[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




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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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