[Senate Hearing 112-760]
[From the U.S. Government Publishing Office]






                                                        S. Hrg. 112-760


                MAKING SENSE OF CONSUMER CREDIT REPORTS

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

                                HEARING

                               before the

                            SUBCOMMITTEE ON
             FINANCIAL INSTITUTIONS AND CONSUMER PROTECTION

                                 of the

                              COMMITTEE ON
                   BANKING,HOUSING,AND URBAN AFFAIRS
                          UNITED STATES SENATE

                      ONE HUNDRED TWELFTH CONGRESS

                             SECOND SESSION

                                   ON

EXPLORING THE CONSUMER CREDIT REPORTING MARKET, CONSUMER UNDERSTANDING 
      OF CREDIT REPORTS, AND THE EXPANDED OVERSIGHT OF KEY MARKET 
             PARTICIPANTS IN THE CREDIT REPORTING INDUSTRY

                               __________

                           DECEMBER 19, 2012

                               __________

  Printed for the use of the Committee on Banking, Housing, and Urban 
                                Affairs




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            COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

                  TIM JOHNSON, South Dakota, Chairman

JACK REED, Rhode Island              RICHARD C. SHELBY, Alabama
CHARLES E. SCHUMER, New York         MIKE CRAPO, Idaho
ROBERT MENENDEZ, New Jersey          BOB CORKER, Tennessee
DANIEL K. AKAKA, Hawaii              JIM DeMINT, South Carolina
SHERROD BROWN, Ohio                  DAVID VITTER, Louisiana
JON TESTER, Montana                  MIKE JOHANNS, Nebraska
HERB KOHL, Wisconsin                 PATRICK J. TOOMEY, Pennsylvania
MARK R. WARNER, Virginia             MARK KIRK, Illinois
JEFF MERKLEY, Oregon                 JERRY MORAN, Kansas
MICHAEL F. BENNET, Colorado          ROGER F. WICKER, Mississippi
KAY HAGAN, North Carolina

                     Dwight Fettig, Staff Director

              William D. Duhnke, Republican Staff Director

                       Dawn Ratliff, Chief Clerk

                     Riker Vermilye, Hearing Clerk

                      Shelvin Simmons, IT Director

                          Jim Crowell, Editor

                                 ______

     Subcommittee on Financial Institutions and Consumer Protection

                     SHERROD BROWN, Ohio, Chairman

            BOB CORKER, Tennessee, Ranking Republican Member

JACK REED, Rhode Island              JERRY MORAN, Kansas
CHARLES E. SCHUMER, New York         MIKE CRAPO, Idaho
ROBERT MENENDEZ, New Jersey          MIKE JOHANNS, Nebraska
DANIEL K. AKAKA, Hawaii              PATRICK J. TOOMEY, Pennsylvania
JON TESTER, Montana                  JIM DeMINT, South Carolina
HERB KOHL, Wisconsin                 DAVID VITTER, Louisiana
JEFF MERKLEY, Oregon
KAY HAGAN, North Carolina

               Graham Steele, Subcommittee Staff Director

         Michael Bright, Republican Subcommittee Staff Director

                                  (ii)














                            C O N T E N T S

                              ----------                              

                      WEDNESDAY, DECEMBER 19, 2012

                                                                   Page

Opening statement of Chairman Brown..............................     1

Opening statements, comments, or prepared statements of:
    Senator Corker...............................................     2
    Senator Akaka
        Prepared statement.......................................    26

                               WITNESSES

Corey Stone, Assistant Director for the Office of Deposits, Cash, 
  Collections, and Reporting Markets, Consumer Financial 
  Protection Bureau..............................................     3
    Prepared statement...........................................    26
    Response to written questions of:
        Chairman Brown...........................................   135
Stuart K. Pratt, President and CEO, Consumer Data Industry 
  Association....................................................    13
    Prepared statement...........................................    27
    Response to written questions of:
        Chairman Brown...........................................   137
Chi Chi Wu, Attorney, National Consumer Law Center...............    15
    Prepared statement...........................................    38
    Response to written questions of:
        Chairman Brown...........................................   139

              Additional Material Supplied for the Record

Senators Merkley, Schumer, Menendez, and Brown letter to Richard 
  Cordray, Director, Consumer Financial Protection Bureau........   143
Richard Cordray, Director, Consumer Financial Protection Bureau, 
  response letter to Senators Merkley, Schumer, Menendez, and 
  Brown..........................................................   145
National Association of Credit Services Organizations letter to 
  Senators Brown and Corker......................................   147
Letter to Senate Banking Committee and House Financial Services 
  Committee in support of S. 2149 and H.R. 2086 from a coalition 
  of organizations, including the National Homebuilders 
  Association, the Mortgage Bankers Association, the American 
  Medical Association, and the Consumers Union, among others.....   149
LexisNexis articles from the Columbus Dispatch's investigative 
  series on credit reports.......................................   151
New York Times article, ``Discrepancies on Medical Bills Can 
  Leave a Credit Stain'', by Tara Siegel Bernard.................   208
Associate Press article, ``Medical Bills Can Wreck Credit, Even 
  When Paid Off'', by Carla K. Johnson...........................   212

                                 (iii)

 
                MAKING SENSE OF CONSUMER CREDIT REPORTS

                              ----------                              


                      WEDNESDAY, DECEMBER 19, 2012

                                       U.S. Senate,
                     Subcommittee on Financial Institutions
                                   and Consumer Protection,
          Committee on Banking, Housing, and Urban Affairs,
                                                    Washington, DC.
    The Subcommittee convened at 10:06 a.m. in room 538, 
Dirksen Senate Office Building, Hon. Sherrod Brown, Chairman of 
the Subcommittee, presiding.

          OPENING STATEMENT OF CHAIRMAN SHERROD BROWN

    Senator Brown. The Subcommittee will come to order. Thank 
you for joining us. I will welcome Mr. Stone in a minute. We 
will have two panels today.
    I thank Senator Corker. This may be our last hearing 
together like this on the Subcommittee, as Senator Corker moves 
on to bigger and better things, and I appreciate his 
cooperation and his good sense in asking tough questions during 
his Subcommittee hearings over the last couple of years.
    Americans, as we know, depend on access to credit to fund 
our education, purchase homes, to run their businesses. That is 
why we need to address credit reports, one of the most 
significant and least understood elements of the consumer 
credit system.
    This hearing highlights yet another benefit of Dodd-Frank 
and the new Consumer Financial Protection Bureau. In the past, 
the Federal Trade Commission has had authority over furnishers, 
those who send financial information to the credit bureaus. 
Those furnishers are, in most cases, banks. But it did not have 
the authority--the FTC did not have the authority to examine 
the credit bureaus themselves. They could only bring 
enforcement actions.
    The CFPB has comprehensive authority now to examine the 
operations of credit bureaus, to shed new light on the credit 
reporting industry, about which we do not know much in many 
ways, and to write new rules of the road. That is just one 
reason why the CFPB is so important.
    Though consumers are entitled to one free copy of each of 
their credit reports each year, one from each of the three 
bureaus, if they choose to do that, the CFPB finds that only 
one in five consumers request a copy of their credit year 
report in any given year. Last year, eight million consumers 
disputed more than 30 million items in their credit report, 
challenging their voracity or accuracy in one way or another. 
Even though each American, every American who is in the credit 
system, as most Americans are, each American has three credit 
reports, one for each one of the bureaus, an error on just one 
credit report can affect that consumer's ability to access 
credit.
    A former colleague of mine in the House of Representatives 
recently contacted my office. His wife had passed away earlier 
this year. When he applied for a mortgage, he was denied 
because one of his credit reports listed him as deceased. When 
he called the bureau to tell them that he is still alive, he 
was told that the error would take 30 days to correct, and 30 
days is a long time if you are in the midst of a financial 
transaction, obviously. He got in touch with us. We fixed the 
problem for him, something he should not have had to do. But he 
still does not know what other credit reports say.
    Unfortunately, that is just one story, admittedly, but 
these stories are all too common. An investigative series in 
one of my State's largest newspapers, the Columbus Dispatch, 
found that more than half of consumers who filed credit report 
complaints with the FTC, back when it was done that way still, 
had been unable to resolve their issues through the normal 
dispute process with credit bureaus. Problems abound, even for 
consumers with nearly flawless credit.
    One of the Nation's foremost bankruptcy experts visited my 
office last week. She has nearly perfect credit and recently 
received an auto loan with a rate of 1 percent. She then 
received an adverse action notice in the mail explaining she 
may have received a higher than expected rate because of 
adverse information on her credit report. It is hard to think 
she could have gotten a rate below 1 percent, but it was not 
explained, and like most hard-working Americans, she did not 
have the time to really pursue the follow-up with the 
organization that sent the notice.
    These examples, in my mind, show that the current system 
does not work always for consumers. It does work and is quite 
profitable for the banking industry, who are the main customers 
of those three bureaus, admittedly, but not for consumers who 
ultimately fact the impact of credit ratings, credit scores.
    Creditors make money off of loans with higher rates. Their 
ability to report negative information too often gives them 
leverage over consumers. Credit bureaus are largely paid by the 
lenders, by the furnishers, in many ways, by the lenders 
themselves when they go back to the bureaus and ask for 
information. Conducting thorough investigations costs money and 
cuts into profit margins. Under the law, credit bureaus and 
creditors have some general commands, but few concrete 
obligations.
    Too often, the burden is on the consumer, whose credit 
rating and credit score may not be accurate and whose interest 
rates on their financial transactions may be higher as a 
result. The burden is on consumers who do not know enough about 
their credit reports--too few people ask for them--or who do 
not have time to navigate the all-too-often arcane and 
confusing system.
    I look forward to hearing from our witnesses how we can 
help to work together to create a system that really protects 
consumers' interests, is more transparent and more 
understandable to all of us who use our credit system in this 
country.
    Senator Corker.

                STATEMENT OF SENATOR BOB CORKER

    Senator Corker. Thank you, Mr. Chairman. I appreciate you 
calling the hearing and I have enjoyed working with you over 
the last couple of years, and I certainly look forward to the 
testimony of our witnesses and learning more about some of the 
issues around credit reporting. So thank you for being here and 
I look forward to your testimony.
    Senator Brown. Thanks. Thank you, Senator Corker.
    Corey Stone is Assistant Director for the new Consumer 
Financial Protection Bureau's Office of Deposits, Cash, 
Collections, and Reporting Markets. Immediately prior to 
joining CFPB, Mr. Stone served as a Fellow at the Center for 
Financial Services Innovation, was Chair of Start Community 
Bank in New Haven, Connecticut, visiting clinical lecturer at 
Yale Law School's Community and Economic Development Clinic. 
From 2006 to 2008, he served as CEO of Pay Rent, Build Credit, 
an alternative credit bureau helping underserved thin file, he 
called them, consumers to demonstrate their creditworthiness 
using their rental and bill repayment history. He served as a 
member of the Federal Reserve Board of Governors Consumer 
Advisory Council. He is a graduate of Harvard and the Yale 
School of Management.
    Mr. Stone, welcome, and thanks for your public service.

STATEMENT OF COREY STONE, ASSISTANT DIRECTOR FOR THE OFFICE OF 
 DEPOSITS, CASH, COLLECTIONS, AND REPORTING MARKETS, CONSUMER 
                  FINANCIAL PROTECTION BUREAU

