[Senate Hearing 113-060]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 113-060

                     CREDIT REPORTS: WHAT ACCURACY 
                     AND ERRORS MEAN FOR CONSUMERS

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

                                HEARING

                               before the

   SUBCOMMITTEE ON CONSUMER PROTECTION, PRODUCT SAFETY, AND INSURANCE

                                 of the

                         COMMITTEE ON COMMERCE,
                      SCIENCE, AND TRANSPORTATION
                          UNITED STATES SENATE

                    ONE HUNDRED THIRTEENTH CONGRESS

                             FIRST SESSION

                               __________

                              MAY 7, 2013

                               __________

    Printed for the use of the Committee on Commerce, Science, and 
                             Transportation






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       SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION

                    ONE HUNDRED THIRTEENTH CONGRESS

                             FIRST SESSION

            JOHN D. ROCKEFELLER IV, West Virginia, Chairman
BARBARA BOXER, California            JOHN THUNE, South Dakota, Ranking
BILL NELSON, Florida                 ROGER F. WICKER, Mississippi
MARIA CANTWELL, Washington           ROY BLUNT, Missouri
FRANK R. LAUTENBERG, New Jersey      MARCO RUBIO, Florida
MARK PRYOR, Arkansas                 KELLY AYOTTE, New Hampshire
CLAIRE McCASKILL, Missouri           DEAN HELLER, Nevada
AMY KLOBUCHAR, Minnesota             DAN COATS, Indiana
MARK WARNER, Virginia                TIM SCOTT, South Carolina
MARK BEGICH, Alaska                  TED CRUZ, Texas
RICHARD BLUMENTHAL, Connecticut      DEB FISCHER, Nebraska
BRIAN SCHATZ, Hawaii                 RON JOHNSON, Wisconsin
WILLIAM COWAN, Massachusetts
                    Ellen L. Doneski, Staff Director
                   James Reid, Deputy Staff Director
                     John Williams, General Counsel
              David Schwietert, Republican Staff Director
              Nick Rossi, Republican Deputy Staff Director
   Rebecca Seidel, Republican General Counsel and Chief Investigator
                                 ------                                

         SUBCOMMITTEE ON CONSUMER PROTECTION, PRODUCT SAFETY, 
                             AND INSURANCE

CLAIRE McCASKILL, Missouri,          DEAN HELLER, Nevada, Ranking 
    Chairman                             Member
BARBARA BOXER, California            ROY BLUNT, Missouri
MARK PRYOR, Arkansas                 KELLY AYOTTE, New Hampshire
AMY KLOBUCHAR, Minnesota             DAN COATS, Indiana
RICHARD BLUMENTHAL, Connecticut      TED CRUZ, Texas
BRIAN SCHATZ, Hawaii                 DEB FISCHER, Nebraska
WILLIAM COWAN, Massachusetts














                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on May 7, 2013......................................     1
Statement of Senator McCaskill...................................     1
    Prepared statement of Brenda Faith Campbell, Nixa, Missouri..     2
    Letter dated May 7, 2013 to Hon. Claire McCaskill and Hon. 
      Dean Heller from Hon. Sherrod Brown, Chairman, Subcommittee 
      on Financial Institutions and Consumer Protection, Senate 
      Committee on Banking, Housing and Urban Affairs............   102
Statement of Senator Heller......................................     8
Statement of Senator Schatz......................................    47
Statement of Senator Klobuchar...................................    49
Statement of Senator Nelson......................................    50

                               Witnesses

Maneesha Mithal, Associate Director, Division of Privacy and 
  Identity Protection, Federal Trade Commission..................     9
    Prepared statement...........................................    11
Corey Stone, Assistant Director, Deposits, Cash, Collections, and 
  Reporting Markets, Consumer Financial Protection Bureau........    15
    Prepared statement...........................................    16
Judy Ann Thomas, Consumer........................................    55
    Prepared statement...........................................    56
Stuart K. Pratt, President and CEO, Consumer Data Industry 
  Association....................................................    61
    Prepared statement...........................................    62
Ira Rheingold, Executive Director, National Association of 
  Consumer Advocates.............................................    71
    Prepared statement...........................................    73
J. Howard Beales III, Professor, Strategic Management and Public 
  Policy, George Washington University School of Business........    80
    Prepared statement...........................................    82

                                Appendix

Response to written questions submitted by Hon. Claire McCaskill 
  and Hon. Bill Nelson to Maneesha Mithal........................   105
Response to written questions submitted by Hon. Claire McCaskill 
  to:
    Corey Stone..................................................   108
    Stuart K. Pratt..............................................   111
    J. Howard Beales III.........................................   116

 
                     CREDIT REPORTS: WHAT ACCURACY 
                     AND ERRORS MEAN FOR CONSUMERS

                              ----------                              


                          TUESDAY, MAY 7, 2013

                               U.S. Senate,
      Subcommittee on Consumer Protection, Product 
                             Safety, and Insurance,
        Committee on Commerce, Science, and Transportation,
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 2:33 p.m. in 
room SR-253, Russell Senate Office Building, Hon. Claire 
McCaskill (Chairman) presiding.

          OPENING STATEMENT OF HON. CLAIRE McCASKILL, 
                   U.S. SENATOR FROM MISSOURI

    Senator McCaskill. I want to welcome everyone today to the 
first subcommittee hearing in the Subcommittee on Consumer 
Protection, Product Safety, and Insurance and Athletics. We're 
going to talk today about credit reports, what accuracy and 
errors mean for consumers. I want to welcome my ranking 
colleague, Senator Heller from Nevada. I think we're going to 
have a great working relationship during this Congress trying 
to do our very best work in the area of protecting consumers 
primarily.
    I will bring this hearing to order. This is the first 
hearing. This Congress, this subcommittee will use our hearings 
to serve as a watchdog for consumers, with particular focus on 
misleading and deceptive marketing to consumers and practices 
of the financial products industry. I look forward to working 
with Ranking Member Heller and other members of the 
Subcommittee to hold scammers and others who prey on consumers 
accountable, as well as ensuring that regulators are doing 
their job.
    Today's hearing will focus on the important role of credit 
reports and what it means for consumers when errors occur. 
America's credit reporting system plays an important role in 
our economy and a critical role for consumers. From a business 
perspective, credit reports promote access to responsible 
credit for consumers.
    Right now, the nationwide consumer reporting agencies--
Equifax, Experian, and TransUnion--have files on more than 200 
million Americans, which represents a great deal of 
opportunity. From a consumer perspective, though, credit 
reports can quite literally change lives. They are the deciding 
factor in determining whether individuals can obtain credit 
cards, mortgages, or car loans, as well as how much they will 
pay for those loans. Credit reports are also often used as part 
of non-credit decisions about consumers that are no less 
important, such as whether an individual can rent an apartment 
or even obtain a job.
    The credit reporting industry is also unique. Unlike most 
industries, where consumers can walk away if they don't like 
the deal, most Americans are trapped and cannot avoid having a 
credit history and have no say as to whether or not their 
information is part of this system.
    Given the huge impact that credit reports have, it's 
imperative that credit reports are accurate, and if they aren't 
that consumers can easily and successfully dispute errors in 
their credit reports. Errors can mean the difference between 
obtaining a car loan or not, or paying a higher price for a 
mortgage. Errors can result in credit issuers, like a small 
town bank, declining credit to a potentially valuable customer, 
or issuing credit to a riskier customer than intended.
    Recently there have been a number of troubling reports 
about the accuracy of credit reports, as well as consumers' 
inability to correct errors when they find them. In February 
2012, the FTC released a study finding that 5 percent of 
consumers had significant errors on at least one of their three 
major credit reports that could lead to them being denied or 
paying more for their access to credit.
    The FTC isn't the only one raising these concerns. Also in 
February 2012, 60 Minutes aired a segment about the credit 
reporting industry that depicted disturbing levels of 
inaccurate information on credit reports, as well as an 
industry dispute system for consumers that is best described as 
Kafka-esque. This news report told stories of consumers who had 
all the right documentation, who even had lawyers to help them, 
spending years of their lives to resolve obvious errors in 
their credit reports, with little success.
    One of those consumers is here with us today to share her 
story. Judy Thomas of Ohio first learned of errors in her 
credit report in 1999. The credit bureaus had mistakenly 
included information belonging to Judith Kendall of Utah on her 
reports, what is referred to as a ``mixed file.'' Ms. Thomas 
filed her disputes and expected this mistake to be quickly 
corrected. But what should have been a simple fix instead 
became a nightmarish process for Ms. Thomas, who is still 
fighting to fix these inaccuracies today.
    We also have a statement from one of my constituents, 
Brenda Campbell of Nixa, Missouri, who unfortunately could not 
be with us today, but provided written testimony. I ask 
unanimous consent that Ms. Campbell's statement be included in 
the hearing record.
    [The information referred to follows:]

      Prepared Statement of Brenda Faith Campbell, Nixa, Missouri
    I accessed my credit for the first time knowing there was a 
problem; I had been denied a Discover credit card and had been told 
that there was a ``Midland'' judgment on my report that affected my 
credit rating when I applied for a car loan. I was approaching 
retirement age and knew that life changes were coming up that would 
make my credit important.
    I began researching the credit report process and what to do with 
incorrect information before I even saw my credit report for the first 
time. When I finally obtained my free credit report, it was a mess! 
There were so many companies, names, addresses and a lot of information 
that was unfamiliar to me. I couldn't believe what I was seeing! Most 
upsetting was the fact that one report contained three Social Security 
Numbers (in addition to mine) and a personal statement in the comment 
section that suggested someone else had been in my credit report. I was 
shocked to think that someone was using my personal information and 
terrified at what that would mean.
    Immediately, I contested all of the inaccurate information on-line 
with the Credit Bureaus in an effort to get the report straightened 
out. Despite my efforts-following the on-line instructions for 
resolution--incorrect information remained on my reports. I was 
contesting incorrect addresses and places of employment because I KNEW 
they were not mine. In no time at all, I determined that contesting 
with the Credit Reporting Agencies on-line was not going to 
successfully remove the inaccurate information from my report. I began 
sending Certified Letters with return receipts with all my requests to 
the CRAs in effort to get an investigation completed. Upon further 
research, I found that a company reporting and/or verifying inaccurate 
information [or a company inquiring with incorrect information] would 
keep inaccurate information on my file. I was horrified!
    In April 2007, I personally spoke to TransUnion regarding their 
continued refusal to remove the Midland Credit Management (MCM) trade 
line and judgment. They told me that MCM verified the account 
information as mine and told me that I would have to contact MCM 
directly to resolve the issue. Research suggested that all business 
with debt collectors should be handled using Certified Mail--with a 
return receipt requested. The hurricane of activities that resulted 
from my acting on this advice is unbelievable even to me--and I lived 
it!
    I sent MCM a debt validation request (in accordance with the FDCPA) 
for information regarding the account that they had verified as mine. I 
expected that they would either validate by giving me the information 
(i.e., copy of account information and judgment) or by removing the 
information from my report. This is was what the Federal Law requires. 
About two weeks later, I was served papers (May 2007) by the Cole 
County Sherriff at work!! It appeared to me that MCM answered my demand 
with a writ of sequestration to garnish my wages. Although I can only 
surmise, I would liken the emotional impact of reading this garnishment 
to be what a victim of any crime-against-the-person experiences. I felt 
violated; it was an intrusion of my privacy; and as I read the writ 
again, my hands were shaking. I was terrorized!
    Frustrated that the ``system'' designed to help was not helping at 
all, I spent the weekend searching the Internet in an attempt to figure 
out how this could happen and any information about this company. I was 
able to find a case filed by Midland against another Brenda Campbell in 
Greene County posted on CaseNet (MO based court system). The judgment 
had been issued in September of 2006. The record showed that the 
defendant, Brenda Campbell, personally appeared and agreed to make 
payments on the judgment. The uneasy feelings I had the Friday I had 
been served only escalated over the weekend when it was obvious that I 
was able to find this information through public websites -put two and 
two together- and figure out whose problem this was. I felt that MCM 
had taken advantage of me because I had asked them to give me 
information regarding this judgment or get it off of my credit report. 
Instead of following the duty (according to FDCPA), they were taking 
steps to take my wages!
    Very late that Sunday night, I wrote to the Circuit Clerk at the 
Greene County Court to let the Judge know, ``You have the wrong 
person''. As a matter of fact, the day I was served papers, the actual 
defendant was in court before the same Judge. On Monday, the Judge's 
secretary called to tell me any action needed would have to be 
initiated by an attorney (of course). In response to my questions, it 
was determined that there were several attorneys attached to the case 
(varying among on the writ, court case, filing, etc.) and contact 
information included addresses in Kansas City, St. Louis and 
Springfield. When I contacted one of the offices of the law firm 
representing MCM, I was directed back to the judge--and told the judge 
would have to vacate the order. I spoke with the court and the law firm 
several times over a two-day period and was pushing up against the 
payroll deadline.
    My job was a gubernatorial appointment requiring personal integrity 
and sound character. The threat of legal action on my record was 
causing me to fear for my job. I was further concerned that if the 
Greene County Court attached even one paycheck, the garnishment on my 
record might never get removed and I would have to fight to get my 
money back. Fearing that any kind of legal action that called my 
integrity into question could result in a decision to end my 
appointment, I believed I had no choice but to hire an attorney. I 
needed to ensure I could prevent the garnishment because my job was on 
the line. The law firm was able to get the sequestration dismissed in 
the 11th hour based on the verification that I provided to my attorney. 
Sadly, as a last act regarding the garnishment, the MCM attorney mailed 
the court document releasing the garnishment--not to me--but to the 
[actual] Brenda Campbell who lives in Willard, MO.
    I opened a credit report from TU in July 2007 to find a new 
Washington Mutual credit card had been issued in my name in June. The 
garnishment papers (served on me in Jefferson City in May) included my 
SSN. I am unshaken in my belief that this error is what alerted another 
Brenda Campbell to my existence; a person with the same name/different 
SSN and who had already been mistaken once to be ``her''. Using her 
identifiers and my SSN, she applied and received a credit card which 
was maxed out according to my report. Coincidence? I don't think so!

   Once I found the Brenda Campbell that was having financial 
        difficulties, I was able to monitor activity occurring on 
        several bad-check cases pending in the Greene County Court via 
        the Internet. I pulled it up frequently to see what was going 
        on--if anything. After each of the dates that she was scheduled 
        to appear in court, I would review the activity. On more than 
        one occasion, failure to appear resulted in arrest warrants 
        being issued until she appeared and/or made payment. Her cases 
        were deleted some time in March 2008 for reasons that were 
        presumably related to impending identity theft charges--but it 
        made me nervous because I can no longer see what is going on 
        with her.

   Late in August 2007, Brenda missed a court date and a 
        warrant issued for her arrest was outstanding when a business 
        meeting took me through Greene County. I was apprehensive and 
        had to explain the situation to my Deputy (who was traveling 
        with me) and put my husband on alert. I felt it was reasonable 
        to assume that if we were pulled over for any reason or had an 
        accident in Greene County, it would likely result in me being 
        incarcerated in the Greene County jail. The feeling was very 
        disconcerting and for the entire trip to Joplin, the 
        possibility of being mistaken as her never left my mind.

    During the two-year battle, I learned a lot regarding the credit 
reporting process. Despite the enormous importance of credit 
information, I would never have anticipated how difficult it would be 
to try and clean up or correct your report, resolve issues, or 
communicate with Credit Agencies and/or Debt Collectors. As a result of 
my experience, I have little respect for the Credit Reporting Agencies 
and absolutely no regard for debt collectors. If I owned a company that 
extended credit, the last piece of information I would consider 
trustworthy would be an individual's credit report!
    The traumatic impact of this experience was intensified when, at 
about seven months into the turmoil, I realized that shouldering the 
burden of fixing this problem was mine--even though the problem 
essentially was the lack of action and/or communication between several 
large companies--it became mine to carry. It was clear that none of 
these entities had any interest in me as a person. All of these 
companies are okay leaving me with never knowing the truth about what 
actually happened--and are certainly not interested in explaining their 
role in causing the problem. All along, I felt the attitude with which 
they responded to me made it apparent that they did not care just how 
much my life was ruined over this.

   The system requires that these entities talk among their 
        selves about whether or not what I am saying about ME is true. 
        In the end, however, the very person continuing to report 
        (false) information has the power to make the final 
        determination as to what stays and what goes off of my report! 
        You would think there would be no better expert on the truth 
        about me than me. In the credit report world, however, that is 
        simply not true.

   Incorrect information including Social Security Numbers that 
        were not mine continued to be on my Experian credit report 
        until we entered the Federal court house. No doubt, numerous 
        letters were believed to be lying on someone's desk to be 
        ``investigated'' by an electronic machine that does not lend 
        itself to be bothered by reality and is oblivious to personal 
        pleas.

   I hired a second team of excellent attorneys to help me 
        figure out how to fix the issues, what the problems are and how 
        to fix information on my report. During this process, I learned 
        a lot about how information travels among companies, what 
        investigations are really like, etc. It was obvious that there 
        was not a way--short of a law suit--that these issues would 
        have been resolved.

     One CRA, Experian had not deleted any credit lines nor 
            attempted to fix my credit report. This initial report was 
            especially concerning as it contained two other SSNs from 
            two other Brenda Campbells. I knew that if I had their 
            SSNs, they likely had mine.

     During a deposition for court in Kansas City, it was 
            explained to me that I was sending the certified letters 
            with return receipt requested to the wrong Experian 
            address. The address (which was from the website named 
            ``Customer Care'') was not the official address for filing 
            disputes.

     As I heard this information for the first time--far 
            into the lawsuit--my blood pressure skyrocketed!! The point 
            of sending certified letters is to assure that the letter 
            is received by the addressee; in this case addressed to 
            Experian. Every letter was signed as received and there was 
            NEVER any communication to me telling me to use another 
            address!! Are we talking mail fraud? A subsidiary of 
            Experian? The entity in the lawsuit--the official Experian 
            LLC--was not responsible for one of their ``divisions''? So 
            the crux of the reason that all of this information was 
            still on my report--

                ) Information put there by someone else;

                ) Contested by me twice using THEIR on-line dispute 
                process;

                ) Contested twice via certified letter to an Experian 
                address;

                ) Certified letters accepted twice by Experian;

                ) Letters containing copies of my social security card, 
                driver's license and
                  utility bill as proof of address;

                ) Letters NOT returned as being sent to wrong address;

                ) Letters that had no follow-up to my requests for 
                investigation;

       . . . was because I had sent the letters to the wrong address!!! 
            Because of this, it was my fault that my credit report was 
            a mess. I was furious at the audacity of this CRA calmly 
            explaining to me that I messed up.

      I can't imagine working for a company that has a policy that if 
            you SIGN for a certified letter. . .and find it requests 
            actions outside of your responsibility; you can ignore the 
            contents therein. Apparently, however, that is the policy 
            of this CRA!

    Although the lawsuits ended in settlements, I still have 
consequences from this nightmare. I was very committed to my 
responsibilities as State of MO Division Director, Senior and 
Disability Services. My job generally required me to work from 50-70 
hours per week. When the time required to conduct personal research 
began to interfere with my thoughts and work, I would stay up all night 
trying to get everything done. My life during these months consisted of 
hours and hours of research. . .deciding what to do next. After all, I 
had followed the process and found myself immersed in a lie against 
which I could find no relief. My problem spiraled out of control 
because I had asked for verification or removal of incorrect 
information to fix my report.
    Work schedules were always busy and mine was an enormous 
responsibility. At one time, I wondered what would have happened if I 
had left the reports in chaos. It certainly would have been less 
intrusive. I was challenged to reconcile the overwhelming feelings of 
inadequacy. Occasionally I would cry for no apparent reason . . . I 
could only say that I felt personally violated, disrespected and 
expendable.
    The personal life of a credit report victim who--without having 
contributed in any way--wakes up in the middle of a nightmare such as 
this becomes entrenched in the games and rules dictated by an industry 
that has little or no value for seeking out the truth. Furthermore, the 
rules aren't for public consumption. Had I not had an excellent 
attorney, this would likely still be an issue for me. It is very 
intimidating to know that the very Bureaus that gather personal 
information for those with a business need to know, has little--if 
any--interest in what one says about their own, very personal, 
information. I have been a public servant for just shy of 30 years. I 
have always trusted that any business--profit or not-for-profit--has an 
inherent responsibility to care more about their customers than that. 
But as I came to know, I was a commodity--not a customer. The customer 
was the business feeding incorrect information about me and lying about 
information that was not mine.
    The behavior that results in the feeling of personal violation by 
Credit Reporting Agencies is devastating because their only line of 
business is handling my information. Yet, there I was two years later. 
. .still living in a state of helpless desperation, at the mercy of 
their decisions.

   I secured an ongoing service (for which I paid monthly) to 
        let me know when derogatory information was added to my report. 
        I continued to receive reports of new derogatory information 
        and wondered how long I will continue to receive these. I 
        presumed I would never be able to stop this service. I thought 
        this was intrusive until I filed the lawsuit and was denied 
        access to the reports and notices that I was paying to see!

   I have an older daughter that is married (with a surname 
        other than Campbell) that lives in Union, MO with her husband 
        and two young daughters. She received this message late in 
        2009: ``Brent Brown, wanting to ask some questions about Brenda 
        Campbell''. She never returned the call . . . and instead 
        called us. I assured her that her daddy and I are fine.

     As it turns out, I had spoken to Brent Brown in 
            January 2008. I assured him that I was not the Brenda 
            Campbell for whom he is searching on behalf of Chase 
            regarding a defaulted vehicle loan. That day in January he 
            understood--but today, in the midst of his ``skip-tracing 
            activities'' I am his main target--again. I know it goes in 
            vicious circles and the experience is so humiliating. All I 
            can do is tell the world, I am not able to stop this 
            insanity!

    When I tell my story, and I used to do that quite often, I find 
that most people are in awe. It is a twilight-zone kind of story when 
you think that something that would appear so easily verifiable went on 
and on uncorrected for no apparent reason! I cannot make sense of what 
has happened and why there isn't some sense of urgency to fix the 
problem. The tendency to abort the mission was even stronger as we 
found ourselves incurring over $17,000 in attorney fees to stop the 
sequestration--yet the issues with the CRs remained unresolved. It 
became blatantly obvious that it was going to take thousands of dollars 
and a full press through the legal system to generate any possible hope 
in recovering what is left or in repairing my now dishonored 
professional and personal character profile.
    I find coming to terms with this entire experience extremely 
difficult. Needless to say, living with this kind of continuous 
anxiety, constant fear, and worry leaves you with some unspeakably bad 
days. At times, I found it difficult to function--yet always impossible 
to discuss. It is a kind of void that you simply can't explain to 
anyone. My experience has led me to conclude that the system that 
houses credit reports is very broken.
    Any intent by Congress to offer citizens the tools they need to 
keep information secure has been overshadowed by fact that large 
corporations that buy and sell information as a commodity ultimately 
own and control the processes through which one would think integrity 
would be crucial. I found fighting Credit Bureaus and Debt Collectors 
to be an impossible feat. There is nothing that requires the ``system-
machine'' to yield to common sense when any reasonable person with 
value in the integrity or honesty of another human being would have 
given pause to at least attempt to define the problem. I would ask 
anyone who felt stripped of this inherent thread of decency afforded 
all men--how would you feel?
    I made it through those years without using counseling, sedatives 
or an official breakdown and subsequent hospitalization. Drawing from 
an inner-strength that is grounded in the grace of God and the support 
I received from my husband and family, I was able to talk through 
circumstances without any immediate scarring. Although without a doubt, 
this ``drama'' consumed most of our life and family discussions over 
two years. It changed me though--and was a detriment to my confidence 
and self-esteem.

   In 2005, Mark and I began country partner dancing. We joined 
        and were active in a local club where I served a year as 
        President. Additionally, we generally attended dances 
        approximately 30 miles from home each Saturday evening. By the 
        summer of 2007, we had all but quit dancing. Two years later, 
        we were maybe dancing once per month and attending club 
        activities twice per year. I didn't want to go anywhere where 
        there were a lot of people. Mark worried about this . . . and I 
        didn't know what to tell him.

   Although eligible, I was exhausted but felt I was not in the 
        position to take advantage of an early retirement. In the 
        process of seeking new employment or moving ``home'', I felt it 
        would be necessary to relay this entire disgusting story--which 
        I found personally degrading. Given the fact that telling the 
        story would be necessary, I felt that employers may not be 
        interested in an employee that comes with ``baggage'' in the 
        form of any story that must be told. It is despicable to think 
        that after 30 successful years of employment, my personal life 
        was negatively impacted to such a degree that I question my 
        ability to retire, relocate, and seek new career opportunities.

   In cleaning up my reports, I had lost years of credit 
        history. Today, my credit history is six years. I am uncertain 
        why all my past credit and information was removed, but it 
        appears that I just financially arrived on the scene.

    I could ramble on about the daunting impact that this experience 
has had on me. What about my future? Will I ever be safe? I don't 
believe that I will ever feel safe enough to remove the fraud alert 
from my credit report. I can't reclaim my SSN from this lady; she will 
always have it -it can't be taken out of her memory. I am haunted by 
the fact that even now, though the lawsuit cleaned up errors, another 
lady and the companies that refuse to pay attention to the details of 
their own business will ultimately control the date and time that we 
will play this game again. If there is ever a problem with my credit 
report, will I be able to communicate the problems or am I flagged as 
the problem in their ``system''?
    I know that I will have to find a way to deal with the unknown--the 
threat of fraud, forgery or falsification that may befall me any day--
since not doing so will surely result in a slow decline of my mental 
health. I pray, however, that as the years pass, there may come a time 
when I am not looking over my shoulder wondering if another bad-mark 
has been documented against me or another credit application has been 
granted using my SSN.

   For the first time since the lawsuits settled, I accessed my 
        credit reports as I prepared this statement.

     Although I was initially in my Equifax report, within 
            minutes I was told I could not access my report on-line and 
            must request a copy in writing.

     I was unable to access any information on the 
            TransUnion report. I was told I would have to request by 
            phone or mail.

     I was able to view and print my Experian report which 
            once AGAIN contains the address of the Brenda Campbell that 
            lives in Willard, MO. Not sure how or why it is back on my 
            report. . .but I will once again begin the process of 
            disputing this information.

   Although it would seem likely that someone like me would 
        want to see my report often, the experience has had the 
        opposite effect on me for two reasons:

     It terrifies me to think that my checking these 
            reports could start this nightmare over again; and

     I learned that the information consumers are allowed 
            to see/review/dispute/correct is NOT all inclusive of the 
            information that is provided to ``customers'' that get a 
            copy of my credit report for a specific purpose. The truth 
            is . . . when a potential employer, insurance company, 
            creditor, etc. requests my credit report, I WILL NOT KNOW 
            what information is included in my report nor do I have an 
            opportunity to correct that information.

    My personal information--my character if you will--in which I have 
vested a lifetime of hopes and dreams as well as my financial security, 
will forever be at risk. Any attempt to keep my identity separate from 
another who has in the past used my information illegally will be an 
ongoing battle that I will have to fight without the help of the Credit 
Reporting Agencies. I am faced with the reality that the information I 
once believed was so personal . . . will never again be mine and mine 
alone.

    Senator McCaskill. Ms. Campbell has also had a mixed file 
with the credit bureaus. They had placed information belonging 
to numerous other Brenda Campbell's in her file, including 
multiple Social Security numbers. The real Ms. Campbell tried 
to correct these obvious mistakes using the credit bureaus' 
dispute processes, but was unsuccessful. She had trouble 
obtaining credit, received calls from collection agencies, and 
at one point, with her hands shaking, received a notice of wage 
garnishment--all because the wrong Brenda Campbell's 
information was in her file and no one would help her.
    She ultimately had to hire a lawyer and sue to get this 
fixed. But it took quite literally years and tens of thousands 
of dollars to do it.
    I know that the industry takes issue with some of the 
figures used to highlight this problem and I'm interested to 
hear what they have to say. In fact, the industry commissioned 
its own study through the Policy and Economic Research Council, 
which found that more than 99 percent of credit reports are 
error-free. It would be easy to use this hearing to argue about 
that number and the prevalence of errors in consumer credit 
reports. But at the end of the day, both studies show errors 
exist. Whether you trust the 1 percent figure, the 5 percent 
figure, or something in between, it might sound like a small 
number, but in real terms we're talking about anywhere from 2 
to 10 million Americans with errors in their credit reports 
that could impact whether they can obtain credit or how much 
they will have to pay for it.
    We are talking about 2 to 10 million people who have to 
turn to a dispute process that I think most of us have serious 
concerns about. We are talking about Judy Thomas and Brenda 
Campbell times millions. That is simply too many.
    As Brenda put it, consumers are not the credit reporting 
agencies' customers; they are their commodity. Things need to 
change.
    This hearing will explore the prevalence of errors and 
whether the credit reporting industry's existing dispute 
procedures meet consumers' needs. We will also examine whether 
the current system complies with existing laws and regulations, 
namely the Fair Credit Reporting Act, commonly known as 
``FCRA,'' and what the FTC and Consumer Financial Protection 
Bureau, CFPB, are doing to ensure the industry is meeting its 
legal obligations. Finally and most importantly, we will hear 
about the real impact these errors have on real people's lives 
and what the current dispute system is really like from a 
consumer's perspective.
    I thank the witnesses all for being here and I look forward 
to their testimony, and I will defer now to Senator Heller.

                STATEMENT OF HON. DEAN HELLER, 
                    U.S. SENATOR FROM NEVADA

    Senator Heller. Madam Chairwoman, thank you very much, and 
it's a pleasure to serve with you. Thank you very much for this 
opportunity. Thanks for holding this hearing today.
    Thank you to the witnesses for being here and those in the 
audience that are concerned as much as we are about this 
particular issue.
    Credit is a critical issue for the nation because it fuels 
the economy. Nothing's more important to the state of Nevada, 
especially Las Vegas, than fueling our economy. As some of you 
may know, the economic collapse hit my state particularly hard, 
especially at the southern end in Las Vegas. Tourism to Las 
Vegas fell dramatically and thousands of jobs were lost. In 
fact, we led the nation in unemployment for 2 years and 
currently hold that title.
    The ripple effect from this also caused home values to 
plummet and since 2008 we've experienced more than 400,000 
foreclosures. While there are many small signs of recovery, 
much more needs to be done, and responsible credit lending is 
one of the tools that we need to get more positive--we need to 
get to get more positive economic growth in the state.
    We simply cannot have economic growth without lines of 
credit being issued. The credit reporting agencies play a vital 
role by collecting information on consumers furnished by the 
private sector and producing a score on creditworthiness. 
Ensuring that this information is accurate is needed so that 
responsible decisions can be made by both borrowers and 
lenders.
    But the fact is we're looking at over 200 million Americans 
who have three credit reports each. Any significant errors 
could have an impact on the score you receive and subsequently 
the amount of interest you will pay or whether you qualify for 
a loan at all. That is why I'm pleased we're having this 
discussion today.
    My office, like Senator McCaskill's, routinely hears from 
individuals who are frustrated with their credit score and feel 
that their credit report is inaccurate or unfair. For example, 
one constituent from Las Vegas wrote that his credit score has 
always been mixed with his father's. They have the same first 
and last name and their middle names both start with the letter 
``J,'' but those middle names are different. He has told my 
office that the three credit bureaus have never been able to 
figure this out. Because of this, he has to go back and forth 
with the agencies and fight for them to fix the mistakes they 
have made. I don't think this should happen.
    The Federal Trade Commission's report to Congress last 
December touched on these types of issues and highlighted the 
percentage of times when errors were found and the impact these 
errors have on credit scores. The report shed valuable light on 
credit reports and how well consumers are and are not being 
served by them.
    I hope the hearing today will provide the Committee some 
answers to the things credit reporting agencies are doing on a 
proactive level to try to eliminate errors. When you have so 
many records and you do not control the data furnished to you, 
I know that reaching 100 percent perfection may be impossible. 
But understanding how we can continue to improve is important, 
and I look forward to the hearing today.
    So, Madam Chairwoman, thank you very much. I appreciate you 
calling this hearing today.
    Senator McCaskill. Thank you.
    I welcome our other colleagues here and we're glad to have 
you.
    Our first witnesses are: Ms. Maneesha Mithal--am I saying 
that correctly?
    Ms. Mithal. Perfect.
    Senator McCaskill. She is the Associate Director for the 
Division of Privacy and Identity Protection at the Federal 
Trade Commission; and Mr. Corey Stone, who is Assistant 
Director of Deposits, Cash, Collections, and Reporting Markets 
at the Consumer Financial Protection Bureau. Welcome to both of 
you and we look forward to your testimony.
    Ms. Mithal.

