy a home with her sister, and she
    missed a payment, she missed three payments, because her sister
    left and they were spread thin. But from that point on, for 3
    years, she never missed a payment. But she was 3 months behind
    with each payment, so each payment was viewed as delinquent and
    she never realized it. She thought for now 3 years, she had
    gotten her situation in order.
        I have constituents--I will say this, during the campaign a
    few years ago, I had 3 months where I just didn't pay bills,
    and then I paid them all back with interest, and I had a
    terrible credit rating. I have two graduate degrees. I just
    didn't get it.
        People can smile and say, that is pretty dumb, and it was
    dumb, but the fact is, I have a pretty good education. Even I
    didn't know. I think one of our obligations is to inform people
    how to get good credit.
        The other thing I wrestle with is, there is also a
    perverseness to this, if you have bad credit, but you are not
    bad at paying back the debt, you still pay a really high
    interest rate.
        Just quickly going back to that individual who, on my
    staff--I could continue to refinance my credit getting low
    interest rates, and she had huge interest; she could never take
    advantage of all the times when it dropped.
        What are the obligations that you have to inform people
    about credit, to inform people of the impact that it has?
        Ms. Parnes. Consumer education is one of the highest
    priorities at the Federal Trade Commission. We are a member of
    the Financial Literacy Commission that was set up by Congress
    and was chaired by the Treasury Department. Staff members at
    the FTC, in addition to all of the general financial literacy
    information that we push out as much as we can through our Web
    site, through our staff going out and giving speeches and
    participating in town hall meetings that Members of Congress
    have, our staff members also go, for example, to high schools
    and speak to high school students about financial literacy.
        We want to reach consumers at the most teachable point,
    because we share your concern that this is a very important
    issue.
        Mr. Shays. When there is a dispute, there is not anyone in
    this room who hasn't had a dispute over a bill and the
    challenge is that they basically say, fine, sir, you don't want
    to pay your bill, you are going to get a bad credit rating.
    They have us over a barrel. In spite of what I've been hearing,
    it seems to me it is stacked against the consumer.
        And give me your best idea, both of you, as to how a
    consumer can fight back.
        Ms. Parnes. I think one way, one avenue for consumers, has
    already been set up by Congress in the FACT Act, and that is,
    if you are in this cycle that has been described, where you
    filed a dispute, the information is either it isn't coming off
    your credit report--
        Mr. Shays. Can you file a dispute before it went on? I
    mean, once it is on, you are screwed.
        If someone says--let's take cell phones. You are getting
    terrible service, you go to the store. They basically say, you
    know what, we solved it online, it is not our problem; we are
    just a store.
        And you say, well, where can I speak to a real live person.
    And you speak to somebody who knows where. And then you say,
    you know, I am fed up, I am going to leave, I'm getting another
    cell phone.
        And they say, fine, sir, but you will owe us for 4 months,
    you are going to owe us. Fine. You will owe us for 4 months,
    and that is it; take it or leave it.
        It seems to me you should have a way to say, no, you are
    not, lady or man, you are not going to do that; or simply, I am
    going to file a report and you are going to have to dispute it
    out with me.
        It seems to me it should happen before rather than after.
        Ms. Parnes. I think that the issue that you raise
    specifically with cell phones is one that consumers have a lot
    of complaints about. Unfortunately, it is an area that--one of
    the few areas that falls outside of the jurisdiction of the
    Federal Trade Commission.
        Mr. Shays. Why is that?
        Ms. Parnes. We don't have jurisdiction over common
    carriers.
        Mr. Shays. You do once they file a statement saying that I
    am delinquent on my bill.
        Ms. Parnes. Well, we do in the context of the FCRA; we
    don't in the context of simply the bill that the carrier gives
    to the consumer.
        Mr. Shays. I have the red light. Thank you.
        The Chairman. I was going to say, gentlemen, again, focus
    on the key issue.
        In fairness to some of the credit bureaus and others, it is
    at the furnisher level, at the transaction level, I think we
    have to do a better job. I do think we will resist the
    temptation to add the FCC to the already dysfunctional mix of
    agencies that is keeping us from getting anywhere. That is
    apparently part of the problem.
        The gentleman from Missouri.
        Mr. Clay. Thank you.
        Ms. Parnes, let me ask you, the Fair Credit Reporting Act
    does not establish an absolute standard of accuracy and does
    not require CRAs to guarantee that reports are error free. This
    is from your statement and it is also fact.
        Does this not put consumers who live day to day on credit
    and who do pay their bills on time in quite a difficult
    position?
        How do you suggest we go about tightening up the standard,
    or do you think we are doing as much as can be done?
        Ms. Parnes. The system, as it has been established, is
    really a procedure-based system, it requires reasonable
    procedures and not 100 percent accuracy.
        I am simply not confident that, given the millions of
    transactions that go on, that the system could function with an
    absolute every transaction that is reported must be accurate.
    It is something that--I mean, this was obviously a
    determination that Congress made in setting up the reasonable
    procedure standard, and it is something that we would have to
    consider.
        Mr. Clay. Isn't it pretty plain that either you have bad
    credit or you don't, or you have paid this bill or you haven't?
    Isn't that pretty obvious?
        Ms. Parnes. Absolutely, from the perspective of the
    consumer. The problem, I think, that has been identified is
    going through the dispute process.
        Mr. Clay. The FTC consistently receives more complaints
    about the credit bureaus, either directly or in connection with
    identity theft, than any other industry. What steps have been
    implemented to alleviate these types of complaints?
        Ms. Parnes. Well, the identity theft, the complaints that
    we have received, are not all driven by accuracy issues.
    Certainly, on the identity theft front, the Commission has
    taken a large number of steps to work with victims of identity
    theft. We were part of the task force that issued a strategic
    plan on identity theft; we have 60 recommendations that we are
    working on to implement right now.
        Mr. Clay. Sixty? Thank you for your response.
        Ms. Braunstein, what future role do you see mortgage credit
    reporting agencies serving in the resolution of credit
    disputes?
        Ms. Braunstein. When you say mortgage credit reporting
    agencies--
        Mr. Clay. Yes, mortgage companies.
        Ms. Braunstein. The companies that people get their
    mortgages from?
        Mr. Clay. Sure.
        Ms. Braunstein. I don't know. That is hard to answer.
    Certainly we--unless they were State member banks, we would not
    supervise them as furnishers, so I don't know what their volume
    of complaints is at this time, and I don't know how that might
    be affected in the future.
        Mr. Clay. Tell me this. Why is it that after consumer
    complaints are submitted to the credit reporting agencies that
    the credit bureaus rarely follow the consumer's documentation
    of errors to the furnishers? Why is that?
        Ms. Braunstein. The way the process is currently set up,
    that is not always a necessary part of the process. They are
    supposed to send the furnishers information about what the
    dispute is on, as complete as possible, but that does not
    always have to include the backup information, and there are a
    couple of reasons. One of them is the burden associated with
    that. It is a voluntary system, and we don't want to discourage
    people on being furnishers.
        The second part of that is, sometimes there are privacy
    considerations. Sometimes a consumer complaint may not be just
    against one furnisher, and the documentation involved may
    include information, proprietary information, that exists about
    other furnishers, too. So you want to be careful with the
    consumer's information in terms of privacy considerations.
        Mr. Clay. I see my time is up. Thank you very much for both
    of your responses.
        Thank you, Mr. Chairman.
        The Chairman. The gentleman from Delaware.
        Mr. Castle. Thank you, Mr. Chairman.
        This has been a very active committee this year, as you
    know, and we have had a number of hearings on the subjects
    dealing with credit of individuals. And it is very confusing to
    me because I think it was a hearing last week at which we heard
    about the number of credit cards out there.
        Are there too many? I think there were 650 million, if my
    recollection is correct.
        Now we are told by some here that credit histories are full
    of mistakes and people can't get credit.
        We have had other hearings dealing with foreclosure and
    other nonpayment or failure-to-pay type problems. It becomes
    confusing what is happening out there in the commercial market.
        My question is a little beyond what you have been talking
    about, or perhaps what you do, but do you evaluate credit score
    ratings that are used by financial institutions, merchants,
    credit card issuers, also financial institutions? Do you look
    at how they do that? And, if so, is a willingness to accept too
    low a credit rating part of the mortgage foreclosure and credit
    card failure issues that we are dealing with now, or is that
    beyond the scope of what you all do?
        Ms. Parnes. That is beyond the scope of what we do at the
    Federal Trade Commission.
        Ms. Braunstein. That could come into play in terms of
    looking at financial institutions that we supervise in terms of
    underwriting criteria for different kinds of credit, what
    credit scores, what levels of credit cards they are accepting,
    and what they are offering in turn. Sometimes that could come
    into play in terms of safety and soundness considerations.
        Mr. Castle. Does it, or has it, to your knowledge?
        Ms. Braunstein. I can't speak definitively on that. I could
    get back to you on that.
        Mr. Castle. You always hear about college kids who are
    getting innumerable requests, solicitations for credit cards.
    How does that happen? Do they all have good credit because they
    don't have bad credit or because they haven't had credit? How
    does that happen?
        The young person who probably has not established much
    credit at all is getting multiple solicitations per month for
    credit cards, apparently.
        Ms. Parnes. Well, I think the credit card companies are
    looking for new customers. It is that simple.
        I would add that the FTC works with universities to get
    educational material out to college students, so they
    understand what is means to have a credit card, and the
    responsibilities that they are assuming.
        Mr. Castle. So in that situation, the credit rating itself
    is of no value or importance, or it is overlooked by the credit
    card companies because they are in college, and therefore they
    feel that that is enough of a boost that they will be okay in
    terms of credit?
        Ms. Braunstein. I can't say definitively, but I know we
    have had some discussions with credit card companies from time
    to time on this. And I think sometimes it is a marketing effort
    to get more customers. It is an effort to cultivate people who
    will be--once they get degrees, will be customers in the
    future.