    Mr. Stone. Chairman Brown, Ranking Member Corker and 
Members of the Subcommittee, thank you for the opportunity to 
testify today on the consumer credit reporting industry.
    Credit reporting plays a critical role in consumers' 
financial lives. Credit reports on consumers' financial history 
and behavior can determine their eligibility for credit cards 
or car loans and home mortgage loans, and they often affect how 
much consumers pay for their loans. The industry is critical in 
our economy. It promotes access to credit that consumers can 
afford to repay. Without credit reporting, many consumers 
likely would not be able to get credit at all.
    Credit reports are also often used in a number of noncredit 
decisions about consumers. They can be used to determine 
whether a consumer is offered a job, a car, homeowners' 
insurance, or rental housing.
    The CFPB is the first Federal Government agency that 
supervises both consumer reporting companies and the largest 
banks and many of the nonbanks that provide them with 
consumers' credit information. This responsibility is a 
priority of the Bureau. Last year, the CFPB published one 
report to Congress on credit scores and another report on 
whether remittance information might help consumers develop 
positive credit scores. Earlier this year we published a 
Consumer Advisory about credit reports. In July, the CFPB 
adopted a rule to extend its supervision authority to cover 
larger consumer reporting agencies. In September, the CFPB 
released its examination procedures for these companies along 
with a study examining credit scores--the three-digit numbers 
used to assess consumers' creditworthiness. In mid-October, the 
CFPB began handling individual complaints about consumer 
reporting companies. If a consumer files a complaint with a 
credit reporting company and is dissatisfied with the 
resolution, the CFPB is available to assist.
    As many of us at the CFPB conduct outreach all over the 
country to learn how consumers hurt by the financial crisis are 
recovering, we have heard many express frustrations about their 
credit reports or credit scores. And we have heard a 
considerable amount of confusion and misunderstanding about 
credit reporting.
    Last week, the CFPB issued a new report based on 
information provided by the big three consumer reporting 
companies--Equifax, Experian, and TransUnion--and their 
industry association. The report highlights the basic systems 
that credit reporting companies use to collect, organize, and 
maintain consumer credit information. It is one of the most 
comprehensive looks at the consumer reporting industry to date. 
And it represents a significant step forward in understanding 
this industry and making it more transparent for consumers.
    Some of the key findings in the report are, first, more 
than three quarters of the trade lines in the credit bureaus' 
databases come from the top 100 furnishers of information. 
These are largely the large banks and nonbank lenders--and now 
the largest debt collectors and debt buyers--who fall under the 
CFPB's supervision. This means for the first time a Federal 
agency has the tools to examine and understand how well all 
parts of the credit reporting system are working--including 
both the sources of credit information and the credit bureaus 
themselves.
    Another finding, more than a third of consumer disputes 
relate to collections items. In fact, the information provided 
by the collection industry is five times more likely to be 
disputed than information from the mortgage industry.
    Another finding: A relatively small percentage of 
consumers--approximately just 20 percent--look at their credit 
reports each year. This is a shame because--while we do not 
know for sure how common inaccuracies are--it is likely that 
many additional consumers could identify and correct 
inaccuracies if they reviewed their credit reports.
    Another finding: Most complaints are forwarded to the 
furnishers that provided the original information when they are 
submitted to the credit bureaus. Credit reporting companies on 
average refer 85 percent of complaints on to the furnishers 
that provided the original information. But documentation that 
consumers mailed in to support their cases may not be getting 
passed on to the data furnishers for them to properly 
investigate and report back to the credit reporting company.
    The CFPB's report should help clarify the confusing world 
of consumer reports. It should help to inform policymakers and 
consumers about how this important industry works. If consumers 
know more about how these companies report on credit use, 
consumers should be better able to make decisions for 
themselves and use credit more wisely.
    Thank you for inviting me to testify today. I will be happy 
to answer any questions you have about our report.
    Senator Brown. Thank you, Mr. Stone.
    Expand on the last things you said, that if a consumer that 
is signing up, that is doing a refi of their home, of their 
home mortgage, wants to challenge her credit score and talks to 
one of the three companies that does that, typically--and sends 
documentation of something that she said is inaccurate--
typically, the credit bureau does not go back to the original 
furnisher of the information with the--I mean, goes back to 
them, but not with the documentation that the consumer sent to 
the bureau, is that correct?
    Mr. Stone. That is correct. If the consumer sends in paper 
documentation, if they were filing the complaint by mail or 
faxed it in or provided it in an email, that is correct.
    Senator Brown. There is also my understanding the CFPB's 
study noted that only 255 characters of consumer-supplied text 
typically can be provided. Some do not even have a text field 
available. That makes the consumer complaint less likely to be 
examined in the way that the CFPB would recommend. Is my 
understanding right about that?
    Mr. Stone. Well, we do not know what happens when the 
complaint gets to the furnisher. We know that the text field 
can be filled in either by the consumer themselves when they 
file a complaint online, or if they call it in or mail it in, 
it can be translated onto a text field, that same text field, 
by a representative of the consumer reporting agency.
    Senator Brown. So my understanding is the law requires the 
credit bureau supply the furnisher with all relevant 
information. So is that a violation of the law, that they have 
not provided? Partly, it is a technology issue that, I would 
think, could be fixed easily enough, I would think. And, 
second, it is just an issue that they make a determination not 
to send the furnisher all this information. So is that a 
violation of at least the spirit of FCRA, or it is a violation 
of the law? What is it?
    Mr. Stone. Senator, our purpose in putting together this 
paper, which is characteristic of the work of all of our 
markets teams, is, first, to be descriptive rather than 
prescriptive, so what we are describing is what we heard. We 
have many tools with which we can make determinations about 
whether the law is being violated or not, and in this case, 
that is what is going to happen. So we have found that this 
information is not being forwarded.
    Senator Brown. Is it a fair statement to say that consumers 
must provide evidence when they challenge a credit score, but 
that creditors are taken at their word?
    [Pause.]
    Mr. Stone. It is--to describe the system that way, I think, 
would be accurate. So you are saying that the consumer can 
provide information, it is not going to get to the furnisher 
necessarily in the form in which they provide it. It does get 
converted into codes. It can be put into this limited text 
field and it can get to the furnisher----
    Senator Brown. Or may not entirely be passed on.
    Mr. Stone. It may not be passed on if it is a separate 
document.
    Senator Brown. And the consumer--the bureau, then, makes 
this determination by--I mean, there is no outside player here. 
There is the consumer going back to the bureau, the bureau 
going to the furnisher, perhaps with less complete 
documentation, and then the bureau ultimately making the 
decision which will affect the consumer's credit score, the 
consumer's interest rate, the consumer's access to credit 
generally, but all done internally with no real disinterested 
party making a determination, correct?
    Mr. Stone. I would not say it is fair necessarily to 
characterize the credit bureau as not a disinterested party, 
but their interest is in making sure that the complaint gets 
passed on and they fulfilled that obligation. They have created 
codes and mechanisms to automate it as much as possible. And so 
the question is--is there more information that a furnisher 
could use to do a better investigation or not? So there are 
pieces of information that we know are not getting through.
    Senator Brown. One last question and I will turn to Senator 
Corker. The three bureaus make the great preponderance of 
their--the revenues for the three bureaus overwhelmingly come 
from the financial institutions, not from the consumer, 
correct?
    Mr. Stone. That is correct.
    Senator Brown. So the most important customers to the 
bureau are the furnishers and those whom they send the credit 
scores and share the credit information with the financial 
institutions, correct?
    Mr. Stone. That is correct, although I would point out that 
there is roughly a billion dollars of revenue earned by the 
three credit bureaus we are talking about today from consumers 
through credit monitoring services that they sell directly or 
wholesale through various partners.
    Senator Brown. Give me a couple of examples of--I know you 
pay $11 if you want your credit score. That does not make up 
much of the billion dollars, I assume. So where does it come 
from----
    Mr. Stone. There is a subscription service that consumers 
can sign up for. That is how some of the 40 million consumers 
who get their reports, that we referenced in our report, are 
actually getting them. They answer an ad online or they go to 
one of the three bureaus or other people who sell these 
subscription services and say, yes, I would like to get a copy 
of my bureau reports and an educational score once a month, or 
once a quarter, and they pay $8.99 or $12.99 or some monthly 
subscription fee for that service.
    Senator Brown. OK. Thank you.
    Senator Corker, thanks.
    Senator Corker. Thank you, and I know we have some 
witnesses that are coming right behind you. I will just ask one 
question, and hopefully we can get through everybody.
    Has anyone raised any concerns about the accuracy of credit 
scores and their ability to predict? It seems to me that based 
on what our office knows, they have been very good predictors 
of behavior, generally speaking, and I know we are talking 
about a lot of different things today, but have there been any 
questions in your office about their ability to predict 
behavior, generally speaking?
    Mr. Stone. Thank you, Senator. I am glad you asked that 
question. Obviously, people focus in on the score because it is 
a single number and it is easier to tell where you rank----
    Senator Corker. Right.
    Mr. Stone.----compared to all the underlying information. 
Credit scores that lenders use are these three-digit numbers 
that are built on the information that is in the credit report. 
So one concern one needs to have is whether the underlying 
information is accurate. When it is not accurate----
    Senator Corker. Yes, I understand----
    Mr. Stone.----then the score will be less predictive than 
when the information is accurate.
    Senator Corker. But, generally speaking, just out of 
curiosity, is there any sense in your office different than, 
generally speaking, they are pretty predictive, is that 
correct? I mean, I know there may be some outliers and I 
understand that there are some things that need to be rectified 
as it relates to consumers' ability to ensure that, you know, 
the credit ratings they have are accurate and they have access, 
and I value all those things. But, generally speaking, if 
someone's credit rating is correct and the information is 
there, are they fairly predictive for the future and useful in 
that regard?
    Mr. Stone. Yes, Senator, the lenders have found them 
useful, and that has to be one way in which we need to judge 
them. But lenders depend on these scores. The mortgage industry 
depends on a specific score, or a specific set of scores. We do 
find increasingly that in the auto industry and the credit card 
industry, that lenders use multiple scores when they do 
underwriting decisions. They will not rely on just a single 
score, and they are increasingly relying on scores derived from 
other kinds of information besides that found in credit 
reports. So these are different kinds of scores and information 
is overlaid on top of the original score and the original 
credit report that would have been pulled as part of an 
application to make a determination about whether to accept an 
application and how to price that account.
    Senator Corker. So I would assume, since lenders lose a lot 
of money if they make bad loans, that having an indicator or a 
predictor of how people are going to handle their finances is 
something that is an asset and actually is an asset especially 
to people who keep their credit in good shape. Would that be 
true or false?
    Mr. Stone. It certainly helps people who keep their credit 
in good shape and where that credit is reported accurately. One 
of the concerns that we need to be aware of in the building of 
credit is the impact that the very first credit lines that 
consumers establish have on their credit history. Credit scores 
rely on credit history and, therefore, scores are really using 
the past to predict the future.
    And we know that different consumers start out with 
different kinds of products and the different products may have 
different likelihoods of resulting in good or bad payment 
behavior. One of the questions we are beginning to think about 
is whether bad loans and bad products make bad repayers and, 
therefore, can result in harm to consumers' credit histories.
    Senator Corker. Well, listen, I appreciate your efforts to 
ensure that when something happens on someone's credit report 
that is inaccurate and unfounded and, candidly, makes it very 
difficult for them to navigate the society we live in, I 
appreciate your efforts to rectify those things and make it 
easier for people to be able to overcome that. I think that is 
an important thing. At the same time, obviously, they have some 
value and have been good predictors, and hopefully, when we are 
through with this process, we will end up in a place where they 
are still a useful tool, but at the same time, people who have 
been maligned inappropriately have the ability to rectify 
those, and I thank you very much for your testimony.
    Mr. Stone. Thank you, Senator.
    Senator Brown. Thank you, Senator Corker, and I think we 
concur with that. That is where we want to get to. And I 
understand the valuable service that they provide.
    Before turning to Senator Merkley, I ask unanimous consent 
to include the following documents in the record of this 
hearing: The National Consumer Law Center's report, ``Automated 
Injustice''; second, a statement by the National Association of 
Credit Services Organizations; and third, articles from the 
Columbus Dispatch investigative series on credit reports that I 
mentioned in my opening statement. Without objection, so 
ordered.
    Senator Brown. Senator Merkley.
    Senator Merkley. Thank you very much, Mr. Chairman, and I 
am going to jump right into an issue I have some concern about, 
which is the role of medical debt in consumer reports.
    I found it fascinating with just my family of four, how 
many billings I get in the mail, so many letters saying, ``This 
is not a bill, but here is the information,'' and after about 
four or five of those, ``Here is a bill, but you need to check 
with your other insurance to see if it is covered,'' et cetera. 
And it has not been unusual for us to look at it and go, well, 
this should have been covered, and so we call up and say, 
``This should have been covered,'' and virtually always, we are 
right and it just simply was not processed the first time 
through. Maybe the insurance company just kind of stamped it 
and hoped we would not call back and say, ``Well, but wait a 
minute.''
    I guess the portrait I am trying to lay out is, just from 
my personal experience, enormous confusion about what you are 
paying when, and people simply having to go through a complex 
set of hoops in order to really determine, do I really owe this 
or should it have been covered by insurance company number one, 
insurance company number two. Was it a mis-billing? It does not 
even look like it was the right charge for what I went in for.
    So I have looked at all that and proposed that settled 
medical debt--in other words, after you have sorted through all 
that mess but you have reached an agreement on what you will--
and you have paid it--should not be included in your credit 
score. And I thank very much the Chair of the Subcommittee, 
Senator Brown, for cosponsoring that.
    But I wanted to ask about your sense of this. Before I do, 
I want to enter several things into the record. I would like 
the letter that the Chairman and I sent to CFPB's Director 
Richard Cordray on the need to address the impact of medical 
debt; his response back to us; a support letter by a broad 
coalition that includes the National Homebuilders Association, 
the Mortgage Bankers Association, the American Medical 
Association, the Consumers Union; and then two recent articles, 
one from the AP and the other from the New York Times, 
highlighting the disastrous effect of medical debts on 
consumers' credit and their financial futures many years down 
the line. If I could enter those things into the record, I 
would appreciate it.
    Senator Brown. Without objection.
    Senator Merkley. So, Mr. Stone, I wanted to get your 
perspectives on this. In your recent report, you cite research 
showing that 40 percent of all consumer disputes at credit 
reporting agencies related to collections events. But before we 
jump into just that piece of it, overall, this issue of the 
complexity of medical debt and resolving it, whether it is a 
good predictor, whether it should be part of the credit 
reporting system.
    Mr. Stone. Senator, I appreciate your bringing this issue 
up. It is definitely a source of concern. The fact that 
collections items are disputed at very high rates is not a 
surprise, just because negative information gets disputed more 
often than positive information. So we should expect high rates 
on collections items.
    As I think you have pointed out in some of your own 
correspondence, over half of collections items about 10 years 
ago in a Fed study come from medical collections items, which 
is way out of proportion to the role that the health care 
system plays in the economy compared to debt. So----
    Senator Merkley. Is that the Federal Reserve study you are 
referring to?
    Mr. Stone. That is the Federal Reserve study, correct.
    Senator Merkley. Yes, 2003? OK.
    Mr. Stone. So it is clear that consumers face enormous 
challenges just understanding medical bills, who is liable for 
what, dealing with insurance payments. Consumers get with a 
single procedure bills from multiple entities, some of whom 
they may not have even been aware they were being treated by--
the anesthesiologist, the ambulance driver----
    Senator Merkley. The laboratory that is involved----
    Mr. Stone.----the laboratory, all of that stuff, and it is 
not clear when a bill is a bill.
    One of the complicating factors is also that many health 
care providers outsource not just collections, but their whole 
accounts receivable function to agencies who manage the 
billing. And so the timing of when an item gets charged off or 
is treated as a collections item and then ultimately gets 
reported to a consumer reporting agency can vary considerably 
from provider to provider. There is not a single set of rules 
out there that happen in the medical billing environment that 
have evolved, unlike what has evolved in, say, the credit card 
industry, where a charge-off happens at a particular period of 
time.
    So some collections items show up earlier and before even 
some of the responsibilities on who owes what or a formal 
invoice may have been received.
    Senator Merkley. So, given all that, when a person has 
worked their way through all that and settled the debt, should 
it still be on their credit report?
    Mr. Stone. So there are a couple of issues raised by that 
and I think that those are questions that you will have to 
answer in the process of developing your legislation. But one 
of those is simply----
    Senator Merkley. No, no, no. I am asking you for your 
expertise. I have already developed the legislation.
    Mr. Stone. So here are the things----
    Senator Merkley. I already know my answer to it.
    Mr. Stone. Here are the things that we are looking at, and 
I have to tell you, we are looking at them now and I do not 
have firm answers. But one question, obviously, is to what 
extent medical items, or certain medical items--and many of 
these are very small, as you know, $100, $75----
    Senator Merkley. Seventy percent under $250.
    Mr. Stone. Yes, tiny items. Are they predictive if they are 
not paid? Many consumers find out about them only when they go 
to apply for a loan and they learn that there is a collections 
item. So the idea that the collections item for those consumers 
was something that was willfully not paid or that could not be 
paid is not something that you can infer. And so for those 
people, one could argue that it would not be predictive of 
anything regarding ability or willingness to pay, which is kind 
of the way credit history is used and reflected in credit 
scores.
    A second issue is where in the system one wants to hold 
accountable the filter for determining what is and what is not 
predictive. We have the credit reporting agencies who collect 
the data, and then we have score developers such as FICO and 
VantageScore who translate the underlying data into something 
that is predictive of creditworthiness. And so they have the 
ability to leave out information that is unimportant. They have 
the ability to distinguish between items that have been there 
for a long time versus not, or between the large items and 
small items, and those are things that a score developer could 
determine. We actually have purchased a panel of anonymized 
consumer data from one of the credit reporting agencies that 
will have this medical data and from which we will be able to 
make a determination about the predictiveness of this data.
    Senator Merkley. Terrific. I am going to have to cut you 
off there because I am way over my time. I do want to take note 
that VantageScore does throw out most medical data, and my 
understanding is they do not consider it to be predictive. But, 
still, this data is in the scores and it is affecting millions 
of Americans. And again, I am only arguing that when people 
have settled these, gone through the complex process of 
determining which insurance company should have paid what, they 
settle it, but by that time, it has already been reported and 
it is on their credit record for 7 years. Between the fact that 
a lot of the industry does not consider it predictive and the 
fact it does so much damage, it seems to me it ought to come 
out and I look forward to the results of your study. Thank you. 
Thank you, Mr. Chair.
    Senator Brown. Thank you, Senator Merkley.
    Before calling on Senator Akaka, I believe this probably 
will be his last hearing, at least in the Banking Committee, 
and I appreciate your work, especially the work you have done 
for the underbanked and the unbanked, how that is a persistent 
problem in our society, and we have looked to your leadership, 
Senator Akaka, on that issue and also on financial education. 
Thank you for all of your work in all of that. I yield to 
Senator Akaka from Hawaii.
    Senator Akaka. Thank you very much, Mr. Chairman. Chairman 
Brown, it is so good to be here with you and the Committee. I 
have enjoyed working with all of you here. Of course, we are 
here to help the people of America.
    First, let me just say thank you very much for holding this 
hearing today and for all of your work on consumer protection 
issues, Chairman Brown. I know you agree, when Americans make 
wise economic decisions and are protected from bad actors, our 
economy and Nation are stronger for it.
    It is fitting that a hearing on the topic of consumer 
protection will be my last as a Member of the Senate. Financial 
literacy and consumer protection issues are very close to my 
heart. So while my Senate career is coming to an end, I know 
there are many of my colleagues who will continue to empower 
consumers to make the best financial decisions possible. So 
thank you very much to my colleagues here on the Committee, 
also Chairman Johnson and Chairman Brown and Senator Reed, 
Senator Merkley, Senator Hagan, and others who I know share my 
strong interest in consumer protection issues.
    I also appreciated the dedicated work of the Committee and 
the staff and personal office staffs, as well, because we have 
worked together very well to do so much to support the work 
that we do, so thank you, again, as well.
    And I want to thank our witnesses for your tireless work on 
consumer protection.
    Mr. Chairman, I ask that my full statement be added in the 
record----
    Senator Brown. Without objection.
    Senator Akaka.----and I would like to ask just a couple of 
questions.
    Senator Akaka. We are glad to have you here, Mr. Stone. I 
am so glad to see that the Consumer Financial Protection Bureau 
is working out here. I look forward to your work.
    I believe that it is important to have a complete picture 
of an individual's financial record when calculating a 
meaningful credit report. I fought to include a report on 
remittance transfers in the Dodd-Frank provisions. Last year's 
CFPB report on the remittance transfers mentioned research that 
the CFPB planned to do to address the potential for using 
remittance histories to enhance credit scores. So my question 
to you is, can you please discuss any progress being made in 
those research projects.
    Mr. Stone. Yes, Senator. First, let me thank you for making 
sure that that report requirement was inserted in Dodd-Frank. 
It is an important issue of what kinds of information are going 
to help provide a complete history that gives all consumers an 
opportunity to get access to credit.
    As you pointed out, we did provide an initial report last 
year and that dealt with some of the strengths and weaknesses 
that we would anticipate would be involved in using remittance 
history. For context, lots of people who send remittances are 
people who have thin files, so it is a great opportunity for a 
new kind of information to enrich our understanding of their 
ability to pay and financial wherewithal. A downside of 
remittance information is that it is not an obligation and, 
therefore, does not provide indications of whether an 
obligation has been met.
    I am happy to say that since we completed that report, we 
received a sample of information from one of the largest 
remittance providers, transaction history, all anonymized on a 
very large sample of consumers. That information has been 
matched with those consumers' credit histories so that we have 
remittance history and we have how those consumers performed on 
their credit obligations subsequent to that remittance history. 
Right now, we are doing the analysis to determine how useful 
the remittance transactions are in predicting the credit 
performance and repayment history of those consumers. So we 
expect that report to be finished in the second quarter of 
calendar year 2013.
    Senator Akaka. Well, thank you very much for that.
    The CFPB report discusses the many ways that credit reports 
affect the lives of Americans, from finding a job to finding a 
home, two fundamental topics when we talk about moving our 
economy forward. Yet, less than one in five consumers accesses 
their credit report. Please tell me, what is the CFPB doing to 
encourage people to access their credit reports?
    Mr. Stone. Thank you, Senator, for asking that. It is 
important to us that consumers access their credit reports, and 
we have a number of mechanisms to do so. As you know, we have a 
whole Consumer Education and Engagement Division. That office 
posts blogs. We develop content that gets distributed through 
all kinds of community partners. We also make sure people are 
aware of research that shows what the benefits are of people 
seeing their credit reports and knowing their credit reports 
and knowing their credit scores. In fact, there was a very 
recent article from the Federal Reserve Bank of Boston that 
showed some of the potential benefits of consumers knowing 
their scores when they apply for credit and the handicap of not 
knowing their scores.
    I want to call attention to our particular constituent 
offices that were part of the formation of our Consumer 
Education and Engagement Division. We do special outreach to 
service members through our Office of Service Member Affairs 
headed by Holly Petraeus. We have an Office of Students. Our 
Office of Older Americans is headed by Skip Humphrey. These 
offices have developed specialized channels for communicating 
what in particular about credit reports and scores is important 
for these particular groups to know, and we are trying to make 
the message available to each of these groups at the most 
teachable moments.
    Senator Akaka. Well, thank you very much. May I then ask 
you to please pass my aloha to Holly Petraeus. She did come out 
to Hawaii, and particularly to talk to the military about 
financial literacy, and she did a great job, and the staff that 
came with her, also. So I am proud of what you folks are doing 
to help the people of our country.
    Mr. Stone. Thank you, Senator. I will be happy to pass on 
your greetings to Mrs. Petraeus.
    Senator Akaka. Thank you very much.
    Thank you, Mr. Chairman.
    Senator Brown. Aloha. Thank you, Senator Akaka.
    Thank you very much for your testimony, Mr. Stone.
    The Chair will call up Stuart Pratt and Chi Chi Wu, if the 
two of them would join us.
    [Pause.]
    Senator Brown. I thank the two of you. Stuart Pratt is 
President and CEO of the Consumer Data Industry Association 
headquartered in Washington. He has advised U.S. Presidential 
and gubernatorial task forces on the importance of the free 
flow of information to the economy. He has testified often 
before Congress. He serves as an advisor to the Department of 
Commerce regarding E.U.-U.S. trade negotiations and has 
counseled private and government entities overseas on 
responsible uses of consumer data. He serves on the U.S. 
Chamber of Commerce's Committee of 100 and on the Advisory 
Council for the National Foundation for Credit Counseling. He 
received his Bachelor's degree from Furman University and 
conducted his graduate studies in business at the University of 
Maryland. Welcome, Mr. Pratt.
    Ms. Wu, Chi Chi Wu, has been a staff attorney at NCLC for 
over a decade. Her specialties include fair credit reporting, 
credit cards, refund anticipation loans, and medical debt, 
which Senator Merkley asked about. Before joining NCLC, she 
worked in the Consumer Protection Division at the Massachusetts 
Attorney General's Office and the Asian Outreach Unit of 
Greater Boston Legal Services. She is a graduate of Harvard Law 
School and the Johns Hopkins University. She is coauthor of the 
legal manuals Fair Credit Reporting and Collection Actions, and 
a contributing author to Consumer Credit Regulation and Truth 
in Lending. Welcome, Ms. Wu.
    Mr. Pratt, would you begin. Thank you.