       STATEMENT OF MANEESHA MITHAL, ASSOCIATE DIRECTOR,

          DIVISION OF PRIVACY AND IDENTITY PROTECTION,

                    FEDERAL TRADE COMMISSION

    Ms. Mithal. Thank you. Chairman McCaskill, Ranking Member 
Heller, and members of the Subcommittee: I'm Maneesha Mithal 
with the Federal Trade Commission. I appreciate the opportunity 
to discuss credit report accuracy today.
    An array of businesses buy data from credit bureaus to make 
critical decisions about consumers, including whether they can 
get credit, insurance, employment, and housing. Complete and 
accurate credit reports allow these businesses to make informed 
decisions, thereby benefiting both consumers as well as 
creditors. On the other hand, errors in these reports can 
result in consumers being denied credit and other benefits or 
paying a higher price for them. In today's tough economic 
times, we all need to do what we can to make sure that credit 
reports are as accurate as possible.
    In my oral statement I will address three topics: first, 
how the law promotes accuracy of credit reports; second, what 
our recent study shows about the rate of accuracy; and third, 
what we're doing to improve accuracy.
    First, what are the legal requirements? The Fair Credit 
Reporting Act contains several important protections. First, 
credit bureaus must undertake reasonable efforts to assure 
maximum possible accuracy of credit reports. Second, they must 
allow consumers to access their credit reports for free at 
least once a year, so that consumers can check their reports 
and spot errors. Third, they must allow consumers to dispute 
and correct information in their credit reports. Fourth, those 
who provide information to credit bureaus, such as banks and 
other lenders, have certain obligations to make sure 
information they report is accurate. And finally, if a creditor 
uses a report to deny credit or charge a higher rate to a 
consumer, the creditor must provide the consumer with an 
adverse action notice explaining that their credit report was 
used to make an adverse credit decision. This way the consumer 
has an opportunity to check their credit report and if 
information is inaccurate to correct it.
    The second topic I'd like to discuss is our recent study on 
the accuracy of credit reports. The study involved obtaining 
the reports and credit scores of over a thousand consumers. 
Trained study associates worked with the participants to review 
their credit reports, and if they found errors participants 
were encouraged to file disputes with the relevant credit 
bureau.
    The study tracked the percentage of consumers that found 
material errors and the number of errors that were corrected. 
We also worked with the Fair Isaac Corporation, the company 
that develops scoring models, to score the initial report that 
consumers received and to rescore the report as corrected. This 
helped us determine the degree to which any error had affected 
the consumer's credit score.
    So here's what we found. One in four study participants 
found a material error in one of their credit reports and filed 
a dispute with at least one credit bureau. One in five 
consumers had a credit bureau make a change to their credit 
report in response to the dispute. 13 percent had a change made 
to their credit report that caused a change in their credit 
score, and 5 percent of the study participants had their credit 
risk tier decreased as a result of having errors corrected. So 
in other words, one in 20 of the study participants had an 
error that lowered their credit score to a degree that the 
error likely made getting credit more expensive.
    So that brings me to the third topic: What are we doing to 
improve accuracy? The FTC focuses its efforts on two main 
areas, enforcement and education. On the enforcement front, 
we've recently undertaken several actions to police the 
accuracy requirements of the FCRA. For example, we sued an 
employment background screening company for its failure to 
reasonably ensure the accuracy of its consumer reports. We also 
sued a debt buyer for providing stale information about 
delinquent consumer accounts to credit bureaus despite the fact 
that the debt buyer didn't have a reasonable basis to believe 
the information was accurate.
    In addition, there are many companies that compile credit 
or employment-related information, but may not believe they're 
covered by the FCRA. We seek to educate these types of 
companies and inform them of their obligations to make sure the 
information they maintain is accurate. Just today we announced 
that we issued warning letters to ten data brokers that 
appeared willing to sell consumer information for FCRA-covered 
purposes without complying with the FCRA's accuracy and other 
requirements.
    Finally, we seek to educate consumers and businesses about 
credit reports, credit scores, and their rights and obligations 
under the FCRA. We've issued publications designed to explain 
to consumers how to obtain their free credit report and how to 
dispute any errors. Through our legal services collaboration we 
disseminate these and other educational materials to local 
organizations and pro bono clinics so they can help some of our 
nation's most vulnerable consumers. We also offer publications 
to businesses on how to comply with the FCRA.
    We appreciate your holding this important hearing and thank 
you for your time, and I'd be happy to answer any questions.
    [The prepared statement of Ms. Mithal follows:]

Prepared Statement of Maneesha Mithal, Associate Director, Division of 
       Privacy and Identity Protection, Federal Trade Commission
I. Introduction
    Chairman McCaskill and members of the Subcommittee, my name is 
Maneesha Mithal, and I am the Associate Director for the Division of 
Privacy and Identity Protection at the Federal Trade Commission 
(``Commission'' or ``FTC'').\1\ I appreciate the opportunity to appear 
before you today to discuss the Commission's most recent Report to 
Congress under Section 319 of the Fair and Accurate Credit Transactions 
Act of 2003 (``FACT Act''), concerning the accuracy and completeness of 
consumer credit reports.\2\
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    \1\ While the views expressed in this statement represent the views 
of the Commission, my oral presentation and responses to questions are 
my own and do not necessarily reflect the views of the Commission or 
any individual Commissioner.
    \2\ Fair and Accurate Credit Transactions Act of 2003, Pub. L. No. 
108-159.
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    The FACT Act was enacted in 2003 to provide consumers with several 
new rights and protections related to their credit reports.\3\ Consumer 
credit reports, which contain data compiled and maintained by consumer 
reporting agencies (``CRAs''), are used to make critical decisions 
about the availability and cost of credit, insurance, employment, and 
housing. The FACT Act amended the Fair Credit Reporting Act \4\ 
(``FCRA''), a statute enacted to (1) prevent the misuse of sensitive 
consumer information by limiting recipients to those who have a 
legitimate need for it; (2) improve the accuracy and integrity of 
credit reports; and (3) promote the efficiency of the Nation's banking 
and consumer credit systems.
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    \3\ Among other things, the FACT Act allows consumers to place 
fraud alerts with the CRAs, notifying potential creditors that they may 
have been victims of identity theft (Sec. 112), to obtain free annual 
credit reports from the national CRAs (Sec. 211) and to dispute 
information on their credit reports directly with information 
furnishers (Sec. 312).
    \4\ 15 U.S.C. Sec. Sec. 1681-1681x.
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    Today, data compiled and maintained by CRAs is used to make 
critical decisions about the availability and cost of various consumer 
products and service, including credit, insurance, employment and 
housing. Credit reports are often used to evaluate the risk of future 
nonpayment, default, or other adverse events. For example, complete and 
accurate credit reports enable creditors to make informed decisions, 
benefitting both creditors and consumers. Errors in credit reports, 
however, can cause consumers to be denied credit or other benefits, or 
pay a higher price for them, and may lead credit issuers to make 
inaccurate decisions that result in the issuers declining credit to a 
potentially valuable customer or issuing credit to a customer who 
otherwise would not have been approved. Therefore, the FCRA serves the 
vital goals of promoting informed decision-making by lenders and 
protecting consumers from credit-related determinations based on 
erroneous information.
    The FCRA, as modified by the FACT ACT, imposes numerous 
requirements to improve the accuracy of credit reports, including that 
CRAs make reasonable efforts to assure the ``maximum possible 
accuracy'' of credit reports,\5\ and maintain procedures through which 
consumers can dispute and correct inaccurate information in their 
consumer reports.\6\ In addition, the FCRA imposes obligations on those 
who furnish information about consumers to CRAs (``furnishers'') and on 
users of credit reports, such as entities extending credit. For 
example, if a furnisher determines that information it provided to a 
CRA is incomplete or inaccurate the furnisher must promptly notify the 
CRA and provide any corrections that are necessary to make the 
information complete and accurate. In addition, if a user of a credit 
report takes an adverse action against a consumer based on information 
in a consumer report--such as a denial of credit or employment--the 
user must provide an adverse action notice to the consumer, which 
explains that the consumer can obtain a free credit report from the CRA 
that provided the report and dispute any inaccurate information in the 
report.\7\
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    \5\ Id. Sec. 1681e(b)
    \6\ Id. Sec. 1681i (a)-(d).
    \7\ Id. Sec. 1681m(a).
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    In order to assess the accuracy of credit reports, and pursuant to 
Section 319 of the FACT Act, the FTC has been conducting an ongoing 
study of the accuracy and completeness of consumer credit reports.\8\ 
In December 2012, the Commission submitted to Congress its fifth 
interim report pursuant to this provision. This testimony describes the 
FTC study and its results. It then discusses the Commission's efforts, 
through law enforcement and consumer and business education, to improve 
the accuracy of credit reports.
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    \8\ Pub. L. No. 108-159, Sec. 319.
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II. The FTC Study
    The Commission's accuracy study was the first national study 
designed to engage all the primary groups that participate in the 
credit reporting and scoring process: consumers, lenders, data 
furnishers, the Fair Isaac Corporation (``FICO''), and the CRAs. The 
FTC contracted with a research team, including members from the 
University of Missouri, St. Louis (``UMSL''), the University of Arizona 
(``UA''), and FICO. UMSL and UA interacted with consumers through study 
associates, who were trained to review consumer reports. The study 
called for randomly-selected consumers to review their credit reports 
with a study associate, who helped them identify potential errors.
    Ultimately, 1,001 consumers reviewed a total of 2,968 credit 
reports (approximately three per participant). All study participants 
gave their permission to have study associates access their credit 
reports from each of three national CRAs as well as their FICO credit 
score. Then, each participant engaged in an in-depth review of his or 
her credit reports with a study associate. The review focused on 
identifying potential errors that could have a material effect on a 
person's credit standing. Any participant that identified a potentially 
material error on his or her credit report was then encouraged to use 
the FCRA dispute process to challenge any potentially erroneous 
information.
    After the dispute process was complete, study participants' credit 
reports were drawn again and reexamined. If changes had been made to 
the reports, then the errors were treated as confirmed and a new FICO 
score based on the changes was obtained. This process allowed a 
determination of which reports contained confirmed errors and the 
degree to which any error had affected the consumer's credit score.
    The study found that of the 1,001 consumers who participated in the 
study, 262 (26 percent) reported a potential material error in one or 
more of their three reports and filed a dispute with at least one CRA. 
Most of the errors reported by participants resulted in at least some 
modification to their credit reports, which, as noted, the study 
treated as confirming the errors. Of the 262 participants who reported 
an error, 206 (79 percent) were successful in having some change made 
to their report in response to their dispute, which corresponds to 21 
percent of all of the study participants.
    In addition to examining how many consumers had confirmed errors on 
their reports, the study also looked at what effect those errors had on 
consumers' credit scores. One hundred and twenty-nine consumers, or 13 
percent of the total study participants and nearly half (49 percent) of 
those that reported a potential material error, had an error on their 
credit report that resulted in a change in their credit score. The main 
types of confirmed material errors found in this study were errors 
involving the consumers' credit accounts with businesses, such as 
incorrect balances or late payments, and past-due accounts referred to 
collection agencies. Such errors can potentially produce significant 
differences in consumers' credit scores. Indeed, the study found that 
five percent of the study participants had their credit risk tier 
decreased as a result of having errors corrected. In other words, one 
in 20 of the study participants had an error on his or her credit 
report that lowered the credit score to a degree that the error likely 
made getting credit more expensive. For example, consumers with errors 
of this magnitude would likely pay higher interest rates on auto loans 
or mortgages than the rates to which their accurate credit score would 
normally entitle them.
    The study focused exclusively on identifying the level of accuracy 
in the credit reporting system and its impact on consumer credit 
scores. Under the FACT Act, the Commission's final report to Congress 
on credit report accuracy is due in 2014.
    It is important to note that CRAs cannot guarantee 100 percent 
accuracy; however, existing law requires credit bureaus to have 
reasonable procedures to assure ``maximum possible accuracy'' of credit 
reports.\9\ The Commission is committed to ensuring that obligation is 
met.
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    \9\ 15 U.S.C. Sec. 1681e(b)
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III. FTC Efforts to Increase Accuracy of Consumer Credit Reports
    The Commission recognizes the importance of accurate and complete 
credit reports, both to businesses that use them to make decisions and 
to the consumers who are affected by those decisions. The FTC focuses 
its efforts to improve credit reporting accuracy on two main areas: 
enforcement and education.
A. Enforcement
    Vigorous enforcement of the FCRA is a high priority for the 
Commission. In the last decade, the Commission has brought over 30 
actions to enforce the FCRA against CRAs, users of consumer reports, 
and furnishers of information to CRAs. It has recently undertaken 
several actions to enforce the accuracy provisions of the FCRA. The 
Commission recently sued and obtained a stipulated final judgment and 
order against HireRight Solutions, Inc. (HireRight), an employment 
background screening company that provides consumer reports containing 
information about prospective and current employees to companies 
nationwide.\10\ The Commission charged that HireRight failed to take 
reasonable steps, such as expunging criminal records, to ensure that 
information in the reports was accurate and reflected current updates. 
In addition, the Commission alleged that HireRight failed to prevent 
the same criminal offense information from being included in a consumer 
report multiple times, failed to follow reasonable procedures to 
prevent obviously inaccurate consumer report information from being 
provided to employers, and in numerous cases included the records of 
the wrong person. The FTC alleged that these failures led to consumers 
being denied employment or other employment-related benefits. The FTC's 
stipulated order imposed a $2.6 million civil penalty against the 
company and enjoins HireRight from violating the FCRA.
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    \10\ United States v. HireRight Solutions, Inc., No. 1:12-cv-01313 
(D.D.C. filed Aug. 8, 2012) (stipulated final order), available at 
http://www.ftc.gov/opa/2012/08/hireright.shtm. See also In re 
Filiquarian Publishing, LLC, FTC File No. 112 3195 (May 1, 2013) 
(consent order), available at http://www.ftc.gov/opa/2013/01/
filiquarian.shtm.
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    The Commission has also taken action against a company that 
provided inaccurate information to CRAs. Last year, the Commission sued 
and obtained a consent decree against Asset Acceptance, LLC \11\ 
(``Asset Acceptance''), one of the Nation's largest debt buyers. Asset 
Acceptance buys unpaid debts from credit originators such as credit 
card companies, health clubs, and telecommunications and utilities 
providers and attempts to collect them. Asset Acceptance has purchased 
tens of millions of accounts for pennies on the dollar. It targets 
accounts that other collectors have pursued and are more than a year 
past due, and in some cases attempts to collect on debts that are over 
ten years old. The Commission alleged, among other things, that Asset 
Acceptance was providing information to CRAs that it knew or had 
reasonable cause to believe was inaccurate. The Commission's consent 
order imposed a $2.5 million judgment for Fair Debt Collection 
Practices Act and FCRA violations and prohibits the company from 
violating the FCRA or the Fair Debt Collection Practices Act.
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    \11\ United States v. Asset Acceptance, LLC., No. 8:12-CV-182-T-
27EAJ (M.D. Fla. filed Jan. 30, 2012) (stipulated final order), 
available at http://www.ftc.gov/opa/2012/01/asset.shtm.
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    The FTC also takes proactive steps to help ensure that companies 
are aware that they are functioning as CRAs and are subject to the 
FCRA. For example, the Commission staff conducted ``test shops'' of 
dozens of information brokers to see if they would be willing to sell 
consumer information for employment, credit, or insurance purposes, in 
which case they would then fall within the definition of a CRA, and be 
subject to the FCRA. As announced earlier today, the Commission has 
issued warning letters to ten companies that appeared willing to sell 
their consumer information for these FCRA-covered purposes without 
complying with the FCRA's requirements, including the accuracy and 
dispute requirements discussed above.\12\ The letters to the companies 
describe the FCRA's requirements and urge the companies to review their 
business practices to ensure their compliance with the law.
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    \12\ Available at http://www.ftc.gov/opa/2013/05/databroker.shtm.
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    Similarly, last month the Commission issued warning letters to the 
operators of six websites that share information about consumers' 
rental histories with landlords. The letters informed the website 
operators that they may be subject to the requirements of the FCRA.\13\ 
Among the requirements cited in the letters are the companies' 
obligation to protect the privacy of tenants whose information they 
collect, including by ensuring that those requesting information about 
tenants have a legitimate reason to acquire it. The letters reminded 
the companies of their obligation to ensure that the information they 
provide is accurate, to give consumers a copy of the information about 
them on request, and to allow consumers to dispute information they 
believe is inaccurate. The letters also noted that the companies must 
notify landlords of their obligations if using the data to deny housing 
to a tenant, and to notify the sources of their information of the 
requirement that they provide accurate information.\14\
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    \13\ Available at http://www.ftc.gov/opa/2013/04/tenant.shtm.
    \14\ Pursuant to the Dodd-Frank Wall Street Reform and Consumer 
Protection Act, Pub. L. No. 111-203, the FTC now shares enforcement 
authority with the Consumer Financial Protection Bureau (``CFPB'') with 
respect to credit report accuracy requirements. In addition, last year, 
the CFPB issued regulations that allow it to supervise CRAs with more 
than $7 million in annual receipts from consumer reporting activities, 
which includes the authority to examine issues relating to credit 
report accuracy.
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B. Consumer and Business Education
    In addition to bringing enforcement actions against CRAs and 
information furnishers, the FTC works to educate consumers and 
businesses about consumer reports, credit scores, and their rights and 
obligations under the FCRA.\15\ Consumers are often in the best 
position to determine whether their credit reports are accurate, and it 
is important that they regularly obtain and review their free annual 
credit reports. If consumers find errors in their reports, they may 
dispute those errors with either the CRA that reported it or the 
furnisher that provided the information. The Commission has produced a 
number of publications to assist consumers through this process.
---------------------------------------------------------------------------
    \15\ See generally http://www.consumer.ftc.gov/topics/credit-and-
loans.
---------------------------------------------------------------------------
    For example, the Commission's publication, Disputing Errors on 
Credit Reports,\16\ explains the importance of accurate credit reports 
in determining the price and availability of credit. This publication 
instructs consumers on how to obtain their free annual credit reports, 
advises them of other times they may be entitled to free credit 
reports, and provides detailed instructions on how to dispute any 
errors found, including a sample letter to be used. Another publication 
explains how credit scoring works and how it is used by lenders and 
insurance companies.\17\ The Commission also offers videos directing 
consumers to annualcreditreport.com to obtain their free annual credit 
reports.\18\ Finally, through the Commission's Legal Services 
Collaboration,\19\ the agency is disseminating consumer education 
materials to some of our nation's most vulnerable consumers.
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    \16\ Available at http://www.consumer.ftc.gov/articles/0151-
disputing-errors-credit-reports.
    \17\ How Credit Scores Affect the Price of Credit and Insurance, 
available at http://www.consumer.ftc.gov/articles/0152-how-credit-
scores-affect-price-credit-and-insurance.
    \18\ See generally http://www.consumer.ftc.gov/media.
    \19\ Through this program, the FTC is working with legal services 
providers to distribute consumer education materials and gather 
complaints about pernicious practices affecting at-risk and indigent 
communities.
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    Business education is also a priority to the FTC. The Commission 
has developed and distributed free guidance relating to compliance with 
the FCRA, including Credit Reports: What Information Providers Need to 
Know,\20\ which informs businesses that provide information to CRAs 
about their obligations to provide accurate information and to update 
and correct previously submitted information. This publication, as well 
as other business education materials, are available through the FTC's 
Business Center website, which averages one million unique visitors 
each month.\21\ The Commission also hosts a Business Center blog,\22\ 
which has featured topics related to credit reports, including a post 
on the HireRight case that discusses CRAs' obligations to ensure 
maximum possible accuracy in their credit reports.\23\
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    \20\ Available at http://business.ftc.gov/documents/bus33-credit-
reports-what-information-providers-need-know.
    \21\ See generally http://business.ftc.gov.
    \22\ See generally http://business.ftc.gov/blog.
    \23\ Where HireRight Solutions went wrong, available at http://
business.ftc.gov/blog/2012/08/where-hireright-solutions-went-wrong.
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III. Conclusion
    Thank you for the opportunity to discuss the Commission's study on 
the accuracy of consumer credit reports. We look forward to continuing 
to work with Congress and this Subcommittee on this important issue.

         STATEMENT OF COREY STONE, ASSISTANT DIRECTOR,

           DEPOSITS, CASH, COLLECTIONS AND REPORTING

         MARKETS, CONSUMER FINANCIAL PROTECTION BUREAU

    Mr. Stone. Thank you, Senator. Chairman McCaskill, and 
Ranking Member Heller, 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 to 
our economy. It promotes access to credit that consumers can 
afford to pay. Without credit reporting, many consumers likely 
would not be able to get credit.
    Credit reports are also often used in a number of non-
credit decisions about consumers. They can be used to determine 
whether a consumer is offered a job or rental housing or what 
rates a consumer might pay for insurance.
    The CFPB is the first Federal agency to supervise both 
credit reporting companies and the largest furnishers of 
consumer credit information. This responsibility is a priority 
for us. In 2011 and 2012, the CFPB published reports to 
Congress on credit scores--the three-digit numbers used to 
summarize consumers' creditworthiness. Last year we published a 
Consumer Advisory about credit reports. And last July, the CFPB 
adopted a rule to extend its supervision authority to cover 
larger participants in the credit reporting market.
    The Fair Credit Reporting Act sets out an ambitious goal to 
ensure that credit reporting companies meet, ``the needs of 
commerce for consumer credit, personnel, insurance, and other 
information in a manner which is fair and equitable to the 
consumer.'' In this context, we are exercising our supervisory 
and enforcement authorities to make sure that the consumer 
financial laws are being followed. And 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 families 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.
    So this past December, the CFPB issued a report based on 
information provided by the three credit reporting companies--
Equifax, Experian, and TransUnion--and their industry 
association. Our report characterizes the three key processes 
that affect credit report accuracy. These are: how creditors, 
debt collectors, and other parties furnish consumer information 
to the credit reporting companies; how these companies screen 
incoming consumer data and match it to a consumer file in their 
databases; and how the credit reporting companies and 
furnishers handle consumer disputes about the accuracy of 
information in consumers' credit reports.
    Our report, along with the latest study of credit report 
accuracy from the FTC, represents a significant step in 
advancing understanding of this industry and making it more 
transparent for consumers and users of credit reports. Some key 
findings from our report:
    First, more than three-quarters of the trade lines in the 
credit reporting companies' databases come from the top 100 
furnishers of information. These are largely the large bank and 
non-bank financial services providers that fall under the 
CFPB's supervision. This means that, 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 reporting 
companies themselves.
    Another finding: More than one-third of consumer disputes 
relate to collection items.
    Another: Only a relatively small percentage of consumers--
approximately 20 percent--look at their credit reports each 
year. This is a shame as it is likely that many additional 
consumers could identify and correct inaccuracies if they 
reviewed their credit reports.
    Another finding: Most complaints to the CRAs are forwarded 
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.
    Our report's three areas of focus--accuracy of the 
information received from creditors and other furnishers, how 
the credit reporting companies assemble and maintain the 
information, and the processes that govern error resolution--
are just a start. They are the obvious and essential basics. As 
we learn more about the credit reporting system from consumers, 
from the supervised firms, and from others, we will adapt and 
adjust to ensure that the system meets the FCRA's aspiration of 
treating consumers fairly and equitably.
    Thank you for inviting me to testify today. I look forward 
to answering your questions.
    [The prepared statement of Mr. Stone follows:]

Prepared Statement of Corey Stone, Assistant Director, Deposits, Cash, 
   Collections, and Reporting Markets, Consumer Financial Protection 
                                 Bureau
    Chairman McCaskill, Ranking Member Heller, 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 non-credit 
decisions about consumers. They can be used to determine whether a 
consumer is offered a job or rental housing, or what rates a consumer 
might pay for homeowner's, renter's, or auto insurance.
    The CFPB is the first Federal agency to supervise both credit 
reporting companies and the largest furnishers of consumer credit 
information. This responsibility is a priority for us. In 2011 and 
2012, the CFPB published reports to Congress on credit scores--the 
three-digit numbers used to summarize consumers' creditworthiness. Last 
year, we published a Consumer Advisory about credit reports. And last 
July, the CFPB adopted a rule to extend its supervision authority to 
cover larger credit reporting companies.
    The Fair Credit Reporting Act sets out an ambitious goal to ensure 
that credit reporting companies meet ``the needs of commerce for 
consumer credit, personnel, insurance, and other information in a 
manner which is fair and equitable to the consumer.'' In this context, 
we are exercising our supervisory authority to make sure that the 
consumer financial laws are being followed. And 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 families 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.
    So this past December, the CFPB issued a report based on 
information provided by the big three credit reporting companies--
Equifax, Experian, and TransUnion--and their industry association. Our 
report characterizes three key processes that affect credit report 
accuracy. These are how creditors, debt collectors, and other third 
parties furnish consumer information to the credit reporting companies; 
how these companies screen incoming consumer data and match it to 
consumer files in their databases; and how the credit reporting 
companies and furnishers handle consumer disputes about the accuracy of 
information in consumers' credit reports.
    Our report, along with the latest study of credit report accuracy 
from the FTC, represents a significant step in advancing understanding 
of this industry and making it more transparent for consumers and users 
of credit reports.
    Some of the key findings in our report are that:

   More than three quarters of the trade lines in the credit 
        reporting companies' databases come from the top 100 furnishers 
        of information. These are largely the large bank and non-bank 
        financial services providers that fall under the CFPB's 
        supervision. This means that 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 reporting 
        companies 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 as 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. 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.

    Our report's three areas of focus--accuracy of the information 
received by the credit reporting companies, how they assemble and 
maintain that information, and the processes that govern error 
resolution--are just a start. They are the obvious and essential 
basics. As we learn more about the credit reporting system from 
consumers, from the supervised firms, and from others, we will adapt 
and adjust to ensure that it meets the FCRA's aspiration of treating 
consumers fairly and equitably.
    Thank you for inviting me to testify today. I will be happy to 
answer questions you may have about my testimony.
                                 ______


[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                           Table of Contents
    Purpose and Executive Summary

  1.  Introduction

  2.  Credit Bureaus, Credit Files, Credit Reports, and Credit Scores

  3.  Furnishers and Users

  4.  Furnisher and Data Screening

  5.  Compiling Credit Files: ``Matching''

  6.  Inaccuracies in Credit Files and Credit Reports

  7.  Disputing Credit Report Errors

  8.  Monitoring and Measuring Credit Reporting Accuracy

    Glossary

    Appendix
                                 ______
                                 
Purpose and Executive Summary
    This paper describes the credit reporting infrastructure at the 
three largest nationwide consumer reporting agencies (NCRAs)--Equifax 
Information Services LLC (Equifax), TransUnion LLC (TransUnion), and 
Experian Information Solutions Inc. (Experian)--with a special focus on 
the infrastructure and processes currently used by the NCRAs to 
collect, compile, and report information about consumers in the form of 
credit reports.
    Credit reports play an increasingly important role in the lives of 
American consumers. Most decisions to grant credit--including mortgage 
loans, auto loans, credit cards, and private student loans--include 
information contained in credit reports as part of the lending 
decision. These reports are also used in other spheres of decision-
making, including eligibility for rental housing, setting premiums for 
auto and homeowners insurance in some states, or determining whether to 
hire an applicant for a job.
    As the range and frequency of decisions that rely on credit reports 
have increased, so has the importance of assuring the accuracy of these 
reports. These three NCRAs occupy the hub of what can best be described 
as a national credit reporting system. They, the entities who report 
information about borrowers to them (furnishers), providers of public 
records information, and consumers all play roles which affect the 
accuracy of the information reported in consumer credit reports.
    In its supervision of large banks, the Consumer Financial 
Protection Bureau (CFPB) has already begun examining the processes 
institutions use to assure accuracy when furnishing information to the 
NCRAs and when responding to consumer disputes about information 
contained in their credit reports. On July 20, 2012 the CFPB published 
its larger participant rule permitting it to supervise companies with 
annual receipts from ``consumer reporting,'' as defined in the rule, of 
over $7 million. Prior to the rule's effective date, the CFPB's Office 
of Deposits, Cash, Collections and Reporting Markets (DCCR) consulted 
existing reports, industry, and public sources in order to be able to 
depict key dimensions of, and processes in, the reporting and disputing 
of information in the U.S. credit reporting system.
    This paper summarizes learnings from DCCR's research and analysis. 
It is intended as a public service to provide basic descriptions of, 
and statistics regarding, the underlying processes by which consumer 
data is reported, matched to consumer files, and reviewed when 
consumers dispute its accuracy. The CFPB has not sought to verify 
information contained in this paper through its supervisory 
authorities. Nor does the paper represent any learnings or conclusions 
about whether any specific market participants are in compliance with 
particular statutes or policies pertaining to consumer reporting.
    This paper depicts the types of information movements and processes 
that are most essential to the compiling of credit reports and to the 
management of credit report accuracy. The Fair Credit Reporting Act 
(FCRA) and its implementing regulations impose legal duties both on 
NCRAs and on data furnishers relating to the accuracy of credit report 
information.\1\ All parties to the credit reporting system have a vital 
interest in achieving accuracy in credit reports. Those who use these 
reports to make decisions rely upon the accuracy of the information 
they receive. To the extent the information is inaccurate, that can 
lead to incorrect decisions to the detriment of decision makers and 
consumers alike.
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    \1\ See, e.g., 15 U.S.C. 1681e(b) (requiring consumer reporting 
agencies to ``follow reasonable procedures to assure maximum possible 
accuracy of the information concerning an individual about whom the 
report relates''); 15 USC 1681i (requiring a consumer reporting agency 
to reinvestigate upon receiving a consumer dispute); 15 U.S.C. 1681s-
2(a)(1)(A) (prohibiting a furnisher from furnishing information that it 
``knows or has reasonable cause to believe that the information is 
inaccurate''); 15 U.S.C. 1681s-2(a)(1)(B) (prohibiting the furnishing 
of information where the consumer has notified the furnisher that the 
information is inaccurate and the information is in fact inaccurate).
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Key Learnings

   The U.S. credit reporting system encompasses a vast flow and 
        store of information. The NCRAs each maintain credit files on 
        over 200,000,000 adults and receive information from 
        approximately 10,000 furnishers of data. On a monthly basis, 
        these furnishers provide information on over 1.3 billion 
        consumer credit accounts or other ``trade lines.''

   Furnishing credit information to the NCRAs is a highly 
        concentrated activity, both by institution and by product. The 
        10 largest institutions furnishing credit information to each 
        of the NCRAs account for more than half of all accounts 
        reflected in consumers' credit files. Likewise, retail and 
        network-branded revolving credit cards account for nearly 60 
        percent of all trade lines.

   The NCRAs have designed a number of processes to 
        standardize, automate, and perform quality controls on incoming 
        data. The NCRAs report that before accepting information from 
        data furnishers, they perform certain background and quality 
        control checks on would-be-furnishers. Most furnishers--and all 
        new furnishers--provide consumer credit information 
        electronically to one or more NCRAs using a standardized format 
        called Metro 2 that the Consumer Data Industry Association 
        (CDIA) developed and refined over time. When data files are 
        received, the NCRAs also perform quality checks prior to adding 
        the data to credit files.

   The ``matching'' process by which the NCRAs assign incoming 
        trade line data to consumer-specific credit files represents 
        the central step in the organization of credit data to permit 
        the creation of credit reports on individual consumers. The 
        NCRAs manage this process through unique data architectures 
        each has developed and which vary from each other. The 
        challenge of accurately matching trade line information to the 
        correct consumer is made complex by the absence of any 
        objective, third party source of information, by similarities 
        in consumers' names and addresses (particularly among family 
        members), and by limitations, colloquial variations, and 
        inaccuracies in the personally identifying information provided 
        by consumers and furnishers that occur when consumers first 
        apply for credit products.

   Inaccuracies can enter into credit reports in a number of 
        ways. Inaccuracies can occur if consumers provide inaccurate 
        data when applying for a loan or if the creditor who furnishes 
        data to the credit bureau inputs consumer information to its 
        systems inaccurately. Inaccuracies can occur when the bureaus 
        match information about a consumer from a particular data 
        furnisher to the wrong individual consumer's file. Inaccuracies 
        can also come from errors or the lack of identifying 
        information in government records. Inaccuracies can occur when 
        consumers have become victims of identity fraud or identity 
        theft.

   The extent to which credit reports contain material 
        inaccuracies is uncertain. There have been conflicting reports 
        on this issue. The Federal Trade Commission (FTC) is expected 
        to release results from its decade-long study on credit report 
        accuracy later this year.

   Consumers' right to dispute information contained in their 
        credit reports under the FCRA--and furnishers' and the NCRAs' 
        obligation to respond--provide important checks on inaccurate 
        credit reports. Among other protections, consumers also have 
        the right to obtain a copy of their credit file and to receive 
        notice of adverse actions involving credit reports with a 
        resultant right to a free disclosure. These disclosures are one 
        way for consumers to dispute information in their file they 
        believe is not accurate or complete. The CFPB estimates that at 
        least 40,000,000 consumers obtain a copy of their credit file 
        from one or more of the NCRAs annually.

   The NCRAs received approximately 8 million contacts from 
        consumers in 2011 to initiate disputes about the accuracy of 
        one or more items on their credit files. In total, these 8 
        million contacts resulted in 32-38 million disputed items on 
        consumers' credit files. The rate at which the credit account 
        information depicted in credit files is disputed varies widely 
        based upon the type of data furnished.

   Collections items are a major source of disputes. Items 
        reported by collection agencies reportedly have the highest 
        dispute rates, averaging 1.1 percent of the trade lines they 
        furnish in a given year. Almost 40 percent of disputes handled 
        by the NCRAs on average can be linked to collections items.

   The NCRAs have created an automated system for handling 
        consumer disputes and forwarding them to data furnishers. 
        Through this automated system--called e-OSCAR--the NCRAs 
        provide furnishers with one or two numeric codes indicating the 
        nature of the consumer's dispute and in a minority of cases (26 
        percent), explanatory text. At present, the NCRAs generally do 
        not forward documentation that consumers submit with mailed 
        disputes or provide a mechanism for consumers to forward 
        supporting documents when filing disputes online or via phone. 
        The NCRAs resolve an average of 15 percent of trade line 
        disputes internally (without furnisher involvement) and refer 
        the remaining 85 percent of the disputes they receive from 
        consumers concerning trade lines to data furnishers through e-
        OSCAR. The furnisher of the disputed data is then required by 
        the FCRA to investigate the dispute and report back to the 
        NCRA.

   The NCRAs' reliance on furnisher responses as the principal 
        means of resolving disputes is a source of controversy. The 
        NCRAs report that in seeking to maximize accuracy and in 
        resolving disputes, they rely on furnishers meeting their 
        obligations under the FCRA to report information accurately and 
        to respond to disputes appropriately. Consumer advocates have 
        argued that the NCRAs have an obligation to monitor and manage 
        furnisher practices as part of their broader obligation to 
        achieve credit report accuracy.

   While the measurement of credit report accuracy and the 
        level and causes of inaccuracies present challenges, periodic 
        measurement of credit report accuracy holds promise for 
        establishing baseline accuracy levels and measuring 
        improvements over time.
1. Introduction
    In most of the markets for consumer credit, including credit cards, 
auto loans, mortgages, and student loans, lenders use credit reports as 
part of their evaluation of a consumer's application for credit. 
Companies use credit reports and credit scores derived from the 
information in credit reporting files to assess a consumer's likelihood 
of repaying the loan. Credit reports and scores can be delivered in 
real time, permitting instant decisions at retailers, auto showrooms, 
or online. Lists of consumers derived from credit reports are used to 
make offers of credit. Underwriting processes stipulated by the FHA, 
VA, Fannie Mae, and Freddie Mac require mortgage lenders to obtain 
credit reports from a nationwide credit reporting agency (the NCRAs) 
before these Federal agencies and government-sponsored enterprises will 
insure, guarantee, or purchase their loans. For each of these forms of 
credit and origination channels, credit reports are used by lenders to 
help set interest rates and other key credit terms, or determine 
whether the consumer is offered credit at all. Of 113 million credit 
card and retail card accounts, auto loans, personal loans, mortgages, 
and home equity loans originated in the United States in 2011, the vast 
majority of approval decisions used information furnished by credit 
reporting agencies.\2\
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    \2\ Experian--Oliver Wyman, Comprehensive Consumer Credit Review, 
Experian-Oliver Wyman Market Intelligence Report, at 7 (2011 Q4).
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    Credit reports also are used in spheres of decision-making beyond 
eligibility for credit. These include eligibility for rental 
housing,\3\ setting premiums for auto and other property and casualty 
insurance where permitted by law,\4\ and establishing (along with prior 
account history) eligibility for checking accounts.\5\ When an 
individual applies for a job, a prospective employer may examine his or 
her credit report upon the individual's authorization.\6\ A recent 
survey by the Society for Human Resource Management of its membership 
database found that almost 60 percent of its member employers used 
credit reports to screen applicants for at least some of their 
positions.\7\
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    \3\ See, e.g., Experian ConnectSM, available at http://
www.experian.com/connect/landlord.html.
    \4\ Federal Trade Commission, Credit-Based Insurance Scores: 
Impacts on Consumers of Automobile Insurance, A Report to Congress 
(2007), available at http://www.ftc.gov/os/2007/07/
P044804FACTA_Report_Credit-Based_Insurance_Scores.pdf.
    \5\ Marcie Geffner, Banking and your credit score, Bankrate.com 
(Mar. 17, 2011), available at http://www.bankrate.com/finance/savings/
banks-checking-credit-scores-more-often-1.aspx. Banks may retrieve a 
credit report from a credit bureau as part of a review of a bank 
account application. A bank may also contact a specialty consumer 
reporting agency, like ChexSystems, a subsidiary of FIS, to see if the 
consumer has history of bank-initiated account closures or other 
negative activity in connection with previous checking accounts.
    \6\ The FCRA allows for the sharing of credit reports for 
employment purposes. See 15 U.S.C. Sec. 1681b(a)(3)(B).
    \7\ Forty-seven percent of firms used credit checks for select job 
candidates, while thirteen percent used credit checks for all job 
candidates. The Society for Human Resource Management, SHRM Research 
Spotlight: Credit Background Checks, Society Human Resource Management 
(2010). Small, medium, and large employers were contacted as part of 
the survey. http://www.shrm.org/Research/SurveyFindings/Articles/
Documents/CCFlier_FINAL.pdf. The CFPB, along with all other Federal 
agencies, use credit reports in their employment screening process 
(specifically to check for any debts owed to the Federal government).
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    Because of the widespread use of credit reports--often along with 
credit scores derived from them--in major personal financial decisions, 
the accuracy of reports has remained an ongoing policy concern. In a 
2007 report on credit scores used in lending decisions, the Federal 
Reserve Board noted the importance of accurate credit reports: ``for 
the full benefits of the credit-reporting system to be realized, credit 
records must be reasonable, complete, and accurate.'' \8\ Credit 
scoring models depend on the credit information contained in consumers' 
credit files to be accurate to effectively predict a consumer's 
relative risk of delinquency. Inaccurate credit information may cause 
credit scoring models to understate or overstate a consumer's credit 
risk to lenders. Accurate credit information helps decision makers 
predict certain risks effectively, while inaccurate credit information 
in credit reports has the potential to compromise the effectiveness and 
consistency of decisions that rely on them, and the potential to cause 
material harm to affected consumers. Ultimately, consumer and business 
confidence in decisions based on credit reports and scores derived from 
them depends on confidence in the accuracy of the credit information 
they contain. a
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    \8\ Federal Reserve Board, Report to Congress on Credit Scoring and 
its Effects on the Availability and Affordability of Credit (August 
2007) (Board Credit Scoring Report), available at http://
www.federalreserve.gov/boarddocs/rptcongress/creditscore/
creditscore.pdf.
    \a\ The issues raised in this discussion of credit report accuracy 
also generally apply to consumer reports from consumer reporting 
agencies as defined under the FCRA. Besides the NCRAs, there are other 
consumer reporting agencies including the nationwide specialty consumer 
reporting agencies with rental information databases, check writing/
bank databases, medical information databases, insurance claims 
databases, employment databases, and background screening databases. 
Each of these specialty databases has its own sources of consumer 
information. There are also consumer reporting agencies that are not 
nationwide.
---------------------------------------------------------------------------
    When the FCRA passed in 1970, key provisions of the law focused on 
assuring the accuracy of credit reports. These key accuracy provisions 
of the FCRA remain as important today as when the law first passed. 
They address the quality of data in credit files by requiring credit 
reporting agencies to establish ``reasonable procedures to assure 
maximum possible accuracy'' of their credit reports.\9\ The FCRA also 
includes a number of other provisions that relate to the information in 
consumer reports such as limits on the period of time during which 
certain pieces of adverse information can generally be included in a 
consumer report.\10\
---------------------------------------------------------------------------
    \9\ 15 U.S.C. Sec. 1681e(b).
    \10\ 15 U.S.C. Sec. 1681c.
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    Credit report accuracy relies on an ongoing ecosystem involving the 
interaction of NCRAs and other consumer reporting agencies, furnishers 
of information, public record repositories, users of credit reports, 
and consumers. An understanding of how this ecosystem operates--
including the basic ``plumbing'' of data flows, the various 
participants involved, and the economic incentives each group of 
participants may bring to their respective roles--is foundational 
knowledge in considering technical and policy options for improving and 
assuring credit report accuracy.
    This paper focuses on the databases of the three largest NCRAs--
Equifax, TransUnion, and Experian. It seeks to depict technical 
processes involved in the collection, screening, and correction of 
credit information and their broad impact on the accuracy of 
information provided in credit reports from these NCRAs. It does not 
seek to characterize or quantify either the general level of accuracy 
of credit report information, or the harms that may result to consumers 
affected by credit report inaccuracies. Additionally, the paper does 
not attempt to weigh the costs and benefits that might be involved in 
improving the accuracy of credit reports beyond their current levels.
2. Credit Bureaus, Credit Files, Credit Reports, and Credit Scores
2.1 Credit Bureaus
    The consumer reporting system enables creditors and other providers 
of consumer services to pool information about their respective 
customers and use that pooled information to inform their credit and 
other risk decisions about new applicants and existing customers.
    Credit bureaus first emerged in the United States in the late 1800s 
to support merchant lenders who extended credit to local businesses and 
individuals.\11\ At that time, the ``credit bureau'' consisted of a 
list of individuals who had not repaid their debts as agreed and were 
therefore deemed poor credit risks. Prior to the use of such lists, 
local merchants extended only very small amounts of credit, and these 
credit decisions depended largely on the merchant's direct personal 
knowledge of the individual borrower's personal character.
---------------------------------------------------------------------------
    \11\ Evan Hendricks, Credit Scores and Credit Reports: How the 
System Really Works, at 157 (2004).
---------------------------------------------------------------------------
    The credit reporting industry grew steadily with growing interest 
on the part of both consumers and merchants in using credit in purchase 
transactions. In the 1920s and again in the 1950s, credit bureaus 
experienced particularly rapid growth with the introduction of retail 
installment credit and revolving credit accounts,\12\ in the 1970s and 
1980s with the growth of bank credit cards, and in the 1990s with the 
automation of mortgage underwriting. By the early 1970s, the industry 
comprised over 2,250 firms, most with local or regional coverage. As 
the 1970s progressed, the industry began to consolidate.\13\ With the 
development of computer databases, nationwide credit card issuers, and 
automated underwriting, the threshold of technological investment 
required to distribute credit reports increased, as did the importance 
of offering nationwide coverage. Many of the local bureaus sold their 
records to the major national bureaus. Today, the consumer reporting 
landscape includes large national bureaus like the NCRAs; bureaus with 
credit information such as payday loans, utility and telephone 
accounts, and other credit relationships; a number of specialized 
consumer reporting agencies with medical information, employment 
history, residential history, check writing history, checking account 
history, insurance claims, and other non-credit relationships; as a 
well as a few hundred resellers of credit reports.
---------------------------------------------------------------------------
    \12\ Id. at 158.
    \13\ Id.
---------------------------------------------------------------------------
    By 2011, the NCRAs generated U.S. revenues of about $4 billion,\14\ 
including revenues from several ancillary businesses such as the sale 
of lists and non-credit consumer information for marketing purposes, 
the sale of credit monitoring services directly to consumers or through 
resellers, and analytical services that provide credit scores and other 
modeling tools to creditors.
---------------------------------------------------------------------------
    \14\ Based on CFPB calculations of industry publicly reported 
revenues.
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2.2 The Contents of Consumer Credit Files
    For purposes of this paper, credit reports are a form of ``consumer 
report'' as defined by the FCRA. Consumer reports generally are 
communications by a consumer reporting agency ``bearing on a consumer's 
credit worthiness, credit standing, credit capacity, character, general 
reputation, personal characteristics, or mode of living'' used or 
expected to be used in determining a consumer's eligibility for credit 
or insurance, for employment purposes, or other permissible purposes 
listed in the statute.\15\ As defined by the FCRA, the ``file,'' when 
used in connection with information on any consumer, means ``all of the 
information on that consumer recorded and retained by a consumer 
reporting agency regardless of how the information is stored.'' \16\ 
This paper refers to ``credit files'' as the information about a 
consumer that is contained in the databases of the NCRAs.
---------------------------------------------------------------------------
    \15\ 15 U.S.C. Sec. 1681a(d).
    \16\ 15 U.S.C. 1681a(g).
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2.2.1 File Components
    Credit files have some or all of the following components.