        But I think you would have to ask the credit card companies
    about how they make these determinations.
        Mr. Castle. Mr. Hensarling, I think, mentioned when he was
    asking questions about trying to understand the scope of the
    problem. I have trouble with that as well. We hear about these
    errors, maybe you testified to this, or maybe you don't know
    it, but is there any way of determining the percentage of
    errors in terms of the total number of credit ratings that the
    credit agencies have on hand?
        Ms. Parnes. That is actually one of the responsibilities
    that was given to the Federal Trade Commission, to conduct an
    accuracy study and determine exactly what the extent of the
    problem is.
        It is a long-term study. I think our last report is due in
    2014. We have already issued two reports to Congress on the
    pilot project.
        Mr. Castle. Roughly, what did we learn in the two reports?
        Ms. Parnes. In the pilot project that we have conducted, we
    have learned that this is going to be a difficult study to do.
    We worked with 30 consumers and went through--we had experts
    who sat with them and looked at their credit reports and
    identified what might be inaccuracies, and we were only able to
    get seven consumers who had problems to pursue those
    inaccuracies with the CRAs; other consumers didn't. So we are
    trying to revise our pilot and get a better method for pursuing
    this.
        Mr. Castle. It will be interesting to see the final
    results.
        Thank you, Mr. Chairman. I yield back.
        The Chairman. The gentlewoman from New York, who is one of
    the main authors of section 312 that we have been discussing.
        Mrs. McCarthy. Thank you, Mr. Chairman, I appreciate it.
        It has been an interesting year. As Mr. Shays said, and
    certainly, my colleague, Mr. Moore, we all have constituents,
    and we as Members have probably been hit one way or the other
    which we would consider being unfair.
        But going back in section 312, I notice in March of 2006
    you put out an ANPR. I apologize; I wasn't here earlier when
    you spoke, but there hasn't been further action since then, so
    I was wondering, when do you plan on going further?
        Ms. Parnes. Well, the agencies have been meeting very
    regularly since the comments were received, after that ANPR was
    issued.
        We do not have a timetable for proceeding, but it is
    something that I think we can reach out to our colleagues in
    the other agencies and set a timetable for this.
        Mrs. McCarthy. I guess this goes back to Carolyn Maloney on
    the timetables. So you can't say whether it would be a year?
    How long does it usually take to set up a timetable?
        Ms. Parnes. Setting a timetable shouldn't take a very long
    time.
        I think that, as my colleague indicated, when we engage in
    rulemaking on our own, we act quickly. You can complete a very
    complex rulemaking in a year. The FTC has done it in under a
    year. Working on a joint rulemaking really is a much more
    difficult process because the agencies are coming at some of
    these pretty complex issues from very different perspectives,
    and we need to reach agreement.
        Mrs. McCarthy. Because it was done in 2003, we are in 2007,
    it was done in 2003 mainly because of all the complaints that
    we, as Members of Congress, were hearing from our constituents.
    2007 is here and we are still not getting anywhere there, so
    hopefully the next time we have you in front of us, we will
    actually have some results on that.
        This case just opened up in my office last week, a young
    woman, single mother now, she was divorced, been divorced for
    quite a long time, always paid her debts on time, she went to
    get a student loan for her son, her son was going off to
    college. They had been divorced for a long time, and she found
    out she was denied because there was apparently--while they
    were married, there was a debt. She got divorced, but the debt
    stayed on because the credit cards didn't change. When they
    come to us, it is a last resort, to be honest with you.
        Yet she has not been able to clear it up, even though she
    has a whole record from the time of divorce that she has paid
    her bills on time. How do you solve a problem like this?
        Ms. Parnes. From a process perspective, one of the things
    that Congress did set up in the FACT Act was this complaint
    referral between the FTC and the CRAs. If the consumers were in
    this loop where they are trying to correct something and they
    are unable to do so, we would encourage them to file complaints
    with the FTC. We refer those complaints back to the CRAs and
    that--consumers may get their complaints resolved that way. It
    also will help us understand exactly what is going on when
    consumers are saying one thing and the CRAs and furnishers are
    saying another.
        Mrs. McCarthy. When you talked earlier about the literacy--
    everyone keeps coming to our office saying that they are
    working on literacy and how to teach people to go into schools
    and everything. I guess, mainly because I am on this committee,
    I am always looking to see what is coming in on Long Island,
    what is on TV to show consumers.
        In the beginning, to be honest with you, I don't see much.
    That is why we keep saying, where is the educational part? I do
    pay attention to anything that comes through, especially on the
    government level, to educate consumers on a whole host of
    subjects, and I don't see that much.
        Is it--I mean, being that so many people don't know about
    it, obviously we are not reaching the people we need to reach.
        Ms. Parnes. Credit financial issues, it is an area where
    the FTC has really been very active in terms of pushing out
    financial educational material. And we would be happy to share
    that information with you.
        Mrs. McCarthy. Thank you.
        My time is up. Thank you, Mr. Chairman.
        The Chairman. The gentleman from Texas, Mr. Marchant.
        Mr. Marchant. Thank you very much.
        I would like to move into a little bit of a different
    subject matter. How many new people a year generally enter the
    credit system, and are their names put on the first time on the
    rolls?
        Ms. Braunstein. I have no idea.
        Ms. Parnes. We don't have information on that either.
        Mr. Marchant. Have you planned or thought about--
    legislation is pending in the Senate now and very possibly will
    head to the House, and be voted on by the House, that would add
    potentially millions of people to credit rolls and how would
    your agency deal with that.
        Ms. Braunstein. I am not sure which legislation you are
    referring to.
        Mr. Marchant. That would be the immigration bill.
        Ms. Braunstein. We don't have a position on that.
        Mr. Marchant. I am not asking you to take a position on it.
    I am asking you, have you had discussions about how you might
    handle the number of new people in the system and the people
    that you govern and the way that these people will be added to
    the rolls? Are there any on the rolls?
        Ms. Braunstein. We supervise financial institutions, so
    that wouldn't be in our purview.
        Ms. Parnes. In terms of immigrants entering into the credit
    system, that is not specifically something that the FTC would
    be dealing with. And yet I think this is a community that we
    have reach out to, at any rate in terms of--much of our
    consumer information that we put out in the financial area, we
    put out in different languages, particularly in Spanish, and we
    attempt to reach underserved communities.
        Mr. Marchant. What I am mainly talking about is the credit
    reporting agencies that you supervise and the amount of
    additional credit information and additional requests that are
    somewhat inhibited by noncitizens that might become citizens
    and immediately enter in the country legally, that are somewhat
    inhibited in their credit situation simply because of their
    immigration status. Whether they are legally or not, they are.
        How are your credit agencies are going to process that? And
    in your case, you are saying you don't know how they are going
    to process it. It could become a real problem.
        Ms. Parnes. We don't supervise the CRAs in the same way
    that the financial supervisors supervise the banks. I think,
    from our perspective, that would probably be a question that is
    better answered by the CRAs themselves.
        Mr. Marchant. Okay, thank you.
        I yield back.
        Mr. Green. [presiding] I recognize myself for 5 minutes.
        What is the penalty for knowingly giving false information.
    Ms. Parnes, are you aware?
        Ms. Parnes. For a furnisher?
        Mr. Green. Yes.
        Ms. Parnes. Well, it would certainly violate the FCRA, and
    we do--the Federal Trade Commission can obtain civil penalties
    for violations.
        Mr. Green. What specifically would the penalties be? I am
    interested in knowing, what is the price one pays for providing
    false information knowingly?
        Ms. Parnes. We have sued individual companies. We can--
        Mr. Green. When was a company last sued?
        Ms. Parnes. I believe that the last announced action was in
    2006.
        Mr. Green. How many have been sued in the last decade?
        Ms. Parnes. Under the FCRA, we have brought over 20 cases.
        Mr. Green. Twenty in the last decade?
        Ms. Parnes. Yes, and we have obtained almost $20,000,000 in
    civil penalties.
        Mr. Green. How many complaints have you had in this area in
    the last decade?
        Ms. Parnes. I don't know.
        Mr. Green. Would you conclude thousands?
        Ms. Parnes. We certainly--
        Mr. Green. Tens of thousands?
        Ms. Parnes. We have certainly had tens of thousands of
    complaints. I do not know how many contained accuracy
    specifically.
        Mr. Green. Who is required to provide notice before
    reporting negative information?
        What furnisher is required to provide notice before
    submitting negative information?
        Ms. Braunstein. All furnishers.
        Ms. Parnes. Is that--
        Mr. Green. All, notice to the consumer before providing
    negative information--
        Ms. Parnes. Right. I believe there is no requirement that
    furnishers provide notice to consumers before negative
    information is provided. They can provide the notice either
    before or after. They must provide, at a minimum, adverse
    action.
        Mr. Green. Would providing notice before filing, before
    presenting your negative information, help to avoid--I'll wait
    until you get your--believe me, I understand.
        Ms. Parnes. We are going to consult on this.
        Ms. Braunstein. I have been told that most furnishers do
    provide notice before furnishing, but they are not required to.
        Mr. Green. While I appreciate what people may do, the
    question really goes to what is required. Is there a response
    because my time is slipping away?
        Ms. Parnes. Yes, I am told there is a rule that requires
    it.
        Mr. Green. Is that rule enforced?
        Ms. Braunstein. We enforce it with the institutions that we
    supervise.
        Mr. Green. How is it enforced?
        Ms. Braunstein. It is enforced through both through our
    examinations of State member banks and it is enforced through
    our investigation of consumer--
        Mr. Green. Is the consumer in a position to ascertain
    whether or not the negative information that has been reported
    is a consumer in a position to complain and say that I did not
    get notice, and is there some repercussion for not giving that
    notice?