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

    Mr. Pratt. Chairman Brown and Ranking Member Corker, thank 
you for the opportunity to be here before you today.
    Let me just touch on a few highlights of the written 
testimony that we have already submitted. To start off, I think 
that we talked a little bit about credit reports and whether or 
not consumers really understand them or not, but they really 
are the strongest advocate for me as a consumer. When I walk 
into the bank, the bank does not know me. Lenders do not know 
me. Forty million of us move every year in this country. We 
move to new cities. We need to engage in business. And the 
credit report is the bridge that tells my story. It is about my 
hard work. It is about how I pay my bills. It is about the good 
decisions I make. It is about personal responsibility. So 
credit reports at their very best are an incredible indicator 
to others of everything about me that you want somebody else to 
know about me.
    In fact, USAID, the International Finance Corporation, Bank 
of International Settlements, and the World Bank are all so 
deeply involved--they are so supportive of credit reporting 
that they are involved in spreading this good news around the 
world. And, in fact, I serve on an International Task Force for 
Credit Reporting Standards to try to advance credit reporting 
in other parts of the world, as well.
    The system is big. I think the CFPB's report laid it out 
very well. Two-hundred-million consumers plus have a credit 
report in this country. About 10,000 lenders and other data 
furnishers are supplying data. There are about 1.3 billion 
accounts in the credit reporting system and about three billion 
updates every month going into that system, as well.
    With all of that said, our members are confident of the 
accuracy of the system that we have, and they should be. They 
work on accuracy 7 days a week.
    We provided the FTC with data free of charge so that they 
could conduct their study of accuracy, and I think it is 
imminent. They are going to release their report soon, and we 
will see what they have to say.
    We did not wait for the FTC, however, to measure the 
question of accuracy, and, in fact, we wanted to answer the 
question that consumers most often asked of us, and that is, is 
there an inaccuracy on my credit report that is consequential, 
one that is likely to affect the mortgage loan for which I am 
making application? And I think there is some good news in all 
of that.
    We contracted with an outside group, the Political and 
Economic Research Council. It was an arms'-length grant that we 
gave to them. They controlled the data. They controlled the 
results. They controlled the press releases. That was their 
study, not ours. And, in fact, it was a very powerful study. It 
was peer reviewed by professors at the Wharton School of 
Business, University of Pennsylvania, Duke University, and UNC-
Chapel Hill.
    So what does it mean to me as a consumer? Well, about less 
than 1 percent of the time will a dispute and a correction of 
data my credit bureau filed result in a 25-point change in my 
credit score, and less than a half-percent of the time, or 
about a half-percent of the time, I will see myself move from a 
higher-priced pricing tier to a lower-priced pricing tier. So 
99.5 percent of the time, I am not likely to see something that 
my credit bureau filed that is really going to impair my 
ability to engage in the marketplace and to lose out on the 
offer that I really am seeking in the first place.
    Reinvestigations, another big issue that we have talked a 
little bit about already this morning. We also asked consumers 
how they felt about reinvestigations, and most importantly, the 
result of the reinvestigation. We did this in tandem with the 
work that the PERC had done with their accuracy study and we 
got a bit of good news there, as well. Ninety-five percent of 
the consumers that disputed information on their credit reports 
and then saw the results indicated that they were satisfied 
with those results, 95 percent.
    Automation really is not the problem. We have heard that 
sometimes, but it really is not. We solved fundamental problems 
for consumers with automation. I go all the way back to the 
1990s when we depended on mail for processing disputes. Today, 
it is a highly automated system. It is Web-based. It wires 
together about 15,000 to 18,000 financial institutions. And 
whereas law requires that we resolve a dispute in 30 days, 
these automated systems allow us to resolve disputes in 14 
days.
    We had a little bit of a discussion of paperwork already 
this morning, so I thought I would add a bit to CFPB's report. 
CFPB and our own research indicate about 44--roughly 44 percent 
of the time, the consumer sends a communication about a dispute 
through the mail. They send us paper. However, 85 percent of 
the time, it is just a standardized form or a single-page 
letter. Ten percent of the time, it is an identity theft 
report, and maybe two to 3 percent of the time is it something 
more than that. That is really important, because I think the 
perception has been consumers are sending big stacks of 
validating data. Some of that is not getting to the lenders. 
But we see consumers satisfied at 95 percent and we see a 
system which is working today even though it is automated, 
because, in fact, it turns things around faster, serves that 
consumer who is in the middle of that lending transaction.
    One of the biggest challenges for reinvestigations, 
however, is credit repair. Forty-three percent of the mail we 
receive comes from fraudulent credit repair activity, 43 
percent. It clogs the system. It interferes with process. 
Consumers, when they hire a credit repair, often do not know 
what the credit repair agency is going to do. Credit repair 
agencies take money from consumers in cases where, in fact, 
they could exercise their rights free of charge. We are 
grateful for the Credit Repair Organizations Act having been 
enacted. We are grateful for FTC enforcement. But credit repair 
is one of our greatest challenges.
    I am happy to go forward. I see my time has expired, 
however, Mr. Chairman, so I will leave it at that and I look 
forward to the questions and answers. Thank you.
    Senator Brown. Very helpful. Thank you, Mr. Pratt.
    Ms. Wu, welcome.