  1.  Header/Identifying Information: The header of a credit file 
        contains the identifying information of the consumer with whom 
        the credit file is associated including an individual's name 
        (and any other names previously used), current and former 
        addresses, Social Security number (SSN), date of birth, and 
        phone numbers. Not all credit files contain all of these 
        identifying elements.\17\
---------------------------------------------------------------------------
    \17\ Identifying information in credit files is derived from 
furnisher supplied data and from public records. Furnisher supplied 
identity information often comes directly from the consumer, and may 
vary depending on the identity information consumers provide on their 
applications and how comprehensively the consumer and furnisher provide 
updates when such things as marital status, address, or phone number 
change. Identity information supplied in public records can also vary.

  2.  Trade lines: Trade lines are the accounts in a consumer's name 
        reported by creditors such as auto lenders, mortgage lenders, 
        or credit card issuers. For each trade line, creditors that 
        furnish information to consumer reporting agencies (referred to 
        as ``furnishers'' under the FCRA) generally provide the type of 
        credit (e.g., auto loan, mortgage, credit card), the credit 
        limit or loan amount, account balance, the account payment 
        history including the timeliness of payments, whether or not 
        the account is delinquent or in collection, and the dates the 
        account was opened and closed. If more than one consumer is 
        listed as a borrower on a given credit account, the trade line 
        information will appear in both consumers' credit files 
        ordinarily with information as to the relationship of the 
        consumer to the account, such as authorized user. Trade line 
        information may contain indicators such as whether the account 
        is individual or joint, the account is involved in a bankruptcy 
        filing, the device for accessing the account (e.g., a credit 
        card or PIN) was lost or stolen, and, if closed, the reason for 
        closure (e.g., paid off, closed at the consumer's request). 
        Credit files do not contain certain terms of the loans or 
        credit lines such as interest rates, points, or fees and do not 
        contain certain performance history such as purchases made 
        using the account or payments made on the account. 
        Additionally, credit reports do not contain information on a 
---------------------------------------------------------------------------
        consumer's income or assets.

  3.  Public record information: The NCRAs' files include public record 
        data of a financial nature including consumer bankruptcies, 
        judgments, and state and Federal tax liens. Records of arrests 
        and convictions generally do not appear on a consumer's credit 
        file, but other types of consumer reporting agencies, such as 
        employment background screening agencies, include them. Other 
        public records that do not appear in credit reports are 
        marriage records, adoptions, and records of civil suits that 
        have not resulted in judgments.\18\
---------------------------------------------------------------------------
    \18\ John Ulzheimer, Public Record Information and Credit Reports: 
What's There?, Smartcredit.com, (March 3, 2011), available at http://
www.smartcredit.com/blog/2011/03/03/public-record-information-and-
credit-reports-whats-there/.

  4.  Collections: Third-party collection items, reported by debt 
        buyers or collections agencies on behalf of a creditor, are 
        considered a separate category on a credit report by at least 
---------------------------------------------------------------------------
        some of the NCRAs.

  5.  Inquiries: A consumer's credit file is required to list every 
        entity that accessed the file in the last two years for 
        employment-related uses and for at least the last year for 
        credit uses and most non-employment uses (e.g., tenant 
        screening, insurance, government licenses or benefits).\19\ 
        Some of the NCRAs go beyond legal requirements and list credit 
        inquiries for two years.
---------------------------------------------------------------------------
    \19\ 15 U.S.C. Sec. 1681g(a)(3)(A).
---------------------------------------------------------------------------
    The NCRAs have two major classifications of inquiries: ``soft'' 
        inquiries and ``hard'' inquiries. Hard inquiries are typically 
        the product of consumer-initiated activities such as 
        applications for credit cards, to rent an apartment, to open a 
        deposit account, or for other services. In contrast, soft 
        inquiries are generally user-initiated inquiries like 
        prescreening. b Only hard inquiries will appear in 
        credit reports obtained by creditors and other users.
---------------------------------------------------------------------------
    \b\ The NCRAs treat other types of inquiries as soft inquiries 
based on business rules--certain insurance inquiries, utility, and 
government inquiries relating to licenses or government benefits may be 
categorized as soft, depending on the business rules for that entity. 
Employment inquiries are commonly placed in the soft inquiry section. 
Each listed inquiry will include the date and type of inquiry (e.g., by 
consumer, review of existing account, for pre-screening). Federal Trade 
Commission and the Federal Reserve Board, Report to Congress on the 
Fair Credit Reporting Act Dispute Process, at 4 (August 2006).

    A consumer's file also has information on whether the consumer has 
initiated a security freeze, fraud alert, active duty alert, or filed a 
consumer statement on his or her file.
2.3 Credit Reports
    Credit reports are consumer reports provided by NCRAs or other CRAs 
to lenders and other users. Credit reports generally contain 
information in the consumer file that is reportable to the end user.
    The FCRA limits with some exceptions how long a credit bureau can 
communicate certain adverse information in a credit report.\20\ Many 
adverse items including records of late payments, delinquencies, or 
collection items typically stay on a credit report for up to seven 
years.\21\ Likewise, civil suits and civil judgments typically stay on 
the report for no more than the longer of seven years or the governing 
statute of limitations, while paid tax liens typically cannot be 
reported more than seven years after the date of payment.\22\ Credit 
reports generally cannot list bankruptcies for more than 10 years after 
the order for relief or date of adjudication, except that repayment 
plans are only reported for seven years.\23\ There are also 
restrictions on communicating a medical service provider's name, 
address, and telephone number pertaining to medical debts in a credit 
report.\24\
---------------------------------------------------------------------------
    \20\ The FCRA's time limits on the reporting of derogatory 
information do not apply to certain large financial transactions, 
namely (1) a credit transaction involving, or which may reasonably be 
expected to involve, a principal amount of $150,000 or more; (2) the 
underwriting of life insurance involving, or which may reasonably be 
expected to involve, a face amount of $150,000 or more; or (3) the 
employment of any individual at an annual salary which equals or which 
may reasonably be expected to equal $75,000 or more. 15 U.S.C. 
Sec. 1681c(b).
    \21\ 15 U.S.C. Sec. 1681c(a)(4)-(5).
    \22\ 15 U.S.C. Sec. 1681c(a)(2)-(3).
    \23\ 15 U.S.C. Sec. 1681c(a)(1). As discussed supra, in note 20, 
reports may be exempted from these time restrictions in certain 
circumstances. In practice, the NCRAs do not utilize these exemptions, 
and cease reporting negative information after the standard time limits 
have elapsed.
    \24\ 15 U.S.C. Sec. 1681c(a)(6).
---------------------------------------------------------------------------
    Users vary in how they evaluate credit reporting information. For 
users who view reports for employment purposes, the NCRAs provide a 
modified credit report, which removes birth date and other information 
that is sensitive in the employment context and does not include credit 
scores. Financial services users rely on credit reports as well as 
proprietary or third-party algorithms--``scoring'' models--to interpret 
the information in a credit report. These algorithms use variables or 
``attributes'' derived from the credit report.
2.4 Credit Scoring
    The NCRAs deliver credit reporting information to users in 
standardized electronic formats so that lenders' underwriting systems 
can use reports from more than one bureau interchangeably and so that 
analytical credit risk models used by the lenders can identify and 
retrieve relevant pieces of information. More often than not, a credit 
bureau will also deliver a credit score calculated from the information 
in a credit report along with variables derived from the credit report 
(often called attributes).\25\ The lender will pay the bureau a fee for 
the credit report information and an additional amount for the score. 
The model used to generate the credit score is selected by the lender 
as the user.
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    \25\ A credit score is a defined term in the FCRA which generally 
means ``a numerical value or a categorization derived from a 
statistical tool or modeling system used by a person who makes or 
arranges a loan to predict the likelihood of certain credit behaviors, 
including default . . .'' See 15 U.S.C. Sec. 1681g(f)(2) for full 
definition.
---------------------------------------------------------------------------
    Lenders use credit scoring systems to assess the relative risk of 
consumers going delinquent on a loan. For most credit scoring models in 
use today, the higher the numerical value of a credit score, the lower 
the credit risk of a consumer. Consumers with very high scores thus are 
likely to get more favorable interest rates and other more favorable 
loan terms. In contrast, consumers with lower numerical scores present 
higher risks of default and may only be able to get loans at higher 
interest rates or other less favorable terms, if lenders are willing to 
lend to them at all.
    Large national lenders have widely used credit scoring since the 
1970s to inform their loan underwriting.\26\ The NCRAs did not start 
providing credit scores based on credit bureau data until the late 
1980s. In the late 1980s, one bureau built a bankruptcy prediction 
model. Models supplied by Fair Isaac Corporation (FICO) for use with 
credit bureau data appeared in 1990 and 1991. Today, scores using 
models supplied by FICO account for a substantial majority of third-
party generic credit scores purchased with credit reports by financial 
institutions for loan origination decisions.\27\ In 2006 the NCRAs 
formed a joint venture, VantageScore, which offers competing scoring 
solutions. Additionally, the NCRAs and other third-party development 
companies develop both generic and custom scoring models. Many lenders 
also develop and use proprietary scoring models derived from credit 
report information.
---------------------------------------------------------------------------
    \26\ Board of Governors of the Federal Reserve System, Report to 
the Congress on Credit Scoring and Its Effects on the Availability and 
Affordability of Credit: Submitted to the Congress Pursuant to Section 
215 of the Fair and Accurate Credit Transactions Act of 2003 (Aug. 
2007), at O-4.
    \27\ One industry observer estimates that FICO had over 90 percent 
of the market share in 2010 of scores sold to firms for use in credit 
related decisions. Consumer Financial Protection Bureau, The impact of 
differences between consumer-and creditor -purchased credit scores: 
Report to Congress, at 6 (July 19, 2011).
---------------------------------------------------------------------------
    The most common credit scores rank the relative probability that a 
consumer will become 90 days delinquent on a new loan within two years. 
There are a wide variety of credit scores offered by the NCRAs that 
vary by score provider, by model, and by target industry.\28\ FICO, 
alone, has 49 different scoring models.\29\ Regardless of the version, 
credit scoring models tend to share common ``attributes'' derived from 
credit reports, such as a consumer's bill paying history (e.g., on 
time, delinquent, in collections), the number and type of credit 
accounts a consumer has (e.g., bank cards, retail credit cards, 
installment loans), the amount of available credit that a consumer is 
using, how long a consumer has had a credit account, and recent credit 
activity, including inquiries.
---------------------------------------------------------------------------
    \28\ For more detailed information on the variety of credit score 
models sold to lenders and to consumers, see CFPB, ``Analysis of 
Differences between Consumer-and Creditor-Purchased Credit Scores,'' 
(September 2012).
    \29\ New York Times, ``Why you have 49 different FICO Scores,'' 
available at http://bucks.blogs.nytimes.com/2012/08/27/why-you-have-49-
different-fico-scores/.
---------------------------------------------------------------------------
    Creditors use credit scores to enhance the efficiency and 
consistency of credit decisioning.\30\ Credit scores may also reduce 
the possibility of subjective decision making by lenders based on 
impermissible factors under fair lending laws such as the Equal Credit 
Opportunity Act (ECOA), like marital status, age or national origin. 
The Federal Reserve noted in its 2007 study on credit scoring, ``By 
providing a low-cost, accurate, and standardized metric of credit risk 
for a pool of loans, credit scoring has broadened creditors' access to 
capital markets, reduced funding costs, and strengthened public and 
private scrutiny of lending activities.'' \31\
---------------------------------------------------------------------------
    \30\ See supra note 26 at O-5.
    \31\ Id.
---------------------------------------------------------------------------
    Some have argued that credit scores derived from credit reports 
have the potential to reinforce the effects of discrimination. They 
argue that where lending discrimination occurs, minority and other 
disadvantaged borrowers can wind up in credit products that make 
default more likely. As a result of higher default rates, their credit 
reports and scores depict them as bad credit risks, when in fact they 
would have performed better if they were in better, less expensive 
products.\32\
---------------------------------------------------------------------------
    \32\ Deirdre Swesnik and Lisa Rice, National Fair Housing Alliance: 
Discriminatory Effects on Credit Scoring on Communities of Color, 
Prepared for the Symposium on Credit Scoring and Credit Reporting 
[forthcoming].
---------------------------------------------------------------------------
    NCRAs can deliver credit reports and scores (using proprietary or 
third-party models) to those authorized to access a credit report 
instantly upon request. This makes it possible for lenders to grant 
instant credit in venues where obtaining credit is often an important 
part of a consumer's purchase decision, such as at an auto dealer or a 
department store. Additionally, incorporating the use of credit scores 
as a factor in underwriting has enabled the government-sponsored 
entities, Fannie Mae and Freddie Mac, to introduce automated 
underwriting systems that allowed mortgage originators to streamline 
the mortgage underwriting process and provide rapid mortgage approvals.
    Because credit scores are derived from the information in credit 
reports, inaccuracies in credit report information can affect 
consumers' credit scores. Some inaccuracies matter more than others. An 
error in a consumer's address, the misspelling of a maiden name, or 
other errors in the consumer's identification information are generally 
unlikely to have an impact on a consumer's credit score or perceived 
credit worthiness by lenders. However, a public record that 
inaccurately indicates a consumer is subject to a tax lien, or a trade 
line that incorrectly states a consumer had a severe delinquency, could 
cause a lender to deny credit to a consumer altogether, or to treat a 
consumer it would otherwise consider eligible for a loan at prime 
interest rates as only eligible for sub-prime rates, costing the 
consumer thousands of dollars in interest.
    Below is a table showing how credit scores may be affected when 
specific adverse information appears in a credit report using different 
starting scores from VantageScore and FICO, two credit score providers. 
FICO scores generally have a range of 300 to 850, while Vantage scores 
range from 501 to 990. It is worth noting that these score impacts are 
hypothetical, and that the impact of an adverse event in any 
individual's case varies by the unique characteristics of that 
consumer's credit history, including the number and timing of such 
events.
Figure 1: Example Score Impacts

----------------------------------------------------------------------------------------------------------------
                                                            Score Impact Range
                         ---------------------------------------------------------------------------------------
     Financial Data        Consumer with  900    Consumer with  760    Consumer with  780    Consumer with  680
                              Vantage Score         Vantage Score          FICO Score            FICO Score
----------------------------------------------------------------------------------------------------------------
Bank card--30 days           70-90 point drop      60-80 point drop     90-110 point drop      60-80 point drop
 delinquent
----------------------------------------------------------------------------------------------------------------
Mortgage charge-off or     130-170 point drop     80-110 point drop    140-160 point drop     95-115 point drop
 foreclosure
----------------------------------------------------------------------------------------------------------------
Filing bankruptcy             350+ point drop       200+ point drop    220-240 point drop    130-150 point drop
----------------------------------------------------------------------------------------------------------------
Sources: VantageScore: Sara Davies, Introduction to the VantageScore Model, Ways Consumer Credit Scores Are
  Impacted and Methods for Score Improvement, Presentation at the Symposium on Credit Scoring and Credit
  Reporting at Suffolk University Law School (June 6, 2012). FICO: http://www.myfico.com/crediteducation/
  questions/Credit_Problem_Comparison.aspx.

    Other than credit scores, the NCRAs also provide lenders with 
analytical models using credit report data. These include models that 
predict the likelihood of accepting a credit offer, of future account 
utilization, of consumers leaving an existing account, or of 
collectability on an outstanding debt.
3. Furnishers and Users
    In addition to the NCRAs and other CRAs, the most important 
participants in the credit reporting system are furnishers, users, and 
consumers. All of these participants have defined roles with specific 
obligations under the FCRA.
    Most furnishers of credit information to NCRAs are creditors who 
are also users of credit reports. Public records (e.g., judgments, 
bankruptcy filings, tax liens) are also important sources of 
information for NCRAs.
    Figure 2 below is a simplified diagram of the information flows in 
the credit reporting system.
Figure 2: The Credit Reporting System

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


    Source: CFPB 2012.

3.1 Trade Line Furnishers
    Each NCRA has a consumer database with over 1.3 billion active 
trade lines.\33\ Financial institutions furnish the bulk of these trade 
lines. Approximately 40 percent of all trade lines of an NCRA's files 
are bank card trade lines. Of the remaining trade lines, 18 percent 
came from banks that issue retail cards, 13 percent are accounts in 
collection reported by collections agencies and debt buyers, 7 percent 
from the education industry,c 7 percent from sales finance 
providers (e.g., closed-end loans including auto loans), 7 percent from 
mortgage lenders or servicers, 4 percent from auto lenders, and 4 
percent from other unspecified creditors.\34\
---------------------------------------------------------------------------
    \33\ Industry figures.
    \c\ Education furnishers are comprised of furnishers from business 
education schools, colleges, private educational lenders, technical 
education universities, vocational and trade schools, and government 
furnishers including the Department of Education and Federal student 
loan servicers.
    \34\ Industry figures.
---------------------------------------------------------------------------
    While the NCRAs receive trade lines from approximately 10,000 
furnishers, a small number of very large institutions (typically with 
multiple lines of business) supply a majority of trade lines. For the 
NCRAs, the top 10 furnishers provide approximately 57 percent of the 
trade lines, the top 50 furnishers provide 72 percent of the trade 
lines, and the top 100 furnishers provide 76 percent of the trade lines 
in their databases.\35\ The institutions' credit offerings can include 
bank credit cards, retailer credit cards, auto loans, student loans, 
and mortgages.\36\ Other furnisher industries, such as collections 
agencies, tend to be more fragmented.\37\
---------------------------------------------------------------------------
    \35\ Industry figures. It is likely that the NCRAs do not uniformly 
define an institution as a furnisher in the same way (e.g., some large, 
complex institutions may be treated as a single furnisher by one NCRA 
but as multiple furnishers by another); hence estimates cited in this 
report from industry sources about the number of furnishers and shares 
of tradelines by furnishers and industries are approximations.
    \36\ Industry information.
    \37\ The 2007 Economic Census provides the most comprehensive 
recent assessment of industry revenue concentration. The survey 
identifies 4,506 collection agencies. The largest of these firms (those 
with over $100 million in annual revenue) take in a minority proportion 
of overall industry revenue (32 percent). See http://
factfinder2.census.gov/faces/tableservices/jsf/pages/
productview.xhtml?pid=ECN_2007_US_56SSSZ4&prodType=table# (scroll to 
NAICS code 56144).
---------------------------------------------------------------------------
    Furnishers typically report trade line updates monthly in batch 
files transmitted electronically to one or more of the NCRAs. Most of 
the largest furnishers report all or nearly all of their trade lines to 
each of the largest NCRAs.d These updates generally include 
changes in balances owed, whether or not payments were received, 
changes in available credit lines (in the cases of revolving credit 
card accounts), and the status of the account (e.g., current, 30+ days 
late, 60+ days late). The NCRAs provide a standardized data format, 
called Metro 2, which most of their furnishers use to submit 
data.e
---------------------------------------------------------------------------
    \d\ The NCRAs do have some variations in their source data. Some 
smaller banks and many debt collection agencies do not send information 
to all three of the largest NCRAs. See Federal Trade Commission and 
Federal Reserve Board, Report to Congress on the Fair Credit Reporting 
Act Dispute Process, at 5 (August 2006).
    \e\ Innovis, a credit bureau, also is a participant in the Metro 
reporting system. It offers portfolio management solutions, fraud 
solutions, and authentication solutions, among other services.
---------------------------------------------------------------------------
3.1.1 Furnisher Incentives and Disincentives
    Reporting to credit bureaus and other consumer reporting agencies 
by creditors is voluntary and historically has been. Not all creditors 
report information about their borrowers. Some creditors report 
information about users of some of their credit products, but not 
others. For example, credit card issuers who issue revolving credit to 
consumers usually report trade line information monthly on consumer 
cards but are less likely to report on small business cards even when 
these are owed by, and underwritten based on, the personal credit 
history of the business owner. Furnishers have multiple incentives to 
contribute data to the NCRAs. Individual contributors recognize that 
the cross-company, cross-industry visibility into credit risk offered 
by a credit bureau depends on widespread creditor participation. If a 
company elects not to contribute data, it runs the risk that its peers 
will not contribute data, thus reducing a common resource from which 
creditors benefit. As indicated above, most furnishers of trade line 
information to the NCRAs are also large users of credit reports.
    A second reason creditors furnish information on their accounts is 
to maintain an incentive for their borrowers to make timely repayments. 
Consumers are more likely to repay creditors if they are aware that a 
creditor may report late payments or delinquent accounts to the NCRAs, 
which could negatively affect their credit history and/or credit score. 
Consumers also get the benefit of having their timely payments 
reported, which will positively impact lenders' views of their credit 
worthiness.
    There are also disincentives for creditors to report on their 
borrowers to the NCRAs.\38\ For example, the names of individuals who 
borrow and make loan payments on time may be included in prescreened 
lists that NCRAs and other CRAs sell, providing these borrowers with 
account offers from competing lenders. Reporting to one or more of the 
NCRAs may require investment in specialized information systems. 
Further, data furnishers must follow FCRA requirements such as 
investigating disputes submitted directly \39\ or indirectly through 
the NCRAs. Since furnishing data is voluntary, furnishers must consider 
whether the overall benefits of furnishing outweigh its costs.
---------------------------------------------------------------------------
    \38\ Historically, some furnishers have declined to provide certain 
fields. For example, omitting credit limits prompted the inclusion of 
I(b)(2) (iii) in App. E to the Furnisher Rule. 74 Fed. Reg. 31484 (July 
1, 2009), available at http://www.gpo.gov/fdsys/pkg/FR-2009-07-01/pdf/
E9-15323.pdf. The Furnisher Rule is now codified in 12 C.F.R. pt. 1022. 
76 Fed. Reg. 79308 (Dec. 21, 2011). The practice of some furnishers of 
omitting account opening date and other fields also prompted the 
Federal banking agencies, the National Credit Union Administration 
(NCUA), and the FTC to issue an advance notice of proposed rulemaking 
focused on whether furnishers should be required to provide this 
information, 74 Fed. Reg. 31529 (July 1, 2009), available at http://
www.gpo.gov/fdsys/pkg/FR-2009-07-01/pdf/E9-15322.pdf.
    \39\ 74 Fed. Reg 31484 (July 1, 2009). This rule was required by 
section 623(e) of FCRA, as added by section 312 of the Fair and 
Accurate Credit Transaction Act of 2003.
---------------------------------------------------------------------------
3.1.2 Reporting Format
    CDIA developed the Metro 2 guidelines in 1997, on behalf of the 
NCRAs and Innovis, as their standard for the electronic reporting of 
consumer trade line information. Metro 2 replaced the original Metro 
format developed in the late 1970s.\40\ The format forms the basis by 
which furnishers provide updates on their borrowers' account status in 
bulk file submissions to one or more of the NCRAs, generally on a 
monthly basis. An obvious benefit of a shared data format is that all 
furnishers can report trade line information the same way. This 
simplifies the creation of standardized credit files by each of the 
NCRAs and simplifies the interpretation of credit information into 
risk-based credit scores.
---------------------------------------------------------------------------
    \40\ Industry information.
---------------------------------------------------------------------------
    Each Metro 2 electronic file submission has a furnisher header 
record, a series of base records on each borrower, supplementary 
records describing updates to the furnished trade lines, and a trailer 
record. A description of the various types of record segments and the 
information that Metro 2 allows furnishers to provide is offered below.

   Metro 2 Header and Trailer Records: Header and Trailer 
        records form the bookends of a Metro 2 file submission. The 
        header record is the first record provided in the Metro 2 file 
        submission and is used to identify the furnisher and the 
        activity period. It also contains the furnisher's unique 
        identifier at the NCRA receiving the file, the activity date, 
        name, address, and other contact information for the furnisher. 
        Note that this type of header record should be distinguished 
        from the header record on a consumer file maintained by an NCRA 
        that has the consumer's personal identification information. 
        The trailer record, meanwhile, is the last record in a 
        furnisher's Metro 2 submission. It includes the sum totals of 
        all the base and supplementary segments submitted.

   Base Segment: The Base segment is used to identify the 
        primary borrower and to provide relevant account information 
        for each trade line. Identification information for the 
        borrower includes first, middle, last name, suffix, generation 
        code, phone number, address, SSN, and date of birth. Account 
        information includes account type (e.g., revolving, 
        installment, mortgage), credit limit, highest credit or 
        original loan amount, duration of credit extended, frequency 
        with which payments are due, account status, f stage 
        of delinquency, date of first delinquency, and date the account 
        closed and conditions under which it was closed (e.g., closed 
        by consumer, paid full amount due, closed by creditor and paid 
        less than full amount). Additionally, the Base segment contains 
        up to 24 months of the consumer's payment history on the 
        account. Contrary to a frequent assumption, the Metro 2 format 
        does not contain fields for interest rate information on 
        particular loans or revolving accounts.
---------------------------------------------------------------------------
    \f\ Account status reflects the current or final disposition of the 
account. If the account is delinquent, Metro 2 allows furnishers to 
report the level of delinquency such as 30-59 days past due, 60-89 days 
past due, and up to 180 days or more past due. Where the account is 
closed, a furnisher can report whether the account closed with a zero 
balance, was a voluntary surrender, closure surrender, repossession, 
charge-off, or entered into foreclosure.

   Supplementary Segments: Depending on the furnisher and the 
        type of trade line, the furnisher may have additional data 
        segments to supplement the data in the base segment. These 
---------------------------------------------------------------------------
        include:

     Associated Consumer Segment: Contains information on 
            consumers who are associated with a credit account besides 
            the primary user, including name, SSN, date of birth, 
            telephone number, and the relation of the consumer to the 
            account. Associated consumers can include authorized users, 
            guarantors, persons with joint contractual liability, or 
            others.

     Original Creditor Name Segment: Has the name of the 
            original credit grantor, which is necessary to link a 
            consumer debt to the original creditor even after it is 
            outsourced to a third-party collection agency.

     Segment for Accounts Sold to/Purchased from Another 
            Company: Used to report the name of the companies which 
            respectively bought and sold a portfolio of consumer debt.

     Mortgage Information: Used to report any Fannie Mae or 
            Freddie Mac loan number associated with a mortgage account.

     Specialized Payment Information: Has information on 
            deferred payments or balloon payments, if applicable.

     Account Number/Identification Number: Used to report 
            new identification or account numbers.

     Employment Segment: Contains employment information on 
            the primary borrower, which may come from the consumer's 
            application for credit or from employment information that 
            the creditor obtained in approving the account.

    The Metro 2 format specifies that base segments be reported for 
each account submitted. Supplementary segments are reported when 
relevant to the particular trade line or other data that is furnished.
3.2 Public Record Collection
    While the NCRAs rely on a multitude of furnishers to supply 
creditor trade line information, they also receive public records 
including bankruptcy records, civil court monetary judgments, and 
government tax liens from publicly available government sources. They 
obtain these records primarily through LexisNexis Risk Data Retrieval 
Services LLC (LNRDRS). The use of LNRDRS followed the NCRAs' decisions 
to move from direct collection from hundreds of sources and suppliers 
to a single data retrieval vendor. The NCRAs report they do not use 
criminal records in their credit reports. Rather, the NCRAs utilize 
public records representing derogatory items in their credit files. 
Derogatory is defined as negative information that will likely hurt a 
consumer's credit (e.g., late payments, collection accounts, 
foreclosures, civil judgments).\41\ While each NCRA has its own 
criteria, public records are generally removed from credit reports once 
the reportable event becomes obsolete (between seven and ten years 
depending on the type of information and the applicable statute of 
limitations).
---------------------------------------------------------------------------
    \41\ Credit Advice from The ``Ask Experian'' Team, available at 
http://www.experian.com/ask-experian/20120118-what-derogatory-
means.html.
---------------------------------------------------------------------------
3.2.1 LNRDRS Data Retrieval
    LNRDRS retrieves and sends to each of the three NCRAs between 10 
and 20 million public record events per year (roughly one third of 
which are bankruptcies, tax liens, and civil monetary judgments 
respectively).\42\ All bankruptcy records are pulled electronically 
from the PACER system, an electronic public access service that allows 
users to obtain case and docket information from Federal appellate, 
district and bankruptcy courts. Monetary judgments and tax liens are 
obtained from 10,000 to 12,000 state and local courts and county and 
state government offices. LNRDRS reports it obtains information on 30 
percent of judgments and liens electronically. For the remaining 70 
percent, LNRDRS deploys a network of independent contractors who 
manually access public records at government sources and type the local 
records into a proprietary software system, which screens for 
duplicates and minimizes typographical errors. A single record 
collector can typically record approximately 200 events in a day.
---------------------------------------------------------------------------
    \42\ Industry figures.
---------------------------------------------------------------------------
    In retrieving records for the NCRAs, LNRDRS provides the data in 
its ``raw'' form. The NCRAs undertake the responsibility of assigning 
records to particular consumer files, and adjusting matching criteria 
for possible errors. Assignment of a court record to a particular 
consumer can be challenging for the NCRAs because, according to one 
estimate, SSNs appear on court records only 3 percent of the time.
4. Furnisher and Data Screening
    The NCRAs employ a number of methods to screen furnishers and 
incoming information for inaccuracies and anomalies. This section 
examines the vetting and approving of furnishers and various quality 
screens performed on data files received from furnishers. These methods 
focus on identifying formatting errors, logical errors, internal 
inconsistencies, and anomalies.
4.1 New Furnisher Screening
    The NCRAs' data quality processes start with their screening of new 
furnishers.
    The NCRAs report that a prospective furnisher can initiate a 
relationship with them by sending a letter of intent to furnish. Due to 
the resource and economic costs associated with adding a furnisher, the 
NCRAs will generally require prospective furnishers to report a minimum 
of 100 to 200 active accounts per month.\43\ Each NCRA reportedly puts 
prospective furnishers through an initial security screening. Screening 
generally includes an inspection of features of each business such as 
its physical headquarters, phone number, website, and business license, 
as well as company records such as annual reports. Individual NCRAs 
also may hire third-party investigation services to screen for illegal 
or unethical business history. Sole proprietorships and new businesses 
(e.g., in business less than a year) may receive more specialized 
screening. An NCRA may require the furnishers to submit test files 
which it will examine to make sure they are Metro 2 compatible. 
Approved furnishers are trained on Metro 2.
---------------------------------------------------------------------------
    \43\ Industry figures.
---------------------------------------------------------------------------
    After these initial inspections, NCRA policies may trigger 
reinspections after risk events such as consumer complaints, suspicious 
trade lines, variations in data submissions, odd anomalies, and changes 
in company ownership. At least one NCRA has policies to reinspect new 
furnishers six months after they start submitting data to assess for 
data quality and fraud risk.
    The NCRAs report that they continue to monitor for data quality and 
fraud once a furnisher starts contributing live trade line data. One 
example of furnisher fraud is when a supposed credit repair 
organization represents itself as a furnisher and attempts to boost the 
credit scores of consumers with bad credit by reporting fictitious 
trade lines that the consumers purportedly used and paid back on time.
    Overall, the objective of furnisher screening is to reduce the risk 
of fraud or of poor data quality by screening out furnishers whose 
systems are not able to report accurate data on customers or report it 
in the Metro 2 format.
4.2 Checking Furnished Data
    Having passed this initial screening, furnishers can start 
providing data. Furnishers generally provide monthly trade line updates 
through data file transfers that conform to the Metro or Metro 2 format 
and contain trade line updates on all of the furnishers' active 
accounts. All new furnishers are being added under the Metro 2 format, 
which was first introduced in 1997. Data submitted by a furnisher to an 
NCRA generally goes through a multi-stage process to identify data 
irregularities.
    Typical data quality checks will identify issues such as blank 
fields or logical inconsistencies in the data--both at the level of the 
data file and at the individual consumer's trade line. If a furnished 
account is reported as closed, and then in a subsequent data feed the 
furnisher reports a new account balance, the NCRA might flag that 
inconsistency. Other inconsistencies might be account balances higher 
than the maximum credit line, duplicate instances of information on the 
same account being furnished, or data patterns inconsistent with the 
furnisher's historical pattern of transactions. It is not uncommon for 
furnishers' bulk files to be initially rejected by the NCRAs.\44\ The 
NCRAs report that furnishers tend to correct most of the problems 
causing the file rejection, leaving only a small percentage of files 
permanently rejected. Some data rejections might not result from an 
error in the data but from format incompatibility when the furnisher 
uses the wrong codes to update accounts, or the furnished data shows 
unfamiliar formats because of system changes at the furnisher.
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    \44\ Industry information.
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    Within file submissions, individual consumer base records and 
tradeline updates are similarly screened for formatting errors, logical 
errors, internal inconsistencies, and anomalies. The rejection rates 
for incoming trade line data from furnishers appear to vary across 
multiple dimensions (e.g., by individual furnisher, by furnishing 
industry, by the NCRA receiving the data). For example, submissions 
from collections agencies tend to have a higher rejection rate than 
rejections for credit card trade lines.\45\
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    \45\ Industry figures.
---------------------------------------------------------------------------
    While the NCRAs' data screens do find errors by identifying 
anomalies and inconsistencies, these checks rely on underlying 
furnisher data to be valid. The NCRAs do not conduct independent checks 
or audits to determine if the data is accurate, such as contacting a 
consumer to ask if she is properly associated with an account or if the 
balance reported on an account is true, or checking the record-keeping 
practices of a furnisher. The NCRAs generally rely on furnishers to 
report information on consumers that is complete and accurate.
4.3 The Furnisher Rule
    In 2009, the Federal Trade Commission, the Federal Reserve Board, 
the Federal Deposit Insurance Corporation, the National Credit Union 
Administration, the Office of the Comptroller of the Currency, and the 
Office of Thrift Supervision issued a joint rule (``Furnisher Rule'') 
implementing the accuracy and integrity and direct dispute provisions 
for furnishers mandated by the Fair and Accurate Credit Transactions 
Act (FACTA).\46\ The CFPB has since restated this rule.\47\
---------------------------------------------------------------------------
    \46\ 74 Fed. Reg 31484 (July 1, 2009).
    \47\ 76 Fed. Reg. 79308 (December 21, 2011).
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    As a result of FACTA and the Furnisher Rule, furnishers have 
enhanced obligations to supply accurate data. Each furnisher is 
required to ``establish and implement reasonable written policies and 
procedures concerning the accuracy and integrity of the information it 
furnishes to consumer reporting agencies.'' \48\ The procedures should 
address ``deleting, updating, and correcting information in the 
furnisher's records, as appropriate, to avoid furnishing inaccurate 
information.'' \49\ The procedures must be appropriate to the ``nature, 
size, complexity, and scope of each furnisher's activities.'' \50\ 
Appropriate procedures include using standard data reporting formats, 
maintaining records for a reasonable period of time, providing 
appropriate oversight of service providers (e.g., companies that 
provide core processing systems or software used for recordkeeping and 
account management), furnishing information in a way that prevents re-
aging,g duplicative reporting, association of information 
with the wrong consumer, and providing sufficient identifying 
information about consumers.\51\
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    \48\ 12 C.F.R. Sec. 1022.42, (2012).
    \49\ 12 C.F.R. pt. 1022, Appendix E, III(h) (2012).
    \50\ 12 C.F.R. Sec. 1022.42(a) (2012).
    \g\ Re-aging in this context refers to erroneously extending the 
reporting period of derogatory consumer information by creating a new, 
later start date when the derogatory event occurred, thus pushing back 
the clock for removing the derogatory item from the credit report.
    \51\ 12 C.F.R. pt. 1022, Appendix E, III (2012).
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5. Compiling Credit Files: ``Matching''
    Once the NCRAs have received trade line information from a 
furnisher they must assign it to a specific consumer's identity. Each 
of the NCRAs has over 200 million active files on individual consumers 
which are non-duplicative within the particular NCRA.\52\ The average 
credit file contains 13 past and current credit obligations, including 
nine bank and retail cards and four installment loans (e.g., auto 
loans, mortgage loans, student loans).\53\ In a typical month, an NCRA 
receives updates on over 1.3 billion trade lines.\54\ With this much 
information included in and added to their databases, the NCRAs face 
technical and operational challenges in attributing information to the 
proper consumer's file.
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    \52\ Industry figures.
    \53\ Ben Woolsey and Matt Schulz, Credit card statistics, industry 
facts, debt statistics, available at http://www.creditcards.com/credit-
card-news/credit-card-industry-facts-personal-debt-statistics-1276.php 
(updated February 28, 2012).
    \54\ Industry figures. Since there are 1.3 billon trade lines 
updated every month and 200 million consumers in each of the NCRA 
databases, each consumer appears to have, on average, 6.5 active trade 
lines.
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5.1 Identifying the Correct Consumer
    To locate and identify a consumer, NCRAs will use various 
combinations of personal identifying information such as name, address, 
phone number, date of birth, address, and SSN. A given trade line 
reported by a furnisher may not contain all of this identifying 
information. Typically, the furnisher reports the personally 
identifying information that was provided by the consumer in the 
consumer's original application for credit or through updates (such as 
for current address or married name) that a consumer may provide in the 
course of his or her relationship with the furnisher.
    The fact that many consumers have the same or similar personal 
identifiers presents further challenges when a credit bureau tries to 
match an incoming trade line with the correct consumer's file. In the 
United States, according to 2000 census figures (the most recent to 
have last name statistics available), there are more than 2.3 million 
Americans with the last name of Smith, 1.8 million Americans with the 
last name of Johnson, 1 million Americans with the last name of Davis, 
850 thousand Americans with the last name of Garcia, and 600 thousand 
Americans with the last name of Lee.\55\ As one example, consider the 
matching challenges posed by relatives with same first and last name, 
but different middle names, who reside at the same address, and who do 
not regularly use their middle name when applying for credit.
---------------------------------------------------------------------------
    \55\ Genealogy Data: Frequently Occurring Surnames from Census 
2000. United States Census Bureau. Available at http://www.census.gov/
genealogy/www/data/2000surnames/index.html.
---------------------------------------------------------------------------
    Adding to the complexity, millions of individuals change how they 
identify themselves over time or between furnishers. Each year, a 
sizeable number of Americans change their name through marriage and 
divorce. Separately, consumers do not necessarily refer to themselves 
consistently in credit applications. For example, a woman named 
Elizabeth may use her full name on one application and then refer to 
herself with a nickname ``Betty,'' ``Beth,'' ``Liz,'' or ``Eliza'' on 
another credit transaction. Finally, creditor practices may vary as to 
the personally identifying information they require in their loan or 
credit applications, with the result that the criteria one creditor 
uses to identify a consumer in a trade line update may vary from how 
another creditor identifies him or her.
5.2 Posting and Organizing Account Information in Consumer Files
    Once a trade line has passed the NCRAs' initial vetting and 
screening, the NCRAs assign or post that trade line to the credit file 
of a specific consumer if they believe there is a match. As discussed 
below, inaccuracies may result from this process.
    The manner in which each NCRA posts incoming data to a consumer's 
file, and the way its files are organized, depends on the particular 
structure of its database, or its unique ``data architecture.'' The 
NCRAs take two different approaches to organizing personal data in 
their data networks: (1) flat file system and (2) ``PINning'' 
technology.
5.2.1 Flat File Systems
    At least one NCRA organizes its database like a traditional flat 
filing system so that each consumer is linked to one file.\56\ 
Consumers' files are distinguished through matching logic using a 
consumer's personal identifiers such as name, address, SSN, and date of 
birth. Multiple or fragmented files can occur for a single person when 
information is reported with different identifying information such as 
a different last name. Fragmented files on the same consumer will 
remain distinct until the NCRA receives new information about the 
fragments (e.g., a unifying name, address, phone number) that indicates 
they should be combined. In some cases, matching algorithms will assign 
the trade line to a file that, according to the algorithm, represents 
the best match even when all of the identifiers do not match up 
perfectly, or when only a limited number of identifiers are contained 
with the trade line.
---------------------------------------------------------------------------
    \56\ Industry information.
---------------------------------------------------------------------------
5.2.2 PINning Technology
    Another method uses a unique personal identification number (PIN) 
to organize consumer files.\57\ Instead of having a single file for 
each consumer, it uses the consumer's assigned PIN to link information 
on the consumer from multiple databases including inquiry, trade line, 
employment, public record, and address databases. Each furnished trade 
line data element, inquiry, or public record is entered into the 
network with an associated PIN in a relational database. PINs are 
assigned to trade lines based on algorithms that find the consumer that 
best matches the personal (header) information accompanying the trade 
line. When a consumer report is requested by a creditor or a consumer 
requests a credit report, the NCRA assembles the consumer report in 
real-time using the PIN as the central link to the different databases.
---------------------------------------------------------------------------
    \57\ Industry information.
---------------------------------------------------------------------------
    In this system, matching algorithms are used to assign a new 
incoming trade line or public record to the PIN that represents the 
best possible fit based on the personally identifying information 
associated with the trade line.
    The CFPB has no data on the relative accuracy of flat-file vs. PIN-
based architectures.
6. Inaccuracies in Credit Files and Credit Reports
    Given the volume of data handled, the challenges of matching 
tradelines to the correct consumer files, and the number and variety of 
furnishers, inaccuracies in some credit files inevitably occur. 
Inaccuracies in credit files and credit reports can occur where 
information that does not belong to a consumer is attached to his or 
her file, where information belonging to a consumer is omitted from the 
file, or where there are factual inaccuracies in trade line or other 
information in the consumer's file. Some of these inaccuracies can be 
attributed to matching challenges in assigning a trade line to a 
consumer's file. Other causes of inaccuracies include data and data 
entry errors, NCRA system or process inaccuracies, furnisher system or 
process inaccuracies, identity fraud, or time lags.
6.1 Types of Inaccuracies in Credit Files and Reports
    The following are among the types of inaccuracies that appear in 
credit files and the reports derived from them.