        Ms. Braunstein. Yes. If they have not given notice, they
    will be cited for a violation.
        Mr. Green. What is the penalty for this violation?
        Ms. Braunstein. Well, the violations we have cited we have
    not enacted civil penalties, not our agency.
        Mr. Green. So much to know, so little time. Let me go to
    another area.
        Some people do not bank at First National, many people in
    fact are now banking at ``first mattress.'' Many people don't
    have bad credit or good credit; they just don't have credit.
    They do pay light, gas, and water bills; they pay the bills
    they have, but they are in a nontraditional credit world, if
    you will.
        What are we doing to help these persons acquire a credit
    score such that they too can benefit from credit in the
    traditional credit market?
        Ms. Braunstein. That goes to the point I was making earlier
    about one of the things we are looking at in the furnisher
    rules is that we, to encourage some of these nontraditional
    entities to be furnishers, it is important that we keep that in
    mind when we are rating these rules and not make them so
    prescriptive as to discourage organizations from becoming
    furnishers.
        Mr. Green. Well, my time is up, and if the chairman were
    here, he would tell me this, so I will not abuse the privilege.
        We now recognize Ms. Brown-Waite for 5 minutes.
        Ms. Brown-Waite. When someone is disputing something on
    their credit report, and they write a letter of dispute, and
    they then, let's say, go to buy a car or something, and their
    credit report is pulled, does the letter of dispute also go
    with the FICO score?
        Ms. Parnes. I believe there is a notation on the report
    that there is a dispute, but the underlying information is not
    forwarded.
        Ms. Brown-Waite. So there is a note that there is a
    dispute?
        Ms. Parnes. Yes.
        Ms. Brown-Waite. It could be a valid dispute or a dispute
    that totally is not valid and the person who would be extending
    the credit would never know.
        How would the person seeking the credit get that
    information to the lender if it truly was a valid dispute?
        Ms. Parnes. I think what the lender knows is that it is a
    pending dispute and so, because the overwhelming majority of
    disputes are processed within 30 days, I think in that notation
    the lender would understand that this is a current dispute that
    is being considered by the CRAs and the furnishers.
        Ms. Brown-Waite. Okay. We are in the process of going to
    hold in the district some sort of public forum for people so
    that they understand this, and also identity theft, which is
    very prevalent, but one of the most frequent complaints that my
    district offices get from constituents is, there are no real-
    live people at the credit reporting agency. All they get is
    caught in the ``Press 1 if you want to be connected with
    another machine,'' ``Press 2 if you want to totally be
    ignored,'' and they are very, very frustrated.
        Is there not a mandate that there be a real person there
    who can answer a question?
        Ms. Parnes. Yes, there is, and that the phones need to be
    answered in a timely fashion, and that is an issue that we
    pursued with the CRAs in 2000. We brought an action against all
    three CRAs for the failure to have those phone systems set up.
        Ms. Brown-Waite. What was the penalty?
        Ms. Parnes. We imposed a collective penalty. I believe it
    was $2.5 million. But if you have complaints from consumers
    that they are--from your constituents that they are getting
    caught up in some phone tree loop, it is something we would
    look to follow up with you.
        Ms. Brown-Waite. They are very frustrated. My office will
    ask the credit company to call the constituent, we don't want
    to get in the middle, we certainly don't want to know of the
    consumer's problem, they need to solve that with the credit
    agency. That is an ongoing complaint that we hear from
    constituents.
        Let me ask you another question. If someone listed,
    whenever you apply for credit you have to list your nearest
    relative not living with you. If in the meantime that nearest
    relative not living with you racks up a lot of credit card debt
    and becomes a deadbeat, does that impact your credit rating?
    Would the sins of the father fall to the son?
        Ms. Parnes. I don't think it should affect your credit
    rating unless they are actually on the account.
        Ms. Brown-Waite. Okay. So if they are the nearest relative
    that someone puts down, and the, quote, nearest relative
    becomes a deadbeat, that does not affect the person?
        Ms. Parnes. I think that it would only affect that
    consumer's rating if that relative was actually on the account.
        Ms. Brown-Waite. On the account.
        Ms. Parnes. Not if they are just listed as nearest kin.
        Ms. Brown-Waite. Okay. One last question.
        Someone asked me to get involved in an issue involving a
    mortgage company, and I said to them that, you know, they need
    to solve their problem with the mortgage company. But I pulled
    up that particular mortgage company online this morning, and I
    found a rash of lawsuits, of class action suits, against that
    company.
        Do you also--I mean, is it up to the consumer to let you
    know--right--to let you all know that there is a problem? I
    mean, when I saw comments on the Web site like this mortgage
    agency totally ruined my credit, and it was from like all over
    the United States, do you all also look at those kinds of
    things, or do you have to wait for an actual consumer
    complaint?
        Ms. Parnes. We do look at those things. We certainly get
    consumer complaints. We encourage them to contact the FTC when
    they are experiencing a consumer problem. But we absolutely go
    out and do our own look online with, you know, consumer
    organizations. We try and find out what is going on out there
    ourselves.
        Ms. Brown-Waite. Okay. I appreciate the information.
        And thank you, Mr. Chairman, and I yield back.
        The Chairman. The gentleman from Missouri.
        Mr. Cleaver. Thank you, Mr. Chairman. It appears as if we
    no longer have a debtors prison. We do have a debtors hell, and
    it unfortunately appears, by the evidence, to most negatively
    impact the poor.
        There was a study done in my State of Missouri by the
    Missouri Department of Insurance, which revealed that poor
    Missourians were very likely to have credit scores 12.8 percent
    lower than their wealthier counterparts.
        Do you have any reason to believe that people who are
    either poor or minority would have worse test scores because
    the test--the report also suggests or states that these lower
    test scores occurred even in minority areas where the residents
    had higher incomes than some of the predominantly white areas.
    So it is either you are poor and get a low test score or you
    are minority with high income and still get a low test score.
        Do you have any reason to believe that based on a person's
    race or based on their income level that they are automatically
    headed toward low test scores?
        Ms. Parnes. No. And one of the things in the credit scoring
    area that we are looking at is whether there is any
    relationship between credit scores and, you know, kind of
    minority status. And that is the report I mentioned earlier
    that we should be issuing this summer.
        Mr. Cleaver. You know, one of the strange things about
    this--my colleague from St. Louis is gone, Mr. Clay. He and I
    represent the two largest urban centers, but the poorest areas
    of Missouri are not the two urban centers. They are represented
    by our colleague and friend, Jo Ann Emerson. And because of
    some lynchings in the 1920's, most of the African Americans
    left southern Missouri.
        But southern Missouri is the poorest area of the State,
    predominantly white, and they receive a 12.8 percent lower
    credit rating. And so it seems to me that--you know, that if
    you are poor, you are in trouble in terms of your credit
    scores, and if you are African American, it doesn't matter
    whether you are poor or not.
        And it is troublesome, because if you pile that on with
    other problems that occur--let me also find out about how these
    credit scores are handed down, because right now, particularly
    in the urban areas, there are debt buyers. And these debt
    buyers go out and they buy the debt from a larger company that
    was unable to collect the debt, and then in many instances they
    sell it to a smaller company and a smaller company, and pretty
    soon somebody gets a good deal.
        And these--but by then it is a stale debt, what is called a
    ``stale debt,'' and this may be 3 years after someone got into
    trouble or 3 years after they filed bankruptcy and their debts
    were cleared. In some instances, we have found that these debt
    buyers put in place all kinds of means to collect debts, and
    the most effective has been to take people's cars and hold
    those cars until the debt is paid. In some instances, poor
    people, who don't know what to do, just turn over the keys
    because they don't know any better, even though they filed
    bankruptcy.
        Don't you think that there is a need now for some kind of
    massive reorganization, not tweaking what is going on, but
    massive reorganization in terms of the way debt is reported,
    and something needs to be done about the debt buyers? Do you
    agree?
        Ms. Parnes. Well, one of the things, the Commission has
    responsibility for enforcing the Debt Collection Practices Act.
    And some of the practices that you are describing may violate
    the FDCPA. The Debt Collection Practices Act was enacted 30
    years ago, and the industry has changed dramatically in that
    period of time. The Commission is holding a workshop on this
    issue later in the year to look at all of the changes that have
    taken place.
        Mr. Cleaver. Do you need any help from this committee?
        Ms. Parnes. Well, you know, it is certainly something that
    we will think about, and we will reach out to you, because you
    obviously have information on this with your constituents.
        Mr. Cleaver. I was talking more in terms of legislation.
        Ms. Parnes. We will--it is one of the things that we will
    be looking at during the course of our workshop. Do we need
    to--
        Mr. Cleaver. When is it?
        Ms. Parnes. I believe it is in October. But one of the
    issues that we will be looking at is whether we think there
    should be legislative changes, and if we do, we will certainly
    report back.
        Mr. Cleaver. Thank you, Mr. Chairman.
        The Chairman. I will say to the gentleman from Missouri
    that I know when he is interested in a subject, that it is of
    serious interest. And I will be asking him if he will kind of
    be our liaison to the FTC and pursue this. And we will have a
    better fix on it later on in the year.
        I thank the witnesses for a very reasonable morning. You
    have been very direct in answering the questions. We will have
    more to say, but you have advanced the process, and we
    appreciate it.
        And I will now call forward the second panel: Mr. Evan
    Hendricks, Mr. Stuart Pratt, Ms. Chi Chi Wu, Ms. Anne Fortney,
    and Mr. Leonard Bennett. And if people can move quickly, we
    would appreciate it. We will move promptly.
        I thank the panel for your sitting through it, but I do
    think it is helpful for you to have heard what we have heard
    and to hear our concerns. And we will begin with Evan
    Hendricks, who is the editor and the publisher of Privacy
    Times, and someone who is very familiar with the issue and the
    committee's work. Mr. Hendricks.