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

    Ms. Wu. Mr. Chairman, Ranking Member Corker, Members of the 
Subcommittee, thank you for inviting me here today. My name is 
Chi Chi Wu. I am a staff attorney at National Consumer Law 
Center.
    Mr. Chairman, thank you for holding this hearing about the 
American credit reporting system. Credit reports play a 
critical role in the economic lives of Americans. They are the 
gatekeeper for affordable credit, insurance, sometimes, 
unfortunately, even a job. Yet despite their vital importance, 
the system is full of preventable errors, and the dispute 
mechanism mandated by the Fair Credit Reporting Act to fix 
these errors has been turned into an automated travesty of 
justice.
    Consumer advocates have been complaining about these issues 
for over a decade in numerous hearings, reports, and media 
articles. These issues were discussed in a 2006 report by the 
FTC, by the groundbreaking series this year in the Columbus 
Dispatch that the Chairman mentioned, and in a report released 
just last week by the CFPB.
    Preventable errors include what are called mixed files, 
where credit information relating to one consumer is placed in 
the file of another. Mixed files happen because the credit 
bureaus' matching criteria are too lax. In particular, they 
match information based on seven out of nine digits of the 
Social Security number if the consumers' names are similar. 
Mixed files could be prevented by requiring the credit bureaus 
to have an exact match of Social Security numbers, the one 
piece of unique identifying information that most every 
American has.
    Debt collectors and debt buyers present their own special 
types of errors created by the fact that they usually do not 
get any of the supporting documentation to establish that the 
consumer actually owes the debt, the correct amount, whether 
there are any disputes, or even if the collector is dunning the 
correct consumer. The report issued by CFPB indicates a 
disproportionate number of errors involve debt collectors, 
given that they only provide about 13 percent of the accounts 
to the credit bureaus, but generate 40 percent of the disputes.
    Now, the industry has attempted to rebut these issues by 
citing the studies that they funded showing less than 1 percent 
of reports contain serious errors. We have a number of concerns 
about this study and it contrasts with studies by consumer 
groups and polling surveys finding higher rates. But even if we 
take this 1 percent error rate at face value, that figure 
translates into two million Americans, given that the credit 
bureaus have information about 200 million Americans in their 
databases. That is not acceptable. Would we accept it if 1 
percent of airplanes fell out of the sky?
    As for the dispute process, we have documented the broken 
nature of the system in our 2009 report, Automated Injustice, 
which we thank the Chair for introducing into the record. 
Credit bureaus translate disputes, sometimes painstakingly 
written by desperate consumers, into two- or three-digit codes. 
They use the same handful of codes over 80 percent of the time. 
And the entire role of the foreign workers employed by their 
offshore vendors to handle these disputes amounts to little 
more than selecting these codes. They fail to send documents, 
as has been mentioned, that have been submitted by the 
consumers, such as canceled checks, payoff statements, even 
court judgments, to the furnishers involved in the dispute.
    Then the credit bureaus blithely accept or parrot whatever 
the furnishers respond with, no matter how good the consumer's 
evidence is to show they are right, even when the furnisher is 
a debt buyer or debt collector with a known record of bad 
behavior. The consumer is not only always presumed guilty, but 
she cannot even get an innocent verdict if she provides proof 
and the furnisher just says, ``Nah, she is guilty.''
    For their part, furnishers also engage in nonsubstantive 
investigations, mostly limited to ensuring data conformity 
between the records maintained by the credit bureaus and their 
own records. For instance, the FTC just brought a case in which 
it alleged that Asset Acceptance, a debt buyer, required its 
dispute handlers, 14 or 20 of them, to handle half-a-million 
disputes a year--that is, to process one dispute every 3 
minutes.
    The end result of this broken system is that no one, either 
at the credit bureau or the furnisher, conducts any sort of 
meaningful inquiry into the consumer's dispute, such as 
examining documents, contacting the consumers by phone or 
email, or exercising any form of human discretion in resolving 
a dispute.
    Reform needs to happen now. It should have happened years 
ago. We have high hopes for the CFPB, now that it has begun 
formal supervision of the credit bureaus. But Congress can 
help, too, by giving consumers the ability to seek injunctive 
relief under the Fair Credit Reporting Act.
    Turning to medical debt, this is an issue with enormous 
impact on credit reports. We support the Medical Debt 
Responsibility Act and thank Senator Merkley for introducing 
it. It is probably the simplest and quickest fix out there to 
improve the credit records of millions of Americans. As we have 
heard, medical debt makes up over half of the items on credit 
reports for debt collection, and it is often for services that 
are involuntary, unplanned, and unpredictable. It could result 
from a dispute between the insurer and provider or a mistake in 
billing. When mistakes occur, delay happens and bills can be 
sent to collection agencies in the meantime. Now, tell me, how 
does the fact that a consumer got caught between an insurer and 
a hospital in a billing dispute make him or her a bad credit 
risk?
    Thank you for the opportunity to testify and I look forward 
to your questions.
    Senator Brown. Thank you, Ms. Wu.
    Before beginning questions, I turn to Senator Corker for a 
couple of comments.
    Senator Corker. Mr. Chairman, again, thank you for this 
hearing. I am going to step into another meeting, and I know we 
all have multiple things to do today, but I think this has been 
very enlightening.
    Mr. Pratt, I thought your testimony was, from the 
standpoint of the credit folks, very, very good. And, Ms. Wu, 
if I am ever in a situation, which I hope I am not, where I 
need an attorney for that kind of thing, I am going to call 
you. You are very good.
    [Laughter.]
    Senator Corker. So I hope that--you know, look, we all want 
this to work for everybody, and obviously there are some issues 
here that need to be resolved and I hope we can do that.
    And I want to thank you again for calling this hearing and 
for your leadership, and I will see you later today.
    Senator Brown. Thank you, Senator Corker. Thank you. Thanks 
very much.
    And I thank both of you for testifying, and I endorse 
Senator Corker's comments about the two of you and your 
insightful testimony.
    Mr. Pratt, let me start with you. Is it feasible for credit 
bureaus to share documentation with furnishers? I understood 
you said that, more often than not, it is a one-page document. 
I understand the technology issues. But I understand, also, 
that it seems pretty certain that the bureaus do not share that 
information with furnishers when furnishers, it seems to me, 
should be able to see it. Is it feasible for them to begin to 
share all of that information each time?
    Mr. Pratt. So, I think if you look at technology, the 
answer is there is probably some technologies we could look at, 
and, in fact, we are always in that dialogue. Is there a way to 
improve the reinvestigation process? Is there some new 
mechanism that we could put forward?
    Just to give you an idea of one of the challenges, though, 
when you do get, I guess, a thicker letter, and that is 
consumers will often talk about two or three different accounts 
on the same front page of the letter. One of our challenges is 
we cannot send a Bank of America information about Citigroup or 
information about another lender. So how do we parse through 
the letter and make sure that we get the right information to 
the right lender? So one of the legal issues we have--it is a 
matter of law issue--is how to unpack complicated 
communications so that data could be sent from one party to 
another if, in fact, it is going to advance the ball beyond the 
coding systems we have today.
    Again, our measure is we think we are getting it right. In 
other words, most of the letters come in and they say, ``That 
is not my account.'' Or most of the letters come in and say, 
``I never missed a 30-day late payment. Go talk to my lender.''
    And, by the way, I will say one more thing, and that is 
more consumers, I think, with a complicated dispute, are 
choosing to dispute directly with their lender the issue that 
they have, and this is something that was done----
    Senator Brown. Even if the lender is not the furnisher?
    Mr. Pratt. Well, the lender in this case would be the 
furnisher.
    Senator Brown. OK.
    Mr. Pratt. I mean, right. So, yes. In the case where my 
lender is the furnisher, I, actually, through the FACT Act, an 
Act, of course, that you voted on, as well--the FACT Act 
actually pushed forward the idea that sometimes I may need to 
go talk directly to my lender and I should have that right 
under the law, under the Fair Credit Reporting Act, and 
sometimes I may go to the credit bureau. We see more consumers 
with complicated issues going to the lender to resolve the 
issue, and that is why I think you will continue to see that 
evolution going forward. I think it was a good idea that was 
put into the law in 2003 and it is one that consumers are 
beginning to take up----
    Senator Brown. But it seems, more often than not, the 
furnisher and the lender are not the same institution.
    Mr. Pratt. No, they are--if a consumer says--if a consumer 
looks at his or her credit report and says, here is a credit 
card issuer. I disagree. I never missed 30 days. Then, 
obviously, assuming I do not think that that account is----
    Senator Brown. That is if they have their credit report.
    Mr. Pratt. Yes.
    Senator Brown. But if they look at their credit score and 
then they see--when they are in the middle of a transaction 
with a financial institution, they look at their credit score--
--
    Mr. Pratt. Right.
    Senator Brown.----they question why it is that low----
    Mr. Pratt. Right.
    Senator Brown.----and they then come back to you, to the 
credit bureau, and the credit bureau--I mean, I think that 
consumers do not--I mean, this is a sort of a dense kind of a 
black hole for consumers dealing with the credit bureau so 
often, and if the credit bureau is not sharing the information 
with the furnisher, there is sort of no good appeals process 
for that----
    Mr. Pratt. Well, you know, we want that process to work, 
first of all. You know that. I know that. It may not be----
    Senator Brown. Why would you not share--I understood the 
one reason you would not share with furnishers, but that is not 
the story every time.
    Mr. Pratt. But the primary reason is because furnishers 
themselves--it is a voluntary system. Historically, we have had 
to be very careful about overburdening the system where a 
furnisher says, you know what? I have just decided to stop 
sharing my data. So that is one challenge. So we try to 
automate and make sure that we deliver the right information to 
the furnisher so the furnisher can process that information 
effectively.
    I would tell you today that if a consumer writes a single-
page letter and says, ``That is not my account,'' furnishing 
the letter does not do anything to change how that lender is 
then going to investigate the data. If the consumer says, ``I 
never missed a 30-day late payment,'' whether it is a code that 
says, ``Never missed payment,'' or whether it is a letter that 
says, ``Never missed payment,'' it has the same effect and the 
lender is going to process the dispute in precisely the same 
way.
    So I think the wheat and the chaff here is there is very 
little communication coming over the transom to the credit 
bureaus that is large, thick, complicated sets of data.
    And, by the way, on the letter writing side, I will tell 
you this, Senator Brown. One of the challenges we have is 
credit repair is flooding the mail-based system. Forty-three 
percent of what we are getting is coming from credit repair. 
Credit repair is out there saying, we will dispute unverifiable 
data, but what they mean is I will dispute the same information 
over and over and over again until the lender stops reporting 
it, even if it is accurate. And so 44 percent of our mail--and 
if we keep pushing that mail or those disputes back out to that 
lender, all we are doing is harming the system.
    So one of the great challenges we have, it has been around 
for a long time, the Credit Repair Organization Act was enacted 
in 1996. The FTC has been enforcing the law. State Attorneys 
General have been enforcing their State laws. But it is a 
challenging issue for us.
    Senator Brown. Thank you.
    Let me shift for another round of questions to the Asset 
Acceptance that you brought up, Ms. Wu. Why did credit 
bureaus--and then certainly Mr. Pratt has a chance to respond 
to it, too--why would credit bureaus keep accepting customers 
that have a poor record of compliance? Talk through more of the 
Asset Acceptance, what happened.
    Ms. Wu. Well, that is a great question, Senator Brown, and 
it is a very simple answer. It is, money talks. Asset 
Acceptance--just a little background--Asset Acceptance is a 
company we complained about in 2007 before the House. It is a 
debt buyer, a particularly notorious debt buyer. They were 
subsequently sued by one of the credit bureaus for supplying 
inaccurate information to that credit bureau, getting that 
credit bureau involved in a lawsuit----
    Senator Brown. Five million accounts, is that number 
correct?
    Ms. Wu. Uh----
    Senator Brown. They were sued for providing false 
information for several million accounts, is that----
    Ms. Wu. I do not remember the exact number, but it was a 
class action involving a number of accounts. And then, just 
this year, the Federal Trade Commission sued them for egregious 
violations of the Fair Credit Reporting Act.
    This is the type of furnisher that is constituting about 40 
percent of the disputes, by the way. This is the kind of 
furnisher that the industry says it does not want to burden 
with the obligation of resolving the disputes. I think they are 
required by law to deal with these disputes.
    But, anyway, the reason that Asset Acceptance is still in 
the system--and we think they still are because their SEC 
filings so state--is because they are the customer. They pay 
the credit bureaus both to enter their information into the 
system and to pull reports. They are a subscriber. And it is 
the creditors and the debt collectors that are the major 
customers of the credit bureaus, not the consumer.
    This is an industry unlike every other industry in the 
United States, or almost every other industry. Usually, in an 
industry, you have competition. A consumer has a choice. If 
they do not like one cell phone carrier, they can go to 
another. In this system, consumers do not have a choice. If you 
are unhappy with how Experian handles your information, you 
cannot say, ``I am not going to deal with Experian anymore. I 
am only going to deal with TransUnion,'' because, you know 
what? If you want a mortgage, you have to go with Experian. So 
there are no traditional market forces to improve the services 
to consumers.
    On the other hand, creditors and debt buyers, like Asset 
Acceptance, can choose between the credit bureaus, and they are 
the ones who are paying the bulk of the revenues.
    Senator Brown. Mr. Pratt, you can certainly answer that, 
but answer this, too. Given the history of bad behavior among 
some debt collectors, should there be a higher standard for 
these furnishers and for credit bureaus that work with them?
    Mr. Pratt. So, let me do two things. I will answer that 
question, and it kind of ties back, of course, to some of Ms. 
Wu's comments.
    First of all, I think it is just fundamentally wrong, what 
Ms. Wu is saying about our relationships with consumers. 
National credit bureaus, and I think Mr. Stone described it, as 
well, are seeking a relationship with consumers and tens of 
millions of consumers have that relationship every year through 
these products and services they make available----
    Senator Brown. But you do acknowledge the relatively small 
part of revenues for the----
    Mr. Pratt. To the contrary. To the contrary. One of our 
national credit reporting systems, their direct-to-consumer 
relationships generate more revenues than their credit bureau. 
To the contrary. It is an important relationship that is 
developing and evolving. It is market-based. It is free market-
based. It is exactly what we should want in this country, and 
it operates conterminously with the rights that I have under 
the law, which I can certainly exercise free of charge.
    Senator Brown. Your revenues--of the three major----
    Mr. Pratt. One of our members has a revenue stream----
    Senator Brown. One of the big three gets more money from 
consumers than they do from lenders, furnishers, other 
financial institutions?
    Mr. Pratt. That is right. That is right.
    Senator Brown. The other two----
    Mr. Pratt. The world is changing.
    Senator Brown. What is the ratio on the other two?
    Mr. Pratt. I cannot tell you.
    Senator Brown. You know a lot about the one. Do you not 
know about the other two?
    Mr. Pratt. Yes, I just do not have math in my head that I 
can tell you exactly. It is obviously less than that.
    Senator Brown. OK. Fair enough. Proceed.
    Mr. Pratt. So I think it is just patently wrong to say that 
we are not seeking a relationship with consumers. And it is 
also patently wrong to say that we want to have a less than--
some sort of substandard system for processing 
reinvestigations. All I can tell you is when we look at our 
metrics, we have one of our companies that measures every time 
a consumer goes through and talks to an operator, ``Would you 
like to take a survey and tell us how we did? Please sign up 
before you talk to the operator.'' You know, one out of five--
one to five, do we do a good job. The average is 4.5 for 
consumers.
    We are measuring and looking for ways to serve consumers 
through what the law requires, and we are also looking for ways 
to serve consumers in the marketplace that we have. Both are 
important ways for us to reach consumers.
    I would also say that there has been a lot of discussion of 
consumers being confused about credit reporting, but I have it 
in the testimony, the Consumer Federation of America, totally 
independent from us, often one of our critics, has surveyed 
consumers and said progress has been made. Consumers understand 
credit reporting better today than ever before, and by many, 
many multiples over earlier surveys. So we are making progress 
with that. So I think it is probably wrong to say that we are 
still in the same place that we might have been back in 2003 or 
back in 1996.
    Why do credit bureaus do business with--debt collectors are 
certainly one community with whom we do business. That is true. 
And I think that Mr. Stone said it just right. Because debt 
collectors report negative information, their dispute rate will 
be higher.
    We, however, as credit bureaus, evaluate every new incoming 
data furnisher. They go through probationary periods. Actually, 
the CFA White Paper does a great job of outlining the process 
by which we check and bring a new furnisher on board. 
Examinations that the CFPB is conducting are looking at that 
very question. How do we bring a new customer on board? And we 
also have an ongoing audit process for every set of data that 
is coming into the system to make sure that we quality control 
for what is coming into the system before it is loaded into the 
system.
    So this is not the Wild West description that I think we 
sometimes run into. It is a very deliberate, very careful 
quality assurance process, which is why, by the way, I think 
you see dispute rates that are running around--bank card 
retail, a dispute rate of 0.17 percent. Even with collection 
agencies, by the way, the dispute rate runs around 1 percent of 
all data reported. So when you look at it in the macro level, 
the dispute rates are incredibly good relative to the amount of 
data that is reported. That is what is showing up in the 
accuracy study that we sponsored in the first place.
    Senator Brown. Do you want to specifically--and thank you 
for that. Do you want to specifically respond to the Asset 
Acceptance question?
    Mr. Pratt. Yes. I cannot speak to Asset Acceptance 
specifically other than, obviously, one of our national members 
felt that there was a basis for them to sue the company for 
what was being furnished in the first place.
    Senator Brown. Great.
    Senator Merkley.
    Senator Merkley. Thank you, Mr. Chair.
    First, I wanted to ask both of you about the use of credit 
scores in employment. Are we setting up a vicious cycle where a 
person's credit score may affect their ability to get 
employment, which, in turn, obviously, affects their ability to 
pay bills? Ms. Wu.
    Ms. Wu. Thank you, Senator Merkley. Yes, we have taken the 
position and strongly oppose the use of credit reports in 
employment, except in very limited circumstance. We think it 
harms American workers. It does create a vicious catch-22. If 
you lose your job, you cannot pay your bill. Your credit report 
is damaged. And now your credit report is being used against 
you when you are getting a job. It just sets up the worker to 
fail. It puts them in a horrible bind.
    When you are talking about our most recent economic 
recession, where we had almost 10 percent unemployment, we have 
millions of consumers affected by this practice. We know that a 
lot of employers use it. The statistic is 60 percent of 
employers use credit reports in some form or another in jobs.
    We also think it has a disparate impact on minorities. We 
have evidence and statistics. Every study shows that, as a 
group, certain minority groups have lower credit scores. If 
credit scores are supposed to be an accurate translation of the 
credit reports, that means this practice disproportionately 
affects those communities.
    So we have supported bills in the House before to restrict 
this practice.
    Senator Merkley. What is the employer's best argument for 
using the credit score, and how much weight do you think that 
carries?
    Ms. Wu. Well, I think some employers make the argument that 
the credit report is somehow a reflection of personal 
responsibility, that it shows hard work, you know, good values. 
But I submit that people with damage on their credit report 
often are the victim of circumstances, of bad luck. They lose 
their job. They cannot pay their bills. They get sick. I mean, 
we just had this discussion about medical debt and how a lot of 
the damage on credit reports is from medical debt.
    So I do not think credit reports are a reflection of 
personal responsibility. I think they are a reflection of 
circumstances, bad luck, and sometimes hard times.
    Senator Merkley. What about student loans? We have this 
recognition that student loans now involve more debt across 
America than credit cards. And, of course, when you come out of 
college in a setting like this and you cannot get a job, your 
student loans are due. Is that proving to be a challenge for 
people trying to get work in that their student loans create 
bad credit because they do not yet have a job to pay their 
student loans, and then that makes it impossible to pay their 
student loans?
    Ms. Wu. Yes, student loans certainly show up on credit 
reports and certainly have an impact on credit reports and 
credit scores. And then what we have heard, at least in the 
past, is that if you have deferments, it actually affects the 
credit score in another way having to do with the ratio of 
credit available to credit outstanding. So it definitely does 
have an impact on credit reports.
    Senator Merkley. Does this create kind of a generational 
bias, in that if you are fortunate enough to have parents who 
can cover your student loans, you then have a much enhanced 
ability to get a job as compared to someone who did not have 
parents who could pay your student loans while you are in that 
process of looking for work?
    Ms. Wu. I think credit reporting and credit scoring often 
reinforces gaps in the economic circumstances, whether they are 
generational, because of what has been happening in our economy 
and how the younger generation is being impacted by high 
unemployment; whether it is racial, by sort of baking into the 
system centuries of discrimination and racism. You know, the 
evidence we have with credit scoring is that the good scorers 
tend to have their scores go up. The bad scorers, their scores 
go down because they have to pay more for credit. They have to 
pay more for insurance. Remember, credit scores are often used 
in insurance. Everybody needs insurance if you are going to 
drive a car, if you are going to own a home, and you are going 
to pay a lot more if your credit score is low for insurance.
    And so the burdens placed on a consumer economically 
because of a bad score makes it financially harder for them to 
dig out and reinforces that sort of vicious cycle.
    Senator Merkley. Now, in insurance, you have a situation 
where, if you do not pay your bill, you lose your insurance, so 
there is no kind of credit outstanding, if you will, and no 
credit issue. Why would a credit score be used in that setting?
    Ms. Wu. From what we understand from the industry, they use 
credit scores because they have found them to correlate with 
loss ratios, in other words, when people file claims. Again, 
industry claims that the reason why credit scores are 
correlated with loss ratios is that consumers who are bad with 
their credit reports are just bad drivers and have messy lives. 
Again, we submit that the correlation has to do with economics. 
People with low scores may have lower income, have more 
difficult financial situations, and if they are in a fender 
bender, they are more likely to file a claim. It is all about 
the money.
    Senator Merkley. Mr. Pratt, what do you think about this 
issue of employment and the fact that we are baking into the 
process the biases from a previous generation in terms of 
parents' ability to cover debts, or particularly student loans, 
and thereby kind of putting people on an unequal footing going 
forward?
    Mr. Pratt. So I think the news is better than that, so let 
me share just a few thoughts with you. First of all, the 
Society for Human Resources Management, which represents a lot 
of the human resources folks in this country who do this sort 
of thing for a living, has been polling their members 
regularly, trying to learn more about, first of all, what is 
going on in the marketplace today, and today, really, only 53 
percent of employers who conduct a background check are using a 
credit report for any job, and it is really important to know 
there is a difference between saying 53 percent of employers 
use it for one out of ten jobs versus 53 percent of employers 
use it monolithically for all jobs. There is no employer that 
is using it monolithically for all jobs that are out there.
    Number two, the folks they surveyed said 80 percent of them 
have hired somebody despite poor credit. This is because the 
human resources folks are saying, we are looking for something 
in particular, something that may deal with personal 
responsibility, but we are usually doing this after we have 
made a contingent offer. So at that point, I am going to talk 
to you about your circumstances. At that point, I may be 
interested in why you have some delinquent student loans. But 
at that point, I may also say, ``I get it. I absolutely 
understand it. If you do not have a job, you cannot pay your 
loans. I am going to give you a job and you are going to be 
able to pay your loans.'' And in this case, I do not think that 
this delinquency that shows up on a student loan has anything 
to do with how you are going to perform in the particular job 
that I have available.
    So, in fact, that is what we see. Eighty percent--and, by 
the way, credit reports are used most often for positions with 
financial responsibilities, for senior executive positions, and 
employees who have access to highly confidential information. 
So there is a certain cabined-in population. So it is a narrow 
set of jobs.
    By the way, our members--we have surveyed our members--
maybe 5 percent of the product they issue in the marketplace 
includes a credit report from the background screening 
perspective. That means 95 percent of the background screening 
product in the marketplace does not include a credit report. It 
is being used for a very discrete population.
    So I think that also responds to the idea that, somehow, 
you are right, some parents are able to pay student loans and 
other parents are not, and some parents are able to pay their 
kids' bills when they can and others are not. I think that it 
is the way it is being used. It is not what is in the credit 
report, but it is the way that it is being used that really is 
the pivotal question. In this case, the answer is, it is being 
used responsibly.
    Finally, credit scores are not used. The credit report is 
used, but our members do not sell credit scores for employment, 
so you are not just seeing a number. You are seeing the report 
and you are taking a deeper dive into the details, which is 
exactly what human resources folks say they want to do. So I 
think the news is better than that.
    Senator Merkley. Thank you, Mr. Pratt.
    Senator Brown. I do not think you meant to say no employer 
uses it for every job?
    Mr. Pratt. That is probably dangerous these days, is it 
not? But I would say that, based on everything we have seen, 
Mr. Chairman, it is used very selectively and it is not used in 
some sort of just broad filtering process. It is used on a 
contingent offer basis, most commonly.
    Senator Brown. OK. And you talk persuasively about--and 
using percentages--but as Ms. Wu points out, percentages of 200 
million are a lot of people. Very low percentages of 200 
million, I think it is--you were not inaccurate. I am not 
accusing you of that, for sure. But when it is a few percent of 
200 million, it is a lot of Americans affected by this, as, of 
course, you know.
    Thank you. I particularly appreciate Senator Merkley's 
questions. I think this points to the fact that moderate-income 
Americans and low-income Americans whose lives are often a 
challenge when most of them have not had much of a raise in 10 
years and then face these obstacles of maybe higher insurance 
rates in some cases, more difficulty getting a job, more 
difficulty getting an apartment, and more difficulty certainly 
getting a lower interest rate than they might otherwise get, 
sometimes a credit score that they have earned through their 
behavior, other times credit scores that may not be entirely 
accurate that are challengeable, but it is low-income and 
moderate-income people that are probably least likely to know 
that they can challenge these scores and get them fixed. I hope 
that--I know that you, Mr. Pratt, are aware of that, and I hope 
that we can see, without legislative action, some remedies in 
some of this.
    I ask both the minority and the majority that anybody who 
wants to submit questions to the panelists, please do and get 
them back to us by January 2, if you can do that. And if either 
of the two of you or Mr. Stone wants to expand on anything you 
have said or submit anything for the record, please get that to 
us by January 2.
    Thank you very much for being here, and the hearing is 
adjourned.
    [Whereupon, at 11:22 a.m., the hearing was adjourned.]
    [Prepared statements, responses to written questions, and 
additional material supplied for the record follow:]
             PREPARED STATEMENT OF SENATOR DANIEL K. AKAKA
    Thank you, Chairman Brown. Thank you very much for holding this 
hearing today and for all of your work on consumer protection issues. I 
know you agree that, when Americans make wise economic decisions and 
are protected from bad actors, our economy--and Nation--are stronger 
for it.
    It is fitting that a hearing on a topic of consumer protection will 
be my last as a Member of the Senate. Financial literacy and consumer 
protection issues are very close to my heart. This is a policy area of 
the utmost importance to me. I am proud of the work we have 
accomplished on this Committee through both legislation, such as the 
Dodd-Frank and the Credit CARD Acts, and oversight, including numerous 
hearings with officials from the CFPB.
    Financial literacy is important for many reasons. Strong personal 
finances make for strong families. Being financially literate makes it 
easier for individuals to pay unexpected emergency expenses, further 
their education, and save for retirement. It allows people to better 
fulfill their dreams and deal with difficult times. It makes for 
happier, healthier communities and truly helps people in so many areas 
of their lives. That is why I have worked hard during my time in 
Congress to educate, protect, and empower consumers.
    I am pleased that we will hear from our panelists about the work 
they have done examining credit reports from a consumer's perspective. 
I also look forward to hearing from the witnesses about their ideas on 
how to further protect consumers and what more we in Congress can do to 
help people secure their financial futures. Working families need to 
access mainstream financial institutions so that they are not prone to 
make use of predatory and unscrupulous lenders. We need straightforward 
disclosures so that consumers can make choices that best suit their 
situations. Student debt should not hinder our young people from 
getting the training they need to compete globally, and financial 
concerns should not put additional strains on our military families.
    While my Senate career is coming to an end, I know that there are 
many of my colleagues who will continue to empower consumers to make 
good financial decisions. Mahalo nui loa to my colleagues here on the 
Committee including Chairman Johnson, Chairman Brown, Senator Reed, 
Senator Merkley, Senator Hagan, and others.
    I also appreciate the dedicated work of Committee and personal 
office staffs. They do so much to support the work that we do, so 
mahalo to you all as well.
    Over the years my staff has provided excellent assistance in 
helping consumers in Hawaii and across our country both by aiding 
individuals on a case-by-case basis and by advancing commonsense laws 
to improve the functioning of the financial marketplace. It is very 
nice to know that four of my former staffers--Erika Moritsugu, Matthew 
Pippin, Preethi Raghavan, and Elizabeth Songvilay--are continuing to 
advance consumer protection and financial literacy in their roles at 
the CFPB.
    Panelists, thank you for your tireless work to protect consumer 
interests. I look forward to hearing your testimony. Thank you.
                                 ______
                                 