   Inclusion of accounts or records in a credit file that do 
        not belong to the consumer, commonly called a mixed file: 
        Credit reports can contain trade lines or public records about 
        a consumer other than the one who is the subject of the credit 
        report.

   Omission of accounts or records belonging to the consumer: A 
        credit account or public record that belongs to the consumer's 
        file can be erroneously placed in another consumer's file, 
        leading to a mixed file, as described above.\58\ Alternatively, 
        credit bureau matching algorithms or gaps in data can lead to a 
        consumer trade line being kept separate from the rest of the 
        consumer's file.
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    \58\ Federal Trade Commission, Report to Congress under Section 319 
of the Fair and Accurate Credit Transaction Act of 2003, at 9 (December 
2008).

   Trade line or record inaccurately represents information 
        pertaining to the consumer's account with the creditor: A 
        credit file can inaccurately depict the terms and status of a 
        valid account such as inaccurately depicting the date an 
        account was closed, the credit limit for the account, or 
        whether a trade line is delinquent. Similarly, a collection 
        item on the report may inaccurately reflect the payment status 
---------------------------------------------------------------------------
        of the debt or the amount of money owed.

    It is worth noting that in some cases consumers are mistaken about 
        the presence of inaccuracies in their account. For example, a 
        consumer may believe he or she paid a bill when it was not 
        paid. A consumer may believe that paying an item in collection 
        removes the collection history from one's credit report, which 
        it does not. A consumer may believe he or she paid an account 
        on time, when under the terms of the account, it was late. Or a 
        consumer may simply not recognize a trade line even though it 
        is legitimate.
6.2 Causes of Credit File Inaccuracies
    The inaccuracies identified in Section 6.1 can come from a variety 
of causes.

   Data and data entry errors: Furnishers can input accurate 
        consumer information incorrectly or make typographical mistakes 
        (e.g., transposing two digits in an SSN, misspelling names, 
        transposing first and middle names).\59\ Consumers (when 
        applying for a loan) can provide inaccurate data to furnishers. 
        For both of these types of inaccuracies, the credit bureau 
        could pass along the inaccuracy to the consumer's file.
---------------------------------------------------------------------------
    \59\ For a discussion of common credit reporting errors, see 
Richard J. Hilman, Consumer Credit: Limited Information Exists on 
Extent of Credit Report Errors and Their Implications for Consumers, 
Statement for the Record Before the Committee on Banking, Housing, and 
Urban Affairs, General Accounting Office at 11 (July 31, 2003).

    Data errors can also lead to file matching problems by causing the 
        bureau to put the trade line into a separate or ``orphan'' file 
        distinct from the consumer's original credit file, and thus not 
        include it in the consumer's credit report. Alternatively, data 
        inaccuracy could cause a consumer's trade line to be mixed in 
        with another consumer's file (e.g., when the mistake causes the 
        consumer's header information to match or resemble the identity 
---------------------------------------------------------------------------
        of another consumer).

   Bureau file matching inaccuracies: Inaccuracies can occur 
        when a bureau assigns a trade line to a consumer's file or when 
        it determines the credit file that matches the consumer named 
        in a creditor inquiry. A matching error can occur for a variety 
        of reasons.

     Matching errors may result from creditor inquiries and 
            trade lines that contain a limited set of identifiers 
            relating to the consumer. For example, a lender inquiry may 
            omit information such as date of birth or SSN.

     Family members with similar identity information such 
            as fathers and sons with common names (e.g., Jr., Sr.) can 
            experience commingling of files, especially if they reside 
            at the same addresses and distinguishing information is not 
            provided.

     Unrelated individuals with similar names and identity 
            information get linked together because a name or SSN is 
            incorrectly inputted.

    In some cases, when a consumer changes personal information (e.g., 
        his or her name) the bureau will be unable to match the new 
        trade line to an existing file until the bureau has confidence 
        that the new information belongs to the existing consumer. A 
        common example occurs when a consumer changes names after 
        getting married or divorced. Until the bureau can link the 
        individual pre-and post-name change, that individual's 
        information might reside in two different files.

   Bureau process errors: An example of a process error would 
        be if a credit bureau failed to prevent the reappearance in a 
        consumer's credit report of inaccurate data that was removed as 
        a result of a consumer dispute reinvestigation. Such errors can 
        occur despite the bureau maintaining procedures to permanently 
        remove or suppress identified inaccuracies as required by the 
        FCRA.\60\
---------------------------------------------------------------------------
    \60\ 15 U.S.C. Sec. 1681i(a)(5)(C).

   Identity fraud/theft: Identity thieves can compromise a 
        consumer's credit history by creating new credit, utility, or 
        health care accounts in the consumer's name and then letting 
        them go unpaid. As these accounts go delinquent and are pushed 
        to collections, the consumer victim's credit rating can 
        plummet. Fraudsters may also take over existing consumer 
        accounts, often disguising the account theft by changing the 
        billing address of the applicant with the lending institution, 
        or making purchases over the Internet. Additionally, fraudsters 
        can create synthetic identities using an innocent consumer's 
        SSN or other identifiers like last name and birthdate.\61\
---------------------------------------------------------------------------
    \61\ In 2011, the FTC reported 279,156 complaints alleging identity 
theft, which was the largest single complaint category of consumers to 
the FTC. Federal Trade Commission, Consumer Sentinel Network Data Book 
for January--December 2011, at 6 (February 2012). See http://ftc.gov/
sentinel/reports/sentinel-annual-reports/sentinel-cy2011.pdf.

   Furnisher system or process inaccuracies: Inaccuracies can 
        occur because of limitations in the processes furnishers and 
        public records providers use in handling consumer transactions. 
---------------------------------------------------------------------------
        Examples include:

     Attributing ownership to an account on which an 
            individual is only an authorized user;

     Failing to post a payment;

     Assigning a payment to the wrong account;

     Failing to update records (e.g., tax liens or other 
            judgments that are still listed as open even though they 
            have been paid or resolved);

     Failing to permanently change records when a consumer 
            successfully disputes an inaccuracy, with the result that 
            faulty information is re-reported;

     Listing closed accounts as open;

     Reporting an incorrect credit limit; and

     Transfering loans from one owner or servicer to 
            another owner or servicer with different record-keeping 
            systems can result in lost data or lost payment records.

    Furnishers and consumers can disagree on the status of credit 
        accounts (e.g., whether a payment was late). These 
        disagreements can be addressed, if not always resolved, through 
        the dispute processes that consumers have the right to initiate 
        under the Fair Credit Billing Act (e.g., for billing disputes 
        involving credit cards, department store accounts, other open-
        end credit accounts)\62\ or the FCRA.
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    \62\ 15 U.S.C. Sec. Sec. 1666-1666j.

    Additionally, certain trade lines may be reported by multiple 
        furnishers over time. Examples include trade lines reported by 
        a debt buyer that were previously reported by a creditor from 
        whom the debt buyer acquired the accounts, or mortgage loans 
        for which the servicing rights were sold from one servicer to 
        another. In these cases, the bureaus not only match the trade 
        line with the correct consumer's file, but may also determine 
        when the incoming trade line reflects the continuation of a 
        previously reported trade line in the consumer's file. To 
        facilitate correct depiction of such trade lines over time, the 
        Metro 2 policy is for furnishers who are new account owners to 
        list the name of the original creditor in file updates. 
        Omission of this information by a furnisher who has bought the 
        debt, and/or failure by account sellers to acknowledge when 
        accounts have been sold, may result in duplicate trade lines in 
---------------------------------------------------------------------------
        a consumer file.

   Time lags: Differences can occur due to time lags between a 
        consumer transaction and its reporting to a credit bureau file 
        (e.g., paying a past due bill or opening a new account). Time 
        lags are a significant issue in the updating of public records. 
        According to one industry source, it takes some state courts, 
        on average, two months to transcribe a court judgment into a 
        written court decision.\63\
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    \63\ Industry figures.
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6.3 Consumer Impact of Inaccuracies
    Each of these types of credit report errors may affect how a 
creditor or a credit score assesses the credit worthiness of a 
consumer. Trade line errors can both hurt or help a consumer's credit 
score. An omitted current trade line, for example, may lower a credit 
score. Likewise, a credit score may be unfairly reduced by a negative 
trade line that belongs to another consumer, or by duplicate trade 
lines that are treated as two separate credit relationships. On the 
other hand, if a delinquent trade line was inadvertently assigned to 
another consumer's file or if a furnisher incorrectly marked a 
delinquent trade line as current, the error could help the consumer's 
score.
7. Disputing Credit Report Errors
    Recognizing the possibility of inaccuracies, the FCRA gives 
consumers the right to dispute information they deem inaccurate with an 
NCRA, a furnisher (in cases covered by the Furnisher Rule), or both. 
The FCRA requires NCRAs and furnishers to ``reinvestigate'' information 
contained in a consumer's credit file when the consumer disputes its 
accuracy.\64\ Further, the statute gives consumers several mechanisms 
for obtaining the information contained in their credit files in order 
to review them for possible inaccuracies. Consumers can get a free 
credit report, that is, obtain a file disclosure for free, (i) once 
every 12 months from the NCRAs and nationwide specialty consumer 
reporting agencies,\65\ (ii) in connection with risk-based pricing and 
adverse action notices,\66\ (iii) if they are unemployed and intend to 
apply for employment within 60 days,\67\ (iv) if they are recipients of 
welfare assistance,\68\ (v) if they have reason to believe their credit 
file is inaccurate due to fraud,\69\ (vi) in connection with requested 
initial or extended fraud alerts,\70\ or (vii) if permitted by state 
law. Consumers can also review their credit files by purchasing them 
directly or when they receive their credit files as part of a paid 
credit monitoring service subscription. Consumers sometimes also 
receive information from reports or copies of reports from a user such 
as a bank, mortgage broker, or landlord.
---------------------------------------------------------------------------
    \64\ 15 U.S.C. Sec. 1681i.
    \65\ 15 U.S.C. Sec. 1681j(a) (requiring NCRAs and nationwide 
specialty consumer reporting agencies to provide free annual reports 
upon request if they have been providing consumer reports to third 
parties on a continuing basis with respect to consumers residing 
nationwide for the last 12 months).
    \66\ 15 U.S.C. Sec. 1681j(b).
    \67\ 15 U.S.C. Sec. 1681j(c).
    \68\ Id.
    \69\ Id.
    \70\ 15. U.S.C. Sec. 1681j(d).
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    The CFPB estimates that as many as 44 million consumers obtained 
copies of their consumer file disclosure annually in 2010 and 2011--
either as a result of obtaining free annual file disclosures through 
annualcreditreport.com (15.9 million);\71\ through one of many various 
credit monitoring services (26 million);\72\ obtaining disclosures 
directly from the NCRAs after receiving adverse action notices or risk-
based pricing notices (approximately 1 million);\73\ or from lenders 
directly or through fraud alerts, requests based on unemployment or 
welfare status, and where free under state law (approximately 0.5 
million for this catch-all category).\74\
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    \71\ Consumer Financial Protection Bureau, The Impact of 
differences between consumer-and creditor-purchased credit scores: A 
Report to Congress, at 9 (July 19, 2011).
    \72\ Id. at 10.
    \73\ Industry figures.
    \74\ Industry figures.
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    In 2011, the NCRAs received approximately 8 million consumer 
contacts disputing the completeness or accuracy of one or more trade 
lines, public records, or credit header information (identification 
information) in their files.\75\ h Based on these contacts, 
the number of credit-active consumers who disputed one or more items 
with an NCRA in 2011 ranges from 1.3 percent to 3.9 percent. On average 
across the NCRAs, consumers filed 42 percent of their disputes online, 
44 percent by mail, and 13 percent by phone. The remainder of consumers 
communicated their disputes by fax, walk-ins, or other methods.\76\ 
Many of these consumers disputed information about more than one 
tradeline or other item in their file, leading to approximately 32 to 
38 million dispute reinvestigations.\77\ This volume has declined 
significantly since 2007 when consumers were more active in applying 
for credit, particularly in the mortgage market. In 2007, a high volume 
year, the NCRAs received disputes on 47 to 53 million items.\78\
---------------------------------------------------------------------------
    \75\ Industry figures.
    \h\ This estimate counts contacts made by a single consumer to 
multiple NCRAs as multiple contacts.
    \76\ Industry figures.
    \77\ Industry figures.
    \78\ Industry figures.
---------------------------------------------------------------------------
    The number of consumer dispute requests (8 million) appears high 
relative to the total number of consumers who see their credit files 
(44 million). However, the CFPB is unable to estimate a dispute rate 
for consumers who see their files for several reasons. First, no data 
is available on the overlap of disputes by consumers among the three 
largest NCRAs. Thus the range of unique consumers who filed complaints 
could be up to 8 million or substantially less if high volumes of 
consumers filed complaints with multiple NCRAs. Second, it is unclear 
how many consumers obtained copies of their credit reports or file 
disclosures by more than one means in a given year. Additionally, an 
unknown number of consumers may initiate disputes without their reports 
after being advised by lenders of specific negative items appearing on 
their reports.
7.1 Credit Bureau and Furnisher Disputes
    Consumers can elect to dispute the completeness or accuracy of 
their credit file through the NCRA or other bureau that provided their 
report, directly with the furnisher who provided the disputed trade 
line (in cases covered by the Furnisher Rule), or both. The nature and 
timeframes for responses to disputes are specified in the FCRA.
    Under Section 611 of the FCRA, if a consumer disputes the 
completeness or accuracy of his or her credit file, the credit bureau 
has an obligation to conduct a reasonable reinvestigation.\79\ The 
bureau must generally complete a reinvestigation within 30 days, in 
which it must consider all the relevant information supplied by the 
consumer.\80\ Moreover, it has five business days to forward the 
dispute to the relevant furnisher.\81\ The credit bureau notification 
to the furnisher shall include all relevant information received from 
the consumer.\82\ If the reinvestigation determines that the consumer's 
data is inaccurate, incomplete, or cannot be verified, the bureau must 
delete the disputed data.\83\ Furnishers have independent obligations 
under the FCRA, after receiving notice from a CRA of a consumer 
dispute, pursuant to Section 611 to conduct an investigation into the 
disputed information, to review all the relevant information provided 
by the CRA, and to report the results of the investigation to the 
CRA.\84\
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    \79\ 15 U.S.C. Sec. 1681i(a)(1)(A).
    \80\ 15 U.S.C. Sec. 1681i(a)(1)(B)-(C) and (a)(4).
    \81\ 15 U.S.C. 1681i(a)(2)(A).
    \82\ 15 U.S.C. 1681i(a)(2)(B).
    \83\ 15 U.S.C. 1681i(a)(5).
    \84\ 15 U.S.C. Sec. 1681s-2(b); 12 C.F.R. pt. 1022, App. E.2b
---------------------------------------------------------------------------
    As stated above, consumers can also dispute the accuracy of 
information directly with the furnisher of the information. Under the 
Furnisher Rule, a furnisher must conduct a reasonable investigation of 
a consumer's dispute about his or her liability for a debt to the 
furnisher, the terms of the debt, the consumer's performance concerning 
the account at issue, or ``other information contained in a consumer 
report regarding an account or relationship with the furnisher that 
bears on the consumer's credit worthiness, credit standing,'' or other 
credit reporting factors.\85\ The furnisher also must ``review all 
relevant information provided by the consumer'' and complete an 
investigation and report the results back to the consumer in the same 
time frame as if the dispute was sent to a consumer reporting 
agency.\86\ If the investigation finds furnished information was 
inaccurate, the furnisher must promptly notify each CRA that received 
the information of its determination and provide corrected 
information.\87\
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    \85\ 12 C.F.R Sec. 1022.43(a).
    \86\ 12 C.F.R. Sec. 1022.43(e)(3).
    \87\ 12 C.F.R Sec. 1022.43(e)(4).
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7.2 Trade Line Dispute Rates
    The NCRAs see variations in dispute rate by furnisher, account 
status, and industry. The dispute rates for the active trade lines 
among the 100 largest furnishers generally fall within a range between 
0.05 percent and 2.0 percent.\88\ The dispute rate reported by the 
NCRAs on delinquent trade lines not yet in collections is approximately 
1.1 percent.\89\ Dispute rates for specific industries vary widely as 
well. Some of this variation may be due to variations in data quality 
controls at individual furnishers. Other differences may simply be due 
to the fact that some trade lines and industries, by their nature, are 
likely to generate more disputes from consumers than others. One would 
expect, for example, that consumers would be more likely to challenge 
trade lines with reported delinquencies or collections actions than 
trade lines that only reflect positive information. Likewise, one would 
expect higher dispute rates in credit categories where delinquency 
rates are high (e.g., on subprime loans as opposed to prime loans).
---------------------------------------------------------------------------
    \88\ Industry figures.
    \89\ Id.
---------------------------------------------------------------------------
    Figure 3 describes the average trade line dispute rates for 
different types of furnishers.\90\
---------------------------------------------------------------------------
    \90\ Id.
---------------------------------------------------------------------------
Figure 3: Dispute Rates By Industry Type

----------------------------------------------------------------------------------------------------------------
                    Industry Type                                 Disputes/Year per Active Trade Line
----------------------------------------------------------------------------------------------------------------
Bank Card and Retail Card                                                                                 0.17%
Finance Companies \91\                                                                                    0.19%
Mortgage                                                                                                  0.21%
Auto                                                                                                      0.27%
Student Loans                                                                                             0.29%
Collection/Debt Buyers                                                                                    1.06%
----------------------------------------------------------------------------------------------------------------

    Collection trade lines generate significantly higher numbers of 
consumer disputes than other types of trade lines--four times higher 
than auto and five times higher than mortgage dispute rates. 
Collections and delinquent trade lines also reflect a disproportionate 
percentage of all accuracy disputes by consumers with the NCRAs. Almost 
40 percent of all consumer disputes at the NCRAs, on average, can be 
linked to collections.\92\
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    \91\ Finance companies, also known as personal finance or sales 
finance companies, are non-depository institutions that generally 
provide loans to higher risk borrowers, often to purchase retail items. 
An example might be a company that partners with a home retailer to 
provide a loan to a consumer to purchase bedroom furniture.
    \92\ Id.
---------------------------------------------------------------------------
    Multiple factors likely converge to generate a high volume of 
collections item disputes. First, in contrast to other types of trade 
lines, 100 percent of collections trade lines correspond to negative 
information on a consumer's credit record. Consumers have a greater 
incentive to dispute information in a credit file that harms their 
credit record than information that favorably reflects their ability 
and willingness to pay back a loan.
    Both the discontinuous nature of consumers' relationships with debt 
collectors (the collector has limited interest in a long-term 
relationship with the consumer) and the collections industry's data 
management practices also may contribute to increased disputes.\93\ 
Collections debt can be placed with third-party collection agencies or 
sold to debt buyers multiple times. With each assignment or sale there 
are risks of account data being compromised or lost, and with multiple 
transfers, the risk of errors may increase. Debt buyers and debt 
collectors may lack the original documentation (e.g., consumer 
applications, statement showing last payment made, charge-off 
statement) underlying a debt, contributing to mistakes. Additionally, 
other than the sale of mortgages, consumers generally are not required 
to be notified when debt is sold or assigned to a collection agency, so 
they may not associate the entity reporting negative trade line 
information with the name of the original creditor account.\94\ While 
the industry's standard Metro 2 data furnishing format has a field for 
debt collectors to report the originating creditor associated with the 
debt, collectors may not always report the field. Separately, some 
consumers may knowingly (or with the encouragement of certain credit 
repair organizations) dispute valid collection items or judgments in 
the hopes of removing them from their credit files and increasing their 
credit scores.
---------------------------------------------------------------------------
    \93\ See The Federal Reserve, An Overview of Consumer Data and 
Credit Reporting (2003), at). 69. See also Jennifer Steinhauer, ``Money 
& Medicine; Will Doctors Make Your Credit Sick?'' The New York Times, 
February 4, 2011.
    \94\ See 12 C.F.R. Sec. 1026.39 (2012).
---------------------------------------------------------------------------
    Below, Figure 4 contains the average dispute rates of the top 100 
furnishers to two NCRAs in 2011 by furnisher size.
Figure 4: Trade Line Dispute Rates By Furnisher Size

------------------------------------------------------------------------
  Furnisher
     Size          Average Percent of Trade  Lines Disputed per Year
------------------------------------------------------------------------
Top 10                                                            0.20%
Top 11-25                                                         0.26%
26-50                                                             0.35%
51-100                                                            0.47%
------------------------------------------------------------------------
Source: Industry statistics.

    As indicated earlier, the Top 10 furnishers provide a majority of 
each of the NCRAs' trade lines. These furnishers are multi-line banks 
and financial services providers with high proportions of prime 
borrowers. Higher dispute rates among the smaller furnishers (ranked by 
the number of trade lines each furnisher reports) may reflect that more 
of them are collection agencies (a fragmented industry including many 
small firms) or have proportionately larger subprime lending portfolios 
(accounts that are more likely to be delinquent and to generate 
consumer disputes).i
---------------------------------------------------------------------------
    \i\ It should be possible to identify furnishers who are 
disproportionately responsible for tradeline disputes relative to 
furnishers of similar type and size. For example, using a common 
measure of disputes per 1000 trade lines reported, a credit card 
issuer's dispute rate could be compared to the average dispute rate for 
credit card issuers, and an overall dispersion of dispute rates. 
Furnishers who are outliers (i.e., have high dispute rates) in 
industries that have a high dispute rate dispersion among furnishers 
may be appropriate targets for a process review that may yield sources 
of reporting inaccuracies, data omissions, or billing errors that 
result in a high level of credit bureau disputes. Helping to identify 
and address these furnishers' root causes of disputes might yield a 
reduction in disputes and improvements in credit file accuracy.
---------------------------------------------------------------------------
    At present, the NCRAs do not appear to regularly measure dispute 
rates of furnished trade lines at the industry or individual furnisher 
level and they do not all measure dispute rates in a consistent 
fashion.
7.3 Resolving Trade Line Disputes: The e-OSCAR System
    The NCRAs handle most consumers' trade line disputes they receive 
through an electronic information network called e-OSCAR (the Online 
Solution for Complete and Accurate Reporting). The e-OSCAR network 
began in 1993 as a system run by the Associated Credit Bureaus, now the 
CDIA. Four companies built and still own e-OSCAR--Equifax, Experian, 
Innovis, and TransUnion. The current Internet-based system was created 
in 2001; the CDIA created the Online Data Exchange (OLDE) in 2006 to 
independently operate the system. In 2011, 16,000 furnishers connected 
to these companies through e-OSCAR.\95\
---------------------------------------------------------------------------
    \95\ Industry figures.
---------------------------------------------------------------------------
    In the last three months of 2011, 33 percent of e-OSCAR disputes 
related to claims by a consumer that an account in their file did not 
belong to them, either because of error or identity theft. In another 
15 percent of disputes, consumers claimed the information on a trade 
line was inaccurate. About 4 percent of consumer disputes involved the 
reporting of a consumer's current account balance, and another 4 
percent of disputes involved collections items about which consumers 
claimed not to be aware.\96\
---------------------------------------------------------------------------
    \96\ Id.
---------------------------------------------------------------------------
7.3.1 The Dispute Process
    According to the NCRAs, trade line disputes handled by them pass 
through five steps.

  1.  Consumer initiates a dispute and reason codes are assigned: The 
        process starts with a dispute by a consumer to one of the 
        NCRAs. Consumers can initiate a dispute online, by phone, by 
        mail, by fax, or in person. When a consumer initiates the 
        dispute online the consumer may provide a narrative description 
        of the nature of the dispute and why the consumer believes the 
        information contained in the credit report to be in error. The 
        consumer must also select one or two reason codes from a list 
        of 29 different codes that characterize the nature of the 
        dispute.\97\ In mail and phone disputes, NCRA representatives 
        will assign the dispute codes they deem appropriate and may 
        occasionally supplement the dispute code with a narrative 
        statement.
---------------------------------------------------------------------------
    \97\ Id.

  2.  NCRA internally reviews dispute: The NCRA then investigates the 
        dispute request using proprietary decision rules to see if it 
        can resolve the dispute internally without having to forward 
        the dispute to the furnisher. For example, the NCRAs will 
        internally resolve disputes they consider frivolous such as 
        resubmitted but previously resolved disputes where no new 
        information is provided.j Separately, an NCRA may 
        resolve a dispute in a consumer's favor under certain 
        circumstances, such as if the documentation provided by the 
        consumer ``can be reasonably verified as authentic.'' \98\ 
        Disputes over the consumer's identifying information (e.g., 
        name, address, SSN) also tend to be resolved internally. In 
        such cases, an NCRA may simply adopt the consumer's correction 
        or use internal or external identity verification tools to 
        evaluate the consumer's claim. The NCRAs resolved or rejected 
        an average of 15 percent of the disputes they received in 
        2011.\99\ The CFPB does not know what percentage of these 
        resolutions was in the consumer's favor.
---------------------------------------------------------------------------
    \j\ One NCRA reported that approximately 16 percent of disputes do 
not result in an e-OSCAR transaction because the consumer had 
previously submitted an identical dispute and the NCRA had recently 
forwarded the dispute to the furnisher, who had investigated and 
verified the data.
    \98\ The Federal Trade Commission and the Board of Governors of the 
Federal Reserve System, Report to Congress on the Fair Credit Reporting 
Act Dispute Process, at 14 (August 2006).
    \99\ Industry figures.

  3.  Dispute sent to furnisher: If the dispute cannot be resolved 
        internally, the NCRA will forward the dispute through e-OSCAR 
        to the appropriate furnisher with dispute codes through an 
        electronic form called automated consumer dispute verification 
        (ACDV). Supplementing the dispute code(s), the ACDV can provide 
        up to 255 characters of consumer-supplied text describing the 
        dispute in a free-form text field. In 2011, free-form text was 
        added, on average, to 26 percent of the NCRAs' e-OSCAR 
        transmission, although the percentage varies from NCRA to NCRA 
        based, in part, on whether the online form contains a text 
        field. Consumers can provide supplementary documentation (such 
        as billing or other records or letters to and from creditors) 
        regarding a dispute via mail to an NCRA, but it appears the 
        NCRAs generally do not pass these documents along to 
---------------------------------------------------------------------------
        furnishers.

  4.  Furnisher investigates and responds: The data furnisher 
        investigates the ACDV request and routes back the response 
        through e-OSCAR to the requesting NCRA. This typically involves 
        a furnisher representative reviewing the furnisher's electronic 
        records of the disputed account and then selecting a response 
        that reflects what the furnisher's records have shown. In e-
        OSCAR, furnishers can make four different types of responses: 
        (a) verify account as accurate, (b) modify account/trade line 
        information as indicated, (c) delete account, or (d) delete 
        account due to fraud.

    The CDIA reports that in a recent 120 day period in 2012, 22 
percent of furnisher responses indicated that the initial data was 
accurate (rejecting the consumer's claim), 61 percent modified a trade 
line or other piece of information, 13 percent deleted a trade line or 
other piece of information, and 0.5 percent deleted a trade line or 
other piece of information due to fraud. The NCRAs deleted or modified, 
as indicated by the consumer, 4 percent of disputed trade lines because 
the furnisher did not provide a response within the statutory time 
frame.\100\ The high percentage of furnishers who modify disputed data 
should be qualified by noting that many larger furnishers will 
automatically update a trade line with the latest account information 
(e.g., a new balance) upon receiving a dispute, regardless of whether 
the furnisher deemed reported information to be inaccurate; thus, a 
modification may not necessarily reflect concurrence with the 
consumer's dispute.\101\
---------------------------------------------------------------------------
    \100\ Industry figures.
    \101\ The Federal Trade Commission and the Board of Governors of 
the Federal Reserve System, Report to Congress on the Fair Credit 
Reporting Act Dispute Process, at 24 (August 2006).
---------------------------------------------------------------------------
    As revealed in Figure 5 below, these figures are similar to those 
reported by the CDIA to the FTC and the Federal Reserve Board for the 
first five months of 2004 in those agencies' 2006 study on the FCRA 
dispute process and in GAO testimony to Congress in 2003.\102\ The most 
significant change has been that the percentage of trade lines that 
were deleted as a result of furnishers not responding to disputes 
within 30 days has dropped from 16 percent in 2002 to 4 percent in 
2011.
---------------------------------------------------------------------------
    \102\ Stephen J. Hill, GAO Director of Financial Markets and 
Community Investment, Statement for the Record before the Committee on 
Housing, Banking, and Urban Affairs, U.S. Senate, ``Consumer Credit: 
Limited Information Exists on the Extent of Credit Report Errors and 
their implications for Consumers, GAO-03-1036T (July 31, 2003).
---------------------------------------------------------------------------
Figure 5: Dispute Results

----------------------------------------------------------------------------------------------------------------
                                                                 Percent of Disputes
              Result               -----------------------------------------------------------------------------
                                      2011 (120 Day Period)     2004 (First 5 months)    2002 (First 3 quarters)
----------------------------------------------------------------------------------------------------------------
Data modified per                                       61%                       54%                       27%
furnisher's instructions
Information verified                                    22%                       22%                       46%
as reported
Data deleted per data                                   13%                       18%                     10.5%
furnisher's request
Data deleted due to no                                   4%                        6%                       16%
furnisher response
Trade line removed                                     0.5%
due to fraud
----------------------------------------------------------------------------------------------------------------
Sources: For 2011: Stuart Pratt, President, CDIA; For 2004: The Federal Trade Commission and the Board of
  Governors of the Federal Reserve System, Report to Congress on the Fair Credit Reporting Act Dispute Process;
  For 2002: Richard Hillman, GAO-03-1036T.

  5.  Referral: If an account is modified or deleted, the furnisher is 
        supposed to send copies of its modification to each CRA with 
        whom the data furnisher has a reporting relationship. This way 
        all the NCRAs can meet their responsibilities to update the 
        consumer's credit files, where applicable.