      STATEMENT OF EVAN HENDRICKS, EDITOR/PUBLISHER, PRIVACY TIMES

        Mr. Hendricks. Thank you, Chairman Frank.
        And I have to start by agreeing that the FACT Act was a
    legislative success, both for the long and hard work, and the
    bipartisanship. If I thanked every member who worked on it
    here, my 5 minutes would be gone, so I will save that for
    later.
        I think the credit reporting system is indeed the best in
    the world, or the worst except for all the rest. But you have
    me here to describe the chronic problems that we continue to
    have with it. And I think I will break them down into three
    categories for the committee's purposes.
        First, too often there is systematic disregard for the
    goals and spirit of the Fair Credit Reporting Act, especially
    when it comes to disputes and correcting inaccuracies. Too
    often CRAs, credit reporting agencies, furnishers, don't
    carefully consider consumers' disputes and they don't
    investigate them.
        Second, I think it became clear from the earlier panel,
    there is not systematic enforcement of the Fair Credit
    Reporting Act. Not only is there stalled rulemaking, but there
    has not been the kind of enforcement--vigorous enforcement from
    the early 1990's that we had, which went to the heart of the
    inaccuracy problems and the nonresponsiveness issues. And I
    share Ranking Member Bachus' disappointment, who as chairman of
    the subcommittee back then, spent all the time going through
    the hearings that led to passage of the FACT Act.
        I think, most importantly, you must recognize that--it is
    readily apparent to me--that industry has made a calculation
    that it is better to continue the current process of inadequate
    reinvestigations and nonresponsiveness, the system that is
    bringing increasing numbers of complaints to your offices,
    rather than make the changes that would be necessary to avoid
    these same old problems that we have had going back easily to
    the early 1990's.
        Industry's goal is to reduce the costs of compliance, and
    they pretty much are succeeding at that, sometimes at the
    expense of those unlucky consumers who become victims of
    chronic inaccuracy. One leading problem that we have is a very
    old problem. That is the mixed file; it is a central cause of
    inaccuracy. The modern version of it is identity theft. In both
    cases, inaccurate data on one consumer is dumped onto the
    credit report of another.
        Mixed files goes to the problem of partial matching. That
    means that credit reporting agencies don't require an exact
    match of Social Security numbers to conclude that two people
    are the same, and that is why they mix two people together.
        Part of this stems from their goal. And though the Act has
    the goal of maximum possible accuracy, the credit reporting
    agencies have the goal of maximum possible information that
    they can sell to their creditors to make sure they don't miss
    out on anything.
        Now, these problems were not new. They were identified in
    consent agreements going back to 1990 to 1992 with all three of
    the major credit reporting agencies. One of the things
    emphasized in that was the importance of using full identifying
    information, something the credit reporting agencies agreed to,
    yet they have continued partial matching, not only in general,
    but also after consumers notify them that the partial matching
    is what is causing their inaccuracy.
        And, quickly, the other corollary of partial matching is
    that if you have an exact match of a Social Security number,
    the credit reporting agencies will disregard a different name,
    a different address, a different city and State. And this has
    been a tremendous benefit to identity thieves, who know if they
    can just steal a Social Security number and apply for credit in
    your name, they can unlock the disclosure of your credit
    report.
        The other central problem, which my colleague Len Bennett
    will go into in more detail, is of inadequate reinvestigations.
    Industry wants to reduce costs through automation. They have
    set up a system that was required of them by Congress called e-
    OSCAR, what I call the ACDV Exchange, because it is an exchange
    of messages. But what this boils down to is, instead of truly
    investigating consumers' disputes, electronic messages are
    swapped between the credit reporting agency and the furnisher,
    and they compare identifiers, they compare what they reported
    before, and then conclude that what they reported before is
    what is still being disputed, so they call that ``verified as
    reported.'' This has led to many a maddening moment for
    consumers that know that false information is being verified.
        Again, this issue was identified back in the consent
    agreements of the early 1990's and figured into the 1996
    amendments of the FCRA, directing the credit reporting agencies
    to refer special cases to experienced investigators. But, to
    date, instead of doing that, credit reporting agencies are
    outsourcing their dispute investigations to low-wage countries,
    and pretty much don't try to have triage systems that identify
    complex disputes.
        I think in terms of--just one word, in closing, one word on
    enforcement and the problems with enforcement is, this new
    issue of the triggers is showing--credit reporting agencies are
    selling leads to people who have applied for mortgages. So you
    apply for a mortgage, and all of a sudden your name is sold to
    lots of other mortgage lenders.
        The FTC has concluded that this is okay. And I don't
    understand, how this can be a firm offer of credit in that
    context. And there are also a lot of anecdotes trickling in
    already that this is leading to bait-and-switch offers. Thank
    you.
        [The prepared statement of Mr. Hendricks can be found on
    page 139 of the appendix.]
        The Chairman. The trigger issue that I mentioned has come
    to the committee's attention from a number of sources, and we
    are going to address it as a separate issue. So I don't want to
    cut you off, but we will be back on that issue.
        And we are talking about some kind of legislation. A number
    of people have expressed concern.
        Next we have Stuart Pratt, who is the president and CEO of
    the Consumer Data Industry Association. Please, Mr. Pratt.

    STATEMENT OF STUART K. PRATT, PRESIDENT AND CEO, CONSUMER DATA
                          INDUSTRY ASSOCIATION

        Mr. Pratt. Mr. Chairman, and members of the committee,
    thank you for this opportunity to testify before you today. Let
    me just make some key points, and then we look forward to the
    Q&A process following, as he disappears below the dais.
        First, there is a careful balance which has to be
    maintained in a voluntary system of data-furnishing, and this
    point has been made very well by the first panel. There are
    18,000 institutions that furnish data to the consumer reporting
    system. They are updating 200 million credit reporting files.
    There are 3 billion updates a month, so there is a tremendous
    exchange of information that is going on. Regulatory overreach
    could have an effect on decisions by many of the smaller
    institutions when it comes to whether or not they choose to
    continue reporting.
        We do have a new and different context today for thinking
    about the credit reporting system in this country, and that is
    the free annual credit report. And as the first panel
    testified, 52 million file disclosures over a 2-year period
    were made. That is, bar none, the largest number of file
    disclosures ever in the history of the credit reporting
    industry that have been viewed by consumers.
        We will add to that, however, that 89 percent, or 46.3
    million, of those file disclosures did not result in a dispute,
    did not result in a question, did not result in a
    communication. That is really an extraordinary success rate.
    Whereas we used to have 25 or 30 percent dispute rates in the
    late 1980's, we now have dispute rates as low as 11 percent,
    and perhaps lower than that. There is some good news.
        Congress did believe that there needed to be more
    information about accuracy. They have asked the FTC to study
    it. I think this is really due to the fact that the GAO did
    conclude that many of the consumer group studies were not
    statistically representative, or had flaws in their
    methodologies, and we really had to get to the root question.
        I think, in part, these 52 million disclosures, the fact we
    have consumers looking at their reports is probably the best
    way for us to get to the root question of how consumers feel
    about and interact with their reports.
        Our members haven't waited for the law or the FACT Act to
    become effective in order to proactively manage the quality of
    information. Standardizing how data is reported to our members
    is a key to how we improve data quality. Use of the Metro 2
    data standard is climbing steadily following the enactment of
    the FACT Act.
        In 2005, 50 percent of data reported to us was reported in
    the Metro 2 standard; today, we see 81.3 percent of data
    reported in the Metro 2 standard. This is great progress. This
    is good news, and it is a result, in part, of the FACT Act's
    enactment.
        There are a number of rules that have already been
    testified that are not complete. We think they must be
    completed in order to fully evaluate the net effects of the
    FACT Act. One of those involves direct disputes. The GAO found
    that 64 percent of consumers did want to dispute directly with
    lenders, at least in certain cases.
        We have voluntarily set up a system to allow any lender to
    process a consumer's direct dispute in order to update the file
    at the credit reporting system. I can tell you that right now
    we are processing 35 million updates a year coming from this
    voluntary system of allowing furnishers to update outside of
    the regular cycle of reporting, outside of the dispute process.
    So we think this is a good, proactive step in the right
    direction.
        Ultimately, we can't assess the FACT Act with regard to
    accuracy without the rules and regulations. I think there is
    more that will be done on that.
        The reinvestigation process: In addition to accuracy, the
    FACT Act directly addressed reinvestigations. In fact, there
    was a study conducted with regard to reinvestigations. The FTC
    and the FRB concluded that the FACT Act should be given time to
    work, that no new legislative proposals were required at this
    time, and we agree with this conclusion.
        We have been proactive, however. In the absence of
    legislative recommendations, we know that consumers want
    responses that are both correct and timely when they submit a
    dispute. Our members' automated dispute system, called e-OSCAR,
    accomplishes this goal. In 72 percent of cases where disputes
    were submitted using this system, the response is received in 1
    to 14 days; that is less than half of the 30 days that the Fair
    Credit Reporting Act gives us.
        Consumer groups often state that the consumer reporting
    agencies are supplied with other information along with the
    dispute, including account applications, billing statements,
    and letters. We have looked into this further, and while our
    data is preliminary, we find that nearly 55 percent of all
    disputes are submitted telephonically or by the Web, so we are
    seeing a shift towards telephonic and Web-based communications.
        Of the 44 percent of consumers who submit, we found only 2
    to 3 percent of the samples we looked at submitted anything
    other than a simple form, a standardized form, or submitted a
    simple letter. So, in fact, there are not often cases where
    lots of other information has been submitted where that
    information is not being conveyed.