                   PREPARED STATEMENT OF COREY STONE
   Assistant Director for Deposits, Cash, Collections, and Reporting 
                                Markets
                  Consumer Financial Protection Bureau
                           December 19, 2012
    Chairman Brown, Ranking Member Corker, and Members of the 
Subcommittee, thank you for the opportunity to testify today on the 
consumer credit reporting industry.
    Credit reporting plays a critical role in consumers' financial 
lives. Credit reports on consumers' financial history and behavior can 
determine their eligibility for credit cards, car loans, and home 
mortgage loans--and they often affect how much consumers pay for their 
loans. The industry is critical in our economy. It promotes access to 
credit that consumers can afford to repay. Without credit reporting, 
many consumers likely would not be able to get credit.
    Credit reports are also often used in a number of noncredit 
decisions about consumers. They can be used to determine whether a 
consumer is offered a job, a car, homeowner's insurance, or rental 
housing.
    The CFPB is the first Federal Government agency that supervises 
both consumer reporting companies and the largest banks and many of the 
nonbanks that provide them with consumers' credit information. This 
responsibility is a priority for the Bureau. Last year, the CFPB 
published one report to Congress on credit scores and another report on 
whether remittance information might help consumers develop positive 
credit scores. Earlier this year we published a Consumer Advisory about 
credit reports. In July, the CFPB adopted a rule to extend its 
supervision authority to cover larger consumer reporting agencies. In 
September, the CFPB released its examination procedures for these 
companies, along with a study examining credit scores--the three-digit 
numbers used to determine consumers' credit worthiness. In mid-October, 
the CFPB began handling individual complaints about consumer reporting 
companies. If a consumer files a complaint with a credit reporting 
company and is dissatisfied with the resolution, the CFPB is available 
to assist.
    As many of us at the CFPB conduct outreach all over the country to 
learn how consumers hurt by the financial crisis are recovering, we've 
heard many express frustrations about their credit reports or credit 
scores. And we've heard a considerable amount of confusion and 
misunderstanding about credit reporting.
    Just last week, the CFPB issued a new report based on information 
provided by the big three consumer reporting companies--Equifax, 
Experian, and TransUnion--and their industry association. The report 
highlights the basic systems the credit reporting companies use to 
collect, organize, and maintain consumer credit information. It is one 
of the most comprehensive looks at the consumer reporting industry to 
date. And it represents a significant step forward in understanding 
this industry and making it more transparent for consumers.
    Some of the key findings in our report are that:

    More than half of the trade lines in the credit bureaus' 
        databases are supplied by the credit card industry. This means 
        that credit cards are given great weight in how consumers build 
        their credit profiles.

    More than three quarters of the trade lines in the credit 
        bureaus' databases come from the top 100 furnishers of 
        information. These are largely the large bank and nonbank 
        lenders--and now the largest debt collectors and debt buyers--
        who fall under the CFPB's supervision. This means for the first 
        time a Federal agency has the tools to examine and understand 
        how well all parts of the credit reporting system are working--
        including both the sources of credit information and credit 
        bureaus themselves.

    More than one-third of consumer disputes relate to 
        collection items. In fact, the information provided by the 
        collections industry is five times more likely to be disputed 
        than mortgage information.

    A relatively small percentage of consumers_approximately 20 
        percent_look at their credit reports each year. This is a shame 
        because--while we do not know for sure how common inaccuracies 
        are--it is likely that many additional consumers could identify 
        and correct inaccuracies if they reviewed their credit report.

    Most complaints are forwarded to the furnishers that 
        provided the original information. Credit reporting companies 
        on average refer 85 percent of complaints on to the furnishers 
        that provided the original information. But documentation that 
        consumers mail in to support their cases may not be getting 
        passed on to the data furnishers for them to properly 
        investigate and report back to the credit reporting company.

The CFPB's report should help to clarify the confusing world of 
consumer reports. It should help to inform policymakers and consumers 
about how this important industry works. If consumers know more about 
how these companies consider credit use, consumers should be better 
able to make decisions for themselves and use credit more wisely.
    Thank you for inviting me to testify today. I will be happy to 
answer any questions you may have about our report.
                                 ______
                                 
                 PREPARED STATEMENT OF STUART K. PRATT
         President and CEO, Consumer Data Industry Association
                           December 19, 2012
    Chairman Brown, Ranking Member Corker and Members of the 
Subcommittee, thank you for this opportunity to appear before you. For 
the record my name is Stuart Pratt, president and CEO of the Consumer 
Data Industry Association (CDIA).
    CDIA is an international trade association of more than 180 
corporate members. Its mission is to enable consumers, media, 
legislators and regulators to understand the benefits of the 
responsible use of consumer data which creates opportunities for 
consumers and the economy. CDIA members provide businesses with the 
data and analytical tools necessary to manage risk. They help ensure 
fair and safe transactions for consumers, facilitate competition and 
expand consumers' access to a market which is innovative and focused on 
their needs. Their products are used in more than nine billion 
transactions each year.
    We commend you for holding this hearing, and welcome the 
opportunity to share our views.
    My written comments will include important background on the 
industry and then focus on the following specific Committee requests 
listed below:

    Current oversight of credit reporting agencies by the 
        Consumer Financial Protection Bureau

    The dispute resolution process for consumers

    Communication between furnishers and credit reporting 
        agencies

    Specialty credit reporting agencies and their duties under 
        the Fair Credit Reporting Act

    Differences in credit scores available to clients versus 
        consumers
Background Part 1--The importance of credit reporting to consumers and 
        our Nation's economy.
    Consumer Financial Protection Bureau Director Richard Cordray 
stated the following about credit reporting during a July 16, 2012 
field hearing:

        Credit reporting is an important element in promoting access to 
        credit that a consumer can afford to repay. Without credit 
        reporting, consumers would not be able to get credit except 
        from those who have already had direct experience with them, 
        for example from local merchants who know whether or not they 
        regularly pay their bills. This was the case 50 or a 100 years 
        ago with ``store credit,'' or when consumers really only had 
        the option of going to their local bank. But now, consumers can 
        instantly access credit because lenders everywhere can look to 
        credit scores to provide a uniform benchmark for assessing 
        risk. Conversely, credit reporting may also help reinforce 
        consumer incentives to avoid falling behind on payments, or not 
        paying back loans at all. After all, many consumers are aware 
        that they should make efforts to build solid credit.

In its 2011 publication of Credit Reporting Principles the World Bank 
observed:

    Credit reporting systems are very important in today's financial 
system. Creditors consider information held by these systems a primary 
factor when they evaluate the creditworthiness of data subjects and 
monitor the credit circumstances of consumers. This information flow 
enables credit markets to function more efficiently and at lower cost 
than would otherwise be possible.

    Congressional findings reinforce the positive contribution of 
credit reporting to consumers and state that ``consumer reporting 
agencies have assumed a vital role in assembling and evaluating 
consumer credit and other information on consumers.''
    Ultimately credit reports tell the story of our good choices and 
hard work. They speak for us as consumers when we apply for loans and 
lenders don't know who we are or how we've paid our bills in the past. 
Credit reports replace human bias and assumptions with a foundation of 
facts that tell our story and ensure that we are treated fairly. Our 
members focus on consumers first, on ensuring fairness for them in the 
marketplace and on the accuracy of the data in the products they 
produce.
Background Part 2--An overview of the types of data used to build a 
        consumer's credit history.
    Before we provide testimony on particular issues identified by the 
Committee, we thought it would be helpful to discuss what is and isn't 
in a ``credit report.'' The term ``credit report'' is not defined by 
the Fair Credit Reporting Act (15 U.S.C. 1681 et. seq.) The FCRA 
defines the term ``consumer report'' and the traditional credit reports 
produced by nationwide consumer reporting agencies meets this 
definition. Credit reports include:

    Identifying Information--Name (first, last, middle), 
        current and previous addresses, social security number, date of 
        birth.

    Credit History--History of managing various loans issued by 
        retailers, banks, finance companies, mortgage companies and 
        other types of lenders.

    Public Records--Judgments, bankruptcies, tax liens.

    Accounts Placed with a Collection Agency--these accounts 
        are reported by third-party debt collectors who attempt to 
        collect delinquent debts owed to a service provider or lender.

    Inquiries--A record of all who have a permissible purpose 
        under law and have access a consumer's report.

    Note that credit reports do not contain information on an 
individual's medical condition, race, color, religion, or national 
origin. It is important to note that our U.S. credit reporting systems 
are full-file and thus they include both positive and negative payment 
history on a consumer. Full-file credit reporting is inherently fairer 
for consumers because it ensures that there is a clear record of not 
just missed payments but all on-time payments.
Background Part 3--Consumers and Credit Reports
    A consumer's credit history starts with the very first relationship 
a consumer has with a lender. It may be when a parent adds a son or 
daughter as an authorized signatory on a credit card or when a young 
adult makes application for his or her very first loan. Ensuring that 
consumers understand how lenders consider their management of credit is 
critical and certain fundamental principles are consistently true over 
time:

    Pay your bills on time.

    Don't run up your credit cards to their limits.