    The CFPB has been unable to estimate the volume of disputes filed 
directly with furnishers. To date, the NCRAs report little impact from 
the Furnisher Rule on their volumes of consumer disputes.\103\
---------------------------------------------------------------------------
    \103\ In-person briefing for CFPB staff on e-OSCAR with David 
Vaughn, General Manager, Central Source LLC and Stuart Pratt, 
President, CDIA (December 5, 2011).
---------------------------------------------------------------------------
7.3.2 Limitations of the e-OSCAR Process
    Consumer advocates have raised compliance concerns with respect to 
the adequacy or completeness of these transmissions to furnishers, 
which are principally dispute codes along with supplementary text added 
in a minority of cases. The FCRA requires NCRAs to send the data 
furnisher a notice that includes ``all relevant information regarding 
the dispute that the agency has received from the consumer.'' \104\ The 
NCRAs argue that most disputes can be fairly and completely summarized 
using the e-OSCAR numeric codes. The e-OSCAR system currently does not 
permit documents provided by consumers, such as statements or letters 
from creditors, to be forwarded to furnishers as attachments. Industry 
sources cited technological limitations, challenges evaluating the 
authenticity of consumer documents, and privacy concerns as impediments 
to adding such attachments.
---------------------------------------------------------------------------
    \104\ 15 U.S.C. Sec. 1681i (a)(2)(B) (emphasis added).
---------------------------------------------------------------------------
    Consumer advocates further argue the NCRAs have a systemic bias 
that defers to furnishers' records in determining whether or not 
disputed information is accurate.\105\ They note that if a furnisher 
verifies previously reported information as accurate, the NCRAs will 
generally accord such a response greater weight than the consumer's 
claims that the information is inaccurate. Likewise, when the furnisher 
responds that the account should be modified, deleted, or deleted due 
to fraud, the NCRAs generally implement these responses as received. 
The advocates argue that NCRAs do not independently validate 
information contained in furnishers' records.
---------------------------------------------------------------------------
    \105\ National Consumer Law Center, Automated Injustice: How a 
mechanized dispute system frustrates consumers seeking to fix errors in 
their credit report, at 23 (January 2009).
---------------------------------------------------------------------------
    However, the NCRAs have had occasion to adopt policies to suppress 
information that is subject to high levels of disputes. For instance, 
one NCRA developed special policies to address problems with certain 
disputes about small dollar collection items.
7.4 Public Record Disputes
    Consumers' disputes regarding the accuracy of public records in 
their personal credit files are not investigated through the e-OSCAR 
system. The NCRAs initiate their investigation of a public record 
dispute by again collecting the public record directly from the 
government source or, at their election, contracting for LNRDRS to 
conduct this re-checking of the record. LNRDRS collects a combined 1-2 
million public records annually at the NCRAs' request.l
---------------------------------------------------------------------------
    \l\ It is not known how many consumers generate these 1-2 million 
public record reviews as the average number of disputes per consumer 
file is unknown. It is also possible that consumers dispute the same 
public record with multiple NCRAs.
---------------------------------------------------------------------------
    When forwarding a dispute verification query to LNRDRS, the NCRAs 
provide the company one of up to 24 reason codes explaining the 
consumer dispute. In about 60 to 70 percent of the requests that LNRDRS 
receives from the NCRAs for verification, the consumer asserts that the 
public record is not his/hers. In another 20 to 25 percent of the 
disputes, a consumer asserts that he or she has paid the judgment or 
lien.\106\
---------------------------------------------------------------------------
    \106\ Industry figures.
---------------------------------------------------------------------------
    In response to a dispute verification query related to the status 
of a public record, LNRDRS will typically send a data collector to the 
public record source to re-check the record and look for updates. 
LNRDRS will then report one of three statuses back to the NCRA: (1) 
status has changed (e.g., lien paid off); (2) status is unchanged 
(e.g., current record remains most accurate); or (3) unable to verify. 
LNRDRS does not verify the content of the underlying public record as 
accurate or determine if an NCRA appropriately linked the record to a 
consumer. In the case of public records, the NCRAs retain 
responsibility for determining whether a public record should or should 
or not be attached to a consumer's file.
    According to LNRDRS, it performs public record re-checks at the 
request of the NCRAs, typically within five business days. LNRDRS 
reports that in 99.5 percent of all dispute verification queries it 
handles on behalf of the NCRAs, it is able to locate the record at 
issue, re-check it, and respond to the request. Time lags are a factor 
in many public record complaints as it reportedly can take, on average 
in some state courts, two months between the time of a judgment and its 
transcription into a public record.\107\
---------------------------------------------------------------------------
    \107\ Id.
---------------------------------------------------------------------------
8. Monitoring and Measuring Credit Reporting Accuracy
    In consideration of the importance of data accuracy to consumers 
and to decision makers using credit reports, there have been several 
recent initiatives to measure credit report accuracy.
8.1 The FTC's National Study of Credit Report Accuracy
    The FTC is expected soon to complete a decade-long study on credit 
report accuracy that the agency was mandated to undertake in FACTA. At 
the end of 2012, the FTC expects to issue its fifth interim report of 
its ``National Study of Credit Report Accuracy.'' The FTC expects to 
issue a final report in 2014. It will attempt to estimate the 
proportion of credit files that contain material errors, identify the 
main types of errors and their frequency, as well as their impact on 
consumers' credit scores and hence the errors' impacts on affected 
consumers' access to and cost of credit. To accomplish this, the study 
has recruited 1,000 consumer participants randomly selected from across 
the country who have reviewed their reports from the NCRAs with experts 
who help them understand their report, identify errors, and distinguish 
material from non-material errors (in terms of potential impact on the 
consumers' credit scores). Identified errors have been submitted to the 
respective NCRAs as disputes for resolution. Reinvestigation resolution 
results will be indicative of the overall error rate of trade lines and 
public records, and the percentage of credit reports containing 
corrected errors will indicate the overall rate of credit report 
accuracy. Further, credit reports containing corrections will be re-
scored and differences between credit scores pre-and post-correction 
will provide an indication of the materiality of the credit report 
errors.
8.2 Industry Research
    In May 2011, the Policy & Economic Research Council (PERC) 
published a report commissioned by the CDIA, which generally followed 
the FTC's planned methodology, with significant differences in sample 
selection. Further, compared to the FTC study, the participating 
consumers in the PERC study were not provided in-person coaching to 
identify errors. The PERC study found that a sample of 2,338 consumers 
viewing their credit reports identified potential errors in 19 percent 
of credit reports.\108\ Of the potential inaccuracies, 37 percent were 
about ``header'' information that would not affect a consumer's credit 
score.\109\ Consumers chose to dispute one or more pieces of trade line 
information for 7.4 percent of credit reports.\110\ In 45 percent of 
the consumer disputes, the consumers' trade lines were modified. In 
another 41 percent of the consumer disputes, the disputed trade lines 
were deleted.\111\ The study defined corrections leading to a 25 point 
or more change in the consumer's VantageScore as a material correction 
that could shift the consumer's score into a different pricing tier. 
The resultant CRA corrections in the relevant trade line information 
resulted in credit score increases of 25 points or more in 0.93 percent 
of credit reports examined or 10 points or more in 1.78 percent of the 
credit reports examined.\112\ Extrapolating to one estimate of the U.S. 
credit-scoreable population, approximately 3 million Americans would 
experience score increases of 10 points or more if they reviewed and 
disputed inaccuracies in their credit reports.\113\
---------------------------------------------------------------------------
    \108\ Michael A. Turner, PhD et al., U.S. Consumer Credit Reports: 
Measuring Accuracy and Dispute Impacts, the Policy & Economic Research 
Council (PERC), at 33 (May 2011).
    \109\ Id. at 37.
    \110\ Id. at 38.
    \111\ Id. at 39.
    \112\ Id. at 43.
    \113\ This calculation assumes that 200 million Americans have 
credit reports, and of these, 32 million have files that are too thin 
to score. Information Policy Institute, Giving Underserved Consumers 
Better Access to the Credit System: The Promise of Non-Traditional 
Data, at 7 (July 2005).
---------------------------------------------------------------------------
8.3 Consumer Advocate Sponsored Research
    A consumer group-sponsored study produced different results. A 2004 
survey by the U.S. Public Interest Research Group (PIRG) of its own 
members concluded ``twenty-five percent (25 percent) of the credit 
reports surveyed contained serious errors that could result in the 
denial of credit, such as false delinquencies or accounts that did not 
belong to the consumer.'' \114\ The results of the survey must be 
qualified considering the small sample size (154 respondents) and the 
potential biases in the selection of the respondents (surveys were 
filled out by PIRG staff, coalition partners, friends and family).\115\
---------------------------------------------------------------------------
    \114\ Allison Cassady and Edmund Mierzwinski, Mistakes do Happen: A 
Look at Errors in Consumer Credit Reports, National Association of 
State PIRGs, at 4 (June 2004).
    \115\ Id. at 16.
---------------------------------------------------------------------------
8.4 Future Accuracy Measurement and Related Metrics
    Ongoing efforts to measure credit report accuracy will likely 
continue to rely on consumers to identify potential inaccuracies in 
their credit reports and to rely on the dispute resolution system to 
validate that inaccuracies have occurred. Because information contained 
in credit files originates from diverse sources such as furnishers, 
consumers (who respond to lender applications with certain personal 
information), or public records providers, there is no single source of 
comprehensive and reliable data regarding the precise identities of 
consumers or the status of their credit relationships. For this reason, 
efforts to measure overall credit report accuracy have necessarily 
involved review of credit reports and individual trade lines by 
consumers themselves who are most likely to know when information 
reported about them is correct or incorrect, although consumers may not 
always interpret their reports correctly.
    Further, the consumer dispute process will not identify or 
ameliorate certain types of errors that may be associated with the NCRA 
matching processes. For example, it is difficult for consumers to 
identify when their personal information is diverted to an ``orphan'' 
file because consumers wouldn't see such information in a file 
disclosure. Additionally, trade lines inaccurately associated with a 
consumer's files due to mismatching of consumers with similar 
identifying information have high likelihoods of being confirmed as 
accurate by furnishers. Finally, to the extent matching processes used 
to compile credit reports yield different results in reports provided 
to users from file disclosures provided to consumers (e.g., because 
lenders and other users may provide more limited consumer-identifying 
information in their inquiries) it is possible that consumers and users 
may not always receive the exact same information.
    On July 20, 2012 the CFPB published its larger participant rule 
permitting it to supervise companies with annual receipts from 
``consumer reporting,'' as defined in the rule, of over $7 million. 
That rule became effective on September 30, 2012. In announcing the 
Bureau's new authorities, Director Richard Cordray indicated that the 
agency would treat as its initial priorities in examining consumer 
reporting agencies for compliance with the FCRA and other consumer 
financial protection laws ``accuracy of the information received by the 
credit reporting companies, their accuracy in assembling and 
maintaining that information, and the processes that govern error 
resolution.'' k The CFPB is also now accepting consumer 
complaints about credit reporting, giving consumers individual-level 
complaint assistance for the first time at the Federal level with 
consumer reporting agencies. Finally, as part of its supervision of 
large financial institutions, it is examining the consumer reporting 
practices of the furnishers that are responsible for a preponderance of 
information contained in credit reports. These efforts will give the 
CFPB an opportunity to further evaluate the potential roles of credit 
report accuracy measurements and of metrics related to the NCRAs' and 
furnishers' various business processes in improving overall accuracy in 
the U.S. credit reporting system. As appropriate, the CFPB may consider 
the development and implementation of data quality and accuracy metrics 
to reduce risk to consumers and assure compliance with FCRA 
obligations.
---------------------------------------------------------------------------
    \k\ http://www.consumerfinance.gov/speeches/prepared-remarks-by-
richard-cordray-on-credit-reporting/.
---------------------------------------------------------------------------
Glossary
    CDIA--Consumer Data Industry Association. The CDIA is an 
international trade association that represents consumer data companies 
including the nationwide consumer reporting agencies.
    Consumer Report--Reports provided by consumer reporting agencies to 
lenders and other users. The FCRA defines a consumer report as ``any 
written, oral, or other communication of any information by a consumer 
reporting agency bearing on a consumer's credit worthiness, credit 
standing, credit capacity, character, general reputation, personal 
characteristics, or mode of living which is used or expected to be used 
or collected in whole or in part for the purpose of serving as a factor 
in establishing the consumer's eligibility for (A) credit or insurance 
to be used primarily for personal, family, or household purposes; (B) 
employment purposes; or (C) any other purpose authorized under section 
604 [of the FCRA].'' The FCRA provides a limited number of exclusions 
to this definition.
    Consumer Reporting Agency--The FCRA defines a consumer reporting 
agency (CRA) as ``any person, which, for monetary fees, dues, or on a 
cooperative nonprofit basis, regularly engages in whole or in part in 
the practice of assembling or evaluating consumer credit information or 
other information on consumers for the purpose of furnishing consumer 
reports to third parties, and which uses any means or facility of 
interstate commerce for the purpose of preparing or furnishing consumer 
reports.''
    Credit File/Consumer File--The information about a consumer that is 
contained in the databases of credit reporting agencies. According to 
the FCRA, the term ``file,'' when used in connection with information 
on any consumer, means all of the information on that consumer recorded 
and retained by a consumer reporting agency regardless of how that 
information is stored.
    Consumer File Disclosure--Information provided to a consumer when 
that consumer requests a copy of the information in his or her file at 
the NCRA.
    Credit Report--Popular term for consumer reports used or purchased 
by lenders.
    Credit Reporting Agency/Credit Bureau--Popular term for consumer 
reporting agencies in the business of providing consumer reports to 
lenders.
    ECOA--Equal Credit Opportunity Act.
    e-OSCAR--The Online Solution for Complete and Accurate Reporting. 
Web-based computer software system used by Equifax, TransUnion, 
Experian, and Innovis to communicate with furnishers about consumer 
disputes.
    FCRA--Fair Credit Reporting Act.
    Furnisher--Generally refers to an entity that provides information 
relating to its own transactions or experiences with consumers to one 
or more consumer reporting agencies for inclusion in consumer reports.
    Inquiry--A request for a consumer report.
    Metro 2--The industry standard format for furnisher data 
contributions created in 1997 by the CDIA on behalf of Equifax, 
TransUnion, Experian, and Innovis.
    NCRA--Nationwide consumer reporting agency. For the purpose of this 
paper, an NCRA means Equifax, Experian, or TransUnion.
    Public Record--Generally, a record that a governmental body is 
required to maintain, and which must be accessible to scrutiny by the 
public. Definitions of public records can vary by federal, state, or 
local jurisdiction.
    Reinvestigation--An investigation by a consumer reporting agency or 
a furnisher into the accuracy or completeness of information in a 
consumer's credit file in response to a consumer dispute of such 
information.
    Trade Line--Information furnished by a creditor to a consumer 
reporting agency that reflects the consumer's account status and 
activity. Trade line information includes the name of companies where 
the applicant has accounts, dates accounts were opened, credit limits, 
types of accounts, balances owed and payment histories.
Appendix
e-OSCAR Dispute Codes
    The 29 e-OSCAR dispute codes are as follows:

   Not his/hers

   Belongs to another individual with same/similar name

   Not aware of collection

   Late due to change of address--never received statement

   Settlement or partial payment accepted

   Claims paid the original creditor before collection status 
        or paid before charge-off

   Credit limit and/or high credit amount incorrect

   Included in the bankruptcy of another person

   Claims account closed

   Claims account closed by consumer

   Contract cancelled or rescinded

   Account included in bankruptcy

   Claims active military duty

   Insurance claim delayed

   Account involved litigation

   Claims victim of natural or declared disaster

   Claims account deferred

   Not liable for account (i.e., ex-spouse, business)

   Account reaffirmed or not included in bankruptcy

   Claims true identity fraud, account fraudulently opened

   Claims account take-over, fraudulent charges made on account

   Disputes dates of last payment/date opened/date of first 
        delinquency/date closed

   Disputes present/previous account status/payment history 
        profile/payment rating

   Disputes special comment/compliance condition code/narrative 
        remarks

   Disputes account type or terms duration/terms frequency or 
        portfolio type disputed

   Disputes current balance

   Claims company will change

   Claims company will delete

   Consumer states inaccurate information

    Senator McCaskill. Thank you.
    I'm going to start a tradition on this committee. Because 
I'm thrilled that other members of the Committee have come, I'm 
going to defer my questioning until after all the members have 
had an opportunity to question, following the lead of Senator 
Nelson in his Committee on Aging. He's doing the same thing, 
and I thought that was a good example he set for all of us.
    So I will turn to Senator Heller first for questions.
    Senator Heller. Madam Chairwoman, thank you.
    Mr. Stone, I have a couple questions for you regarding the 
amount of information that you guys collect, basically in real 
time, and that your examiners are going to financial 
institutions and are asking for customer files, purchasing 
credit reports, asking banks to submit consumer accounts, and 
on a voluntary basis they're collecting data when a consumer 
files a complaint with the CFPB.
    Here's my question: when the CFPB purchases credit reports 
and when they ask banks to submit customer accounts, what is 
the CFPB doing to ensure that this information does not become 
identifiable?
    Mr. Stone. There are two different processes at work here. 
We purchase a set of anonymized credit report data, as do the 
Federal Reserve and the New York Fed, for research purposes. 
It's a sample of consumers who we can track over time who are 
representative of the general population, and so we can see how 
consumers are doing. There is no information about the 
individual consumer, such as name or address, so there is no 
way that that information could be traced back to the 
individual consumer.
    We have separate databases, which we obtain through 
supervision, such as one that is also used by the OCC to track 
the credit card industry. That database is similarly 
anonymized. It does provide account-level data, but we don't 
know who the individuals are.
    Senator Heller. It's also my understanding that the CFPB 
collects all this consumer data and assigns a unique number to 
that file, and obviously connected with that file would be an 
individual's American Express card, Mastercharge card, Visa 
card, student loan accounts, checking accounts, mortgages, and, 
frankly, your credit report.
    So with all that information that's contained in these 
accounts and the amounts, is it easy to identify these 
individuals?
    Mr. Stone. We have done everything we possibly can to not 
be able to identify them. So the unique number is simply to 
allow us to track the existence of a particular person for data 
analysis purposes so when new trade lines come in or other data 
is appended to that data set we can marry them to the same 
individual. We never see information that would allow us to 
identify the individual, and we never receive information that 
would identify their card or other accounts.
    Senator Heller. What keeps the agency from sharing this 
information with other government agencies?
    Mr. Stone. In the case of the first type of database, we 
have the information under license solely for research 
purposes, and we would only share findings from the analysis of 
this information; our license agreements with the providers 
prohibit sharing of the underlying data. In the case of data 
collected through supervision, we accord these the protections 
we place on all confidential supervisory information.
    Senator Heller. Thank you.
    To the other witness: Thank you for being here also. When 
you have credit histories for over 200 million people--you 
touched on this a little bit in your testimony about what an 
individual can do--we sit here and ask what the agencies can 
do--to make sure that these reports are accurate. Explain again 
what an individual can do and what it would take?
    In other words, I don't think the average American today 
knows that they can check on their credit history or that they 
have influence with the CRAs out there. Please explain again, 
what's the best step a consumer can take to protect their 
credit records?
    Ms. Mithal. Several steps. First, we recommend that they go 
to annualcreditreport.com. Each of the three major credit 
bureaus must provide a copy of their free annual report to each 
consumer once a year. So we think that's the best way to 
proactively take a look at their credit report, try to spot any 
errors, and if they see any errors they should dispute those 
errors with the credit bureau.
    Senator Heller. Is there an expense to that?
    Ms. Mithal. No. No, there's no expense to that.
    One of the things that we try to do at the FTC is we try to 
educate consumers about that process. So we have a lot of 
materials on our website about how to file disputes. We have 
sample dispute letters. And as I mentioned in my testimony, we 
try to get out to local organizations so that people on the 
ground who are really trying to help consumers will be able to 
have those tools and help consumers that need the help.
    Senator Heller. What can we do more? What can we do more to 
let consumers know that they have access to this kind of 
information?
    Ms. Mithal. I think we can do more outreach. I think we can 
always do a better job of reaching out to community 
organizations, financial institutions, and others to try to get 
the word out to consumers, so that--currently only 20 percent 
of the consumers may be checking their credit reports regularly 
and we need to get that number higher.
    Senator Heller. I agree, I agree.
    Thank you, Madam Chairwoman.
    Senator McCaskill. Senator Schatz.

                STATEMENT OF HON. BRIAN SCHATZ, 
                    U.S. SENATOR FROM HAWAII

    Senator Schatz. Thank you, Chair McCaskill.
    Good afternoon. Thank you for testifying.
    Mr. Stone, it's not clear to me at all that consumers have 
any degree of control over the information that's gathered 
about them, how it's used and how it's shared. And even with 
the right to a free annual credit report, consumers seem to 
lack the basic knowledge of how this information is going to be 
used by lending institutions, employers, landlords, and 
insurance companies.
    If a consumer had access to his or her credit report, would 
the consumer be able to tell what his or her credit score is?
    Mr. Stone. Right now the FCRA gives the consumer the 
ability to purchase a score, but you don't automatically get a 
score when you obtain your free annual credit report at 
annualcredit
report.com.
    Senator Schatz. So given the sort of lack of basic 
understanding among the general public about the implications 
of having flaws on your credit report and therefore a lower 
credit score, doesn't it make sense to have this as an annual 
free package, a credit report with your score, so you can 
better understand how creditworthy you are and how to remedy 
whatever problems there may be?
    Mr. Stone. I can certainly say that having a credit score 
is helpful and there is a nice piece recently from the Federal 
Reserve Bank of Boston that showed that people who knew their 
credit score were able to make better decisions about credit.
    As far as having access to a credit score be free as part 
of the package, I think right now that's a legislative issue 
that I really can't comment on.
    Senator Schatz. Thank you.
    Another question for you, Mr. Stone. As you outlined in 
your testimony, the CFPB report identified several flaws in the 
credit dispute procedures that CRAs have in place. As you 
mentioned 85 percent of consumer disputes to data furnishers--
excuse me. CRAs automatically send 85 percent of consumer 
disputes to data furnishers without conducting any 
investigation themselves. Second, CRAs accept the determination 
of the furnisher without requiring any documentation or 
evidence.
    I understand CFPB has a successful mechanism for handling 
consumer complaints with respect to mortgage lending and credit 
cards. Perhaps you could briefly explain how that process works 
and whether it might be applicable to credit reports?
    Mr. Stone. Sure. Thank you, Senator. We rolled out a 
process for accepting credit reporting complaints in October of 
last year that is working essentially on the same platform as 
our complaint-taking in mortgage and credit cards. The way that 
system works now is we receive the complaint, we verify that 
the consumer has a bona fide relationship with the entity about 
whom the complaint is, and then forward it to that company. So 
we do that now with credit reporting complaints.
    As of the end of April, we've received over 10,000 credit 
reporting complaints and we've obtained resolutions on most of 
those. There's about a 60-day lag that we allow for 
resolutions.
    Senator Schatz. OK. Talk to me about these specialty CRAs 
that compile and share consumer data without sufficient 
oversight? I understand both FTC and CFPB have begun the 
process of, would it be correct to say, inventorying who they 
are and how they're operating? Maybe both of you could 
articulate what the process is going to be to kind of inventory 
who these institutions are, how they're operating, and how 
they're going to fit into either the existing or future 
regulatory framework?
    Mr. Stone. Sure. Shall I start? There are a number of so-
called nationwide specialty consumer reporting agencies that 
maintain national databases on things other than credit. An 
example would be auto driving records. Another would be 
checking accounts. Another would be tenant rental history.
    Senator Schatz. Excuse me. Does the consumer have any right 
to know what this information is or who it's being transmitted 
to?
    Mr. Stone. All of the same rights that are accorded 
consumers with respect to the credit reporting agencies also 
are accorded under the Fair Credit Reporting Act to these 
others. So it includes the right to dispute, it includes the 
same right to obtain a free copy each year of your consumer 
report. In fact, last year the CFPB published a list of who 
these national specialty consumer reporting agencies are, where 
to go to get their free annual reports, and how to dispute. 
Also, we sent letters to a few of those companies that did not 
appear to be adhering to all of the requirements to make the 
free reports available or to make it clear how to dispute. So 
we certainly treat those as part of our FCRA oversight 
responsibilities.
    Senator Schatz. Thank you.
    Ms. Mithal. I'll just add one thing. We actually do treat 
the nationwide specialty CRAs very similarly to how we treat 
the big three. So for example, last year we sued a CRA that was 
engaged in employment background screening, and they were 
providing employers with inaccurate information. So for 
example, it might look like I have a criminal record, but that 
record had actually been expunged and they hadn't reported the 
expungement to the employer. So we sued that company and we 
were able to get $2.6 million in civil penalties.
    We also issued warning letters to data brokers that engage 
in tenant screening. So they compile information about rental 
histories and sell it to landlords. We sent them letters saying 
that they were likely subject to the FCRA and if they weren't 
maintaining accuracy of this information and allowing dispute 
rights they were likely violating the FCRA.
    Senator Schatz. Thank you.
    Senator McCaskill. Senator Klobuchar.

               STATEMENT OF HON. AMY KLOBUCHAR, 
                  U.S. SENATOR FROM MINNESOTA

    Senator Klobuchar. Thank you very much, Chairman. Thank you 
for holding this hearing. I've actually heard a trail of tears 
in my state about this problem. I met with a number of the 
victims. We've had anyone from a math teacher who's gotten 
ripped off to a small town jewelry store owner who actually 
started with a credit report that reflected that she'd missed 
three mortgage payments. It was completely inaccurate. And then 
what happened was that it affected her interest rates on her 
credit cards, her auto insurance went up, and it ultimately 
affected her business.
    Our office has personally been handling a number of these 
cases where people unbeknownst to them have an error on their 
report and then it affects them in their rates. Many of them, 
it takes a year or 2 years to actually get back to where they 
were.
    So it's a ridiculous situation for my mind, in this day of 
technology and accountability, that shouldn't be happening. I 
appreciate your work on this. I've actually a few months ago 
sent a letter to the CEO's of the major credit reporting 
agencies asking them to fix this. We're still working through 
this with them. I appreciate the updates today, but clearly 
this isn't still solved.
    Mr. Stone, you mentioned in your testimony that CFPB has 
adopted a rule just last July extending the supervision 
authority to cover large credit reporting companies. Your 
testimony noted that there are three key factors impacting 
credit reporting accuracy: one, information provided to the 
companies; two, how the credit reporting companies process it; 
and then, three, how they handle customer disputes.
    Have you started this supervision program in this market of 
the credit reporting agencies, and which of these three factors 
do you think needs the most improvement?
    Mr. Stone. I would like to point out we actually started 
examining non-CRA's prior to the creation of our larger 
participant rule. So we actually have been looking at 
furnishing practices, the first of those three legs, for some 
time and have actually found some practices that we've obtained 
corrections for.
    The other two obviously are part of something that the 
consumer reporting agencies cover and our supervision program 
in this market is under way.
    Senator Klobuchar. So is it going on right now and you're 
identifying what the problems are? What's happening?
    Mr. Stone. Yes.
    Senator Klobuchar. OK. And then what happens next? Are you 
going to put out some best practices or find out if people are 
violating the rules?
    Mr. Stone. Each of these processes--and I can talk maybe a 
bit about the dispute process--has a number of components 
associated with them. The dispute process involves both the 
CRAs and furnishers, and consumers can file a dispute with both 
the CRA and directly with the furnisher. We want to make sure 
that both all of the relevant information that the consumer 
provides, is being forwarded on to the furnisher when it's a 
furnisher issue, and that the furnisher does conduct a thorough 
investigation.
    Senator Klobuchar. How about when an error is found? Is the 
agency doing something to help them get back on their feet? I 
know there are lawyers in my state that are starting to create 
practices around this because of the errors, so that they can 
get reimbursement for these people.
    Mr. Stone. One of the key things to look for is when an 
error is found, to make sure that the system of recordkeeping 
inside the creditor, servicer, or whoever the furnisher is, 
maintains the correction. Sometimes in the past a correction is 
reported, but the underlying recordkeeping system didn't 
include the correction, and so the next time, the next month 
when the data's refreshed, it can go back. So we definitely 
want to look for a thorough incorporation of the correction in 
the records of the furnisher.
    Senator Klobuchar. Thank you.
    Is it ``MITH-al'' or ``Mith-ALL''?
    Ms. Mithal. ``MITH-all.''
    Senator Klobuchar. ``MITH-all,'' very good. I've got a 
harder name than that, so don't worry about it.
    In your view, are the credit reporting agencies doing 
enough right now? That was what my letter was about? One of the 
common complaints is that when consumers do dispute an error, 
they will take it in, the credit reporting agencies just take 
it in, but then we don't even know if they're doing any real 
investigation. Do you think that's a real problem?
    Ms. Mithal. I think, in answer to your first question, I 
think we all could be doing more to improve accuracy of credit 
reports. I think credit reporting agencies need to make sure 
that they're living up to the standards under the law of 
maintaining maximum possible accuracy of credit report 
information. I think furnishers need to do a good job of 
ensuring that they're only providing information when they have 
a reasonable basis to believe it's accurate. I think we as 
policymakers can do a better job of educating consumers.
    I think, to your second question, if the consumer reporting 
agency is not doing a reinvestigation, if they're not passing 
on the information to the furnisher, if they're not promptly 
reporting back to the consumer and correcting the error, then 
they would be in violation of the law and we'd certainly want 
to hear about a company that was doing that.
    Senator Klobuchar. OK, very good.
    Thank you to both of you. I'm sure you'll be hearing more 
about this. I've assured--I just told the people in my State 
we're not going to keep letting this go. So thank you.
    Senator McCaskill. Senator Nelson.

                STATEMENT OF HON. BILL NELSON, 
                   U.S. SENATOR FROM FLORIDA

    Senator Nelson. Thank you, Madam Chairman.
    Well, I can give you a personal example about the excellent 
questioning of my colleagues here. Lo and behold, when I was 
going to do some refinancing a couple of years ago on a home, I 
suddenly found that I had purchased a refrigerator in Wisconsin 
and hadn't paid on it for over a year. Well, of course, you 
know, that held up the financial transaction. We got it all 
straightened out, but it took some haranguing to get it----
    Senator Klobuchar. Madam Chair, there are a lot of Nelsons 
in the Upper Midwest.
    Senator Nelson. That's true, probably a lot of Bills as 
well. [Laughter.]
    Senator Nelson. Then about a year later, I'm getting ready 
to purchase and getting the financing on another home that 
Grace and I had moved in, and we're ready to close and, lo and 
behold, the same thing that was eliminated by --it was one of 
the three. Do we know the name? One of the three credit 
reporting agencies. They never had taken it off, and there it 
is and we're ready to close.
    Of course, not paying on a bill for over a year is going to 
drastically affect your credit score, even though I'd cleared 
it up a year ago that this wasn't me. It was a mistake in 
identity.
    So I want you--if this is happening to me, what is it doing 
to the average citizen out there on the street that doesn't 
know how to go about straightening out something like this?
    I want to ask you about something else. Under the Fair 
Credit Reporting Act, all credit files should be reported 
accurately; isn't that correct?
    Mr. Stone. That's correct.
    Senator Nelson. OK. If a person goes into foreclosure, 
someone--indeed, that will be noted and it will affect their 
credit, will it not?
    Mr. Stone. Absolutely.
    Senator Nelson. Then I would ask both of you all as the 
regulators, why are people who don't go into foreclosure, but 
go into a short sale, which the government, this government, 
under law that we have passed, actually encourages and even 
encourages with some tax incentives, why is a short sale being 
coded in the credit reporting agencies the same as a 
foreclosure? And it's happening in my State right now. Why?
    Mr. Stone. Short sales is a relatively new phenomenon and 
it is important that it be reported accurately because Fannie, 
Freddie, the GSEs, and the FHA treat those differently in their 
underwriting system. So if they can't distinguish between a 
short sale and a foreclosure, somebody who's had a short sale 
will be treated as if they had a foreclosure.
    The coding of this information is coming into the three 
credit bureaus from furnishers in identical files, but it's our 
understanding that the problem lies somewhere between how the 
different bureaus code this information in their reports and 
how the GSEs' underwriting systems interpret these reports. 
This is something we've talked to the Consumer Data Industry 
Association about and you can ask Mr. Pratt, the next witness, 
a little bit more.
    Senator Nelson. I don't know what you just said. My 
question was, why is a short sale being coded the same and you 
all as the regulators are allowing it to be coded the same as a 
foreclosure, which is a completely different breed of horse?
    Mr. Stone. Right now there is a special treatment for short 
sales that does code them differently, but not in the same way 
that other kinds of ends of loans are coded. This is a 
technical aspect that I think Mr. Pratt will be able to shed 
more light on. But right now some of the credit reporting 
agencies do report this information accurately from the 
information they receive, but in other cases----
    Senator Nelson. They haven't been in Florida. And you're 
the Consumer Finance Protection Bureau. You're supposed to be 
protecting consumers. You're supposed to be seeing that fair 
trade is going on. Here we have a new phenomenon. We have a lot 
of mortgages under water. People still want to sell their 
homes. You get into a State like mine where 40 percent of all 
the mortgages in the State are under water, and you want 
commerce to continue. You want to get the economy to recover.
    So why then penalize the poor person--and we've seen this 
over and over in Florida. Why penalize them because they've 
done something we've encouraged and then they have their credit 
completely blown, and they can't refinance?
    Mr. Stone. We agree with you, Senator, that foreclosures 
and short sales should be clearly distinguished in credit 
reports. We've become aware of this problem and we're trying to 
track down exactly how to fix it. And we'll have to be back to 
you on how we progress.
    Senator Nelson. Here's what I would encourage you to do, 
since you're supposed to be protecting the consumer, and so are 
you, too. I have just called this attention to your respective 
chairmen, Mrs. Ramirez and Mr. Cordray, and I would appreciate 
it if you all would stop this nonsense and get it coded 
correctly so that our people are not being penalized. Thank you 
very much.
    Ms. Mithal. Thank you.
    Senator McCaskill. What I want to get at is this free 
credit report problem that we thought we'd solved. Sitting 
here, I thought I would pull up freecreditreport on my handy-
dandy little Apple gadget here. Of the 15 responses to ``free 
credit report'' on my Google search, 8 of them represented one 
company, owned by one of the three credit reporting agencies.
    What was really disconcerting about this is what they've 
clearly done is they've gone from marketing primarily 
freecredit
report.com--that's the company that's owned by Experian, I 
believe--they've gone from marketing that to now marketing 
``free credit score,'' to get around us telling them, you can't 
do this any more, you can't rip people off and act like you're 
giving them something free when you're not, when in reality 
they can really get it for free.
    So I don't know why this is legal, this page, because it 
says ``Get your free credit report delivered in two days.'' So 
when I was up in my office a few minutes ago, I tried to do 
that. Well, they want my e-mail address. They won't process my 
request to get my free credit report without my e-mail address. 
I don't remember saying in the law that you had to give your e-
mail address to be able to get a free credit report.
    Then you have to wait 2 days for it. But if you want to pay 
them a dollar, you can get your credit report and score right 
now.
    So I started filling out to get my free credit report in 2 
days with Experian's company and found out when I checked their 
ad targeting policy that of course they want you to get your 
free credit report through them because they're going to get 
your Social Security number, and their ad targeting policy 
means that they can sell your information to whoever they want, 
including third parties.
    So what was supposed to be an effort to allow consumers to 
access their credit report free, they have now discombobulated 
into a new marketing scheme to either grab your data, which is 
very valuable, and sell it or sign you up for $19.99 a month or 
$14.99 a month. And by the way, there was like seven different 
entries on this Google page, all going back to the same 
company.
    Now, there were a couple that did the right thing. Equifax, 
when you pull it up it actually says you're entitled to a free 
report at annualcreditreport.com. One of them, Credit Karma, 
said, well, the government is limited to how much they can give 
you, so you need to give us your money every month because we 
can track everything bad that's happening to you.
    What are we going to do about this? What do we need to do 
to shut this down? Because this is not what we wanted to have 
happen. We wanted everyone to have clear, disclosable 
information that they understood, that they didn't have to pay 
anybody squat to get their credit report. And these people are 
continuing to use this to mislead people, and I want to know 
what you guys can do about it.
    Ms. Mithal. If I could just make two points in response. I 
think the first is the rule--I know that Congress was aware of 
this problem and Congress passed a law to try to address it. 
The rule implementing that law says that if you sell free 
credit reports that are bundled with other products that the 
consumer has to pay for, then you have to have a disclosure 
saying that the consumer should be referred to 
annualcreditreport.com. As you point out, there are a lot of 
things that companies have done to try to get around this 
requirement.
    I think that brings in the second point, which is a broader 
point that we've made at the FTC, which is about getting 
people's personal data without informing them of what's 
happening. So we issued a privacy report in March of 2012 
basically saying that all companies, not just credit bureaus 
but all companies, should be transparent about their data 
collection practices and should provide consumers with choices, 
and they should also limit the amount of data they collect to a 
purpose that's appropriate for what they're trying to do for 
the consumer.
    So I think one of the things that we recommend in our 
privacy report was general privacy legislation implementing 
those principles. So I think that might help. But I understand 
your concern, Senator, and we share it.
    Senator McCaskill. Shouldn't this--shouldn't we have--you 
need to let us know how we need to correct the legislation to 
stop this, because this is what we were trying to stop in the 
first place and they're still doing it. This hasn't had any 
impact, and obviously they're the big dog. They've got eight of 
the searches out of the 15 on the page is one company. They're 
``Free Credit Report,'' they're ``Free Credit Score.'' They've 
got five or six different names, but it all is the same company 
and it's all one of the big three.
    They know exactly what they're doing, and they got their 
lawyers to figure out how to get around the rule to avoid the 
exact purpose that we passed the law in the first place.
    You're telling me you don't have the tools to stop this 
right now; is that correct?
    Ms. Mithal. That's correct.
    Senator McCaskill. Do you believe the same thing is true, 
Mr. Stone?
    Mr. Stone. I don't at this point. I will say that the 
fulfillment of the obligation to make a free credit report 
available by a CRA is something that falls under our 
supervision program. If there are practices that mislead a 
consumer into thinking they're getting the report to which 
they're entitled, those are something that we're going to look 
at quite hard.
    I think one of the hard things about this particular 
practice is you can encode it in a word, like ``free credit 
report,'' and you can migrate to ``free credit score'' and 
you've avoided the rule. So there may be room for a broader 
principle here.
    Senator McCaskill. Mr. Stone, do you have jurisdiction over 
FICO, the company that does FICO?
    Mr. Stone. Our larger participant rule pertains to any 
company, or larger participant, that either compiles or 
analyzes consumer information for purposes of providing it to a 
third party for making a decision.
    Senator McCaskill. OK, so you do? That was a yes?
    Mr. Stone. Our larger participant rule does those things.
    Senator McCaskill. OK. I've got to give you courage. That 
was a yes.
    OK. So there are other smaller companies, just like the 
specialty CRAs, that are also doing credit scores, right?
    Mr. Stone. There are, but we're not aware of credit scores 
or scorers in that realm like checking accounts or drivers 
performance that have any kind of consumer market, where 
consumers are actually paying money for them. There are scores 
that are based on that kind of data, but they're primarily used 
by businesses.
    Senator McCaskill. I'm following up on Senator Schatz's 
question. Do you see any reason why we shouldn't include a free 
credit score with the free credit report? Is there any good 
reason not to do that for consumers? Because, frankly, having 
one without the other is a little bit like having a car without 
wheels.
    Mr. Stone. And consumers often conflate the two.
    Senator McCaskill. Right.
    Mr. Stone. They think of a score as a report and a report 
as a score.
    Senator McCaskill. Right.
    Mr. Stone. I think the challenge--one challenge is that 
there are multiple credit scores out there, so which score do 
you mandate? These are all privately developed algorithms.
    Senator McCaskill. Just like there are multiple credit 
reports.
    Mr. Stone. Exactly. Providing ``the score'' or ``a score,'' 
it raises an interesting question. There's no question that it 
helps consumers to know where they stand with respect to a 
spectrum of creditworthiness, and a score is a great 
simplification tool.
    Senator McCaskill. We're not going to solve this problem of 
people getting ripped off by these companies, buying these 
services, if we don't solve the score problem, too, because you 
can see what they're doing. The minute we try to close off 
their ability to sell a credit report that consumers should get 
for free, they're going to start selling the score.
    And by the way, most of the scores they're selling on here 
are not the FICO scores. They're somebody else's they're using, 
that they're selling. And they put a little-bitty disclaimer 
down there: By the way, this may not be the score your lender 
gets; we're just going to give you one. So it's not even fully 
disclosed to them that they may be getting a score that their 
banker says, well, we don't use that one, we use FICO.
    Mr. Stone. That's right.
    Senator McCaskill. OK, I've gone over my time. I apologize. 
Anybody else would like another question for these witnesses?
    [No response.]
    Senator McCaskill. Thank you all very much for being here, 
and I would like input from both your agencies on how to 
address the clear gaps we've got in this consumer protection 
area.
    Senator McCaskill. I want to thank all of the witnesses for 
being here. On this panel we have: Ms. Judy Thomas, who is a 
consumer, I believe from Ohio; we have Mr. Stuart Pratt, who is 
President and CEO of Consumer Data Industry Association; Mr. 
Ira Rheingold, Executive Director of the National Association 
of Consumer Advocates; and Dr. Howard Beales, a Professor at 
Department of Strategic Management and Public Policy at George 
Washington University School of Business.
    Thank you all for being here, and we will begin by hearing 
your testimony, Ms. Thomas.