        Let me just close with this key point. We would love to get
    rid of credit repair; 30 percent of our resources are dealing
    with credit repair. One of the problems we have with credit
    repair is that it affects our processing of paper, which
    includes consumer-submitted information. So if we have to--I
    have even seen a sample of a letter from Bank of America
    ostensibly clearing a consumer's credit, except for the problem
    that the Bank of America letterhead was misspelled. So the key
    here is, if we could dial down on credit repair, we know that
    we could do an even more effective job of processing every
    consumer's dispute.
        I thank you, and I see my time has expired.
        [The prepared statement of Mr. Pratt can be found on page
    177 of the appendix.]
        The Chairman. Thank you.
        And next is Chi Chi Wu, a staff attorney with the National
    Consumer Law Center.

    STATEMENT OF CHI CHI WU, STAFF ATTORNEY, NATIONAL CONSUMER LAW
                                 CENTER

        Ms. Wu. Mr. Chairman, and members of the committee, thank
    you for inviting me here today. I am testifying on behalf of
    the low income clients of the National Consumer Law Center. And
    thank you for holding this hearing on the state of the American
    credit reporting system.
        Unfortunately, we are sorry to say, this is a system that
    is rife with errors, and that the dispute process, the safety
    net designed to correct those errors, is full of gaping holes.
    You have heard from Evan Hendricks about some of the types of
    seriously harmful errors in credit reporting, and how the
    credit bureaus could, but choose not to, fix them.
        There are other errors caused by, for example, debt buyers,
    that Representative Cleaver raised, such as reaging, freshening
    up the date on trade lines so that they don't drop off the
    credit report within the statutory 7 years.
        Now there appears to be some debate or discussion about the
    magnitude of the problems, about how many credit reports are
    inaccurate. At one point the industry had claimed that about 3
    percent of credit reports contained errors. Studies by consumer
    groups have shown as much as 25 percent contained serious
    errors. The FTC is studying the matter.
        We know that 10 million consumers are the victims of
    identity theft every year. And we have heard--we have had
    previous statistics that 22 percent of consumers who get their
    own credit reports file a dispute. Mr. Pratt had said today it
    is 11 percent.
        But whether it is 3 percent, 11 percent, 22 percent, or 25
    percent, the scale of the number of errors in credit record
    reporting is enormous anyway. When you have 200 million
    consumers with their personal information on file with the
    credit bureaus, even a 3 percent error means 6 million
    consumers, 6 million consumers whose lives are sabotaged by
    inaccurate credit reporting.
        And it could be 10 million from identity theft. Or if it is
    25 percent, you are talking 50 million consumers. Any way you
    slice it, we are talking about millions of consumers victimized
    by errors from faceless computer-generated reports.
        Now, we don't expect perfection. What the FCRA requires are
    reasonable procedures to assure maximum possible accuracy. And
    as Mr. Hendricks has shown, a lot of these errors are the
    result of unreasonable procedures.
        There is a second level of protection for accuracy, as
    well, the FCRA dispute process, which is the safety net.
    Unfortunately, as Mr. Len Bennett will speak to, the system--
    that system is fundamentally flawed with its perfunctory
    investigations and its formalistic reduction of serious
    controversies into two or three digit codes.
        Now, Mr. Bennett is going to talk about what the flaws are
    in the reinvestigation process, and I am going to give you the
    ``why.'' The first ``why'' is semantics, a disagreement over
    the meaning of the word ``accuracy.'' The bureaus and the
    furnishers apparently believe that accuracy means conformity to
    data records, not conformity to truth or conformity to reality.
        For example, the Mortgage Bankers Association has urged
    regulators to define accuracy as accurate reporting of the
    status of the account as reflected in the furnisher's records.
    In other words, it is accurate if it is in our records. If that
    becomes the standard under the section 312 guidance, whatever
    the furnishers's records show, that standard is not going to
    improve anything for consumers.
        Now, the second reason for these flaws is the age-old adage
    that money talks. It is critical to understand that the clients
    of the credit bureaus are not consumers; it is the creditors.
    So there is little economic incentive to conduct accurate
    reinvestigations, good, thorough reinvestigations, because that
    would cost the industry real money, money spent primarily to
    benefit consumers, people who aren't their real customers.
        The only thing that will force the bureaus to fix their
    system is vigorous enforcement of the FCRA. And what consumers
    need is very simple, something taken for granted in many other
    areas of the law, the right to ask a judge to issue an order
    saying, ``Fix that credit report.''
        Fix that credit report, with one minor exception, the FCRA
    does not provide consumers the right to ask for that. The FCRA
    is an anomaly in that respect. In most other areas of law,
    there is a Supreme Court decision that provides the basis for
    injunctive relief.
        Providing the courts with explicit authority to provide
    injunctive relief will not only improve accuracy, it will
    improve judicial efficiency. Consumers won't be compelled to
    file lawsuit after lawsuit when the bureaus repeatedly include
    inaccuracies or fail to comply with the FCRA. The alternative
    to seeking injunctive relief is to ask for more monetary
    relief.
        The last issue I wanted to talk about is a scrivener's
    error. FACTA inadvertently created some ambiguity about whether
    consumers can enforce the FCRA's adverse action notice
    requirements, the notice given when credit or insurance is
    denied on the basis of an unfavorable credit report.
        FACTA was intended to limit the remedies for another
    notice, the risk-based pricing notice. However, due to some
    ambiguous drafting, several courts have interpreted this
    limitation to apply to the prior adverse action notice. This
    was a scrivener's error.
        There had been no discussion among any of the stakeholders
    of reducing any private rights by FACTA, and based on notions
    of fair play, it should be fixed.
        We look forward to working with you, Chairman Frank and
    other members of the committee, on further examination of the
    credit reporting industry. Thank you for this opportunity.
        [The prepared statement of Ms. Wu can be found on page 208
    of the appendix.]
        The Chairman. Thank you.
        Next, Anne Fortney, a partner at the law firm of Hudson
    Cook.

        STATEMENT OF ANNE P. FORTNEY, PARTNER, HUDSON COOK, LLP

        Ms. Fortney. Chairman Frank, and members of the committee,
    thank you for this opportunity to appear before you. I am Anne
    Fortney, a partner in the Washington, D.C., office of the
    Hudson Cook law firm.
        Our firm specializes in consumer financial services. We
    represent a broad spectrum of creditors and other furnishers.
    My practice focuses primarily on issues arising under the Fair
    Credit Reporting Act and similar consumer protection statutes.
    Some of my clients are consumer reporting agencies; most are
    creditors and similar data furnishers.
        I bring to this practice more than 30 years' experience in
    the consumer financial services field, including service as the
    Associate Director for Credit Practices at the Federal Trade
    Commission. In that capacity, I was responsible for enforcing
    the Fair Credit Reporting Act. I have also worked as in-house
    counsel at a consumer credit card issuer.
        Currently, in addition to counseling clients, from time to
    time I serve as a consultant and expert witness in Fair Credit
    Reporting Act litigation.
        I commend you for holding this hearing on the important
    issues of accuracy of credit report data and the effectiveness
    of the consumer dispute process. My testimony today discusses
    the obligations of creditors and other furnishers of credit
    report information, how furnishers are responding to concerns
    about the accuracy of information furnished, and the resolution
    of consumer disputes.
        I believe my experience provides a unique perspective on
    FCRA compliance challenges facing furnishers. From this
    experience, I observe that although questions about credit
    report accuracy and the dispute process continue to generate
    legitimate concerns, furnishers take their FCRA compliance
    obligations very seriously, and they devote substantial
    resources to the fulfillment of their responsibilities. Their
    reasons for doing so include the following:
        First, in my experience, most creditors want to comply with
    the law. They also want to satisfy their customers and preserve
    their reputation. Accurate account information also benefits
    creditors in evaluating credit risks, monitoring default, and
    pursuing collections.
        In addition, creditors want to detect and prevent identity
    theft and other fraud, and take expedient measures to minimize
    their losses.
        Finally, if furnishers fail to provide accurate information
    or investigate disputes in compliance with the law, they will
    incur additional costs that are involved in handling escalated
    disputes. Their failure can also lead to enforcement actions
    and litigation.
        The furnishers with whom I work have implemented policies
    and procedures for dealing with consumer disputes, whether they
    receive disputes from a consumer reporting agency or directly
    from a consumer. It is my experience that furnishers do train
    employees about policies and practices so they can investigate
    disputes in a timely manner and accurately respond to them.
        The appropriate level of investigation depends on the
    nature of the dispute. Most disputes can be resolved by
    reference to the furnisher's own records, and these are
    disputes that are resolved to the customer's satisfaction. That
    is how most disputes can be handled.
        Escalated disputes, including those involving identity
    theft claims, merit the attention of specialized fraud
    investigation departments, and the creditors with whom I have
    worked have established such departments.
        The reasonableness of a furnisher's investigation should be
    measured by the nature of the dispute and the procedures that
    were followed in light of the information reasonably available
    to the furnisher at the time of the dispute. The fact that a
    dispute ends in litigation does not mean that the furnisher's
    investigation was unreasonable.
        In my experience, very few cases result in escalated or
    unresolved disputes, or ultimately in litigation. When disputes
    do end in litigation, some courts have agreed with consumers.
    Other courts have found a furnisher's investigation to have
    been reasonable as a matter of law. In other instances, and I
    think in most instances, the courts have held that the
    reasonableness of a furnisher's investigation is a factual
    question for the jury. It will depend on the circumstances.
        As a result, I do not believe the cases revealed any
    systemic problems that would warrant congressional action. I
    note in this regard the written statements of two witnesses at
    this hearing; Mr. Bennett and Mr. Hendricks have
    mischaracterized my expert witness testimony as a basis for
    personal attacks on my qualifications. I will not waste the
    committee's time in responding, other than to observe that such
    attacks are entirely inappropriate and are irrelevant to the
    important concerns of this committee.