    Never before in the history of our country has there been a greater 
degree of transparency when it comes to the information available to 
enable consumers to understand consumer credit reports and their rights 
under the FCRA. In particular CDIA applauds its members for their 
market solutions which make available to consumers unlimited access to 
credit reports, credit scores, as well as providing additional 
information about the credit, credit reporting industry. These market 
solutions, for example, push alerts to consumer's smart phones when 
data has changed on their report and also warn consumers when there's a 
risk of identity theft.
    Under the Fair Credit Reporting Act consumers also have a right to 
an annual free credit file disclosure from each of the nationwide 
consumer credit reporting agencies: Equifax, Experian and TransUnion. 
We estimate that more than 15 million consumers view at least one of 
their reports each year and an average of more than 30 million 
disclosures are issued annually. Since December of 2004 hundreds of 
millions of disclosure have been issued to consumers.
    For some years consumer advocates have been measuring the knowledge 
consumers have regarding their credit reports and how credit scores 
used by lenders analyze data. In particular VantageScore and the 
Consumer Federation of America have partnered on a project to reach 
consumers and measure their knowledge. The trends identified through 
this effort are very encouraging. Consider the following excerpts drawn 
from the CFA News Release issued on May 14, 2012:

        A large majority of consumers now know many of the most 
        important facts about credit scores, for example:

      Mortgage lenders and credit card issuers use credit 
        scores (94 percent and 90 percent correct, respectively).

      Many other service providers also use these scores--
        landlords, home insurers, and cell phone companies (73 percent, 
        71 percent, and 66 percent correct, respectively).

      Missed payments, personal bankruptcy, and high credit 
        card balances influence scores (94 percent, 90 percent, and 89 
        percent correct, respectively).

      The three main credit bureaus--Experian, Equifax, and 
        TransUnion--collect the information on which credit scores are 
        frequently based (75 percent correct).

      Consumers have more than one generic score (78 percent 
        correct).

      Making all loan payments on time, keeping credit card 
        balances under 25 percent of credit limits, and not opening 
        several credit card accounts at the same time help raise a low 
        score or maintain a high one (97 percent, 85 percent, and 83 
        percent correct, respectively).

      It is very important for consumers to check the accuracy 
        of their credit reports at the three main credit bureaus (82 
        percent correct).

        Somewhat surprising was the fact that most consumers understand 
        new, and fairly complicated, consumer protections regarding 
        credit score disclosures. When asked when lenders who use 
        generic credit scores are required to inform borrowers of these 
        scores, large majorities correctly identified three key 
        conditions--after a consumer applies for a mortgage (80 percent 
        correct), whenever a consumer is turned down for a loan (79 
        percent correct), and on all consumer loans when a consumer 
        does not receive the best terms including the lowest interest 
        rate available (70 percent correct).

        ``Increases in consumer knowledge probably reflect in part the 
        increased public attention given to credit scores because of 
        the new protections,'' noted CFA's Brobeck. ``The improvements 
        may also be related to increased efforts of financial 
        educators, including our creditscorequiz.org, to inform 
        consumers about credit reports and scores,'' he added.

    Our members are encouraged by the progress made and these data 
argue against the perception reported by some journalists and advocates 
that consumers are simply confused and unable to understand the credit 
reporting system. It's our view that journalists and advocates would 
serve consumers better by setting aside the rhetoric of confusion in 
favor of encouraging consumers to act on their rights and to learn how 
the credit reporting system is making their lives better.
Background Part 4--Credit Repair Scams
    It is good news that consumers' knowledge of credit reports and how 
scores analyze credit report data is improving. However it is critical 
that consumers remain vigilant and do not fall prey to fraudulent 
credit repair schemes. Fraudulent credit repair agencies have a 
business model built around the premise of seeking to have accurate, 
predictive data deleted from a consumer's credit report and taking 
consumers' hard-earned money to do something that consumers can do for 
themselves. The quote from an October 13, 2011 FTC press release 
regarding a public investigation of a credit repair operator is 
illustrative of the problem and challenge our members face:

        The FTC alleges that the defendants made false statements to 
        credit bureaus disputing the accuracy of negative information 
        in consumers' credit reports. In letters to credit bureaus, 
        which XXX did not show to consumers, the firm typically 
        disputed all negative information in credit reports, regardless 
        of the information's accuracy. XXX continued to send these 
        deceptive dispute letters to credit bureaus, even after 
        receiving detailed billing histories verifying the accuracy of 
        the information, or signed contracts from creditors proving the 
        validity of the accounts.

        The complaint alleges that XXX misrepresented to consumers that 
        Federal law allows the company to dispute accurate credit 
        report information, and that credit bureaus must remove 
        information from credit reports unless they can prove it is 
        accurate. In the company's words, credit bureaus must ``prove 
        it or remove it.'' XXX charged a retainer fee of up to $2,000 
        before providing any service, and falsely told consumers that 
        Texas law allows credit repair organizations that are 
        registered and bonded to charge an advance fee.

    CDIA applauds the actions of the Federal Trade Commission and State 
attorneys general to protect consumers through their enforcement of the 
Credit Repair Organizations Act. These enforcement efforts must 
continue. But the CFA survey of consumers speaks clearly to the need to 
also continue to educate consumers. Consider the following finding:

        Over half (51 percent) [of consumers] incorrectly believe that 
        credit repair companies are ``always'' or ``usually'' helpful 
        in correcting credit report errors and improving scores. 
        Experts agree that credit repair companies often overpromise, 
        charge high prices, and perform services that consumers could 
        do themselves.

    Fraudulent credit repair activities remain a problem for consumers 
and also for our members who serve consumers. Our members estimate that 
as much as 43 percent of incoming mail is tied to credit repair schemes 
that distract from processing valid disputes and which tie up data 
furnisher resources leading some to give up and delete accurate, 
predictive data.
Committee Request I--Current oversight of credit reporting agencies by 
        the Consumer Financial Protection Bureau
    Our members have successfully operated in a highly regulated 
context for decades. Recent changes in how the Federal Government 
enforces various consumer protection laws, most notably the Fair Credit 
Reporting Act (15 U.S.C.  1681 et. seq.), do not materially alter this 
fact.
    The FCRA was first enacted in 1970 (PL 91-508). It has since been 
the subject of active oversight by many different Congresses. Following 
is a partial listing of major and minor amendments to the law which 
speaks to the fact that the FCRA is a contemporary law that has been 
updated to recognize changes in the marketplace:

    Consumer Credit Reporting Reform Act of 1996 (Public Law 
        104-208, the Omnibus Consolidated Appropriation Act for Fiscal 
        Year 1997, Title II, Subtitle D, Chapter 1)

    Section 311 of the Intelligence Authorization for Fiscal 
        Year 1998 (Public Law 105-107)

    The Consumer Reporting Employment Clarification Act of 1998 
        (Public Law 105-347)

    Section 506 of the Gramm-Leach-Bliley Act (Public Law 106-
        102)

    Sections 358(g) and 505(c) of the Uniting and Strengthening 
        America by Providing Appropriate Tools Required to Intercept 
        and Obstruct Terrorism Act of 2001 (USAPATRIOT Act) (Public Law 
        107-56)

    The Fair and Accurate Credit Transactions Act of 2003 (FACT 
        Act) (Public Law 108-159)

    Section 719 of the Financial Services Regulatory Relief Act 
        of 2006 (Public Law 109-351)

    Section 743 (Div. D, Title VII) of the Consolidated 
        Appropriations Act of 2008 (Public Law 110-161)

    The Credit and Debit Card Receipt Clarification Act of 2007 
        (Public Law 110-241)

    Sections 205 and 302 of the Credit Card Accountability 
        Responsibility and Disclosure (CARD) Act of 2009 (Public Law 
        111-24)

    The Consumer Financial Protection Act of 2010 (CFPA) (Title 
        X of the Dodd-Frank Wall Street Reform and Consumer Protection 
        Act, Public Law 111-203)

    The Red Flag Program Clarification Act of 2010 (Public Law 
        111-203).

    Most important to understanding this statute is that it carefully 
and clearly divides responsibilities for ensuring the accuracy of 
information in credit reports and also how consumer disputes and 
questions about their credit reports are resolved. As CFPB Director 
Cordray stated during a July 26, 2012 field hearing:

        Our credit reporting system involves several key participants. 
        First are the creditors and others that supply the information 
        about your financial behavior, which can include your credit 
        card issuers, your mortgage company, or companies that are 
        collecting debts they claim you owe, among others. Second are 
        those that collect and sell the information, which are the 
        credit reporting companies. Third are those that use the 
        information, which largely consist of financial institutions, 
        but can also include insurance companies, auto dealers, retail 
        stores, and even prospective employers. Fourth are consumers 
        themselves, who are the object of all this scrutiny and who are 
        immediately affected by it. All of these participants play 
        important roles in ensuring that the credit reporting system 
        operates effectively to help consumer credit markets work 
        better for us all.

At this same hearing Director Cordray also pointed out:

        First, our oversight of the credit reporting companies will 
        help us make sure that the information provided to them is 
        itself reliable. Lenders and others who furnish information to 
        the credit reporting companies are legally required to have 
        policies in place about the accuracy and integrity of the 
        information they report--which includes identifying consumers 
        accurately, correctly recounting their actual payment history, 
        and keeping their information and recordkeeping in order. 
        Otherwise, their sloppy work becomes the true source of harm to 
        the consumer's overall creditworthiness. We want to deepen our 
        understanding of the recordkeeping and reporting practices by 
        lenders and we want to see what the credit reporting companies 
        can be doing to test and screen for the quality of information 
        they receive.

    The FCRA has always been enforced by both State attorneys general 
and also through private litigation. Until the enactment of the Dodd 
Frank Act (PL 111-203) the Federal Trade Commission had the primary 
Federal responsibility for enforcement of the provisions of the FCRA 
which apply to our members. As a result of Dodd Frank, the Consumer 
Financial Protection Bureau was created (See Title X) and this 
enforcement responsibility was transferred to the CFPB. While the CFPB 
now has primary oversight for our members' FCRA duties, the FTC and 
State attorneys general may still bring enforcement actions. A 
Memorandum of Understanding between the CFPB and FTC has been completed 
and it outlines how the two agencies will cooperate on enforcement 
actions.
    Our members have sought a positive and collaborative relationship 
with the CFPB. Free of charge, our nationwide credit reporting agencies 
provided the CFPB with 600,000 depersonalized credit reports and 
another 3,000,000 credit scores so that the Bureau could conduct a 
study of the similarities of various credit scores in the marketplace. 
One of our members voluntarily provided the CFPB with free, 
depersonalized credit reports for a study of the usefulness of 
remittance data in predicting creditworthiness of consumers who may 
have ``thin'' credit reports or no credit report. Further, our members 
conducted extensive, free research for the CFPB in support of their 
effort to draft a white paper on the credit reporting eco-system. 
Ultimately it is our hope that these efforts are in support of a CFPB 
that continues to follow the important guiding comments of the Bureau's 
Deputy Director, Raj Date when he stated:

        First, we are committed to basing our judgments on research and 
        data analysis. We won't shoot from the hip. We won't reason 
        from ideology. We won't press a political agenda. Instead, 
        we're going to be fact-based, pragmatic, and deliberative.

    It is essential that the CFPB remain an organization focused on the 
facts and not driven by the headlines. The CFPB cannot be successful if 
it seeks out inflammatory headlines that are a distraction for 
consumers, or reacts to headlines that simply are not based in good 
social science and scientific methods.
Committee Request II--The dispute resolution process for consumers.
    Before we delve into the systems our members have designed to 
assist consumers with disputes regarding information in their credit 
reports, some context for the accuracy of credit reports is helpful.
    In May of 2011 the PERC completed and released a CDIA-commissioned 
study of the quality of data found in the databases of nationwide 
consumer credit reporting agencies. This work was groundbreaking. The 
research was truly an arms-length, let-the-chips-fall-where-they-may 
project which was the only condition under which Dr. Turner would agree 
to conduct the study. Our members had no reservations about this 
requirement. Consumers wanted answers from a trusted source regarding 
the accuracy of credit reports and we wanted to make sure we gave them 
an answer, particularly since the General Accountability Office has 
rejected all consumer advocate efforts to measure accuracy due to 
serious flaws in their methodologies and lack of sound statistical 
practices. The CFPB's recent white paper on the credit reporting eco-
system added to these GAO criticisms in its discussion of the failure 
of a consumer group to develop a statistically representative, unbiased 
study population.
    PERC designed its study using a peer review process that included 
reviews of methodology conducted by leading academics from the Wharton 
School of Business at the University of Pennsylvania, the University of 
North Carolina and Chapel Hill and Duke University. As an indication of 
the openness of Dr. Turner to engage in the dialogue about accuracy, 
when PERC published its results, it also made the raw data and research 
findings available to the CFPB and the FTC so that these agencies could 
replicate the findings and not merely depend on PERC's interpretation 
of the data.
    Dr. Turner and his team used two measures of what might be a 
material error in a consumer's credit report. First they used 
VantageScore to measure the point change between credit reports before 
and after a dispute and reinvestigation process. In this instance they 
found that only 0.93 percent of all credit reports examined had one or 
more disputes which resulted in a credit score increase of 25 points. 
However, Dr. Turner recognized that in a risk-based-pricing context 
even a single point change could make a difference for a consumer who 
is on the edge of qualifying for a better rate. Thus the PERC team also 
measured material errors by considering how often a consumer moved from 
a higher priced pricing tier to a lower one (an approach the CFPB has 
used in a study of credit scores). Only one half of 1 percent (0.51 
percent) of all credit reports examined by consumers had a credit score 
change that resulted in the consumer likely receiving a lower-priced 
product. This study puts to rest the debate about the accuracy of our 
members' data.
    As a further statement of our members' confidence in their systems 
and the quality of their data, they not only provided a grant to fund 
the PERC research, they also provided, free of charge, the data the 
Federal Trade Commission needed to fulfill its mandate under the FACT 
Act to study the accuracy of nationwide credit reporting systems. 
Release of the FTC's full research findings is imminent.
    CDIA applauds its members for facing the hard questions about data 
quality and engaging in responsible, sound research. The results of our 
members' decisions are impressive and expected.
    As for the question of dispute resolution procedures, consumers' 
rights are very clear under the FCRA. Below is an explanation of those 
rights prepared by the Federal Trade Commission:

        You have the right to know what is in your file. You may 
        request and obtain all the information about you in the files 
        of a consumer reporting agency (your ``file disclosure''). You 
        will be required to provide proper identification, which may 
        include your Social Security number. In many cases, the 
        disclosure will be free. You are entitled to a free file 
        disclosure if:

      a person has taken adverse action against you because of 
        information in your credit report;

      you are the victim of identity theft and place a fraud 
        alert in your file;

      your file contains inaccurate information as a result of 
        fraud;

      you are on public assistance;

      you are unemployed but expect to apply for employment 
        within 60 days.

        In addition, [since] September 2005 all consumers [have been] 
        entitled to one free disclosure every 12 months upon request 
        from each nationwide credit bureau and from nationwide 
        specialty consumer reporting agencies. See www.ftc.gov/credit 
        for additional information.

        You have the right to dispute incomplete or inaccurate 
        information. If you identify information in your file that is 
        incomplete or inaccurate, and report it to the consumer 
        reporting agency, the agency must investigate unless your 
        dispute is frivolous. See www.ftc.gov/credit for an explanation 
        of dispute procedures.

        Consumer reporting agencies must correct or delete inaccurate, 
        incomplete, or unverifiable information. Inaccurate, incomplete 
        or unverifiable information must be removed or corrected, 
        usually within 30 days. However, a consumer reporting agency 
        may continue to report information it has verified as accurate.

    The staff and systems used by our members to handle consumer 
requests for reinvestigations of data reported to them are first-class 
and this is not merely an opinion. The PERC data quality study 
discussed above measured consumer satisfaction with the reinvestigation 
process and fully 95 percent of consumers were satisfied with the 
results. These data are facts and not merely anecdotes and set aside 
unfounded accusations by consumer advocates that our members' systems 
fail to meet consumer expectations.
    Further indication of our members' success in meeting consumers' 
needs can be found in a 2008 report to Congress regarding complaints 
submitted to the Federal Trade Commission. Note in the excerpt below 
that consumers appeared to be complaining to the FTC concurrent with 
the submission of a dispute directly to a consumer credit reporting 
agency. More than 90 percent of the disputes were resolved when 
submitted directly to the CRA, a percentage that is very consistent 
with the findings of PERC:

        The data indicate that a significant number of disputes were 
        resolved in the consumer's favor (i.e., the disputed 
        information was either removed from the file or modified as 
        requested). The data further indicate, however, that in most 
        cases, the favorable resolutions took place as part of the 
        normal dispute process, and not as a result of the referral 
        program. Specifically, the CRAs' reports show that over 90 
        percent of disputes that were resolved ``as requested by the 
        consumer'' were resolved before the CRA processed the referral 
        from the Commission.\1\
---------------------------------------------------------------------------
    \1\ See page 5 of the FTC Report to Congress Submitted on December 
29, 2003: http://www.ftc.gov/os/2008/12/P044807fcracmpt.pdf.