             STATEMENT OF JUDY ANN THOMAS, CONSUMER

    Ms. Thomas. Thank you, Chairwoman McCaskill and Ranking 
Member Heller and members of the Subcommittee, for inviting me 
here today. This is very near and dear to my heart.
    I would first like to introduce myself as Judy Thomas. I am 
not Judith Kendall. I have fought to be Judy Thomas now for the 
past 14 years. I started in 1999 with impeccable, exceptional, 
excellent credit, except in July of 1999 I was suddenly 
surprised to find out that I was not creditworthy.
    This had gone on--I did exactly what the credit bureaus 
told me to do as far as filing a dispute. I did a letter form 
of dispute. I did phone call disputes. I got reassured that my 
credit or my errors would be corrected. I was told to wait the 
normal 60 to 90 days to ensure that this would be corrected, 
only to find out after the 60 to 90 days that another error was 
on my report.
    So this went on for quite some time. Thinking that I was 
going to get a simple error fixed by myself, turned into a 
nightmare. I couldn't finance a home. I couldn't get a loan. I 
couldn't even be a cosigner on my daughter's student loan. I 
was basically held captive by these credit bureaus, and I 
couldn't do a thing about it.
    The problem that I had mostly was the credit report that I 
would receive in the mail, when you talk about this annual 
credit report, the free report, when I would get a report in 
the mail I could look at it and go: Yes, this is Judy Thomas; 
yes, this is my debt; yes, this is correct. However, I would go 
to the bank or I would go to a loan company, what was on my 
report was nowhere near on the report that the lending 
institution had.
    Why there is a discord between what I'm receiving versus 
what the lenders are receiving, there is what I think the 
problem is. You can't fight disputes if you don't have them on 
your report. There's nothing to fight, there's nothing to 
dispute.
    So it wasn't until that I had actually seen a report from a 
lending institution that I actually found out that the problem 
wasn't one debt; the problem was I was mixed with another 
individual in another--on the other side of the country, whose 
name wasn't even close to Judy Thomas. And there was nothing I 
could do.
    I wrote letters. I wrote disputes. I made phone calls. I 
contacted my Congressman. I couldn't even get an attorney. 
There's no one to help you. There's no one. There's literally 
no one to help you.
    Thankfully, I was put in contact with a consumer attorney 
and ended up having to file litigation, file a lawsuit, which--
it doesn't need to come to that. It does not need to come to 
that. You need someone there who's going to look at the whole 
credit report, not just each individual little debt, not each 
little individual dispute, but look at the whole picture, look 
at the whole person and what's going on in the credit report, 
not just the error.
    I hate to get emotional. It's very dear to my heart. I'm 
not a statistic. You talk about these percentages. I'm not a 
statistic. I am a consumer who had exceptional credit, who 
prided myself in my credit, and I had that taken away from me. 
Not only did you take that away from me; you have taken my 
identity. You have turned me into someone that, I don't even 
know who I am any more. And I have to carry papers around to 
prove that I am Judy Thomas and I'm not Judith Kendall in Utah.
    I was accused of falsifying a job application. They said I 
falsified a job application because a credit bureau apparently 
sold my false information to someone who does background 
checks. So when I filed for a job position, they did a 
background check, they got this other woman's information, and 
accused me of falsifying documentation.
    This has got to stop, please. I thank you for letting me be 
here. I thank you for bringing this to attention. I'm just a 
minor person in this whole fish pond of errors.
    [The prepared statement of Ms. Thomas follows:]

  Prepared Statement of Judy Ann Thomas, Consumer, Victim of Chronic 
                      Credit Reporting Inaccuracy
I. Introduction
    I would like to begin by thanking you for inviting me to testify 
here today. Throughout the credit reporting nightmare I have been 
living, a nightmare that has been going on since 1999 and which 
continues on in various ways today, one of the most difficult things is 
feeling like no one is really listening to me or cares what I am going 
through. I am honored to be here, speaking on behalf of myself and 
other consumers who have been forced into this ordeal through no fault 
of their own. I am encouraged and hopeful that the problems plaguing 
victims such as myself will get some of the attention that is 
desperately needed to prevent others from suffering the same fate.
II. The Compromise of My Good Name
    One afternoon, in 1999, I went into the local mall looking to buy 
myself a new dress. I found the perfect one and decided to take 
advantage of a store credit card offer to save myself 10 percent on the 
purchase. Much to my complete surprise, I was denied. Besides being 
completely embarrassed, I was also completely confused. I have always 
taken pride in paying my bills on time and not living beyond my means. 
My credit rating has always been excellent. I had no idea what was 
going on.
    Soon after, I received in the mail the official ``denial'' letter 
saying that my store credit card application was denied because of some 
negative information in my credit report. I requested a copy of that 
credit report to see what could possibly be contained in there to 
justify denying me for a relatively minor credit opportunity. My credit 
report looked absolutely fine. I recognized the accounts that were 
reported, and all of them were accurately showing that I am very 
responsible with my use of credit.
    What I did not know at the time, and what would take me years to 
uncover, is that my personal information was beginning to mix together 
with that of someone with similar identifying information. My name is 
Judy Ann Thomas and I live (and always have lived) in Ohio. There is a 
woman named Judith Kendall who lives in Utah. Apparently, because our 
first names are sufficiently similar, and our Social Security numbers 
are within a seven (7) of nine (9) match of each other (a fact I would 
only discover through Federal litigation), one or more of the national 
consumers reporting agencies (``CRAs'') started seeing us as the same 
person for purposes of placing her data in my credit report. I never 
could have imagined what that seemingly ``minor'' mistake would do to 
me, to my good name, to my excellent credit rating.
    It took quite some time for the mixture to show itself to me on 
paper. I saw ``clean'' copies of my credit report for several months 
before the name ``Judith Kendall'' ever appeared. Little by little, 
however, that name, its corresponding address(es) in Utah, and the 
numerous delinquencies, charge offs and collection accounts rightfully 
belonging to somebody else, started showing up in my credit report. I 
certainly was confused by what was going on, but at least now I had 
something to work with; I could identify the problem and dispute the 
false items I now could see.
    But for every dispute I made, it seemed two more problems arose. I 
would dispute one particular account, and maybe that account would be 
deleted, but then a new account that was not mine would appear. It was 
obvious to me that no one was looking at the bigger picture of why this 
information was coming into my credit report in the first place. This 
was never more evident to me than the day I received a credit report at 
my home addressed to Judith Kendall! Was anyone paying any attention to 
my disputes? Clearly the answer was no.
III. What It Really Means To Be A ``Victim'' of Chronic Inaccuracies
    Even though my ``credit problems'' were caused by a failure of the 
credit reporting system, not anything I did or could have done 
differently, I am the one that has suffered the consequences. I have 
been impacted on every level: economic, emotional, mental, physical.
A. Economic Loss and/or Financial Injury
    Throughout the course of my fight to regain my good name and 
impeccable credit rating, I was forced to suffer multiple credit 
denials due to false and derogatory information in credit reports 
circulated by one or more of the national CRAs. For instance, in 1999, 
I applied for but was denied a credit card from Gantos. In 2000, I 
applied for but was denied credit by Discover, Capital One, First Merit 
and Verizon. In 2003, I was unable to refinance my existing mortgage 
with Fifth Third Bank because of the appearance (or reappearance) of an 
alias and corresponding derogatory collection references.
    These numerous credit denials demonstrate the repeated and 
seemingly never-ending cycle in which I have been thrust by the 
national CRAs wherein I have suffered the humiliation and frustration 
of being denied credit, disputed the false information with the CRAs, 
dared to believe that the information has been corrected, and then 
subjected myself to the application process again only to be humiliated 
by rejection again. This cycle has imposed significant mental, 
emotional and physical strain, distress and humiliation on me for which 
I have suffered a significant loss of trust in the system as a whole.
    The vicious cycle described above has repeatedly haunted me and my 
ability to obtain credit at the best terms available. In 2004, I 
attempted to co-sign a student loan for my daughter. After much 
research, I discovered that Key Bank had the best rates available and 
so, I submitted an application. This credit application was denied due 
to the existence of ``Charge Off/Collection'' notations on my credit 
report. Once again, I was subjected to the utter humiliation of a 
credit denial, this time accompanied by the additional stress and 
embarrassment of the fact that this particular credit denial called 
into question my ability to assist my daughter in paying her college 
tuition. My inability to secure the student loan for her created 
tension between us of fear that she would otherwise be unable to attend 
college. It also imposed feelings of inadequacy on me in not being able 
to assist my daughter when my true credit rating should have been more 
than sufficient to secure the loan. Additionally, I was forced to 
approach my mother and father about possibly co-signing the loan for my 
daughter which absolutely mortified me, but I felt I had no choice but 
to do so to ensure my daughter could go to school.
    The denial of the student loan application also triggered another 
several-month-long dispute process wherein I was forced to defend my 
good name and credit rating again, which involved the investment of 
significant time, effort and resources to attempt to explain and verify 
that I was not, in fact, the person whom my credit report continued to 
say I was. This dispute process culminated with me being hounded at 
work in October 2004 for verification of my employment in an effort to 
attempt to secure the student loan for my daughter. In addition to 
having to spend work-related time in an effort to do so, I suffered the 
humiliation of having to justify and explain my actions to my superior, 
as well as fear that I would be reprimanded or otherwise disciplined 
for doing so. Ultimately, I secured a student loan for my daughter 
through Bank One, but the interest rate on such loan was almost two (2) 
percentage points higher than the rate offered by Key Bank (for which I 
was denied).
    By December 2004, I was advised by the national CRAs that my 
disputes had been resolved and, once again, they represented to me that 
my credit report had been cleared of any reference to any other 
individual or credit information belonging to anyone other than me. I 
hoped, trusted and believed that my ordeal had finally ended, and I 
looked forward to enjoying the good name and credit rating I had worked 
so hard to earn for myself.
    However, regrettably, once I dared to believe my efforts had been 
successful, I learned, once again, that I was a fool for doing so. 
Specifically, in or around November 2005, I sought pre-approval on a 
new home loan through Fifth Third Bank. I selected Fifth Third Bank to 
apply for a potential loan because I was already a customer there, and 
that fact had enabled me to secure credit previously (albeit after a 
delay) despite the appearance of false information in my credit report. 
In the face of the national CRAs' previous representations that all 
reference to the previously-disputed, false information contained in my 
credit report had been removed, I learned that my credit report once 
again showed a false ``known'' alias and collection information 
relating to another individual. I was sickened by the reappearance of 
this information and did not further pursue a new home loan application 
at that time.
    Then, in or around July 2006, my fiance and I desired to purchase a 
new home, so I needed to subject myself to the application process once 
again. I desperately wanted my credit record to be accurate, not only 
so I could ensure obtaining a home loan at the best terms available, 
but also so that I not be forced to suffer through the pain and 
humiliation of another credit denial, this time in front of my fiance. 
In hopes of circumventing a credit denial based on false information 
appearing in my credit record, I submitted to a pre-certification 
process instead of submitting a full-blown loan application (so as to 
pre-plan in case a problem arose), and I elected not to seek financing 
on my own but did so jointly with my fiance so that his excellent 
credit rating would be considered as well. In particular, my fiance and 
I submitted a joint application for pre-certification for a new home 
loan through Countrywide Mortgage. While my fiance was successful in 
obtaining pre-certification, I was not. We decided not to proceed with 
a formal loan application.
    Of course, with each of these denials I have been forced to suffer 
additional financial injury and/or loss to the extent I needed to 
expend an absurd amount of time, effort and personal resources 
(including credit report fees, telephone charges, postage, etc.) in 
restoring my good name and credit rating to its rightful status because 
of the national CRAs' failures or refusal to abide by the law. 
Likewise, the never-ending cycle I have been thrust into has left me 
paralyzed with respect to considering applying for credit, even when I 
need it. Thus, I have and will continue to miss out on valuable cost-
saving credit opportunities because I simply cannot trust that my 
credit report will accurately portray my credit history when and if I 
do apply for credit.
    The financial impact of this ordeal has not been limited just to my 
inability to obtain credit on the best terms availability. In 2010, the 
matter reared its ugly head yet again, threatening my ability to obtain 
a new job. After applying for a new position, I was questioned by the 
potential employer about whether I really had a nursing license as I 
represented. Much to my horror, I learned that information about 
``Judith Kendall'' had been returned in response to a background check 
on me. To this day, I have never been able to confirm exactly how this 
happened. The mixing of my personal information by one or more of the 
national CRAs has left the confines of that arena and now is floating 
out in the realm of public information as well. The loss of control of 
my personal information in this regard is devastating. The proverbial 
horse has left the barn and I am powerless to do anything about it.
    Most recently, I was in need of refinancing my home within a 
specified deadline due to a court-imposed deadline relating to the 
ending of my relationship with my former fiance. As the deadline 
approached, the now-familiar sense of dread returned but my credit 
reports once again looked ``clean'' so I was hopeful that things would 
go through with no problem. But then the loan officer placed before me 
a form that I was required to sign in order close wherein I was 
attesting that I sometimes go by the name ``Judith Kendall.'' I was 
reduced to calling my attorney in tears.
B. Non-Economic Injuries: The Personal Toll
    The financial impact of my ordeal has been significant, and I 
certainly do not want to under-represent the toll that has taken on me. 
But economic loss is something tangible, something relatively easy to 
see and/or understand. The personal toll, on the other hand, is much 
more difficult to see, and it is so much worse. Anguish, distress, 
embarrassment, frustration, anger, fear. All of those words have 
applied at one time or another for me, some all at the same time. There 
has also been crying, pacing, sleeplessness, headaches. I feel like 
there simply are not sufficient words for me to explain to you what it 
feels like to go through something like this, and its maddening to be 
faced with an attitude of ``no harm, no foul'' by the industry who has 
done this to me.
    I have suffered extreme embarrassment, humiliation and 
disappointment in being denied credit on numerous occasions. I take 
great pride in having built a good name and impeccable credit rating 
for myself; thus, to be told that I do not qualify for the credit I 
need or desire is greatly upsetting and demoralizing to me. In fact, 
having to justify who I am on a repeated basis is extremely frustrating 
and embarrassing.
    I have also suffered embarrassment and humiliation from having to 
explain myself and my actions to friends and family who have witnessed, 
first hand, the ordeal I have been subjected to. Despite having the 
love and support of these people, it is still greatly upsetting and 
distressing that it outwardly appears I am someone or something I am 
not. My mental, emotional and physical stress in this regard pales in 
comparison to the embarrassment, distress and fear suffered when I was 
been forced to explain myself to my superior at work because, once 
again, the national CRAs reported false information about me to a 
potential creditor. I was utterly humiliated after being discovered by 
my boss crying at work, and then had to attempt to explain what was 
going on. Again, it is greatly embarrassing to have to discuss such 
personal matters with others, especially when I am faced with the fear 
that I may not be believed or that I am being judged for being someone 
or something I is not.
    My mental, emotional and physical stress and distress is 
exacerbated by the anxiety and fear I suffer because of not being able 
to get credit when I need and/or want it, specifically including being 
unable to co-sign a loan for my daughter's education and not being able 
to secure sufficient financing for a new home loan on my own. The 
position I have unwittingly been placed in has created anger, fear, 
confusion, stress, worry, disappointment and frustration as to how this 
happened and, equally, how I am going to make things better for myself 
and my family. I take great pride in the good name and impeccable 
credit rating I have struggled to build for myself, and it devastates 
me that these things are being compromised and there is nothing I can 
do about it.
    Despite being a completely innocent victim in all of this, I feel 
like I am fighting for my reputation against being slandered repeatedly 
by entities that are supposedly charged with protecting my privacy, and 
I resent being forced into such a position. Repeatedly having to deal 
with the national CRAs to defend my good name and impeccable credit 
rating has taken a great deal of emotional and physical energy from me. 
I have been left exhausted and demoralized from the ongoing process 
and, worse yet, I have no faith, trust or reasonable belief that I will 
ever be successful in separating myself from Judith A. Kendall (and Ms. 
Kendall's negative credit history). I desperately want to put this 
never-ending saga behind me and never think about it again!
    In November 2005, when I discovered that, once again, the false 
alias and attached negative credit information were being reported by 
the national CRAs, I was confused and angry, but more than that I felt 
thrust into an unwanted and painful reality that this ugly monster of a 
matter was rearing its head once again. I was forced to suffer the 
uncertainty, doubts and fear of wondering why I was being subjected to 
the return of the same problems I had worked so hard to correct over 
the last several years. I wondered (and worried) why I was being forced 
once again to deal with a matter that I believed was resolved, a matter 
that had already taken such a huge mental, emotional, physical and 
financial toll on me. This brutal reality--a reality that, once again, 
was imposed upon me at no fault of my own--stripped from me any 
remaining energy and resolve to keep fighting for my good name and 
privacy. Thus, I began to accept that I had no choice but to look for 
an attorney to institute litigation on my behalf. I resented having to 
do so; there is no reason why a consumer should not be able to fix such 
a matter by myself.
    I hate remembering everything I have been forced to go through. I 
am angry that the national CRAs get to disregard everything learned, or 
at least told to them, from my disputes over a several-year battle, as 
well as other litigation specifically including a lawsuit involving a 
consumer of the same name suffering from the same problem as me. I am 
very anxious and worried that this problem will continue to recur and 
if ignored, will worsen, leaving my privacy compromised and my credit 
tainted forever. This mental and emotional anguish, and its resultant 
loss of trust, has left me reluctant to deal with everyday business 
matters specifically including requesting credit even when I need it.
    I firmly believe that our society creates laws to prevent 
individuals from being damaged. Yet the national CRAs are somehow 
allowed to thumb their noses at these laws to my repeated anguish, 
disgust and dismay. Despite the enormous importance of credit 
information, I never anticipated how difficult and devastating it would 
be to try and clean up or correct my reports, resolve issues, or 
communicate with entities about this situation. The sheer volume of 
time, energy and resources necessarily devoted by me in my mostly-
unsuccessful efforts is staggering.
    It frustrates and maddens me that none of the entities charged with 
protecting and assisting me have any interest in me as a person and, 
seemingly, are okay leaving me in the dark as to how this all actually 
happened. It is apparent that they do not care just how much my life 
has been ruined. I find it this particularly devastating considering 
their only line of business is handling my information. Yet here I am, 
more than a decade later, still living with a question mark over when 
and where I will be hurt by this again.
    All in all, my experience has led me to conclude that the system 
that houses credit reports is very, very broken. Any intent by Congress 
to offer citizens the tools they need to keep information safe has been 
overshadowed by the fact that large corporations that buy and sell 
information as a commodity ultimately own and control the process 
through which the integrity of information is secured. I found fighting 
this industry to be an impossible feat. There is nothing that requires 
the ``system-machine'' to yield to common sense when any reasonable 
person with value in the integrity or honesty of another human being 
would have given pause, or at least attempt to define the problem.
    Perhaps most troubling is the doubts and fears that I must live 
with about the future. I am haunted by the fact that, even if my credit 
reports are clean right now, I no longer have control as to when and if 
I will be forced into this nightmare again. I did not cause the mixture 
of my information in the first place, and I certainly cannot control if 
it happens again in the future.
    The bottom line is that my good name, in which I have vested a 
lifetime of hopes, dreams, hard work and responsibility, will forever 
be at risk. I must face this reality that the information that once was 
so personal will never again be mine and mine alone. And this is a loss 
for which no one can ever fully compensate me.

    Senator McCaskill. That's what this is about. It's about 
the Judy Thomas's out there. So thank you, Judy Thomas.
    Ms. Thomas. Thank you very much. Thank you for having me 
here. Thank you for letting me speak.
    Senator McCaskill. Thank you.
    Mr. Pratt.

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

    Mr. Pratt. I would agree with that. It is about the 
individuals and not just about the statistics. The big picture 
data is a good starting point. The FTC study has given us good 
baseline information to work from in order to improve accuracy. 
We're starting at a baseline of somewhere between 95 and 98 
percent of credit reports being accurate. But the CDIA's 
members are in fact committed to looking at that next 
percentage.
    I think you said it well in your opening statement, Madam 
Chairman, and that is even if we have a good story to tell on 
the front end in terms of the majority, we need to focus on the 
minority.
    So I'm glad to sit here today with Ms. Thomas, and we are 
glad to learn from that situation. We're encouraged by the 
research that has been done. We are now gathering data from the 
FTC and from other sources to begin a working group process to 
understand how we can, for example, keep a--which we should--a 
Kendall and a Thomas from ever showing up on the same desk in 
the future.
    I think it was said in the first panel: The aspirational 
goal is always 100 percent. I think the FCRA, the Fair Credit 
Reporting Act, does acknowledge that there's a dispute process. 
The dispute process should work well.
    Again, the data that we have shows that for the majority of 
consumers it is, and I think that's because in the majority of 
consumers' cases it's not a complex dispute, and this situation 
ended up being complex. That's not an excuse for not getting it 
right. But we measured consumer satisfaction and we have about 
a 95 percent satisfaction rate, not just with their experience, 
but with the results of the reinvestigation.
    But our job isn't simply to focus on the 95 percent, but 
it's to focus on the 5 percent. So we have established this 
year a working group to focus on the reinvestigation process, 
to unpack--it's retroactive, but to unpack some of the 
situations like those of Ms. Thomas and those of other 
consumers, your constituent as well.
    So the CDIA stands with consumers. Our members want to get 
it right. I don't have a single CEO who sits at a desk saying 
that this is the right result. In fact, I've had CEO's call me 
to talk about this situation and say, how can we find a better 
way forward? So we're not shying away from--we're not declaring 
victory because there's good baseline data that says that we're 
getting it right most of the time. It is a system for all 
consumers. We want to get it right for all consumers.
    So we're happy with the 98 percent accuracy rate. We're 
happy with the 95 percent satisfaction rate. But we're not 
happy with those smaller percentages and we're going to work 
harder on those and focus on those today.
    It is important, I think, what was said by Mr. Stone in his 
opening statement: it is a three-legged stool. Another leg of 
the stool, for example, is those who furnish information to us. 
When we look at the FTC report, for example, one of the efforts 
that we have to undertake is in fact to partner with all those 
furnishers of data who are sending data, about 10,000 of them 
in this country, updating about 3 billion data elements a 
month. About 88 percent of the error types that were identified 
in the FTC report came from the data furnisher side of the 
aisle. So we have to look at the data furnishers as well to see 
what kind of data they're reporting to us, even as we look at 
our own data matching procedures to see how we then take the 
data and match it into the credit reporting system.
    We see the FTC report as a great opportunity to learn. It's 
not just simply a report which validates. I think attitudinally 
that's where we have always been.
    Just to give you an idea of where this industry has been 
historically, consumers were unhappy with how disputes were 
processed. And this goes all the way back to the 1980s. We 
stood up the first automated system, pre-FCRA amendments, pre-
requirements of law or regulators. We stood up the first Fair 
Credit Reporting Act automated system for disputes, to process 
disputes faster. So that cut the whole dispute process in about 
half the time that it normally would.
    When we saw that we had many data furnishers furnishing 
data in different formats, we established the first Metro 2 
data reporting standard to standardize, improve the quality of 
data in credit reporting systems. That Metro 2 system exists 
today.
    When Y2K came around, we retooled the system proactively 24 
months in advance and worked with the data furnishers to make 
sure that this new millennium didn't have an effect on the way 
credit reports work.
    We always want to get out in front of a problem. We always 
want to get out in front of a challenge. We always want to take 
the next right step for consumers to ensure that the success of 
the system that we're building on today is just that much more 
successful tomorrow.
    So we're happy to be at this hearing. We're happy to tell 
you that, and pleased to tell you, that we have new working 
groups to focus on some of these harder questions, and we 
expect to have more information and more insights into some of 
these complexities down the road.
    So, Madam Chairman, thank you for allowing me to appear 
before you today.
    [The prepared statement of Mr. Pratt follows:]

       Prepared Statement of Stuart K. Pratt, President and CEO, 
                   Consumer Data Industry Association
    Chairman McCaskill, Ranking Member Heller 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 160 
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.
Credit Reports Benefit Consumers and the 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 fifty or a hundred 
        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 in the Fair Credit Reporting Act 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. They help 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.
What's In a Credit Report?
    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. Sec. 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.
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.
The Consumer Financial Protection Bureau & Credit Bureaus
    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. Sec. 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.''

    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.
The Dispute Resolution Process for Consumers
    A Consumers right to dispute information in his or her credit 
report is 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 in the next section of this testimony measured consumer 
satisfaction with the reinvestigation process and fully 95 percent of 
consumers were satisfied with the results. This fact offers a 
compelling rebuttal to the unfounded accusations offered 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.
    Though the data discussed above confirms an error-correction system 
that is working very well for consumers, some consumer advocacy 
organizations have mischaracterized a key technology platform, called 
eOscar, that contributes materially to this success. This platform 
connects the more than 10,000 data furnishers who supply data to the 
nationwide consumer credit reporting agencies so that disputes can be 
submitted quickly and consistently.
    The FCRA requires nationwide credit bureaus to maintain an 
``automated reinvestigation system.'' \2\ The FCRA also requires 
nationwide credit bureaus to transmit a consumer's dispute to the 
lender/data source within five business days.\3\ This requirement of 
law makes sense when you consider that the FTC's credit report accuracy 
study found that 88 percent of the possible errors consumers identified 
in their credit reports were about how collection agencies and lenders 
reported data to credit bureaus (and not how credit bureaus loaded 
these data).
---------------------------------------------------------------------------
    \2\ 15 U.S.C. Sec. 1681i(a)(5)(D).
    \3\ 15 U.S.C. Sec. 1681i(a)(2)(A).
---------------------------------------------------------------------------
    In the interest of serving consumers industry built an automated 
system prior to law requiring it and it is a great success. While law 
requires disputes to be processed in no more than 30 days, this 
platform shortens the time frame to an average of 14 days and recent 
studies show that 95 percent of consumers are satisfied with the 
results.
    Codes are used to transmit the consumer's dispute to a lender. Some 
have misunderstood these codes to mean that they are a shortcut and 
result in an abridged version of the consumer's dispute being sent to 
the lender. This is not the case. Each code comes with a full and 
complete meaning that is also part of the system. Consider the 
following example:

        E1--``Claims paid original creditor before collection started 
        or paid before charge-off. Verify account status, payment 
        rating, current balance, amount past due, pay history''.

    This is a typical example of a code that is unambiguous and which 
encourages a thorough and complete investigation of all data regarding 
a consumer's account. Lenders and collection agencies take these 
directions seriously and conduct robust reinvestigations.
    Finally, though the current coding system is working well a new 
technology will go live later this year to enable nationwide credit 
bureaus to provide lenders with images of any validating documents 
submitted by consumers. According to the CFPB 44 percent of consumers 
submit a dispute in writing.
    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. As an extension of 
this commitment, CDIA has formed a new Reinvestigation Working Group to 
focus on the 5 percent of consumers who were not satisfied with their 
results. This working group will also consider the adverse effects of 
fraudulent credit repair schemes on consumers and our members' 
resources which are dedicated to serving consumers and quickly 
addressing consumer concerns.
Credit Repair Scams
    It is good news that consumers' knowledge of credit reports and how 
scores analyze credit report data is improving. It is also good news 
that the systems for submitting a dispute are working well for 
consumers. 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, 
for credit bureaus and for all data furnishers (credit unions, 
community banks, etc.). Our members estimate that as much as 43 percent 
of incoming mail is tied to credit repair schemes that take money from 
unsuspecting consumers, distract from processing valid disputes and 
which tie up data furnisher resources leading some to give up and 
delete accurate, predictive data.
Repeated Studies Confirm that Credit Reports are Accurate
    The accuracy of credit reports is at the center of our members' 
values and there is ample empirical evidence that their efforts are a 
success. Consider the findings of the following studies/reports:

        In 2004 the Federal Reserve Board published a study of 300,000 
        credit reports and stated that `` ``. . . the proportion of 
        individuals affected by any single type of data problem appears 
        to be small . . .''

        In February of 2013 the Federal Trade Commission released its 
        comprehensive study of the accuracy of credit reports (see 
        CDIA's full news release in Appendix I of this testimony). It 
        focused on errors in reports that could adversely impact the 
        price a consumer would pay. These errors were defined as 
        ``material errors.'' The study found that 98 percent of credit 
        reports do not contain a material error.

        Further, in December 2012, the Consumer Financial Protection 
        Bureau (CFPB) published a white paper on credit reporting 
        stated the following: ``. . .the number of credit-active 
        consumers who disputed one or more items with an NCRA 
        [nationwide credit bureau] in 2011 ranges from 1.3 percent to 
        3.9 percent.''

        The Federal Government reports continue a consistent narrative 
        about the integrity of the data contained in credit reports. In 
        2011, the Political and Economic Research Council study found 
        that only 1 percent of credit reports contained a material 
        error.

    While these studies confirm that our members and data furnishers 
are extraordinarily successful in maintaining accurate data, CDIA's 
members are committed to learning from the FTC's latest report on 
accuracy with a particular focus on the nature of the concerns of the 2 
percent of consumers who may have a material error on one of their 
credit reports. A CDIA working group on data quality has been 
established to focus on improvements to data management practices and 
outreach to data furnishers. Fully 88 percent of potential errors 
identified by consumers in the FTC study were about the data reported 
to the credit bureau and not about how the credit bureau loaded these 
data.
The Role of Data Furnishers and Accuracy
    More than 10,000 data sources report more than 3 billion updates of 
data to nationwide consumer credit reporting agencies. As CFPB Director 
Cordray stated during a July 26, 2012 field hearing:

        ``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''.

    Our members have procedures in place for both on-boarding new data 
furnishers and monitoring the data reported by the current community of 
data furnishers. This ongoing partnership has resulted in FTC finding 
that 98 percent of credit reports do not contain a material error that 
would affect the price a consumer will pay in the marketplace. We 
discuss below some of these practices:

        New data furnishers--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 \4\:
---------------------------------------------------------------------------
    \4\ 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.
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. Though 95 percent of consumers are satisfied with the results 
of their reinvestigations and 98 percent of credit reports don't 
contain a material error, our new CDIA working groups will focus on the 
minority of issues that persist. Our members' goal is always to improve 
and learn from both anecdotes and from new research.
    I am happy to answer any questions.
                                 ______
                                 
           Appendix I--CDIA News Release--FTC Accuracy Study

                February 11, 2013 FOR IMMEDIATE RELEASE

                             Norm Magnuson

            FTC Report Confirms Credit Reports Are Accurate

    CDIA Says Consumers Should Take Advantage of Free Credit Reports

    The Federal Trade Commission (FTC) released its latest study on 
credit reports today and reconfirmed the findings of several recent 
studies that conclude that credit reports are highly accurate and play 
a critical role in facilitating access to fair and affordable consumer 
credit. The FTC's research determined that 2.2 percent of all credit 
reports have an error that would increase the price a consumer would 
pay in the marketplace and that fully 88 percent of errors were the 
result of inaccurate information reported by lenders and other data 
sources to nationwide credit bureaus. The study also showed that 95 
percent of consumers are unaffected by errors in their credit report.
    Stuart Pratt, President and CEO of the Consumer Data Industry 
Association (CDIA), said, ``Most consumers are well aware that their 
credit report is a fundamental reflection of their discipline and 
responsibility when accessing and using consumer credit. This 
additional study from the U.S. government's chief consumer protection 
agency should reassure consumers that they can depend upon the accuracy 
of their credit history.''
    ``While the overall number of errors and their impact on consumers' 
creditworthiness is small, maintaining accurate credit reporting data 
is essential to both lenders and credit bureaus. We will continue to 
work with lenders and others who provide data to the credit bureaus to 
make sure the percentage of material errors impacting consumers is even 
lower'', Pratt said.
    This is the third study in just over a year that addresses factors 
associated with the accuracy of credit reports. In December 2013, the 
Consumer Financial Protection Bureau (CFPB) published a white paper on 
credit reporting and found only 1.3 percent to 3.9 percent of all 
consumers file a dispute about information in their credit report. In 
2011, the Policy and Economic Research Council (PERC) also undertook a 
peer-reviewed study of credit report accuracy and found that consumer 
credit scores were negatively affected less than one percent of the 
time by an error in a credit report.
    The CDIA encourages consumers to take advantage of their right to 
free credit reports from nationwide credit reporting agencies by going 
to www.annual
creditreport.com. To convince more consumers to look at their credit 
reports, CDIA's nationwide credit reporting companies have given the 
Association a grant to fund new public service announcements focused on 
connecting them with their credit reports.
    ``Confirmation that credit reports are accurate is a good thing,'' 
said Pratt, ``but all consumers should be aware that checking credit 
reports every year is fundamental to accuracy.''
About CDIA
    Founded in 1906, CDIA is the international trade association that 
represents 170 consumer data companies. CDIA members represent the 
Nation's leading institutions in the credit reporting, mortgage 
reporting, check verification, fraud prevention, risk management, 
employment reporting, tenant screening, and collection services 
businesses.

    Senator McCaskill. Thank you.
    Mr. Rheingold, your testimony as well.