        In conclusion, I observe that through the leadership of
    this committee, the FACT Act amendments were enacted to
    improve, in pertinent part, the accuracy and integrity of
    consumer report information and the resolution of consumer
    disputes regarding this data. I believe that when the FACT Act
    provisions are fully implemented, they will enhance credit
    report accuracy and dispute resolution. I believe that
    additional requirements should not be created until the overall
    effectiveness of these provisions can be determined.
        I am happy to answer any questions the committee may have.
    Thank you.
        [The prepared statement of Ms. Fortney can be found on page
    115 of the appendix.]
        The Chairman. Thank you, Ms. Fortney.
        And next Mr. Leonard Bennett, with Consumer Litigation
    Associates, who is testifying on behalf of the National
    Association of Consumer Advocates.

    STATEMENT OF LEONARD A BENNETT, CONSUMER LITIGATION ASSOCIATES,
        P.C., ON BEHALF OF THE NATIONAL ASSOCIATION OF CONSUMER
                               ADVOCATES

        Mr. Bennett. Good afternoon, Mr. Chairman. I am not a
    customary witness. This is my second time in Congress. I am a
    lawyer.
        Let me thank, first, the committee in general--both under
    its current chairmanship as well as that of Ranking Member
    Bachus when he chaired the subcommittee to which I spoke in
    2000--has been responsible and responsive to consumer
    interests. That is the position that my organization holds.
    That, I believe, is a fair statement of the position of the
    numerous other individuals with whom I regularly associate in
    Fair Credit Reporting Act work. This committee historically, as
    well as currently, has provided the appropriate level of
    attention, both sides of the aisle, and we certainly--we at the
    Advocates and we, the consumers we represent--appreciate that.
        I would suggest a couple points of agreement with the
    testimony. Since you have our written testimony already, I
    would state that NACA, and generally the consumers that we
    represent, agree with a few things. We do agree that there is
    currently sufficient legislation to prohibit certain types of
    conduct that are regular and that are common and that
    frequently are litigated.
        For example, Equifax in a recent case turned over--had to
    turn over under court order its history of lawsuits. And we
    note that it has been sued under the Fair Credit Reporting Act
    for failed investigations over 2,000 times since 2002. That
    number is fairly consistent with the other bureaus.
        There are remedies that are available. However, I spoke in
    2003, as with my conservative roots, and I made a statement in
    my testimony that we do not need an army of regulators, that we
    need to be able to have a private remedy to go out and to do
    something about this ourselves.
        We were concerned that you not take away States' rights at
    that point, and I now change my testimony. I think you need an
    army of regulators. The Fair Credit Reporting Act provides
    mandates to the Federal Trade Commission to do and to act and
    to enforce provisions this Congress has enacted. These include
    requirements already on the books that furnishers conduct
    reinvestigations.
        Ms. Fortney, I would publicly apologize to Ms. Fortney, to
    the extent she is offended by our testimony. But, for example,
    the case that is described, Ms. Fortney, was offered, by MBNA,
    a company that we litigated against and she represented.
        The Chairman. Ms. Fortney is not the subject of this
    hearing, so why don't we please confine ourselves to things we
    can legislate on.
        Mr. Bennett. Absolutely. On the question of what type of
    reinvestigation duty there is for a furnisher, the case at
    issue was Johnson v. MBNA, that held that the reinvestigation
    has to be reasonable. And to that extent, having read Ms.
    Fortney's testimony, we agree that testimony, that the position
    of our organization is that the reinvestigation obligation
    exists. It just has not been enforced.
        The other issue that we address in our testimony is the
    failure of the CRA, the bureaus' e-OSCAR reinvestigation
    system. There is no doubt, there cannot be doubt if you read
    the procedures, if you read the deposition testimony we have
    offered from the credit bureaus, that there is no discretion
    exercised.
        Equifax outsources all of its reinvestigations to a company
    in the Philippines that is paid 57 cents per dispute,
    regardless of how substantive. TransUnion does the same to
    India. All that is done by the CRAs is to code the disputes
    into one of three to four codes.
        I included the codes that the CDIA was discussing off the
    record. And the comments of the CDIA and the general counsel of
    TransUnion, behind the scenes, in deciding what to tell the
    Federal Trade Commission in the recent reinvestigation report
    are telling. It says, regardless, the fact that large numbers
    of disputes are coded using three to four top codes will be
    evident and may contribute to the ongoing perception that
    dispute codes are very generic and less effective.
        Our concern is that without a requirement that all relevant
    information be provided, a system already set up by the credit
    bureaus exists since 2005 to forward those scanned documents,
    that whatever is done to strengthen the furnisher
    reinvestigation provisions, there will not be a means to convey
    the disputes from the bureaus to the furnishers.
        The National Consumer Law Center has highlighted two other
    concerns we have addressed in our testimony as well. We are
    concerned that a provision 615, section 615 of the FCRA, may
    have inadvertently repealed the private cause of action for a
    provision to require an adverse action notice in the event of a
    credit denial. Currently, Mr. Chairman, Virginia is the only
    State in which a judge has ruled that a creditor has to provide
    a notice of adverse action now. Everyone else has held it has
    been repealed.
        I appreciate the honor of this testimony, and I am ready to
    answer any questions.
        [The prepared statement of Mr. Bennett can be found on page
    55 of the appendix.]
        The Chairman. Thank you. Virginia being the one exception,
    whether or not that survives the Fourth Circuit would be an
    interesting question.
        I thank the panelists for calling our attention to that
    statutory issue, and the staff will be looking into it and will
    be back. There are obviously two questions, one substantively,
    whether or not it is a good idea, but also whether or not it
    was intended. And we will bring that before us.
        Also, we will repeat to Mr. Hendricks, the question of
    triggers, frankly a number of privacy groups have complained,
    Realtors have complained, mortgage bankers. There is a serious
    set of complaints, and we do intend to address that.
        Let me ask, Mr. Pratt, one semantic, minor, but you were
    talking about information supplied by the lender and then you
    meant furnisher. I assume you meant them somewhat the same?
        Talking to Mr. Pratt, you talked about information
    furnished. You said several times about the lender, then you
    said furnisher. You are talking about the merchant, the point
    of sale?
        Mr. Pratt. In fact, there is a much larger community of
    data furnishers than just a lender, but the preponderance of
    the evidence of data is lenders. And so, yes, sometimes we do
    use the terms interchangeably.
        The Chairman. At the point of sale. The people where the
    transaction actually took place or the credit card company?
        Mr. Pratt. Any time referring to data furnisher in our
    testimony or today we are talking about a lender or other data
    source that is supplying data to one of the national consumer
    reporting services.
        The Chairman. Not the merchant where the sale took place?
        Mr. Pratt. Well, ultimately if the merchant opens up a line
    of credit, then that retailer becomes a data furnisher.
        The Chairman. Right. But if they have gone through, it is
    the credit card company?
        Mr. Pratt. Certainly. Yes, sir.
        The Chairman. I have one question for everybody.
        It seems to me that despite the differences, there is a lot
    of agreement that it would be a good idea if we had section 312
    spelled out and we had the procedures, and you would all have
    some input as to what they would be, so I have this question
    for each of you. If you don't have an answer right now, get
    back to me.
        It may well be--and I don't think all the blame here is on
    the regulators--we have asked six very busy regulators to come
    together. You know, it is almost like we independently
    recreated the United States Senate in terms of inability to
    come to a conclusion. And if we were to decide, after further
    conversations and lack of action, to give one agency the lead
    responsibility, not simply as convener, but as ultimate
    decider, certainly to get input from the others--I think that
    is the thing we are going to have to consider to take with
    section 312, the six agencies, and put one of them and say, you
    formulate this rule, you check with everybody else.
        Which one, if we were to do that, who would you recommend
    it would be? Let me start with Mr. Hendricks.
        Mr. Hendricks. Thank you, Mr. Chairman.
        Clearly, it has to be the Federal Trade Commission. They
    have the most history on this. Obviously, there are
    reservations about each one, but the FTC has the most history,
    going back to the 1970's.
        The Chairman. Mr. Pratt?
        Mr. Pratt. It is a tough decision for us to either pick our
    regulator or not.
        The Chairman. You can say, ``none of the above,'' if you
    want.
        Mr. Pratt. I think the easy answer is--the FTC has great
    experience with the FTC, but the Federal Reserve and other bank
    agencies have great experience with what it takes to be a data
    furnisher. So I think that when the FACT Act was woven
    together, I think they were right to make those agencies work
    together, because you have to bring forward all that--
        The Chairman. Is there any way we could do it? In fairness
    to them, when you take six very busy agencies, and we have
    given them a lot to do, you really multiply the differences--it
    is not additive--to get all six of them together.
        Ms. Wu?
        Ms. Wu. It would absolutely have to be the FTC. The FTC is
    the only agency that has taken public enforcement action and
    levied penalties under the Fair Credit Reporting Act. We are
    unaware of any public enforcement actions by the banking
    regulators against any furnishers.
        Chairman Frank, of course you have heard the consumers
    groups' complaints about the banking regulators and their
    failure to be sufficiently oriented toward consumer protection
    when their own budgets are paid by the very banks that they
    regulate.
        The Chairman. All right. Let me just say here that I think
    there is a problem. I don't think it is the case because of how
    the budget is paid for; I think it is an institutional role
    that they have. And I do not think that people aspire to be a
    member of the Federal Reserve Board of Governors so they can
    arbitrate disputes about bank checks. I think they are thinking
    about making world economic policy.
        I wouldn't attribute it to budget, but I do agree with the
    problem.
        Ms. Fortney.
        Ms. Fortney. The Federal Trade Commission, of course, has
    the greatest experience dealing with the Fair Credit Reporting
    Act. However, the FTC's jurisdiction is limited with respect to
    financial institutions, and so if I could suggest another
    alternative, I think if you had just the Federal Trade
    Commission and the Federal Reserve Board, because the Federal
    Reserve Board does have a lot more experience with banks. And
    as you know, section 312 of the rules that need to be
    promulgated would have a direct impact on furnishers.