    It is also important to note that in 2003 consumers were given the 
right to dispute information furnished to a consumer reporting agency 
directly with the furnisher of the data (e.g., lender, etc.). A March 
2012 FTC report on a survey of consumers indicated that 46 percent 
chose to dispute an item of information directly with the data 
furnisher rather than with a consumer credit reporting agency. It is 
our view that consumers will continue to grow in their understanding of 
this right and will more often dispute with the data furnisher.
    The 95 percent satisfaction rate and the FTC's analysis of 
complaints received are strong, empirical evidence of our members' 
commitment to getting it right for all consumers.
Committee Request III--Communication between Furnishers and Credit 
        Reporting Agencies
    New data furnisher--All of our members have specialized staff, 
policies and procedural systems in place to evaluate each new data 
furnisher. Common practices include reviews of licensing, references, 
and site visits. All apply robust tests to sample data sets and all 
work with the furnisher to conform data reporting to the Metro 2 data 
standard. Once a furnisher is approved, there may be ongoing monitoring 
of this data reporting stream during a probationary period of time.
    The CFPB's newly released report, ``Key Dimensions and Processes in 
the U.S. Credit Reporting System: A review of how the Nation's largest 
credit bureaus manage consumer data'', provides additional details on 
our members' efforts at Section 4.1 on pages 18-19.
    Ongoing furnishing--Our members employ a variety of practices; some 
of these are listed below:

    Producing reports for data furnishers which outline data 
        reporting problems, including errors in loading data and data 
        which is not loaded. This reporting process ensures data 
        furnishers are receiving feedback regarding the quality of 
        their data furnishing practices.

    Cross-referencing data in certain fields to look for 
        logical inconsistencies are often used as a data quality check.

    Historical data reporting trends, at the database level or 
        data furnisher level, are used as baseline metrics upon which 
        to evaluate incoming data.

    Manual reviews of data can occur when anomalous data 
        reporting trends are identified.

    Reviewing incoming data for consistency with the Metro 2 
        data standard.

    Beyond the extensive, individual corporate strategies for ensuring 
data quality, our members have undertaken industry-level strategies as 
well. Central to these efforts has been the development of a data 
reporting standard for all 10,000 data sources which contribute to 
their databases. The latest iteration of this standard is titled 
Metro2. Standardizing how data is reported to the consumer is a key 
strategy for improving data quality. Consumer advocates appear to 
agree. The National Consumer Law Center, writing on behalf of a range 
of consumer groups, appears to agree with this point when it stated in 
its letter to the Federal Reserve Board:\2\
---------------------------------------------------------------------------
    \2\ Comments of the National Consumer Law Center, ANPR: Furnisher 
Accuracy Guidelines and Procedures Pursuant to Section 312 of the Fair 
and Accurate Credit Transactions Act, Pp. 16.

        However, the failure to report electronically or to use Metro2 
---------------------------------------------------------------------------
        creates even more inaccuracies.

    CDIA provides free access to a ``Credit Reporting Resource Guide'' 
which is the comprehensive overview of the Metro2 Format. This guide is 
designed for all types of data furnishers, but it also provides 
specific guidance for certain types of furnishers to encourage proper 
use of the format. Target audiences include collection agencies, 
agencies which purchase distressed debt, all parties which report data 
on student loans, child support enforcement agencies and utility 
companies. CDIA and its Metro2 Task Force have administered telephonic 
and in-person workshops for thousands of data furnishers representing 
the majority of all data furnished to their systems. These programs 
include a range of specialized topics including, for example:

    Reporting Requirements for Third Party Collection Agencies 
        and Debt Purchasers.

    Reporting Requirements Specific to Legislation & Accounts 
        Included in Bankruptcy.

    The CFPB report also discusses oversight of ongoing data furnishing 
at Section 4.2, page 19 and an outline of the Metro 2 Data Format 
(Section 3.1.2, page 15 and following). Our members' efforts to audit 
incoming data and to work with both new and current data furnishers are 
well-documented. However, the Congress recognized that data furnishers 
have to have duties to ensure that accuracy of what they report which 
is why, in 1996, the FCRA was amended to create an accuracy duty for 
data furnishers and again in 2003, the Congress enacted new FCRA 
requirements on data furnishers via the issuance of regulations 
regarding the ``accuracy and integrity'' of information furnished to 
consumer reporting agencies.
Committee Issue IV--Nationwide Specialty Consumer Reporting Agencies
    Some consumer reporting agencies regulated under the FCRA are 
further defined a ``nationwide specialty consumer reporting agency.'' 
This term is defined as follows:

         603. Definitions; rules of construction [15 U.S.C.  1681a]

    (x)  The term ``nationwide specialty consumer reporting agency'' 
        means a consumer reporting agency that compiles and maintains 
        files on consumers on a nationwide basis relating to----

    (1)  medical records or payments;

    (2)  residential or tenant history;

    (3)  check writing history;

    (4)  employment history; or

    (5)  insurance claims.

    NSCRAs have to provide a free annual disclosure. Below is the 
section of law which establishes this duty:

         612. Charges for certain disclosures [15 U.S.C.  1681j]

        (C) Nationwide Specialty Consumer Reporting Agency

    (i)  In general. The Bureau shall prescribe regulations applicable 
        to each consumer reporting agency described in section 603(w) 
        to require the establishment of a streamlined process for 
        consumers to request consumer reports under subparagraph (A), 
        which shall include, at a minimum, the establishment by each 
        such agency of a toll-free telephone number for such requests.

    (ii)  Considerations. In prescribing regulations under clause (i), 
        the Bureau shall consider----

    (I)  the significant demands that may be placed on consumer 
        reporting agencies in providing such consumer reports;

    (II)  appropriate means to ensure that consumer reporting agencies 
        can satisfactorily meet those demands, including the efficacy 
        of a system of staggering the availability to consumers of such 
        consumer reports; and

    (III)  the ease by which consumers should be able to contact 
        consumer reporting agencies with respect to access to such 
        consumer reports.

    (iii)  Date of issuance. The Bureau shall issue the regulations 
        required by this subparagraph in final form not later than 6 
        months after the date of enactment of the Fair and Accurate 
        Credit Transactions Act of 2003.

    (iv)  Consideration of ability to comply. The regulations of the 
        Bureau under this subparagraph shall establish an effective 
        date by which each nationwide specialty consumer reporting 
        agency (as defined in section 603(w)) shall be required to 
        comply with subsection (a), which effective date----

    (I)  shall be established after consideration of the ability of 
        each nationwide specialty consumer reporting agency to comply 
        with subsection (a); and

    (II)  shall be not later than 6 months after the date on which such 
        regulations are issued in final form (or such additional period 
        not to exceed 3 months, as the Bureau determines appropriate).
Committee Issue V--Differences in Credit Scores Available to Clients 
        versus Consumers
    In September of 2012 the CFPB issues a reported entitled ``Analysis 
of Differences between Consumer- and Creditor-purchased Credit 
Scores.'' The findings of this report were very favorable to consumers 
and set aside any concerns regarding which score a consumer chooses to 
purchase. Four out of five consumers get exactly the same result 
regardless of the score they choose and where this isn't the case it is 
a result of how lenders set their prices in the market place. No one 
credit score will every match up with all lender pricing strategies or 
with their internal underwriting systems which include customized 
credit scores designed uniquely for them. From a statistical/scientific 
perspective the CFPB reports that all scores they studied were highly 
correlated (.9 out of 1). In a competitive credit scoring marketplace 
correlations could not likely be better, and this is good news for 
consumers, as well.
    Because, as the CFPB itself reports, there is no one score in the 
marketplace (some commonly used score brands have as many as 49 
different versions operating in the current marketplace) and lenders 
make different offers to the same consumer, we agree with the CFPB that 
the lesson learned from this study is that it is essential that 
consumers shop around for a deal. Consumers should never take the first 
offer on the table. Consumers should take advantage of the availability 
of credit scores and set aside unfounded concerns about the variety of 
high-quality credit scores available in today's competitive 
marketplace.
    CDIA issued a release in support of the CFPB's report and we have 
included it below. It captures our industry's reaction to the study.
                                 ______
                                 
        WASHINGTON, Sept. 25, 2012 /PRNewswire-USNewswire/--``We 
        applaud the Consumer Financial Protection Bureau's credit score 
        report that was released today. We think it puts an end to the 
        debate over the value of educational scores versus those scores 
        lenders use,'' said Stuart K. Pratt , president and CEO of the 
        Consumer Data Industry Association.

        The CFPB study concluded that ``correlations across the results 
        of the scoring models were high.'' As a result, it determined 
        ``that for a majority of consumers the scores produced by 
        different scoring models provided similar information about the 
        relative creditworthiness of the consumers. The study found 
        that different scoring models would place consumers in the same 
        credit-quality category 73-80 percent of the time.''

        ``The study sheds new light on why consumers can trust the 
        credit score disclosures they receive and the products in the 
        commercial marketplace that help consumers build a deeper 
        understanding of their credit scores and how they affect their 
        financial decisions. Consumers want to be proactive in learning 
        about their scores. Unfortunately, too many mixed messages have 
        made them hesitant to access the data currently available that 
        will help them better understand the scoring process. This 
        study is good news for consumers who can now be confident that 
        the disclosures and services they are getting today are helping 
        to empower them to receive better prices tomorrow in the credit 
        market,'' stated Pratt.

        The study was built on the foundation of two key facts made 
        clear in the Bureau's 2011 report and reiterated again in this 
        study:

      ``Given this complexity it is unlikely that a consumer 
        will often be able to know the exact score that a particular 
        lender will use to evaluate them.''[1]

      ``Lenders use credit scores produced by many different 
        scoring models.''[2]

        ``The CFPB is right,'' said Pratt, ``no one score is used by 
        all lenders. However, the credit score is a valuable 
        educational tool and can enable consumers to better understand 
        their creditworthiness relative to other consumers.'' As the 
        CFPB's report notes, the many credit score options in the 
        marketplace today will help consumers answer these questions. 
        CDIA recommends that when consumers obtain their credit scores 
        they should ask these important questions:

    1.  What credit scoring model was used?

    2.  What's the scale?

    3.  What does the score I received mean in terms of lending risk?

    4.  What are the key factors affecting my credit score?

    5.  How might my future financial decisions affect my credit score?

        CDIA's members are global leaders in the development of credit 
        score technology. While the CFPB was not charged by Congress 
        with studying every effective and reliable credit score in the 
        marketplace, this report shows that all such scores designed 
        using the same common principles will help educate consumers 
        with equal effectiveness.

        In support of the CFPB's study, the CDIA will fund a new series 
        of public service announcements focused on encouraging 
        consumers to read the CFPB's report, obtain their credit scores 
        and also, in support of the Consumer Federation of America's 
        latest credit score poll, avail themselves of resources that 
        are available to better understand what does and doesn't affect 
        a credit score.

    ------------------------
        [1] July 19, 2011 CFPB Report, ``The impact of differences 
        between consumer- and creditor-purchased credit scores,'' Pg. 
        18.

        [2] July 19, 2011 CFPB Report, ``The impact of differences 
        between consumer- and creditor-purchased credit scores,'' Pg. 
        1.

        SOURCE: Consumer Data Industry Association
                                 ______
                                 
Conclusion
    I am grateful of this opportunity to testify and for your interest 
in our members. They are a vital and successful part of our U.S. 
economy. I am happy to answer any questions.
                                 ______



[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]



  RESPONSE TO WRITTEN QUESTIONS OF CHAIRMAN BROWN FROM COREY 
                             STONE

Q.1. One theme in credit reporting issues has been that, even 
if consumers are vigilant and try to check their credit reports 
(or purchase credit scores), they can still miss substantive 
credit issues that arise when a consumer goes to use a line of 
credit.
    Consumers may not be able to understand the information 
contained in their credit reports, and, as the CFPB has 
reported, consumers who purchase their credit scores see a 
materially different score than a creditor would see 19-24 
percent of the time.
    Is this lack of clear information consistent with the 
spirit of the FACT Act?

A.1. The FACT Act has provisions to make the information in 
credit reports and the scores derived from them more accessible 
to consumers. The FACT Act entitles consumers to obtain a free 
credit report annually from each of the nationwide consumer 
reporting agencies and from nationwide specialty consumer 
reporting agencies, as well as additional free reports from 
nationwide consumer reporting agencies in connection with 
initial fraud alerts and extended alerts. Additionally, the 
FACT Act gives consumers the right to purchase a credit score 
at a reasonable fee and requires mortgage lenders who use 
credit scores in connection with consumer mortgage applications 
to provide the scores to the consumers. Subsequent amendments 
to the FCRA in Dodd-Frank further expanded consumer access to 
credit scores by requiring lenders to disclose credit scores 
with adverse action and risked based pricing disclosures.
    In October 2012, the CFPB published a study, ``Analysis of 
Differences between Consumer- and Creditor-Purchased Credit 
Scores,'' comparing credit scores obtained by consumers with 
those used by lenders. For the study, the CFPB analyzed 200,000 
credit files from each of the three major nationwide consumer 
reporting agencies.
    While the CFPB found that the educational scores sold by 
the credit bureaus generally correlate highly with the score 
most widely used by creditors, the correlations are not 
perfect, so as you point out, a substantial minority of 
consumers could find themselves with educational scores that 
would not be reflective of the score a lender would be looking 
at (most likely a FICO score).
    Given this variation in outcome, the CFPB concluded in the 
report that ``firms that sell scores to consumers should make 
consumers aware that the scores consumers could purchase could 
vary, sometimes substantially, from the scores used by 
creditors.''

Q.2. How can we improve access and information for consumers 
given the discrepancies?

A.2. Improvements can be made in several areas.
    In the CFPB's recent study on credit reporting, the CFPB 
found that only about one in five people with a credit history 
(44 million consumers) check their free credit report from the 
nationwide consumer reporting agencies each year or obtain 
reports through paid credit monitoring services or notices of 
adverse action or risk-based pricing decisions. Regardless of 
the credit scoring model used by a lender, a consumer can 
benefit by reviewing the underlying information in his or her 
credit report. Consumers who identify and successfully dispute 
incorrect derogatory information in their credit files (e.g., 
an account reported as delinquent that was not in fact 
delinquent, an incorrect collection) will likely improve their 
standing with creditors regardless of the credit scoring model 
used. The CFPB encourages consumers to exercise their legal 
right to review their credit files.
    Improvements can also be made in the disclosure of 
information to consumers who purchase credit scores. The CFPB 
noted in its October 2012 report that providers of educational 
credit scores should ensure that the potential for score 
differences is clear to consumers. As we noted in the report:

         . . . for a substantial minority of consumers, the scores that 
        consumers purchase from the nationwide CRAs depict consumers' 
        creditworthiness differently from the scores sold to creditors. 
        It is likely that, unaided, many consumers will not understand 
        this fact or even understand that the score they have obtained 
        is an educational score and not the score that a lender is 
        likely to rely upon. Consumers obtaining educational scores may 
        be confused about the usefulness of the score being sold if 
        sellers or scores do not make it clear to consumers before the 
        consumer purchases the educational score that it is not the 
        score the lender is likely to use.

Q.3. Does the variability in credit reports make it more 
difficult for consumers to monitor and correct their 
information?

A.3. The CFPB study on credit scores found that for most 
consumers, the scores produced by different scoring models 
provide similar information about the relative creditworthiness 
of the consumers. For 19 to 24 percent of consumers, variations 
in scoring models could lead to consumers having an inaccurate 
perception of how lenders see their creditworthiness. In the 
cases where educational scores were higher than a score used by 
lenders, consumers may overestimate their creditworthiness, and 
might be lulled into a false sense of confidence. In cases 
where consumers have an educational score that is lower than 
what a lender might see, consumers could be motivated to 
improve the information in their credit file, both by changing 
behavior and correcting errors.