   STATEMENT OF IRA RHEINGOLD, EXECUTIVE DIRECTOR, NATIONAL 
               ASSOCIATION OF CONSUMER ADVOCATES

    Mr. Rheingold. Sure, my pleasure, as soon as I can figure 
out how to get this mike on.
    Is it on? OK, thank you. Technology.
    Chairwoman McCaskill, Ranking Member Heller, members of the 
Subcommittee: Thank you for inviting me to testify today about 
the consumer credit reporting industry, its failure to ensure 
accurate and reliable reports, and the impact that inaccurate 
information has on consumers' ability to obtain much-needed 
credit, gain employment, or even to find a job.
    This afternoon I'd like to share two key observations about 
our nation's credit reporting system. First I'd like to talk 
about the two main reasons why I believe there are so many 
inaccuracies in consumer credit reports and offer ideas about 
what can be done to correct the problem. Second, I'll discuss 
what I see as the completely unreasonable credit report dispute 
process and explain why it's almost impossible for an average 
consumer like Judy Thomas or Brenda Campbell to navigate that 
system and make certain that the information in their own 
credit report is correct.
    Our nation's economic recovery has been slowed by 
consumers' inability to access fair and reasonable credit. 
While there are many reasons for this tightening of credit, 
consumers and our general economy are significantly harmed when 
credit is denied to consumers based on credit reports filled 
with inaccurate information.
    Despite the fundamental importance of accurate credit 
reports, systematic errors remain common in our nation's credit 
reporting system. Two of the main causes of this problem are 
mixed or mismerged files and bad information placed in credit 
reports by furnishers, particularly debt collectors and debt 
buyers.
    The problem of mixed files, which the nationwide CRAs have 
known about for over two decades, occurs when credit 
information relating to one consumer is placed in the file of 
another, as Judy Thomas described. This largely occurs because 
the nationwide CRAs do not use sufficiently rigorous criteria 
to match consumer data precisely, even when such unique 
identifiers are Social System numbers are present. Most 
importantly, they do not match information based on all nine 
digits of the consumer's Social System number. Instead, they'll 
only match information based on seven of nine digits if the 
consumers' names are also similar.
    Simply requiring the nationwide CRAs to match all the 
digits of the consumer's Social System number, which they do 
when they provide a consumer with her own credit report, would 
go a long way in solving the problem of mixed files.
    Debt collectors and debt buyers as furnishers of 
information present their own special type of credit reporting 
errors. A recent CFPB report indicated that a disproportionate 
number of credit reporting errors involve debt collectors. The 
FTC issued a similar report that showed over 32 percent of the 
errors were related to debt collection accounts.
    Typically, these credit reporting problems occur because 
debt buyers and debt collectors do not get any of the critical 
supporting documentation to establish that the consumer 
actually owes the debt or the amount is correct, whether there 
are any disputes, or even if the collector is dunning the 
correct consumer. Debt collectors and buyers should not be able 
to furnish information and the credit reporting agencies should 
not be accepting this information unless the debt buyers can 
show they have actual documentation that the debt is owed by 
the specific consumer.
    Of course, the damage done by the inaccurate information 
would be significantly mitigated if the CRAs had a fair and 
reasonable dispute process that would allow consumers to 
correct inaccurate or incomplete information. Instead, despite 
the FCRA requiring both CRAs and furnishers to conduct 
reasonable investigations when a consumer disputes an item in 
his or her credit report, the CRAs provide a perfunctory, 
automated process that consists of nothing more than 
translating consumer disputes into a two or three-digit code, 
forwarding that code in a one-page electronic form to the 
furnisher, and parroting whatever the furnisher states in 
response.
    Further, despite the fact that almost half of consumer 
disputes are written and often consist of a detailed letter 
with significant supporting documentation, the automated code 
assigned to the consumer dispute by dispute handlers is sent to 
the furnisher and is often communicated alone, without the 
supporting documentation provided by the consumer.
    The failure to pass along documentation submitted by a 
consumer is a deliberate violation of the FCRA's requirement 
that a CRA include all relevant information about the dispute. 
This must be corrected, either through enforcement actions or 
through rulemaking.
    While the automated, impersonal dispute process created by 
the CRAs is problem enough, the failures of the system are 
further exacerbated by the nationwide CRA's bias in favor of 
furnishers. Time and again, CRA's unquestioningly accept the 
furnisher's automated response to a consumer dispute, despite 
being presented with evidence and documentation that 
contradicts the furnisher's unexamined conclusion. This 
systemic bias is in direct violation of the FCRA, which places 
the burden of proof in a dispute investigation on the 
furnisher, not the consumer. Simply, the Act provides that if 
the disputed information is inaccurate or cannot be verified it 
should be deleted.
    I thank you for the opportunity to testify today and I look 
forward to your questions.
    [The prepared statement of Mr. Rheingold follows:]

   Prepared Statement of Ira Rheingold, Executive Director, National 
 Association of Consumer Advocates also on behalf of National Consumer 
            Law Center (On behalf of its low income clients)
    Chairwoman McCaskill, Subcommittee Ranking Member Heller and 
members of the Subcommittee on Consumer Protection, Product Safety, and 
Insurance, thank you for inviting me to testify today about the 
consumer credit reporting industry, it's failure to ensure accurate and 
reliable reports and the impact that inaccurate information has on a 
consumer's ability to obtain much needed credit, gain employment or 
even find a place to live.
    In my testimony, on behalf of the National Association of Consumer 
Advocates (NACA) \1\ and the National Consumer Law Center's low-income 
clients,\2\ I will share with you what I have learned in more than a 
decade of working with consumer advocates from across the country. I 
will describe a credit reporting system that is riddled with 
preventable inaccuracies including consumer files that all too 
frequently mix the identities of consumers and include innumerable 
errors and unverifiable information provided by debt collectors and 
other furnishers of information. I will explain how our nationwide 
consumer reporting agencies (CRAs), Equifax, Experian, and TransUnion, 
are in gross violation of the FCRA's requirements to conduct 
``reasonable'' investigations when consumers dispute errors in their 
credit reports. These agencies, instead of hiring trained personnel to 
conduct actual investigations, have developed a perfunctory automated 
system that consists of nothing more than translating a consumer's 
dispute into a two-or three-digit code, forwarding that code and a one-
page electronic form to the furnisher, and parroting whatever the 
furnisher states in response. I will look at the growth of specialty 
consumer reporting agencies, including background check and tenant 
screening CRAs, which are plagued with errors that often create even 
greater problems for consumers. Finally, I will offer some ideas for 
Congressional legislative action that can provide better accountability 
for the credit reporting industry and ensure that consumer information 
is accurate and dependable.
---------------------------------------------------------------------------
    \1\ The National Association of Consumer Advocates (NACA) is a non-
profit corporation whose members are private and public sector 
attorneys, legal services attorneys, law professors, and law students, 
whose primary focus involves the protection and representation of 
consumers. NACA's mission is to promote justice for all consumers.
    \2\ The National Consumer Law Center is a nonprofit organization 
specializing in consumer issues on behalf of low-income people. We work 
with thousands of legal services, government and private attorneys, as 
well as community groups and organizations, from all states who 
represent low-income and elderly individuals on consumer issues. As a 
result of our daily contact with these advocates, we have seen many 
examples of the damage wrought by inaccurate credit reporting from 
every part of the Nation. It is from this vantage point--many years of 
observing the problems created by incorrect credit reporting in our 
communities--that we supply these comments. Fair Credit Reporting (7th 
ed. 2010) is one of the eighteen practice treatises that NCLC publishes 
and annually supplements. This testimony was written with Chi Chi Wu of 
NCLC.
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I. Easily Preventable Inaccuracies Plague The Credit Reporting System
    Our nation's recovery from the economic meltdown created by the 
reckless and fraudulent behavior of many actors in the financial 
services industry has been slowed by many consumers' inability to 
access fair and reasonable credit. While there are many reasons for 
this tightening of credit, consumers, families, businesses and our 
general marketplace are harmed when credit is denied to consumers based 
on credit reports filled with inaccurate information. A good credit 
history (and its corollary, a good credit score) enables consumers to 
obtain credit, and to have that credit be fairly priced. Credit reports 
are also used by other important decision makers, including insurers, 
landlords, utility providers, and employers. Consequently, a bad credit 
report or score can prevent a consumer from buying a car, securing a 
mortgage, or even getting a job.
    Despite the importance of accurate credit reports and the purpose 
of the FCRA to promote accuracy, systematic errors remain common in our 
Nation's credit reporting system. Below, I will focus on a few of the 
most repeated and egregious errors, which are easily preventable with 
common-sense regulation and oversight.
A. Avoidable Inaccuracies
1. Mixed Files
    One of the most intractable and damaging types of credit reporting 
errors are mixed or mismerged files. Mixed files occur when credit 
information relating to one consumer is placed in the file of another. 
Mismerging occurs most often when two or more consumers have similar 
names, Social Security numbers (SSNs), or other identifiers.
    Mixed and mismerged files occur largely because the nationwide CRAs 
do not use sufficiently rigorous criteria to match consumer data 
precisely, even when such unique identifiers as Social Security Numbers 
(SSNs) are present. Mostly importantly, they do not match information 
based on all nine (9) digits of the consumer's SSN. Instead, they will 
only match information based on seven of nine (7 of 9) digits of an SSN 
if the consumers' names are also similar.\3\
---------------------------------------------------------------------------
    \3\ See, e.g., Reeves v. Equifax Info. Serv., 2010 WL 2036661 (S.D. 
Miss. May 20, 2010) (mixed file case involving similar names, different 
addresses but same state, and match of seven of nine SSN digits); 
Apodaca v. Discover Fin. Servs., 417 F. Supp. 2d 1220 (D.N.M. 
2006)(describing how Equifax uses partial matching logic, including 
only seven of nine SNN digits, to build files).
---------------------------------------------------------------------------
    The nationwide CRAs have chosen to be excessively and unreasonably 
over-inclusive because, as the FTC once noted: ``lenders may prefer to 
see all potentially derogatory information about a potential borrower, 
even if it cannot all be matched to the borrower with certainty. This 
preference could give the credit bureaus an incentive to design 
algorithms that are tolerant of mixed files.'' \4\
---------------------------------------------------------------------------
    \4\ Federal Trade Commission, Report to Congress Under Sections 318 
and 319 of the Fair and Accurate Credit Transactions Act of 2003, at 47 
(Dec. 2004).
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    The nationwide CRAs have been aware of mixed file errors for 
decades.\5\ In the early to mid-1990s, the FTC reached consent orders 
with the nationwide CRAs requiring them to improve their procedures to 
prevent mixed files.\6\ However, nearly two decades later, mixed files 
remain a significant problem.
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    \5\ For an example of a mixed file case dating from the late 1970s, 
see Thompson v. San Antonio Retail Merchants Ass'n, 682 F.2d 509 (5th 
Cir. 1982).
    \6\ FTC v. TRW, Inc., 784 F. Supp. 361 (N.D. Tex. 1991), amended by 
(N.D. Tex. Jan. 14, 1993); In the Matter of Equifax Credit Information 
Services, Inc., 61 Fed. Reg. 15484 (Apr. 8, 1996) (consent order).
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2. Identity Theft
    Identity theft is often called the ``fastest growing crime'' in 
this country, with an estimated eleven million consumers victimized by 
some form of the crime every year.\7\ In 2011, the FTC reported 279,156 
complaints alleging identity theft, which was the largest single 
complaint category of consumers to the FTC.\8\
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    \7\ Javelin Strategy & Research, 2010 Identity Fraud Survey Report: 
Consumer Version 5 (2010).
    \8\ Consumer Sentinel Network Data Book for January-December 2011, 
at 6 (February 2012). See http://ftc.gov/sentinel/reports/sentinel-
annual-reports/sentinel-cy2011.pdf.
---------------------------------------------------------------------------
    Identity thieves can harm a consumer's credit history by setting up 
new credit or health care accounts in the consumer's name and then 
letting them go unpaid. As these accounts go delinquent, the consumer 
victim's credit rating can plummet.
    The nationwide CRAs and furnishers bear a share of the blame for 
this ever-growing problem. The nationwide CRAs' loose matching 
procedures, discussed above, contribute to identity theft problems. 
Once the fraudulent debt is reported, often after default and non-
payment, and especially when collectors begin attempting skip trace 
searches, the account ends up merged into the victim's file even though 
many of the identifiers do not match. Accordingly, the ``identity 
theft'' can be characterized as a special type of mixed file problem.
3. Furnisher errors
    Furnishers can often be the source of errors in credit reports. A 
furnisher might report the consumer's account with an incorrect payment 
history, current payment status, or balance. A particularly difficult 
type of error involves furnishers who have attributed a credit account 
to a consumer who does not owe the debt, often called an ``ownership 
dispute.'' This type of dispute often involves a spouse or other 
authorized user who is not contractually liable for a debt. Another 
type of common error occurs when a CRA fails to mark accounts as 
disputed when the consumer has a legitimate bona fide dispute with the 
furnisher.
    Debt collectors and debt buyers as furnishers of information 
present their own special types of credit reporting errors. Typically, 
the debt buyer or debt collector does not get any of the critical 
supporting documentation to establish that the consumer actually owes 
the debt, whether the amount is correct, whether there are any 
disputes, or even if the collector is dunning the correct consumer. 
Another problem all too often created by debt buyers and collectors is 
the ``re-aging'' of old accounts so that they stay on the credit report 
past the FCRA's seven year limit.\9\
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    \9\ Chi Chi Wu, National Consumer Law Center, Automated Injustice: 
How a Mechanized Dispute System Frustrates Consumers Seeking to Fix 
Errors in Their Credit Reports (Jan. 2009), at 11-12, available at 
www.nclc.org/issues/credit_reporting/content/automated_injustice.pdf.
---------------------------------------------------------------------------
    Not surprisingly, a recent CFPB report indicated that a 
disproportionate number of credit reporting errors involve debt 
collectors. The CFPB report found that debt collectors generate 40 
percent of disputes to the nationwide CRAs, despite providing only 13 
percent of the account tradeline information in credit reports.\10\ A 
recent study by the Federal Trade Commission on errors in credit 
reports similarly found that 32.2 percent of disputed items were 
collection accounts.\11\
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    \10\ Consumer Financial Protection Bureau, Key Dimensions and 
Processes in the U.S. Credit Reporting System: A review of how the 
Nation's largest credit bureaus manage consumer data, December 2012, at 
14, 29, available at http://www.consumerfinance.gov/reports/key-
dimensions-and-processes-in-the-u-s-credit-reporting-system.
    \11\ Federal Trade Commission, Report to Congress Under Section 319 
of the Fair and Accurate Credit Transactions Act of 2003, December 
2012, at 51, available at.
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4. Definitive FTC indicates unacceptable error levels in credit reports
    Just a few months ago, the FTC released the definitive study on the 
level of inaccuracies in credit reports.\12\ The study, found that 
about 21 percent of consumers had verified errors in their credit 
reports, 13 percent had errors that affected their credit scores, and 5 
percent had errors serious enough to be denied or pay more for 
credit.\13\ The FTC's study involved two pilot studies, 1,000 study 
participants, and was nearly a decade in the making.
---------------------------------------------------------------------------
    \12\ Id.
    \13\ Id. at i.
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    The rate of inaccuracy found by the FTC study is unacceptable, 
especially given that many of these errors are preventable. It 
translates into 40 million American who have errors in their credit 
reports, 26 million of whom have lower scores as a result, and 10 
million of whom have errors seriously damaging enough to cause them to 
be denied or charged more for credit or insurance or even be denied a 
job.
    We also note that the FTC study found that the percentage of 
serious errors was many greater than the percentage reported by a May 
2011 industry-funded study, which had claimed that only 0.51 percent of 
credit reports had errors serious enough to cause the consumer to be 
denied or pay more for credit. \14\
---------------------------------------------------------------------------
    \14\ Michael Turner et al., Policy and Economic Research Council, 
U.S. Consumer Credit Reports: Measuring Accuracy and Dispute Impacts, 
May 2011.
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B. Fixing the System: The Roles and Responsibilities of the Nationwide 
        CRAs, 
        Empowered Consumers, the FTC and the CFPB
1. The culpability of the nationwide CRAs
    Obviously, the nationwide CRAs have the critical role in fixing 
errors caused by their own procedures, such as mixed files. However, 
they also bear a very real responsibility for furnisher errors, which 
are aided and abetted by the failures of the nationwide CRAs to 
exercise adequate oversight. The nationwide CRAs unquestioningly rely 
on furnishers and provide little oversight of the quality of the 
information being reported. Any error sent by the furnisher in its 
computer file automatically appears in the consumer's credit report, 
sometimes even when the information patently contradicts information 
appearing in other parts of the credit report. The classic example is 
reporting a consumer as ``deceased'' when active trade-lines are being 
reported by other furnishers, clearly indicating that the consumer is 
still alive.\15\
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    \15\ See, e.g., Perez v. Trans Union, L.L.C., 526 F. Supp. 2d 504, 
509, 510 (E.D. Pa. 2007) (question of fact for jury as to whether CRA 
should have detected inaccuracy in reporting consumer as deceased even 
though payments were reported as being made to his current accounts).
---------------------------------------------------------------------------
    The FCRA imposes ``grave responsibilities'' on consumer reporting 
agencies to promote accuracy, and to act with ``fairness, impartiality, 
and a respect for the consumer's right to privacy.'' \16\ The FCRA 
requires them to have and follow ``reasonable procedures to ensure 
maximum possible accuracy.'' \17\
---------------------------------------------------------------------------
    \16\ See 15 U.S.C. Sec. 1681.
    \17\ See 15 U.S.C. Sec. 1681e(b).
---------------------------------------------------------------------------
    Unfortunately, there are very logical reasons, and tremendous 
incentives for the nationwide CRAs NOT to exclude bad actors or require 
stricter measures to reduce furnisher errors. The credit reporting 
industry is unlike most other American industries in a fundamental 
respect: the paying clients of the credit reporting industry are not 
consumers, but the very creditors and debt collectors that the CRAs 
should be--but are not--screening the data of, auditing, and 
overseeing.
    Moreover, consumers have no say in whether their information is 
included in the nationwide CRAs' databases. Most Americans cannot avoid 
having a credit history. Unless they are very wealthy, consumers will 
need to borrow money if they want to buy a house or attend college. 
Thus, unlike almost all other business relationships, consumers who are 
unhappy with the actions of a CRA cannot vote with their feet--they 
cannot remove the information or take their business elsewhere.
    On the other hand, debt collectors and creditors do have the 
ability to switch between CRAs if they wish. Therefore vigorous 
oversight by the nationwide CRAs, or tougher requirements for accuracy 
are likely to drive furnishers away. The biggest impact of excluding a 
furnisher is to cost the nationwide CRAs a paying customer; the 
nationwide CRAs don't profit and indeed lose money from making sure 
consumers are treated fairly. Furthermore, furnishers want all negative 
information that might possibly relate to the consumer, even if the 
information is of uncertain accuracy, It costs creditors more if 
negative information is unreported than if it is falsely reported. 
Thus, the nationwide CRAs have incentives to develop systems that are 
overly inclusive of negative information.
    In short, traditional competitive market forces provide little 
incentive for CRAs to incur the costs to institute new procedures that 
ensure information is accurate or to undertake investigations to 
correct errors, since these activities primarily benefit consumers. Up 
until the creation of the CFPB, the major force of change to correct 
errors was consumers themselves who were willing to go to court to 
enforce their rights under the FCRA.
2. The vital importance of private rights and empowered consumers; the 
        need for consumer remedies
    In 1970, Congress recognized that no one has a bigger stake in the 
accuracy of a credit report than the consumer whose name is on it. And 
for over 40 years, private litigants have provided the most significant 
enforcement of the FCRA. A Westlaw search for reported Fair Credit 
Reporting Act case citings yields over 1,500 cases. In contrast, there 
has been much less enforcement by Federal regulators. The FTC has only 
been able to bring several dozen FCRA cases, and most of them did not 
involve the accuracy of the nationwide CRAs.
    New rights were added to the FCRA in 1996 and 2003 to protect 
consumers, but in compromises with the credit industry, consumers were 
prohibited from seeking relief in court to enforce some of these 
rights. Most notably, many of the responsibilities placed on furnishers 
are only enforceable by government agencies. This includes a 
prohibition on reporting information that the furnisher knows or has 
reason to believe is inaccurate, and the requirement that furnishers 
handle credit reporting disputes sent directly to them.\18\
---------------------------------------------------------------------------
    \18\ See 15 U.S.C. Sec. 1681s-2(d).
---------------------------------------------------------------------------
    I would urge Congress to provide consumers with the right, 
currently lacking under the FCRA, to ask a judge to tell a furnisher or 
a CRA: ``fix that report.'' With one minor exception, the FCRA does not 
provide for declaratory or injunctive relief in actions by private 
parties. The vast majority of courts have held that courts do not have 
the power to issue an injunction under the FCRA. The FCRA is an anomaly 
in this respect, as the Supreme Court decision in Califano v. Yamasaki 
\19\ provides the basis for injunctive relief for most other laws.
---------------------------------------------------------------------------
    \19\ 442 U.S. 682, 99 S. Ct. 2545, 61 L. Ed. 2d 176 (1979).
---------------------------------------------------------------------------
    Providing courts with explicit authority to issue injunctive relief 
would further the purpose of the FCRA to ``assure maximum possible 
accuracy.''
3. The role of the FTC
    During the past four years, the FTC has significantly increased its 
examination, investigation and enforcement actions against credit 
report agencies, and in particular, the debt collection and debt buying 
industry that have littered consumer reports with inaccurate and 
unverifiable information.
    For example, in an important case last January, the FTC took 
enforcement action against Asset Acceptance in part over its failure to 
properly investigate consumer disputes and reporting of information it 
had reason to suspect was inaccurate.\20\ I would hope that the FTC 
continues to aggressively pursue these types of actions and seek 
remedies that prevent the flow of inaccurate and/or unverifiable 
information to consumer reports. Further, despite FTC enforcement 
actions, the CRAs continue to willingly accept information from 
companies, like Asset Acceptance, that have a proven history of 
providing inaccurate data.
---------------------------------------------------------------------------
    \20\ Complaint, United States v. Asset Acceptance, LLC, Case No. 
8:12-cv-182-T-27 (M.D. Fla. Jan 30, 2012).
---------------------------------------------------------------------------
    The FTC must also continue to enforce the FCRA's provisions 
requiring culpable CRAs to follow reasonable procedures to ensure 
maximum possible accuracy of information included in reports. For 
example, last year the FTC took action against HireRight Solutions, 
alleging that the CRA, HireRight Solutions, failed to follow reasonable 
procedures to prevent patently inaccurate consumer report information 
from being provided to employers and these failures led to consumers 
being denied employment or other employment-related benefits. The FTC's 
consent order imposed a $2.6 million civil penalty against HireRight 
Solutions and prohibited future violations of the FCRA. Vigorous 
enforcement of the FCRA, in conjunction with the CFPB, in order to 
maintain accuracy and fairness in the consumer reporting system must 
remain a top priority for the FTC.
4. The role of the CFPB
    When the Dodd-Frank Act created the CFPB, Congress recognized that 
credit bureaus required greater oversight and there needed to be reform 
of the industry as a whole. Dodd-Frank gave the CFPB rule-writing, 
supervisory and enforcement authority over credit bureaus that were 
never provided to the FTC. The CFPB can write regulations to implement 
almost all of the provisions of the FCRA, including the provisions 
regarding accuracy and the dispute process. In addition, the CFPB has 
new supervisory authority over the ``larger participants'' of the 
credit reporting industry that have more than $7 million in annual 
receipts, which includes the nationwide CRAs. The CFPB must use its 
supervisory authority to fully investigate whether consumer reporting 
agencies are complying with the FCRA and other consumer financial laws 
and work with the FTC to better enforce these violations.
II. The FCRA-Mandated Credit Reporting Dispute System, As Designed and 
        Implemented by the Nationwide CRAS Provides Little Relief for 
        Consumers
A. A Long-Documented History of Blatant Violation
    The FCRA requires both CRAs and furnishers to conduct 
``reasonable'' investigations when a consumer disputes an item in his 
or her credit report as inaccurate or incomplete. Instead, it is a 
perfunctory, automated process that consists of nothing more than 
translating consumer disputes into a two-or three-digit code, 
forwarding that code and a one-page electronic form to the furnisher, 
and parroting whatever the furnisher states in response.\21\ In this 
highly automated, computer-driven process, a consumer's dispute is 
communicated using a Consumer Dispute Verification form (CDV). An 
automated version of the form, communicated entirely electronically, is 
known as Automated Consumer Dispute Verification (ACDV). Furthermore, 
all three nationwide CRAs collaborated through the Consumer Data 
Industry Association to create an automated on-line reinvestigation 
processing system called ``e-OSCAR.''
---------------------------------------------------------------------------
    \21\ Chi Chi Wu, National Consumer Law Center, Automated Injustice: 
How a Mechanized Dispute System Frustrates Consumers Seeking to Fix 
Errors in Their Credit Reports (Jan. 2009), available at www.nclc.org/
issues/credit_reporting/content/automated_injustice.pdf.
---------------------------------------------------------------------------
    Approximately 44 percent of consumer disputes are written.\22\ 
These written disputes often consist of a detailed letter with 
supporting documentation, painstakingly written by concerned and even 
desperate consumers. The code, assigned to the consumer dispute and 
generated by dispute handlers, is sent to the furnisher and is often 
communicated alone, without supporting documentation provided by the 
consumer.
---------------------------------------------------------------------------
    \22\ Consumer Financial Protection Bureau, Key Dimensions and 
Processes in the U.S. Credit Reporting System: A review of how the 
Nation's largest credit bureaus manage consumer data, December 2012, at 
27, available at http://www.consumerfinance.gov/reports/key-dimensions-
and-processes-in-the-u-s-credit-reporting-system.
---------------------------------------------------------------------------
    In 2009, the National Consumer Law Center issued an in-depth report 
about the details, nature, and abuses of the credit reporting dispute 
system in a report called Automated Injustice: How a Mechanized Dispute 
System Frustrates Consumers Seeking to Fix Errors in Their Credit 
Report. The CFPB's report confirmed the automated nature and hands-off 
approach of the nationwide CRAs, and documented that in 85 percent of 
cases, the CRA does no more than pass along the dispute to the 
furnisher. Most notably, CFPB Director Cordray noted that, as consumer 
advocates have long alleged, ``the documentation 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.'' \23\
---------------------------------------------------------------------------
    \23\ Prepared Remarks by Richard Cordray, Director of the Consumer 
Financial Protection Bureau, Credit Reporting White Paper Press Call, 
December 13, 2012.
---------------------------------------------------------------------------
    I believe this failure to pass along documentation submitted by the 
consumer deliberately violates the FCRA's requirement that a CRA 
include ``all relevant information'' about the dispute that the CRA 
received from the consumer.\24\ And if all relevant communication is 
not forwarded, the furnisher cannot comply with the FCRA's requirement 
to ``review all relevant information'' provided by the CRA.\25\
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    \24\ See U.S.C. Sec. 1681i(2).
    \25\ See 15 U.S.C. Sec. 1681s-2(b)(1)(B).
---------------------------------------------------------------------------
B. The Nationwide CRAs' Bias against Consumers Violates the FCRA
    The nationwide CRAs' bias in favor of furnishers--their 
unquestioning acceptance of the furnisher's response despite being 
presented with evidence and documentation by the consumer--violates the 
FCRA's protection for consumers. The FCRA places the burden of proof in 
a dispute investigation on the furnisher, not the consumer. The Act 
provides that if disputed information is inaccurate or cannot be 
verified, it should be deleted. See 15 U.S.C. Sec. 1681i(a)(5)(A). 
Thus, if a consumer provides evidence and documentation that she is 
correct, and the furnisher responds without such evidence, the disputed 
information is ``unverifiable'' by nature, and should be deleted. Yet 
the nationwide CRAs not only illegally place the burden of proof on the 
consumer, they go further by always siding with the furnisher and 
automatically accepting the furnisher's position--even when, in 40 
percent of the cases, the furnisher is a debt collector or debt buyer. 
This is not only wrong; it is illegal under the FCRA.
C. Furnishers Also Engage in Perfunctory ``Investigations,'' with 
        Encouragement from the Nationwide CRAs
    For their part, furnishers often also conduct non-substantive and 
perfunctory ``investigations.'' These procedures consist of nothing 
more than verifying the challenged data by comparing the notice of 
dispute with the recorded information that is itself the very subject 
of the dispute. The nationwide CRAs promote ``Automated Batch 
Interface'' which ``allows Data Furnishers to receive Consumer Dispute 
Verification (ACDV) requests in XML batch file format'' so that they 
can handle disputes using a mass production method.\26\
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    \26\ e-OSCAR, Automated Batch Interface, at http://www.e-oscar.org/
automated-batch-interface.aspx.
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D. What Needs to be Done
    It is well past time for the credit reporting dispute system to be 
reformed. First, the nationwide CRAs must be required to have 
sufficiently trained personnel to actually review, and conduct real 
investigations of, consumer disputes. Nationwide CRAs must also be 
required to forward to furnishers actual copies of the documents 
submitted by consumers. Furthermore, in those circumstances where the 
CRA personnel truly cannot determine whether the consumer or the 
furnisher is correct, the information should be deleted. After all, the 
FCRA requires information to be deleted if it ``cannot be verified.'' 
\27\ Thus, the burden should be on the furnisher, not the consumer, 
when there is a credit reporting dispute.
---------------------------------------------------------------------------
    \27\ See 15 U.S.C. Sec. 1681i(a)(5)(A).
---------------------------------------------------------------------------
    Debt collectors must be subject to even stricter screening and 
oversight. There should be a flat-out prohibition against the 
nationwide CRAs to engage in parroting when a debt collector is 
involved. Finally, as discussed above, consumers should have the right 
to ask a court to order the nationwide CRAs and furnisher to fix their 
credit reports when there is an error.
III. Specialty Consumer Reporting Agencies
    ``Specialty consumer reporting agencies'' compile and maintain 
files relating to criminal records, residential or tenant histories, 
check-writing histories, employment histories, and insurance claims. 
These agencies are not required to be licensed or even registered, nor 
is there any one source identifying all of these companies. Therefore, 
as of today, there is no centralized location to obtain the kind of 
information required to determine the accuracy of the information these 
agencies are collecting or being used to determine the ``worthiness'' 
of consumers for employment, housing and/or insurance.
    Despite the general lack of transparent information about these 
specialty bureaus, consumer advocates have discovered a number of 
troubling problems with this growing industry.\28\ For instance, few 
users of the reports generated by these bureaus comply with the FCRA's 
requirement to provide ``adverse action'' notices to the consumers (or 
potential employees or tenants) that a report has been used against 
them. Therefore, many people are denied employment or housing and never 
know that the reason for the denial was a background check that might 
have been filled with inaccurate information.
---------------------------------------------------------------------------
    \28\ See Persis S. Yu & Sharon M. Dietrich, Nat'l Consumer Law 
Cent., Broken Records: How Errors by Criminal Background Checking 
Companies Harm Workers and Businesses, April 2012.
---------------------------------------------------------------------------
    Additionally, although the FCRA does provide consumers with the 
right to preemptively review the information in their consumer file, 
this right is virtually meaningless for specialty consumer reports. 
There are hundreds, if not thousands, of specialty consumer reporting 
agencies operating in the United States. Unlike the big three credit 
bureaus, there is no centralized location where a consumer can go to 
order his or her background, or specialty consumer/credit report.
    Fortunately, the CFPB has recently released a list of contacts for 
some of the largest specialty credit reporting agencies. However, it 
only scratches the surface of the number of background checking 
agencies. With thousands of specialty consumer reporting agencies 
operating, a consumer cannot predict which company his or her future 
employer, insurance company, or landlord will use.
    Further, dispute rights are similarly meaningless with specialty 
consumer reports. Even if a consumer is successful in disputing 
information on his or her report (in the rare instance she actually 
discovers a report was used), the employment or housing opportunity may 
be gone, and the chances of that report being used again are small. The 
only way to provide meaningful protections to consumers is to take 
greater steps to ensure the accuracy of the reports from the outset.
    To address some of the problems with the specialty bureaus, 
consumers need, at the least, the following protections:

  1.  Require all consumer reporting agencies to be licensed and 
        registered.

  2.  Require all consumer reporting agencies to undergo independent 
        auditing of their data and records for accuracy.

  3.  The CFPB must continue to monitor and collect data regarding the 
        larger participant consumer reporting agencies and draft 
        regulations detailing matching criteria and ensuring that 
        information on consumer reports is up to date.

  4.  The FTC and the CFPB must actively investigate and bring 
        enforcement actions against specialty consumer reporting 
        agencies who fail to comply with the FCRA.
IV. Other Credit Reporting Issues That Congress Must Address
    Beyond the issues addressed above, there are other areas where 
Congressional action is necessary to ensure our Nation's credit 
reporting system works fairly for consumers and the general 
marketplace. They include:

   Consumers lack critical information regarding credit scores. 
        They do not have the right to obtain a copy of the credit score 
        most commonly used by lenders (FICO), or other types of scores 
        based on their credit or consumer reports, such as insurance 
        credit scores, tenant screening scores, or healthcare scores. 
        They do not have the right to a free annual credit score. We 
        strongly support S. 471, which would provide consumers with 
        access to the real credit score used by businesses passing 
        judgement about their credit ``worthiness.''

   Millions of Americans have their credit reports damaged by 
        medical debt, even when the debt is the result of insurance 
        disputes or billing errors by providers, or is ultimately 
        settled or paid off. We strongly support S. 160, the Medical 
        Debt Responsibility Act, which would remove paid or settled 
        medical debts from credit reports. This approach will provide 
        tremendous benefits to consumers, and indeed is probably the 
        simplest and easiest ``quick fix'' available to improve the 
        credit records of a substantial number of consumers.

   The use of traditional credit reports by employers is a 
        growing practice that is harmful and unfair to American 
        workers. Despite many good reasons to avoid engaging in this 
        practice, sixty percent of employers do so today. We urge 
        Congress to restrict the use of credit reports in employment to 
        only those positions for which it is truly warranted, such as 
        those requiring a national security clearance.

   The Fair and Accurate Credit Transactions Act of 2003 
        (FACTA) inadvertently deprived consumers of a 30 year-old pre-
        existing right they had to enforce the FCRA requirement that 
        users of credit reports disclose to consumers when an ``adverse 
        action'' is taken, i.e., credit or insurance is denied or 
        provided on less favorable terms, on the basis of an 
        unfavorable credit report. Congress can easily fix this 
        scrivener's error and should do so, as it was never part of the 
        legislative bargain struck by FACTA.

    Thank you for the opportunity to testify, and I look forward to 
your questions.

    Senator McCaskill. Thank you, Mr. Rheingold.
    Dr. Beales.