        Therefore, I think both agencies should be involved.
        The Chairman. That is a good point, although--and I realize
    you argue here or advocate as lawyers, given the law. If we
    were to change this, it would have to be changed statutorily;
    and that the same statute could, of course, give the FTC, for
    those limited purposes, whatever powers over the banks they
    need. Or if we have this problem, I should say, because the FTC
    and the Fed have a joint jurisdiction over that part of the
    Federal Trade Act about unfair and deceptive practices, and the
    Federal Reserve needs to issue rules.
        As far as rulemaking, in fact the OCC and the FDIC as
    recently as our last hearing objected to the fact that the Fed
    hasn't issued the rules. But I appreciate that.
        Mr. Bennett?
        Mr. Bennett. Certainly, Mr. Chairman, it would have to be
    the Federal Trade Commission. And a number of the documents
    that we have turned over and will continue to turn over, the
    behind-the-scenes interactions between the Federal Trade
    Commission and the CDIA evidence that the substantive knowledge
    was coming from the Federal Trade Commission, not the FRB.
        The Chairman. I am inclined to agree, partly because I do
    think the nature of the problem here is more an unfairness
    consumer dispute. It is kind of hard to get the bank regulators
    to be concerned with more than safety and soundness, and I do
    think this kind of consumer protection is more in the nature of
    the FTC.
        But we will be considering it. And I do take Ms. Fortney's
    point that if we were to do that, we would have to give them
    commensurate authority.
        The gentleman from Georgia.
        Mr. Price. Thank you, Mr. Chairman. I appreciate the
    panel's testimony. And I think it is important to point out a
    couple points before I ask a question of the entire group.
        I think there has been a blurring of the line between
    identity theft and credit reporting errors, and I think it is
    important that we keep that in mind. Every time that a credit
    report is in error, there is an inaccuracy there. It doesn't
    necessarily mean that trips to an identity theft, and I think
    that we inadvertently alarm folks when we seem to blur that
    line. So I would caution all of us about that.
        I am interested in this issue of accuracy. And I think it
    was Ms. Wu, you stated that the accuracy, the definition of
    accuracy by the CRAs is conformity to data records. And so I
    would ask each of you to give your opinion about what you
    believe the responsibility of the CRAs is, if any, in verifying
    the information that they receive from the furnishers.
        Ms. Wu. Should I start?
        Mr. Price. Please.
        Ms. Wu. The CRAs should have--they have a responsibility to
    independently review the results of the investigation and to
    evaluate them. They should not merely parrot what the
    furnishers say, but actually look over the results and look--
    and what the furnisher should be required is not only to just
    say ``verified,'' but to respond with--if the question is
    whether the consumer really was a joint cardholder on a credit
    card account or merely an authorized user, they should be
    required to come up with the account application with the
    consumer's signature on it, showing that they actually applied
    for the card, as merely opposed to being added on as an
    authorized user. And that documentation should go to the CRAs,
    and the CRAs should independently evaluate that.
        Mr. Price. Mr. Pratt?
        Mr. Pratt. I don't think we agree with that. We do agree
    that the consumer reporting industry should fully and
    completely take a consumer's dispute and that we should convey
    it to the furnisher who supplied the data. And that is, of
    course, what the law does. And the law contemplates a role for
    us and it contemplates a role for the data furnisher.
        I think data furnishers want accurate data. I think
    consumer reporting agencies want accurate data. I say that for
    the record because I am a little concerned that there has been,
    in this blurring of lines, this sense that somehow we are
    claiming victory because we don't really care whether the data
    is particularly good or not.
        Our members are evaluated every day by the lending
    community, and the data has to be good in order to make good
    lending decisions. But we do. And, in fact, we don't convey
    just a code on its own when we believe more information should
    be carried forward.
        You know, we are all, by the way, pulling lawsuits out of a
    hat in order to try to show that something is right or
    something is wrong. And so, you know, for example here is a
    case from the Southern District of Texas where the e-OSCAR
    system was complimented by the judge as being a very effective
    system for conveying the dispute. And the reason we are not
    going to get into a tit-for-tat is, I think, it is pretty
    counterproductive.
        Mr. Price. Sure.
        Mr. Pratt. Our goal is to try to make sure that the e-OSCAR
    system works well, that it effectively conveys a dispute. In
    about 30 percent of the disputes, we include additional
    information along with the code to ensure that the data
    furnisher has all that it needs to investigate.
        But to put the CRAs in a position of being a small claims
    court, to try to adjudicate and be the oracle of truth is the
    wrong place for it to be. The lender will know the decision.
        I will say one other thing, and that is direct disputes in
    certain cases will allow consumers to interact directly with
    the data furnisher, which may help ameliorate communication
    issues where there is a particularly complex dispute. It may be
    an identity theft-related dispute. That is one of the reasons
    why we have a system in place that facilitates a lender being
    able to update a file as a result of a direct communication
    between a consumer.
        Mr. Price. I appreciate that. Maybe I can elevate the
    question, or go to the 30,000-foot level, because my time is
    going to run out quickly.
        The Chairman. The gentleman can take another minute or two.
        Mr. Price. The consumers' desire to increase their
    purchasing power. Businesses desire to sell products.
    Businesses want to make certain that they provide appropriate
    credit, and that the credit that they provide isn't--creditors
    want to provide appropriate credit, and they don't want to take
    significantly greater risk than they ought. And CRAs assist
    creditors in determining risk.
        So in all of that cycle it is unclear to me what the motive
    would be, or the incentive would be, for the CRAs or the
    furnishers to provide inaccurate information. Because the whole
    cycle, in order for it to work and have the consumer get the
    product that they desire, is contingent upon everybody
    providing appropriate information. Is that not accurate?
        Ms. Fortney. I think that is a very accurate statement, and
    I think one to keep in mind is that generally when furnishers
    respond to a dispute, they also--if the dispute is--indicates
    that information in the file that has been reported is
    inaccurate or needs to be updated, then the furnisher will not
    only give that information back to the consumer reporting
    agency, they will also update their internal files. And that is
    very important for furnishers, because they rely on their
    internal records for things like account review and, you know,
    collection activities, and basically they need accurate
    information in order to handle this aspect of their customers'
    business.
        Ms. Wu. May I respond?
        Mr. Price. Sure. I hope.
        Ms. Wu. Furnishers do--some furnishers do have motives for
    inaccurate information. For example, Representative Cleaver
    talked about debt buyers.
        As I have mentioned, there is a lot of inaccuracy when it
    comes to debt collectors and debt buyers. They deliberately
    change the date on the debt to keep it alive, to keep it fresh.
    The FCRA says, come off after 7 years, so there is motive.
        The other thing is, the system doesn't have to be perfectly
    accurate for the credit system to work. It can be 75 percent
    accurate or 89 percent accurate, but woe be unto you if you are
    part of the 25 percent or 11 percent or even 3 percent for
    which it is inaccurate.
        Mr. Pratt. Actually, I don't think that is right. I am
    sorry.
        Mr. Price. Mr. Pratt, go ahead.
        Mr. Pratt. Three things, real quickly.
        We agree that we focused on debt collectors and debt
    buyers, because we do think that we need to make sure the
    system is working well in that case. And, in fact, in our
    letter to the ANPR, to the Federal Reserve, we included
    communications that we sent out to every data furnisher who is
    a debt collector in the system, saying you must supply the
    original date of delinquency--which, by the way, goes all the
    way back to 1996 amendments to the FCRA--so that we always
    calculate the 7-year period from the original date of
    delinquency.
        So this renewal process is a concern for us as well, and we
    want that original date of delinquency. So that is point number
    one. So there is some symmetry there, I think, between concerns
    at the table.
        We don't think there is a woe be to you, though, when a
    dispute is processed. For example, the FTC interviewed all of
    our members who--and one of our members indicated that they
    have a 5 percent redispute rate. In other words, 95 percent of
    the time, a dispute was successfully processed the first time
    through.
        Now, again, statistics are statistics. I am sure we will
    all start arm-wrestling over those just a little bit. But I
    just want you all to know that it is not a woe unto all of you
    that once you get into a dispute process, you inevitably fail.
    That is just not correct. Many disputes are simple, clean, and
    easy.
        And I will stop there.
        The Chairman. Mr. Hendricks, and then we will finish.
        Mr. Hendricks. Thank you, and let me try and tie some of
    this together.
        The system breaks down and accuracy breaks down for
    instance when, like, the furnisher wants to collect a debt, a
    very effective way to do that is park the unpaid debt on the
    credit report. Now that is entirely appropriate if the consumer
    owes the debt. But it is always divorce situations, when there
    is a clear notification that only one spouse--we see a lot of
    cases where the spouse, who is not responsible but still has
    good credit, they end up going after that.
        And then the issue of accuracy, the problem is that the
    credit reporting agencies see their role as faithfully putting
    on the credit report what the furnishers provide to them. And
    so I have seen testimony from the outsource credit report
    personnel that says when they see the consumer's dispute and
    they see the credit granter's response, the instructions are to
    put on what the credit granter says because they are faithfully
    carrying out that role. And that is when accuracy breaks down.
        The law says that the credit reporting agencies are not
    supposed to be small claims courts, but they are supposed to
    carry out their grave responsibilities with a sense of
    impartiality and a respect for fairness and privacy. And that
    is when it breaks down.
        Mr. Price. Thank you. I appreciate the indulgence of the
    Chair.
        The Chairman. Thank you. And I thank the witnesses. This
    has been useful; even the contention is useful for us.
        The gentleman from Missouri.