Q.4. Is there any evidence that a person's credit history has 
any connection with their job performance?

A.4. We are not aware of evidence on this topic.

Q.5. Would it be practicable or advisable for each credit 
inquiry listed on a credit report--whether a hard or soft 
inquiry--to include the inquiring party's contact information, 
the nature of their business, and the purpose of their inquiry?

A.5. File disclosures to consumers currently provide the 
contact information for hard inquiries (inquiries that would 
impact a consumer's credit score). The contact information for 
soft inquiries (e.g., account reviews, pre-screening inquiries) 
is not provided. Since soft inquiries do not impact a 
consumer's credit rating, it is not clear that adding contact 
information for soft inquiries would assist consumers in 
improving their credit standing.

Q.6. Do you agree that FACTA inadvertently repealed the 
existing right of consumers and State officials to sue for any 
violations of the adverse-action provisions of the FCRA?

A.6. FACTA amended section 615 of the FCRA so that sections 616 
and 617, which create civil liability for certain violations of 
the FCRA, do not apply to failures to comply with section 615.

Q.7. Would you support or oppose restoring the original intent 
of the FCRA by restoring this private enforcement right?

A.7. As an independent regulatory bureau, the CFPB is focused 
on carrying out, implementing, and enforcing the laws that 
Congress and the President enact. If there is a specific 
legislative proposal we are asked to review for purposes of 
providing technical advice on its likely consequences, we would 
be happy to do so.
                                ------                                


RESPONSE TO WRITTEN QUESTIONS OF CHAIRMAN BROWN FROM STUART K. 
                             PRATT

Q.1. Is there any evidence that a person's credit history has 
any connection with their job performance?

A.1. A 2008 study by Edward Oppler, et al., showed a 
correlation between using a credit report for employment 
purposes and what Oppler described as ``counterproductive work 
behavior,'' defined as theft and related behaviors. In short, 
Oppler concluded that employees with financial history concerns 
were significantly more likely to engage in counterproductive 
work behavior than those without financial concerns. In fact, a 
job applicant with a troubled financial history was almost 
twice as likely to engage in theft as an applicant who lacked 
any financial history issues.
    Additionally, an Eastern Kentucky University study 
conducted by Jerry Palmer and Laura Koppes stated that there 
are reasons why a credit report could be useful as part of an 
employment check, especially when considering potential losses 
due to theft or concerns about negligent hiring liability. 
Palmer has noted, ``These all seem like good reasons to include 
a credit check when considering a candidate for employment.''
    The importance of managing risks via the use of a credit 
report becomes evident in the context of data released by the 
Association of Certified Fraud Examiners. It notes that 
employee thefts account for nearly $1 trillion annually. The 
average theft totals more than $175,000, but that number 
increases to $200,000 for organizations with less than 100 
employees. The top two red-flag warnings present in these 
crimes were instances where the fraudster was living beyond his 
or her financial means or experiencing financial difficulties. 
That's important because employee fraud and theft can very well 
determine whether a small business survives or not.
    As I discussed during the question and answer period it is 
important to remember that employers' use of credit reports is 
responsible. A survey of human resources professionals 
conducted by the Society for Human Resource Management (SHRM) 
found the following is true with regard to use:

   L80 percent of those surveyed had hired someone 
        despite a poor credit history.

   L87 percent use a credit report for positions with 
        financial responsibilities.

   L42 percent use a credit report for senior executive 
        positions.

   L34 percent do so for positions with access to 
        highly confidential employee information.

    In a survey of our own members we found that employers 
ordered credit reports as part of only an average of 10 percent 
of all background screening products.
    In summary, credit reports are used responsibly based on 
SHRM data. They are used discretely based on CDIA data. They 
are useful when you review the academic literature. Finally the 
fact that the FCRA permits the use of a credit report does not 
absolve an employer from its duty to comply with Title VII of 
the Civil Rights Act and to consider guidance issued by the 
EEOC regarding this Title. Employers are also subject to 
enforcement and investigative actions by the EEOC.

Q.2. Would it be practicable or advisable for each credit 
inquiry listed on a credit report--whether a hard or soft 
inquiry--to include the inquiring party's contact information, 
the nature of their business, and the purpose of their inquiry?

A.2. No. CDIA believes that Congress has already struck the 
right balance regarding the amount of information that should 
be disclosed to consumers when an inquiry is included in their 
credit file disclosures.
    The law states that ``the name of the person or, if 
applicable, the trade name (written in full) under which such 
person conducts business'' must be disclosed and then, upon 
request, the consumer reporting agency must provide the address 
and telephone number of the person. By layering the amount of 
information a consumer sees, it is far more likely that 
consumers will take the time to review inquiries and to then to 
seek additional information regarding only those for which they 
have questions.
    The theory that more information being immediately 
available is better is simply not true. It is very likely that 
when presented with a large volume of information a consumer 
may find the task of reviewing inquiries too great and simply 
skip this section of the credit file disclosure. This would be 
a bad policy result.
    In terms of expanding the data made available to consumers 
regarding an inquiry to include ``the nature of their business, 
and the purpose of their inquiry'' we believe these data are 
best provided by the company that made the inquiry. This is why 
Congress requires consumer reporting agencies to provide 
contact information upon request in the first place. CDIA 
believes that FCRA Section 609(a)(3)(B) strikes the right 
balance and the result is a success for consumers in terms of 
transparency and effective, meaningful disclosure.

Q.3. Do you agree that FACTA inadvertently repealed the 
existing right of consumers and State officials to sue for any 
violations of the adverse-action provisions of the FCRA?

A.3. CDIA believes that Congress itself is in the best position 
to speak to its intent when it repealed the right described in 
the question.

Q.4. Would you support or oppose restoring the original intent 
of the FCRA by restoring this private enforcement right?

A.4. At this time the CDIA would oppose opening up the FCRA to 
any amendment. The Consumer Financial Protection Bureau is 
midstream in the exercise of its considerable powers with 
regard to the FCRA and our members. We should not expose the 
FCRA to open debate which would insert unhelpful and 
unnecessary legislative uncertainty.
                                ------                                


RESPONSE TO WRITTEN QUESTIONS OF CHAIRMAN BROWN FROM CHI CHI WU

Q.1. Is there any evidence that a person's credit history has 
any connection with their job performance?

A.1. The overwhelming weight of evidence is that people with 
impaired credit histories are not more likely to be bad 
employees or to steal from their employers. The earliest study 
on this issue, conducted by Professors Jerry Palmer and Laura 
Koppes of Eastern Kentucky University, concluded there is no 
correlation between credit history and an employee's job 
performance.\1\
---------------------------------------------------------------------------
    \1\ Jerry K. Palmer and Laura L. Koppes, Further Investigation of 
Credit History as a Predictor of Employee Turnover. Presentation to the 
American Psychological Society, 2003. See also Press Release, Society 
for Industrial and Organizational Psychology, Credit History Not a Good 
Predictor of Job Performance or Turnover, January 16, 2004, available 
at http://www.newswise.com/articles/credit-history-not-a-goodpredictor-
of-job-performance-or-turnover (summarizing study by Drs. Palmer and 
Koppes).
---------------------------------------------------------------------------
    A more recent study from 2011 also failed to find a link 
between low credit scores and theft or deviant behavior at 
work.\2\ Indeed, the study found a correlation between low 
credit scores and an agreeable personality.
---------------------------------------------------------------------------
    \2\ Jeremy B. Bernerth et al, An Empirical Investigation of 
Dispositional Antecedents and Performance-Related Outcomes of Credit 
Scores, Journal of Applied Psychology, Oct. 24, 2011. See also Ann 
Carrns, Bucks Blog: No Link Seen Between Low Credit Scores and Bad Job 
Behavior, New York Times, November 8, 2011, available at http://
bucks.blogs.nytimes.com/2011/11/08/no-link-seen-between-low-credit-
scores-and-bad-job-behavior/ (summarizing study by Dr. Bernerth).
---------------------------------------------------------------------------
    A representative of TransUnion, one of the three major 
nationwide credit reporting agencies, has admitted that: ``At 
this point we don't have any research to show any statistical 
correlation between what's in somebody's credit report and 
their job performance or their likelihood to commit fraud.''\3\ 
Richard Tonowski, the Chief Psychologist for the Equal 
Employment Opportunity Commission, agreed. In 2010, he 
testified that there is ``very little evidence that credit 
history is indicative of who can do the job better'' and it is 
``hard to establish a predictive relationship between credit 
and crime.''\4\
---------------------------------------------------------------------------
    \3\ Andrew Martin, As a Hiring Filter, Credit Checks Draw 
Questions, New York Times, April 9, 2010, available at http://
www.nytimes.com/2010/04/10/business/10credit.html.
    \4\ Statement of Richard Tonowski, EEOC Chief Psychologist, EEOC 
Meeting on Employer Use of Credit History as a Screening Tool, October 
20, 2010.
---------------------------------------------------------------------------
    Promoters of the use of credit histories in employment have 
tried to link credit history to job performance by citing an 
Association of Certified Fraud Examiners report noting that two 
warning signs exhibited by some fraudsters were living beyond 
their financial means or experiencing financial difficulties. 
However, while some thieves may have had financial 
difficulties, it is a far cry to say that any worker with 
financial difficulties has a propensity to be a thief. This 
conclusion would imply that the 25 percent of American workers 
who have impaired credit are likely thieves.\5\ Note that the 
same study found that men are responsible for twice as much in 
fraud losses than women; that fraud from workers over 50 
resulted in losses twice as high as fraud by younger workers; 
and another significant warning sign for fraud is divorce. Yet 
no one is suggesting screening out men, older workers, or 
divorced workers because they are supposedly prone to 
committing theft.
---------------------------------------------------------------------------
    \5\ Press Release, FICO, Growing Number of Consumers Nearing the 
Perfect FICO Score, Apr. 30, 2012 (chart showing that number of 
consumers with FICO scores under 600 was 24.7 percent in 2011).
---------------------------------------------------------------------------
    Finally, there are a number of other problems with the 
issue of credit history by employers, such as:

   LCredit checks create a fundamental ``Catch-22'' for 
        job applicants. A worker who loses her job is likely 
        fall behind on paying her bills; with the increasing 
        use of credit reports, this worker now finds herself 
        shut out of the job market.

   LUse of credit checks in hiring could prevent 
        economic recovery for millions of Americans. The use of 
        credit history for job applicants is especially absurd 
        in the midst of still-too-high unemployment and the 
        aftermath of the Great Recession.

   LThe use of credit in hiring discriminates against 
        African American and Latino job applicants. Study after 
        study has documented how, as a group, African Americans 
        and Latinos have lower credit scores than whites. If 
        credit scores are supposed to be an accurate 
        translation of a consumer's credit report, that means 
        these groups fare worse when credit history is 
        considered in employment.

   LCredit reports suffer from unacceptable rates of 
        inaccuracy, especially for a purpose as important as 
        use in employment.

These issues are discussed in greater depth in our written 
testimony for the December 19, 2012 hearing before the 
Subcommittee on Financial Institutions and Consumer Protection, 
as well as hearings before the House Financial Services 
Committee \6\ and the Equal Employment Opportunity 
Commission.\7\
---------------------------------------------------------------------------
    \6\ Legislative Hearing on H.R. 3149, the Equal Employment for All 
Act: Hearing before the Subcomm. on Financial Inst. and Consumer 
Credit, House Comm. on Fin. Servs., 110th Congr. (2010) (written 
statement of Chi Chi Wu, Staff Attorney, National Consumer Law Center); 
Use of Credit Information Beyond Lending: Issues and Reform Proposals: 
Hearing before the Subcomm. on Financial Inst. and Consumer Credit, 
House Comm. on Fin. Servs., 110th Congr. (2010) (written statement of 
Chi Chi Wu, Staff Attorney, National Consumer Law Center).
    \7\ Barriers to Employment: Employer Use of Credit History as a 
Screening Tool: Hearing before the Equal Employment Opportunity 
Commission (October 20, 2010)(written statement of Chi Chi Wu, Staff 
Attorney, National Consumer Law Center).

Q.2. Would it be practicable or advisable for each credit 
inquiry listed on a credit report--whether a hard or soft 
inquiry--to include the inquiring party's contact information, 
---------------------------------------------------------------------------
the nature of their business, and the purpose of their inquiry?

A.2. We do not see any barriers to including more information 
about the entity that obtained a credit report--referred to as 
the ``user'' of the credit report--for each inquiry on that 
report. This information could include the user's contact 
information, which is already required to be disclosed upon the 
consumer's request under the Fair Credit Reporting Act (FCRA). 
It should not be difficult to automatically include this 
information instead of requiring a consumer request.
    The additional information could also include the nature of 
the user's business, and under what provision of the FCRA did 
the user have a statutorily permitted purpose to obtain the 
credit report. The credit reporting agency should have this 
information, because it should have screened the user to ensure 
it had a permissible purpose. This information would help 
consumers understand for what reason their credit reports were 
obtained, and would ensure that users actually do have a 
purpose that is legally permitted under the FCRA.

Q.3. Do you agree that FACTA inadvertently repealed the 
existing right of consumers and State officials to sue for any 
violations of the adverse-action provisions of the FCRA?

A.3. Yes, we agree. A number of courts have held that FACTA 
repealed the existing right of consumers and State officials to 
sue for any violations of the adverse-action notice provisions 
of the FCRA.\8\ We believe that this repeal was inadvertent, 
unintentional, and not part of FACTA's legislative bargain.
---------------------------------------------------------------------------
    \8\ For a list of cases, see National Consumer Law Center, Fair 
Credit Reporting  8.5.5 (7th ed. 2010 and Supp.).
---------------------------------------------------------------------------
    FACTA itself clearly indicates that Congress had absolutely 
no intention of abolishing the consumer's right to seek redress 
of this important right. The uncodified version of FACTA 
states:

        Rule of Construction.--Nothing in this section, the amendments 
        made by this section, or any other provision of this Act shall 
        be construed to affect any liability under section 616 or 617 
        of the Fair Credit Reporting Act (15 U.S.C. 1681n, 1681o) that 
        existed on the day before the date of enactment of this Act.

        Pub. L. 108-159, 117 Stat. 1960,  312(f) (2003).

    This provision expressly preserved all private enforcement 
rights that existed under the FCRA as of the date of FACTA's 
passage, and indicates Congress's intent to retain all existing 
consumer remedies under the Act.
    Indeed, after FACTA's enactment, the credit industry did 
not claim to have eliminated the consumer remedy for the 
adverse-action disclosure, with the American Banker only noting 
that FACTA ``perhaps inadvertently eliminates the existing 
right of consumers and State officials to sue for any 
violations of the adverse-action provisions of the FCRA.''\9\ 
Had Congress intended FACTA to carve private damages suits 
wholesale out of the user liability section of the FCRA, the 
banking and credit industry would have trumpeted that change in 
the days following the President's signature.
---------------------------------------------------------------------------
    \9\ M. Heller, Regulators Scurry to Close FACT Act Loophole, 
American Banker (Dec. 12, 2003), at 3.

Q.4. Would you support or oppose restoring the original intent 
---------------------------------------------------------------------------
of the FCRA by restoring this private enforcement right?

A.4. We absolutely and unequivocally support restoration of the 
ability for consumers to seek relief in the courts when their 
right to an adverse action notice under the FCRA is violated. 
Consumers have been deprived of an important remedy because of 
this scrivener's error, which needs to be corrected.
    We note that in previous testimony, industry 
representatives declined to claim that FACTA had intentionally 
abolished this private enforcement remedy or to oppose its 
restoration. In a 2007 hearing before the House Committee on 
Financial Services, then Chairman Barney Frank engaged in the 
following colloquy with Stuart Pratt, President and CEO of the 
Consumer Data Industry Association, and Anne Fortney of Hudson 
Cook, another industry representative:\10\
---------------------------------------------------------------------------
    \10\ Credit Reports: Consumers' Ability to Dispute and Change 
Inaccurate Information: Hearing Before the H. Comm. on Fin. Serv., 110 
Congr. 50 (2007).

        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. OK. 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. OK. 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, OK. Then it is two to nothing, two 
        abstentions.

    It was not until several years later that industry 
representatives began opposing restoration of this private 
remedy.

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