        Mr. Cleaver. Thank you, Mr. Chairman. Would any of you
    agree that small claims courts have become almost an extension
    of collection agencies? If you look at the statistics, the
    person brought to a small claims court rarely ever wins.
        Mr. Bennett. In fact, so. A jurisdiction in our State,
    Virginia Beach, my part of Virginia, the process is to turn
    over all of the warrants to the collection attorneys and the
    debt collectors an hour before court and let them fill out the
    papers. So that is very common.
        Congressman, we have also talked in our testimony about how
    the new method of small claims court collection, as well, is to
    slam your credit, to put a medical bill in the credit, or put a
    cell phone or a disputed item as the alternative. So both of
    those tools are still readily used, particularly against, we
    will say, everyday consumers.
        Mr. Cleaver. That probably can only be handled by State
    legislators or legislatures, but it is a problem. In fact, I
    don't even know of anybody who was taken to small claims court
    who won. I am sure there is somebody, you know, somewhere out
    here.
        I have two other quick questions. These debt buyers that I
    spoke of earlier generally buy uncollected debts, and they buy
    them in bulk. And I have been calling them ``stale debts,''
    because something could have happened 2 or 3 years earlier that
    would remove that particular debt from a person who is being
    pursued, the most notable of which would, of course, be
    bankruptcy.
        Who regulates debt buyers? Who investigates debt buyers?
        Ms. Fortney?
        Ms. Fortney. They are under the jurisdiction of the Federal
    Trade Commission.
        Mr. Cleaver. That is exactly what I thought.
        Mr. Hendricks. And one of the tricks that the debt buyers
    use is that if something is 7 years old and about to fall off
    your credit report, it hardly hurts your credit score, but if
    it is reaged and made to like it is just this year, it slams
    your credit score.
        Mr. Cleaver. Yes.
        Ms. Wu. Another source of problems is that debt buyers
    often buy the debts that are the result of identity theft. And
    in my testimony, there is a cite to a case from Georgia, where
    a man's ex-girlfriend signed him up for a credit card, and it
    was sold to Asset Acceptance. Asset Acceptance, by the way, is
    a furnisher, and the bureaus have accepted them. At one point,
    they may have booted them out of the system, but they are back.
        Mr. Cleaver. You answered my third question. I know that
    there are people who always fight regulations. I mean, any time
    you talk about regulations, it is wrong, and their belief is
    that, you know, everything will work itself out. You know,
    people who commit murder will eventually stop, and people, you
    know, no matter what they are doing, it will work out.
        The problems that we have discussed today, do you think
    they will just work out? If I can go just quickly through all
    of you, then I am finished.
        Mr. Hendricks. No. I think there is a real tension building
    that is going to be played out in private enforcement.
        Mr. Pratt. Our view is, some of these issues, such as the
    debt buyers issues, are likely to be addressed somewhere within
    the regulatory process that is not complete, but I think we are
    looking for a timeline to get to, to bring to completion.
        Ms. Wu. No, I don't they are going to work out, not without
    vigorous enforcement and not without greater rights of
    consumers to defend their rights in court.
        Ms. Fortney. I think that problems to a certain extent will
    always continue. I think that the regulations that are being
    promulgated should address a lot of those problems. And I think
    the issue that we will continue to deal with is the extent to
    which the problems are isolated instances, as opposed to
    systemic problems.
        Mr. Bennett. With all due respect, I don't think they will
    go away. The Federal Trade Commission 312 rules, for example,
    won't have a private cause of action. There are numerous
    provisions--almost all the provisions currently governing
    furnishers do not have a private cause of action. So unless the
    Federal Trade Commission not only accomplishes the rulemaking,
    but actively enforces it, you are left with--the only
    enforcement entities out there are private lawyers, and there
    are not enough of us. There are maybe 20 in the country that
    can survive a summary judgment battle against the credit bureau
    lawyers, who represent their clients coast to coast.
        Mr. Cleaver. Thank you.
        The Chairman. Let me just ask a couple follow-up questions
    based on that.
        Mr. Hendricks--I suppose I should know; I don't--how does
    one reage a debt when it is about to expire?
        Mr. Hendricks. Mr. Pratt referred to the date of first
    delinquency. That is when you measure the beginning, when 7
    years after that it is supposed to fall off. And so it is
    either date of first delinquency, or sometimes the field is
    called date of last activity. It is when you buy the debt, you
    are buying a 4-year-old debt, and then you manipulate that
    debt, so instead of showing it as 4 years old--
        The Chairman. Let me ask a question now, when you say,
    ``manipulate it,'' I hope it isn't the case that the simple
    fact of my buying a debt that is of a certain age starts the
    clock over again. That isn't the case, is it?
        Mr. Hendricks. No, but it is the way they report it to the
    credit agencies.
        The Chairman. That would be an inaccurate report then.
        Mr. Hendricks. That would be unfair, too.
        The Chairman. Yes.
        Mr. Pratt. Our view would be, the seller should make sure
    it conveys the date of delinquency to the buyer.
        That is really the solution.
        The Chairman. That is an enforcement thing.
        Mr. Pratt. And that the law requires today that be
    reported--
        The Chairman. We will look into that.
        Let me just ask, the other question is to Ms. Fortney and
    Mr. Pratt, because both Ms. Wu and Mr. Bennett talked about the
    interpretation that we had sub silentio repeal of the private
    right of action.
        Do you agree that was something that was not done
    intentionally? And what would your view be to our restoring it?
    Mr. Pratt?
        Mr. Pratt. We didn't work on that section of the FACT Act.
    It relates to the date of furnishers and the date of--
        The Chairman. Okay. Ms. Fortney?
        Ms. Fortney. I think the statute is clear, and that is why
    the vast majority--
        The Chairman. That wasn't the question.
        Ms. Fortney. Okay. I know.
        The Chairman. Then why don't you answer it?
        Ms. Fortney. The answer is, I don't know that whoever
    drafted that--
        The Chairman. Fair point. But would you like to leave it
    the way it is?
        Ms. Fortney. I am sorry?
        The Chairman. Would you object if we restored the right of
    action that is in the bill?
        Ms. Fortney. I don't have an opinion on that, sir.
        The Chairman. Oh, okay. Then it is two to nothing, two
    abstentions.
        I thank all of the witnesses. This has been useful. Several
    things you have mentioned have brought some things to our
    attention that we are going to act on, and I appreciate your
    testimony.
        Before the hearing is--do you want to ask anything? If you
    don't mind, the gentleman from Texas has been very diligent.
    Before we get to him, I want to ask unanimous consent to put
    into the record a statement regarding credit reports from Terry
    Clemans, who is the Executive Director of the National Credit
    Reporting Association, Inc.
        Without objection.
        And Mr. Green will be recognized.
        Mr. Green. I will be brief, Mr. Wu. You have given comments
    with reference to the right to sue, the right to require
    injunctive relief; is that correct?
        Ms. Wu, excuse me, someone in my office just got demoted,
    they had ``Mr.''
        Mr. Hendricks. You just got promoted.
        Mr. Green. I will solemnly gavel after this next question.
        Ms. Wu, you spoke of mandatory injunctive relief and you
    indicate that this is not available currently. Can you please
    just comment on this?
        Ms. Wu. Certainly. I would be happy to.
        The majority of the case law from the district courts has
    found that there is no right to seek injunctive relief, in
    other words, the right to ask a court to issue an order saying
    fix that credit report, fix that error. A couple of courts, I
    think, in California have held the other way, but the case law
    is not looking good on it.
        Most other areas, there is a Supreme Court decision that
    says the Federal courts have an inherent right to issue
    injunctive orders, but for some reason the courts interpreted
    the FCRA to say that there is no injunctive relief for
    consumers. The FTC can get injunctive relief, but not private
    consumers.
        Mr. Green. Well, quickly, do you have a recommendation?
        Ms. Wu. A recommendation would be to add an explicit right
    to seek injunctive relief in the FCRA.
        Mr. Green. Does anyone want to share in that opinion?
        Ms. Fortney. I think it would be ill-advised for Congress
    to give consumers the right to seek injunctions in these
    situations. Most of the lawsuits, as the testimony has
    indicated, involve individual disputes involving various
    special circumstances, and I think it would be inappropriate to
    have injunctive relief available that could have much farther
    reaching consequences. I think it is important to leave the
    injunctive relief in the hands of the Federal Trade Commission.
        Mr. Bennett. I am in court all the time. This is all I do.
    I have the largest volume of FCRA cases and Federal cases in
    Virginia, and we are regularly getting questions from our
    Federal district judges, can I enjoy in that because we see the
    same behavior again and again. It is, I expect in Virginia,
    where they prosecute criminal violations, inundating the
    docket. Somebody has to go to Federal Court and litigate a full
    monetary damage claim in order to obtain relief, instead of
    simply an initial injunction to obtain the correction of the
    problem or, alternately, to allow a U.S. District court judge,
    confined by the law, to order changes to violations that are
    recurring.
        Mr. Green. Let me quickly poll the panel. My assumption,
    Mr. Bennett, your response is ``yes,'' you would want to accord
    injunctive relief; is that right?
        Mr. Bennett. Yes, sir.
        Mr. Green. Ma'am?
        Ms. Fortney. No.
        Mr. Green. Ms. Wu?
        Ms. Wu. Yes.
        Mr. Green. Mr. Pratt?
        Mr. Pratt. I would have to consult with our counsel.
        Mr. Green. Mr. Hendricks?
        Mr. Hendricks. Yes, because when people have errors on
    their credit report they are not thinking about money, but
    their reputation, and what they really want is to get it fixed.
    And as Ms. Wu pointed out, this is the solution, so I strongly
    support that.
        Mr. Green. Are there any words of art I am to utilize
    before?
        No. The meeting is now adjourned.
        [Whereupon, at 1:05 p.m., the hearing was adjourned.]

                                A P P E N D I X

                                 June 19, 2007

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