         STATEMENT OF J. HOWARD BEALES III, PROFESSOR,

            STRATEGIC MANAGEMENT AND PUBLIC POLICY,

        GEORGE WASHINGTON UNIVERSITY SCHOOL OF BUSINESS

    Dr. Beales. Thank you very much, Madam Chairman. I appeared 
before this committee many times between 2001 and 2004 when I 
was the head of consumer protection at the FTC, but it's nice 
to have the opportunity to be back in an academic capacity.
    Let me make five essential points about credit reporting 
that I think we have to keep in mind. One is that credit 
reporting is vital. Consumer spending drives the economy. It's 
two-thirds of gross domestic product. And that depends on the 
availability of affordable credit. In turn, widespread credit 
availability depends on an efficient system for credit 
reporting.
    Efficient credit reporting makes possible the miracle of 
instant credit, which enables a consumer to visit a car dealer 
and arrange financing for the transaction probably in less time 
than it takes to negotiate the price. It enables retailers to 
arrange on-the-spot discounts for consumers who agree to open a 
new credit account with the retailer. Such arrangements offer 
significant benefits to both consumers and retailers and they 
facilitate economic activity.
    Our credit reporting system also facilitates competition 
among lenders, to the benefit of consumers. Using credit 
reports, lenders can readily identify consumers who deserve a 
better deal. The ability to offer credit on terms that lenders 
find profitable and consumers find more attractive obviously 
benefits everyone.
    Finally, efficient credit reporting is important to small 
businesses. Decisions to lend to a small business depend on the 
lender's assessment of the viability of the business, but they 
also depend in many instances on the personal creditworthiness 
of the owner of the business.
    Second, risk-based pricing of credit benefits consumers. 
Economic efficiency requires that people who create costs must 
pay them. If not, they'll create excessive costs that impair 
economic performance. That's why it's both equitable and 
efficient that teenage males pay higher auto premiums than 
teenage females or older men. Teenage males are higher risk 
drivers. They should and they do pay higher insurance premiums.
    The same principles apply in credit markets. Some consumers 
manage their financial obligations responsibly and pay their 
bills on time. Others borrow more than they can afford and in 
the end default. There's no reason that good credit risks 
should be expected to subsidize the choices made by those who 
are less likely to repay their debts.
    Importantly, making loans based on objective risk 
assessment reduces the risk of default by 20 to 30 percent 
compared to lenders who simply use judgment about who deserves 
credit and who doesn't.
    Risk-based pricing based on credit scores offers two 
important benefits. First, responsible borrowers, undoubtedly 
the vast majority, pay less for credit, as much as 8 percentage 
points less in one study.
    Second, risk-based pricing substantially expands credit 
availability. In the ``one size fits all'' world of 
standardized, plain vanilla credit products, the lender's only 
choice was yes or no. For marginal borrowers the answer was 
generally no. Risk-based pricing introduced a new alternative, 
yes, but at a higher price, commensurate with the additional 
risk.
    The result was a substantial expansion in credit 
availability. In 1970, only 2 percent of the lowest income 
quintile had credit cards. After the introduction of risk-based 
pricing, by 1998 that had risen to 28 percent of that lowest 
quintile with credit cards.
    Third, more information in the system leads to better 
performance. There's an estimated 30 to 50 million consumers 
who do not have sufficient credit information in their files to 
qualify for mainstream credit. Instead, they're left to rely on 
high-cost sources such as overdraft protections or pawn shops. 
Studies have shown that adding positive payment information 
from utilities and telecommunications providers, instead of 
only the negative information that most now report, could 
improve the credit scores of those with thin files that 
otherwise would not have sufficient information to support a 
reliable credit score.
    Fourth, accuracy and completeness are both important. 
Credit reporting agencies face a difficult task of matching 
incoming information to the right file when identifying 
information is incomplete, as it often is in a voluntary 
system. It's obviously a mistake to include information in my 
file that is not in fact about me. That's the kind of error 
that's the mixed file report, error, and that the FTC report 
examines.
    More subtly, it's also an error to leave out information 
that should be in my file simply because there's some ambiguity 
about the match. Such errors of omission reduce the value of 
the credit report as a predictive tool. In some cases, the 
failure to include relevant information may leave a consumer 
with a thin file and limited access to conventional credit. 
Either mistake reduces the accuracy of risk assessments, and 
that's the ultimate goal of the reporting system.
    Moreover, the risk of a mistake depends on the quality of 
the information voluntarily provided by furnishers, because 
even the best matching algorithm can't overcome bad data.
    Finally, different risks are different. The best prediction 
of risk depends on the particular risk involved. Different 
information may be useful and different risk analytic 
approaches may be more useful for particular risks. That's why 
there are some CRAs that specialize in particular risks to get 
that kind of information to enable better predictions. Almost 
inevitably, these CRAs are significantly smaller than the big 
three, however, and the regulatory compliance costs may be more 
significant.
    Thank you again for the opportunity to testify today and I 
look forward to your questions.
    [The prepared statement of Dr. Beales follows:]

   Prepared Statement of J. Howard Beales III, Professor, Strategic 
 Management and Public Policy, George Washington University School of 
                                Business
    Thank you very much for the opportunity to be here today. In my 
limited time, I want to make five key points.
1.  Credit reporting is vital
    Consumer spending accounts for over two-thirds of U.S. gross 
domestic product. The wide availability of affordable credit lubricates 
this spending: roughly 2.8 billion in outstanding consumer credit 
enables numerous transactions that would not otherwise occur.
    In turn, widespread credit availability depends on an efficient 
system for credit reporting. Lenders cannot economically make loans 
without understanding the potential risks they face, and credit 
reporting is an essential tool for objective risk assessments. 
Efficient credit reporting makes possible the miracle of instant 
credit, which enables a consumer to visit a car dealer and arrange 
financing for the transaction, probably in less time than it takes to 
negotiate the price. It enables retailers to offer on the spot 
discounts for consumers who agree to open a new credit account with the 
retailer. Such arrangements offer significant benefits to both 
consumers and retailers, and they facilitate economic activity.
    Our credit reporting system also facilitates competition among 
lenders, to the benefit of consumers. Using credit reports, lenders can 
readily identify consumers who deserve a better deal. The ability to 
offer credit on terms that lenders find profitable, and consumers find 
more attractive, obviously benefits everyone.
    Efficient credit reporting is also important to small businesses. 
Decisions to lend to a small business depend on the lender's assessment 
of the viability of the business, but the also depend on the personal 
creditworthiness of the owner of the business. Thus, credit reporting 
is often critical to decisions about whether to lend to the small 
businesses that are important elements of job creation.
2. Risk Based Pricing Benefits Consumers
    A fundamental principle of economic efficiency requires that those 
who create costs must pay them. If not, they will create excessive 
costs that impair economic performance. This is why it is both 
equitable, and efficient, that teenage males pay higher auto insurance 
premiums than teenage females or older men--teenage males are higher 
risk drivers. They should, and do, pay higher insurance premiums.
    The same principles apply in credit markets. Some consumers manage 
their financial obligations responsibly, and pay their bills on time. 
Others borrow more than they can afford, and, in the end, default. 
There is no reason that good credit risks should be expected to 
subsidize the choices made by those who are less likely to repay their 
debts.
    Importantly, making loans based on objective risk assessment 
reduces the risk of default. Some studies indicate that the delinquency 
risk when decisions are based on scoring algorithms from credit report 
data are 20 to 30 percent lower than the risk of delinquency when the 
lender uses ``judgment'' to decide which consumers deserve a loan.\1\ 
Moreover, such judgmental decisions often rely on stereotypes about 
which borrowers are most likely to repay--they are, in short, 
discriminatory.
---------------------------------------------------------------------------
    \1\ Peter McCorkell, ``The Impact of Credit Scoring and Automated 
Underwriting on Credit Availability,'' in Thomas A. Durkin and Michael 
E. Staten, eds., The Impact of Public Policy on Consumer Credit (2002).
---------------------------------------------------------------------------
    Risk based pricing based on credit scores offers two important 
benefits. First, responsible borrowers--undoubtedly the vast majority--
pay less for credit. The introduction of risk based pricing reduced 
interest rates for these borrowers by as much as 8 percentage 
points.\2\
---------------------------------------------------------------------------
    \2\ Mark Furletti, Credit Card Pricing Developments and Their 
Disclosure, Discussion Paper, Payment Cards Center, Federal Reserve 
Bank of Philadelphia (January 2003) at 8.
---------------------------------------------------------------------------
    Second, risk based pricing substantially expanded credit 
availability. In the ``one size fits all'' world of standardized, plain 
vanilla credit products, the lender's only choice was yes or no. For 
marginal borrowers, the answer was generally no. Risk based pricing 
introduces a new alternative: yes, but at a higher price, commensurate 
with the additional risk. The result was a substantial expansion in 
credit availability. In 1970, only 2 percent of the lowest income 
quintile had any credit card; by 1998, after the introduction of risk 
based pricing, the percentage had increased to 28 percent.\3\
---------------------------------------------------------------------------
    \3\ Thomas A. Durkin, ``Credit Cards: Use and Consumer Attitudes, 
1970-2000,'' Federal Reserve Bulletin, September, 2000, at 626.
---------------------------------------------------------------------------
    Thus, well-functioning credit markets are an essential component of 
economic prosperity. Consumer reporting has played a key role in 
providing U.S. consumers with rapid access to credit. The development 
of the consumer reporting system, with its sophisticated risk models 
and automated underwriting, has contributed greatly to making credit 
more widely, inexpensively, and rapidly available. The system also has 
narrowed the gap in credit availability between high and low income 
consumers.
3. More information in the system leads to better performance
    An estimated 30 to 50 million consumers do not have sufficient 
credit information in their files to qualify for affordable mainstream 
credit.\4\ Instead, they are left to rely on such high cost credit 
sources as overdraft protection, short term loans, or pawn shops. 
Studies have shown that adding positive payment information from 
utilities and telecommunications providers, instead of only the 
negative information that most now report, can improve the credit 
scores of those with thin files that otherwise do not have sufficient 
information to support a reliable credit score.\5\ Such additional 
information can help to further reduce the differences in the 
accessibility of credit on reasonable terms.
---------------------------------------------------------------------------
    \4\ PERC, Alternative Data Initiative, available at http://
perc.net/content/alternative-data-initiative-adi (May 3, 2013).
    \5\ Michael A. Turner and Amita Agarwal, ``Using non-traditional 
data for underwriting loans to thin-file borrowers: Evidence, tips and 
precautions,'' 1 Journal of Risk Management in Financial Institutions 
165 (2008).
---------------------------------------------------------------------------
4. Accuracy and completeness are both important
    Credit reporting agencies face a difficult task of matching 
incoming information to the right file when identifying information is 
incomplete, as it often is in a voluntary system. It is obviously a 
mistake to include information in my file that is not in fact about me. 
This is the kind of error that the recent FTC report examines. More 
subtly, it is also an error to leave out information that should be in 
my file simply because there is some ambiguity about the match. Such 
errors of omission obviously reduce the value of credit reports to 
lenders, because a report that does not include all of the relevant 
information about a particular consumer is less likely to be predictive 
of future behavior. In some cases, the failure to include relevant 
information may leave a consumer with a thin file and limited access to 
conventional credit. Either mistake reduces the accuracy of risk 
assessments, which is the ultimate goal of the system. Moreover, the 
risk of a mistake depends on the quality of the information voluntarily 
provided by data furnishers. Even the best matching algorithms cannot 
overcome bad data.
5. Different risks are different
    The best prediction of risk depends on the particular risk 
involved. Different information may be especially valuable for certain 
kinds of risks. Moreover, the population of consumers attracted to 
particular financial products is likely to differ, leading to 
differences in the best risk prediction model. It is for this reason 
that many, if not most, users of credit reports develop their own 
scoring models. It is also for this reason that some CRAs specialize in 
particular types of risks, such as the risks involved in extending 
short term or liquidity credit. By specializing, they can build 
databases that contain the right information, and the right risk 
assessment analytics, to serve particular markets. Almost inevitably, 
however, these CRAs are significantly smaller than the big three, and 
regulatory compliance costs may be more significant.
    Thank you again for the opportunity to testify today. I look 
forward to your questions.

    Senator McCaskill. Thank you very much.
    Senator Heller.
    Senator Heller. Thank you, Madam Chairman.
    Mr. Beales, you just hit on a topic right there at the end 
of your statement, the fact that we have smaller reporting 
agencies out there, but none of them can compete really with 
the big three, or that their costs, of course, are 
substantially higher because they don't have as many reports 
coming through their system.
    Why don't we have four or five or maybe ten large CRAs? Is 
there a lack of competition in this process? Or why are we 
limiting ourselves? I know this is a private sector effort, but 
for me to think that there are only three--why aren't there 
four or five, ten, half a dozen, twelve?
    Dr. Beales. Well, as an economist, this is sort of the 
market outcome. There were at one point thousands of credit 
reporting agencies and over time they consolidated, and what we 
ended up with as sort of the market-determined right number of 
credit reporting agencies with nationwide databases and general 
purpose credit was three.
    Senator Heller. So the market decides?
    Dr. Beales. The market decided that. This was very much the 
outcome of a market process.
    There are a lot of other, smaller credit reporting agencies 
that really have a niche sort of competitive strategy, if you 
will. They are competitors, but they don't try to do general 
credit in the whole market. They try to do payday loans or 
particular--or rental decisions, particular kinds of credit or 
credit-like decisions where they can build a better database to 
answer that set of questions.
    Senator Heller. I've obviously gotten my list of complaints 
coming through my office on CRAs. Most of them have to do with 
they went down to buy a car and two were fine, one was off, and 
they had to deal with that. But obviously Ms. Thomas's 
situation is far different than that. How widespread is that? 
Is this a unique situation for her, or are there a lot of 
people that find themselves in the same situation as Ms. 
Thomas? Anybody who wants to answer that, please.
    Dr. Beales. I don't know.
    Mr. Rheingold. I would say there are a lot of people in 
that situation. We hear stories like this all the time. It is 
because of the way data is matched, because of the mismerging 
problem, the mixed file problem, which exists in a lot of 
instances. That's exactly what happened. Judy Thomas, I assume 
because her first name is Judy and the other person's name is 
Judy and because their Social System number was close or 
something--do you know why those two things were matched? I 
were merged with this person because their data collection 
system simply doesn't do a good enough job when they provide 
reports. And intentionally, I might add; they intentionally 
merge those files because the businesses who are their 
customers would rather have over--would rather have more 
information than less. So they're not as finite as they could 
be in terms of creating people's consumer files.
    Senator Heller. Mr. Pratt?
    Mr. Pratt. So, disagreeing just a little bit here. I know 
that's a shock to you. Lenders do not want any data on their 
desk other than the data about the right consumer. So they want 
the right Judy Thomas. They don't want any extra data in there 
any more than anybody else. There's no market incentive to do 
that.
    We see it as, these are smaller--this is a very small 
percentage of all the issues that are out there, and this is 
why we have this new working group that we've established to 
focus on that, to try to unpack these and decide where these 
come from, or how can we resolve them quickly and get it right 
the first time.
    So that's really the key to us. So it doesn't matter 
whether it's a big number or a small number because it is 
affecting a consumer in a very serious way.
    But I will tell you that I'm looking at data from the FTC 
report and they're saying roughly 10 percent of consumers are 
saying the account's not mine. That's not necessarily a mixed 
file, but it's indicative of a consumer who says, I have some 
question about an account on my report. But that's 10 percent 
out of more than a couple of thousand different disputes that 
were going through this FTC report.
    Senator Heller. But you said in your testimony that 95 
percent of consumers were satisfied with the report.
    Mr. Pratt. Exactly. We're measuring----
    Senator Heller. But if that's 95 percent, you've got 200 
million people that have reports.
    Mr. Pratt. Those are still big numbers.
    Senator Heller. Five percent of that, that's 10 million. 
Are there 10 million Judy Thomas's out there?
    Mr. Pratt. No, sir. I think there are 10 million consumers 
who are still not satisfied with the results. Now, that may 
come for a couple of different reasons. Something that we've 
dealt with in our testimony, Senator, that I think is important 
is that the consumer relations process is also affected by 
fraudulent credit repair. These are companies that will tell a 
consumer: I promise to delete information from the credit 
report that is either unverifiable or inaccurate. 
``Unverifiable'' means they will repetitively dispute the same 
information until a credit union says: I give up; I'm just 
going to stop reporting this data, even though it's accurate, 
even though it's correct. So there's a credit repair industry 
out there. The Credit Repair Organizations Act is enforced by 
the Federal Trade Commission. They do a good job. States 
attorneys general do a good job. More needs to be done in that 
space. And that clogs our system. About, I'd say, 17 to 20 
percent of all disputes come from credit repair, and in fact 40 
percent of the written disputes come from credit repair. So 
that's one of the challenges we have as we're pushing disputes 
through the system, is to unpack those that are repetitive 
fraudulent versus those that are coming from honest consumers 
who need to have their problem resolved.
    Senator Heller. Thank you.
    Senator McCaskill. Senator Klobuchar.
    Senator Klobuchar. Thank you very much.
    Thank you, all of you. I'm trying to be rational here, as I 
think if only Ms. Thomas had a harder name she'd be fine. That 
just can't be our answer here.
    So I was thinking about this, your numbers, Mr. Pratt, 
where you said: Oh, it's OK because only 2 percent of them are 
problems and only 5 percent are dissatisfied. Is that right?
    Mr. Pratt. I didn't say anything was OK.
    Senator Klobuchar. No. OK, forget about that.
    Mr. Pratt. I just want to be clear on that.
    Senator Klobuchar. But just showing these good numbers.
    Mr. Pratt. You're right, big picture. Absolutely, big 
picture.
    Senator Klobuchar. And I'm trying to compare that to the 
FTC report, because FTC looked at 3,000 credit reports. They 
found that 21 percent had a confirmed material error. They 
found that 5 percent of the 3,000 had error significant enough 
to change their credit risk profiles.
    Mr. Pratt. There you go, and that's the real key.
    Senator Klobuchar. OK. Well then, let's get into that 
number.
    Mr. Pratt. Right.
    Senator Klobuchar. So 200 million Americans use credit 
reports, is that right?
    Mr. Pratt. There are more than 200 million consumers with a 
credit report.
    Senator Klobuchar. Great. That means 40 million of them 
have errors that could significantly affect their reports, if 
you take the FTC 3,000 credit reports and extrapolate it out.
    Mr. Pratt. Well, you're right, although less--it's about 98 
percent of credit reports that don't contain those errors. But 
here's the key, and this is why we put a new group together to 
look at data quality, Senator. That is, when you look at the 
data quality the disputes that went through the system--it's 
boring, it may not be exciting, but this is what you have to do 
to get a data system to work better. I'm telling you right now, 
for example, about 24 percent of consumers disputed a balance. 
Balances oftentimes are a result of consumers----
    Senator Klobuchar. I want to get those numbers. If we just 
extrapolate them out, if its instead of 21, its 20 percent had 
some confirmed error, so that's how I got to the 40 million.
    Mr. Pratt. Right.
    Senator Klobuchar. But if you go to the 5 percent, then 
you're still at--you're still at 10 million people.
    Mr. Pratt. Right.
    Senator Klobuchar. Ten million people is a lot of people. 
And the reason--I figure we're like the canaries in the coal 
mine up here. So when we start having people come into our 
offices all over the country, you have a real problem. If it's 
just one person I see in a parade, fine. But when we start 
having dozens and hundreds of people contacting our office, 
then there's a problem.
    So just, this number that you're throwing around on the 98 
percent and the 95 percent bothers me, because we're still 
dealing--if banks said: Oh, guess what, 2 percent of our 
customers have less money than they thought they had, that 
would be a big scandal if their accounts were reduced by even 
500 bucks and it was suddenly missing. That would be a big 
scandal.
    Mr. Pratt. Senator, if I've said it wrong--I've said it 
wrong if that's the feeling you have about our industry, that's 
the thought, the response you have. The reason that we have new 
groups brought together, the best data quality experts in our 
industry, the best consumer relations service folks in our 
industry, is to look at these percentages. So it's not a 
victory when we say, even if we've got 95 percent of it right, 
we want to look at the 5 percent. That's attitudinally where we 
are and I just want you to know that. That's important.
    Senator Klobuchar. OK, great. Just to use one example here, 
so this is a different example than the jewelry owner. This guy 
pays his mortgage every time, every time on time. He saves his 
canceled checks. I don't think many people do that any more, 
but this guy did. Nevertheless, the mortgage company counted 
him late by mistake. This is the mortgage company.
    Then he made them recognize the error and he even went so 
far to notify all the credit bureaus of this error, OK. 
However, they still showed up as late. So then he writes a 
letter of explanation to the credit bureau, encloses copies of 
his checks. Most people wouldn't have this. He encloses copies 
of his canceled check, other supporting documentation. The 
credit bureau refuses to acknowledge his case. His name's Mr. 
Bell. Now he cannot refinance his house at current rates.
    So my point is this is just one example of one guy in 
Minnesota, whose name was probably Nelson. But that's what 
we're dealing with right now. So I guess I'd like to just hear 
from you, Mr. Rheingold, what you think would be the best way 
to go here, if we need legislation, if Mr. Pratt's right and 
it's these other third parties that are coming in that are 
trying to fix it and then they're not really fixing it, but 
there's probably a market there because there are so many 
problems?
    Mr. Rheingold. I think there are a lot of answers. I think 
the Fair Credit Reporting Act, if enforced properly, if the 
CRAs were kept to the standards of actually maximum possible 
accuracy and there was enforcement there, I think in many ways 
the FCRA works.
    There are a couple of fixes that could be done, like a 
consumer like Ms. Thomas would have the right, if the law was 
changed, that they could seek injunctive relief, so the court 
can order them to fix it. That would be a really good remedy 
for people.
    One of the--I'll leave it there, but I wanted to answer one 
of your other questions, which I think is really essential 
here. I think what we see here--and I thought the 60 Minutes 
report did a really good job of it in terms of how the dispute 
process works. They went down to Chile and met these folks who 
worked in the dispute process. They had to do what, 90 a day.
    The dispute process is--that person, Mr. Bell who provided 
all that information, I think it's a pretty safe bet that all 
of that information went to the credit reporting agency, went 
to the dispute handler, looked at all that information, turned 
into an automated code of three numbers. That number got sent 
to the mortgage company, who looked at it and said, no, that 
looks right to us, and sent their code number back, and that's 
what happened.
    So how--so in terms of assuring accuracy, how do we ensure 
that the credit reporting agencies actually provide all of the 
information a consumer provides to the furnisher of that 
information and simply does not rely on a furnisher who says, 
yes, that's right, we'll accept it? The law requires basically 
a tie goes to the consumer under the Fair Credit Reporting Act. 
The way the law works right now, the way the CRAs operate, the 
tie does not go to the consumer, and that needs to be fixed.
    Mr. Pratt. Could I just add one footnote to that? The 
automated system does use codes, but each code comes with a 
full description, which is also available to the lender. So in 
other words, the code is merely a way to convey a standard 
system of disputes, which actually improves the results of 
disputes, because you otherwise had folks keystroking in their 
own view of what they thought a dispute was and that wasn't 
very effective back in the nineties. It was a long time ago, 
but it was how it worked back then.
    But we have decided to go ahead and build a new technology 
platform that is being beta tested right now, where we will 
simply load the paperwork the consumer submits and transmit it 
and make it available, and in fact compel the lender to open up 
the material to be able to view that information going forward, 
to sort of short-circuit this potential problem that we have 
where a lender might respond to the standard code but not do a 
deeper look.
    About 15 percent of the time, we are able to resolve a 
dispute ourselves about data coming to us, not data that we 
have but data coming to us from a lender, about 15 percent of 
the time. So we are being proactive where we can. But some 
folks are I think conflating the responsibility of the lender--
lenders were obligated in 1986 for the first time to process a 
dispute and to be accurate in the data they reported. They did 
that because they realized that that was the other leg of the 
stool. You have to have a lender doing a responsible 
reinvestigation, just as the bureau must transfer the data, the 
fullness and completeness of the dispute, to the lender. So we 
both participate in that process at the same time.
    We want to make that better. I think one of the ways we're 
doing that right now is this new technology platform that's 
coming on line this year.
    Senator McCaskill. So, following up on that, Mr. Pratt, 
you're saying that by the end of the year all three of the big 
three will be receiving the supporting documentation that Judy 
Thomas and my constituent in Nixa, Missouri, tried to provide 
to the credit reporting agencies?
    Mr. Pratt. Before the end of the year, before the end of 
the year.
    Senator McCaskill. So you're going to scan the documents 
and that way the lender, who has absolutely no motivation other 
than to say no, we're leaving it the way it is----
    Mr. Pratt. I think lenders are really motivated, because 
these are their customers. They don't want wrong information. 
They want good relationships. So there are market motivations 
for them.
    But they will see the data, that's absolutely correct.
    Senator McCaskill. We're not talking about a local bank who 
you have a relationship with here. We're talking about 
nameless, faceless people that are dealing with numbers, that 
are not really--clearly what happened in many, many instances 
is the consumer comes forward and says, you've got an error, 
and you all put in a two-digit code. I can't believe you're 
clogged up from the consumer repair, credit repair agencies, 
because all you do is convert it to a two or three-digit code, 
send it to the lender, and the lender says no and you say okay.
    Mr. Pratt. No, in fact a dispute might require several 
different communications about the dispute. So what you have to 
do is, if it's paper, just as you and I would, you have to have 
a team of people sitting and they will unpack the paper, read 
through the paper, identify the various disputes that are 
submitted. That's the labor-intensive side of it, particularly 
on the paper side.
    But again, our goal is to try to bring the paperwork of the 
consumer forward and make it available to the lender. And these 
are small lenders and small credit unions.
    Senator McCaskill. That's news and that's good.
    Mr. Pratt. Yes.
    Senator McCaskill. That's good.
    Why can't you match all the numbers, like Mr. Rheingold 
suggested?
    Mr. Pratt. If we did so, we would not have a credit 
reporting system the way he thinks of it. So let me just give 
you an example.
    By the way, the FTC was tasked with studying this in 2004-
2005. They published a report after having brought in each of 
the national credit bureaus and interviewed the data quality 
experts on data matching and the algorithms that were used. So 
the FTC studied this question coming out of the FACT Act in 
2003. The conclusion was a good conclusion. In other words, if 
I have ``Stuart K. Pratt'' and I have his Social with one digit 
transposed at the end of it, but I also have his full address, 
and in fact I know that there are ten other data furnishers 
furnishing that same address and it's been there for 10 years 
on the credit report, that single transposition is more likely 
a problem with how the application was processed than it is 
with the fact that this account should belong in Stuart Pratt's 
credit report.
    If I match 100 percent, I don't get to put that proper 
account into the Stuart Pratt credit report.
    Senator McCaskill. So why are you matching it 100 percent 
with the one you send to the consumer?
    Mr. Pratt. We're using the same matching algorithm for the 
consumers today that we use for any lender in the country. 
There's no difference, so I don't know----
    Senator McCaskill. So you're not matching all nine numbers 
for the consumer?
    Mr. Pratt. You're matching--we are matching to deliver a 
report--an algorithm is always going to look at the full 
picture of all the data elements that are provided to us in 
order to deliver the report.
    Senator McCaskill. Well, I will tell you that we've talked 
about percentages and numbers. We had, what, five Senators here 
today questioning. Senator Nelson as a U.S. Senator bought a 
washing machine in Wisconsin. Senator Schatz owed money to a 
wedding service in Hawaii. I just refi'ed, found out that 
Comcast had done a credit check on me last December. And I 
went, Why? So I looked into it. It turned out it was somebody 
in Houston, Texas.
    Now, that's three Senators out of five that questioned 
today. I think you are not well served by saying you don't have 
a problem. You have a big problem.
    Mr. Pratt. Madam Chairman, we have not said that we don't 
want to deal with the problem of inaccuracies. All I've said is 
that we have a team that's going to look into where we can 
improve the system. It is a system that has to be improved with 
those who furnish the data as well as how the data is matched. 
But we're not sitting here saying, because we have a 98 percent 
accuracy rate, which is what the report says, that somehow 
that's the victory and that's the final word on all of this.
    If I were a marketing person selling a product, I might be 
happy with 98 percent satisfaction. But that's not where we 
are. As you said, this is a system consumers can't walk away 
from. We have to strive to push that number down further.
    Senator McCaskill. So how do we make this--how do we 
monetize this in terms of incentivizing you to do the right 
thing? I know for a fact that people's credit records are 
threatened in disputes. A good example I can give you is a 
nephew of mine who believed he had his deposit due back to him 
from his landlord and the landlord said very simply: You want 
to fight me on the deposit; I'm going to turn you in to the 
credit reporting agency, I'm going to give you bad credit, 
you're going to pay more rent the next place you go.
    Now, this is a kid in college. What's he supposed to do? 
Right? I mean, he has no leverage in that situation whatsoever.
    The furnishers do not have enough leverage against them in 
this system. Frankly, I'm not sure you have enough leverage 
against your clients in terms of bad things that happen when 
you don't fix things for Ms. Thomas, who's been at this for 14 
frickin' years. I mean, somebody should be handing her piles of 
money for how badly you guys screwed this up.
    Ms. Thomas. No, just fix my report.
    Senator McCaskill. But seriously, you won't fix it if 
you're not going to be monetarily punished.
    Mr. Rheingold. I think that's exactly right. I think what 
we've seen--it's interesting that at this point we're finally 
looking to fix it again. These are problems that have gone on 
for 20 years. I'm glad the industry is now doing a study and 
fixing these problems. But they have known about it for a long 
time.
    Fundamentally, the system they built, the automated system 
that turns people's stories into numbers, is a cost --Ms. 
Thomas's dispute is simply a cost of doing business. The money 
that she will ultimately receive in litigation is a drop in the 
bucket in terms of the money that the credit reporting agencies 
made.
    Consumers are not their customers. The market isn't working 
for customers. Their customers are the furnishers of 
information, the credit card companies. Those are the people 
they're trying to satisfy, not consumers. The question is how 
do you build incentives so that in fact consumers are the 
customers.
    And it's the consumers' information, for God's sake. It's 
our information that's being bought and sold and spindled and 
twisted for all sorts of purposes. Yet the system is not 
designed to serve their needs. The system is designed to meet 
the needs of companies who are offering credit.
    Senator McCaskill. Dr. Beales, we talked about making the 
market work. If we wanted to make this market work, shouldn't 
we put something in the market that the furnishers of bad data 
have some kind of economic incentive to make sure that that 
data is correct? Clearly that is missing in this free market 
economic model.
    Dr. Beales. Well, it's missing, but it's missing because 
the provision of data is entirely voluntary. And as you pile 
obligations on the furnishers, what you risk is that furnishers 
say: Fine, I won't tell you anything. It's the equivalent of 
the response to the credit repair guys of the credit union 
says: This report's accurate, but I'm just not going to report 
it any more.
    Senator McCaskill. So why are they giving the information 
now?
    Dr. Beales. I'm sorry?
    Senator McCaskill. Why are the furnishers giving 
information now?
    Mr. Pratt. There's a shared benefit to it.
    Senator McCaskill. Of course, there's an economic incentive 
for them, because if their----
    Mr. Pratt. Madam Chairman, there are new data sources. 
Professor Beales' testimony talked about the fact that there 
are some consumers who don't engage aggressively in the 
traditional credit marketplace. They don't like credit cards, 
they tend to go cash-based. Many more consumers are more debit-
based post-recession. So there are consumers who don't have a 
thick credit report or even a credit report that can be scored.
    So in this case, we need new data sets. So for example, 
there are new data sources--the device you held up, that's a 
credit-like transaction. Every month you make a payment for the 
services you receive from that smartphone. Those types of 
service providers don't want to report into the credit 
reporting system today because they already see the penalties 
for and the severity of what has been built into the FCRA as 
being too severe for them to choose to participate.
    Senator McCaskill. You've got to be kidding.
    Mr. Pratt. No, absolutely not. And in fact----
    Senator McCaskill. You're telling me that my account with 
Verizon, that they are so worried----
    Mr. Pratt. They are.
    Senator McCaskill.--of the FCRA----
    Mr. Pratt. Yes.
    Senator McCaskill.--that they don't want to report my 
information?
    Mr. Pratt. That is correct.
    Senator McCaskill. You know, that just strains credulity, 
honestly.
    Mr. Pratt. Oh, no. In fact----
    Senator McCaskill. Exactly how much money has been 
collected against these companies through the FCRA? What is the 
burdens that they have had to bear?
    Mr. Pratt. Let me walk through, let me walk through the 
liabilities. I'm always surprised when--by the way, Mr. 
Rheingold and I are up here. Later we're going to have to have 
a drink. Our sons went to school together and they texted each 
other this morning saying our dads are going to testify here.
    Mr. Rheingold. Small world.
    Mr. Pratt. So I'm trying to figure out which one of us is 
going to pay.
    But I will say that the FCRA has the following: private 
rights of action for the accuracy of information, so any 
consumer can enforce the law as a private consumer, even when 
they don't want to. There are AG's. Attorneys general may 
enforce the law. The Consumer Financial Protection Bureau may 
enforce the law. The Federal Trade Commission may enforce the 
law. There are class action penalties, as well as individual--
as well as an imposed, in the case of willful violations, 
minimum damages.
    So this is not a statute that is uncoupled from what we 
consider to be the self-enforcement mechanism that you would 
traditionally see. So I do think the incentives are there. If 
the theory of incentives is just a sword of Damocles hanging 
over the heads of the bureaus--but it isn't. Bureaus don't want 
to get it wrong. Our members want to get it right. The consumer 
relations folks don't want Judy Thomas to ever get the result 
that she got. Now, that's little comfort to her at this point, 
but we're going to work on that going forward.
    Senator McCaskill. Senator Heller, do you have any more 
questions?
    Senator Heller. No.
    Senator McCaskill. Senator Klobuchar?
    Senator Klobuchar. I'd like to follow up and maybe Senator 
McCaskill will as well on this. I worked hard on the Dodd-Frank 
bill on the free credit report and to make sure that that was 
part of this, and Senator McCaskill raised some excellent 
questions about those free credit reports and what was 
happening and why it's so hard to get them. She can follow up 
on some of it, but I wanted to make sure that the question was 
asked.
    What do you know about it, Mr. Rheingold, and then Mr. 
Pratt?
    Mr. Rheingold. Well, in terms of the annual credit report, 
there are two issues. One, obviously the industry found a 
pretty good way of monetizing the notion that people get credit 
reports. Experian created freecreditreport.com. They've now 
changed their name there.
    It's a good thing that people can get an annual credit 
report. There's actually a bill in the Senate that--I have the 
number in my testimony; I don't have it in front of me right 
now--that was introduced this year, so that people could get 
the free credit report along--a free credit score to go along 
with their credit report, and it would be the credit score 
that's actually used to pass judgment on them. That's a very 
good bill and that would be an improvement.
    What's happening in terms of that advertising, I think it's 
a great case for the Federal Trade Commission. I think it's 
misleading and I think it's a case that's something that the 
FTC can certainly bring an enforcement action against. And I 
think there's any reason why the CFPB can't pass rulemaking 
saying: You companies that are under my jurisdiction should not 
be misleading people with that type of advertising. I don't see 
there's any reason why both those agencies can't move forward 
on that issue.
    Senator Klobuchar. Mr. Pratt?
    Mr. Pratt. I'd like to just speak more generally to the 
idea of a product that was built more recently and it does 
connect me as a consumer. To me it's similar to--I may have a 
home security system on my house, I may not; I may buy certain 
types of insurance, I may not. Some consumers have chosen to 
buy a service that's different than using free credit reports 
three times a year from annualcreditreport.com. Those types of 
services are sold and there are many consumers who are happy 
with them. I am notified when a change to my address occurs or 
I'm notified when some balance occurs. I've used products 
from--I've at different times used products like these just to 
see what they're like, and they sometimes clog up my in box 
with too many notices and some of them do a better job of less 
so.
    The products themselves are good overall. Now, as to the 
advertising practices, I'd just say in fairness to 
freecreditreport.com it was a product that was developed before 
annualcreditreport.com ever existed. It was one of a number of 
direct-to-consumer products in the marketplace today. They're 
not all run and operated by nationwide credit bureaus. It is a 
broadly competitive marketplace. And consumers do buy the 
product and nobody's compelled to buy the product. And 
certainly everybody can exercise their right to the free credit 
report through annualcreditreport.com.
    Senator Klobuchar. I just think we have to somehow make it 
easier for consumers to understand that they get this credit 
report, and then hopefully we can add on a score to make it 
easier, because when there are all these errors they shouldn't 
have to pay to protect themselves.
    When we have three out of five Senators up here who had 
issues--and I used that number from the FTC, which was 20 
percent. Now, presumably the Senators got around this and were 
able to do it, so maybe this is what's called an immaterial 
error. Well, they are Senators and so, you know, maybe they 
were able to call and get this done. But it still was a hassle 
and it still for regular people delays them getting financing.
    So my guess is the wedding dress, the refrigerator, those 
wouldn't have even been in the worst 5 percent. They're in the 
20 percent. And that is affecting--like I've said, if you 
extrapolate it out, it's affecting 20 million people.
    Mr. Pratt. And I think our job is to--this is why the FTC 
report is such a helpful new piece of research. I intend to go 
to the University of Missouri and actually visit with some of 
the researchers who conducted the work down in St. Louis as 
well. And we intend to root around in this data to see if we 
can't find better answers to some of the challenges we see, 
again patterns, how many times do consumers dispute balances, 
how many times is it a debt collection-related dispute, what 
other types of disputes?
    The detail here is important. It's too much for this 
hearing, but I just want you to know we're committed to looking 
at it.
    Senator Klobuchar. I understand that. But it just---- to 
me, I'm sure there are people with bad credit. I know that. But 
these are errors that appear to us to be on the rise. I'll just 
ask Mr. Rheingold to react, and Ms. Thomas last, if you could 
have the last word for my question, your reaction to all this.
    Mr. Rheingold. I'm sure the industry wants to get it right, 
just like the mortgage service industry wants to get their 
servicing right. The question is investing resources in doing 
it right and building a system that is sufficient to actually 
solve these errors. It's a cost of doing business. They don't 
want to invest the resources to make the system work properly. 
They haven't done it for the past 20 years. I'm glad they're 
undertaking some effort right now, but the fact is they may 
want to do it, but they're certainly not showing it with how 
they're investing their resources.
    Senator Klobuchar. All right. Ms. Thomas, what do you think 
of all this?
    Ms. Thomas. I'm glad that something's going to be done. I'm 
glad that you're looking for ways to improve the system. I sit 
here and I listened to you say that we're going to put things 
in place that we can actually look at paperwork that's 
submitted by the consumers. I think that's probably one of the 
most beneficial things that could be done, because I actually 
did the legwork and submitted testimony from these collection 
people that this was not my debt and submitted it to the credit 
bureaus, only to have it sent back as verified.
    So if somebody actually looks at it, I think that's a 
bonus. The other bonus is I truly advocate the matched Social 
System number. I mean, why even take that chance? Why take that 
chance that my information is being mixed up with someone else? 
I don't understand why that can't be done.
    Senator Klobuchar. OK. Thank you.
    Ms. Thomas. Thank you.
    Senator Klobuchar. Thank you, Chairman.
    Senator McCaskill. I'm a little confused, because you just 
said, Mr. Pratt, that free credit report, that model happened 
before the change in the law to require the annual report, and 
that--but when you do the Google search, if you understand how 
Google works, the first report that comes in the top in the 
shaded area is paid.
    Mr. Pratt. Those are advertisements, right.
    Senator McCaskill. That's paid advertisement.
    Mr. Pratt. Right.
    Senator McCaskill. And the top report, the top one, that's 
huge money. You pay huge money to be number one on the Google 
search page. Guess what's number one? Freecreditreport.com, 
with the trademark.
    Mr. Pratt. Yes.
    Senator McCaskill. And you go there and you can't get a 
free credit report without giving them your data that they're 
going to sell to a third party. Do you think that's 
appropriate?
    Mr. Pratt. CDIA isn't going to endorse a particular 
product, but I will tell you this. I know that the FTC is 
overseeing their consent order with this company. I know that 
this company's website is compliant with what the FTC has 
required. I guess it's a different question. I don't think they 
want to violate the law. They want to do business with 
consumers who want to do business with them, just like every 
other direct-to-consumer provider.
    Some consumers will never choose to do business with them, 
just like some consumers will never buy a home security system.
    Senator McCaskill. Do you think it's appropriate--let me 
ask you this question. Do you think it's appropriate you have 
two choices on the website? One is to get a free credit report 
in 2 days, and you give your mailing address, but you have to 
give them your e-mail. They won't send it to your mailing 
address unless you give them your e-mail. Or you have a choice 
that you can get it immediately if you pay them a dollar, and 
then they get your credit card information.
    Mr. Pratt. I think that has to do with how the regulations 
operate. I can't speak to all those details. But I believe that 
is--that's part of the structure of their compliance that they 
have to go through in order to comply with the oversight of 
that website.
    Senator McCaskill. Do you believe that that accurately 
reflects the intent of Congress as to trying to make sure that 
everyone understands they can go to annualcreditreport.com and 
get a free credit report?
    Mr. Pratt. I think on that same website, just like others, 
you'll find there's also a link saying you can go to 
annualcreditreport.com.
    Senator McCaskill. No. Nope, not there. Not there.
    Mr. Pratt. I've got to pull out my device here.
    Senator McCaskill. It's not there. Believe me, it's not 
there.
    Mr. Pratt. I think that's part of the follow-up. But I will 
tell you that all of our members' websites are channels of 
distribution pushing consumers to annualcreditreport.com. All 
of our members want to have an honest, good relationship with 
the consumer in the marketplace that wants to buy their 
product. None of our members want--nobody wins with a product 
that a consumer is unhappy with.
    I can tell you that there are consumers who find direct-to-
consumer products an excellent way for them to manage finances 
and they choose to invest in it. Other consumers choose to use 
annualcreditreport.com exclusively and exercise their right to 
a free report.
    Senator McCaskill. I think it's fine for consumers to have 
choices and buy products that they want. I think it is 
inappropriate for a company to continue to be less than 
forthcoming that what they are gathering your data for and 
selling it and making you wait 2 days and making you give your 
e-mail is something that is immediately available if they just 
put the information on the website for annualcreditreport.com. 
And the fact that it's not there I think violates the intent of 
the law, and if it's not enforceable then we need to fix it and 
make it enforceable, because there's a problem. If this is 
compliant, it's not what we intended when we changed the law. 
So that's why I keep harping on it.
    Do you know right now if you could--and you may not want to 
say this and it's your right not to say it, and you probably 
won't want to say it. But I'm going to try to dig and find out. 
Where is the real money made in this business? Is the money 
made selling data to first party lenders, or is the money made 
selling reports and scores to consumers, or is the money made 
selling data gathered in the number two process to third 
parties? Where are they making the most money in this endeavor?
    Mr. Pratt. A number of our members are publicly traded, so 
any of us can go to see where their U.S. division makes its 
money and how profitable it is.
    Senator McCaskill. Are all three of them publicly traded?
    Mr. Pratt. Two out of three are publicly traded.
    Senator McCaskill. And which one is not?
    Mr. Pratt. TransUnion Corporation.
    Senator McCaskill. OK. Well then, I'll get that information 
and I'll be able to find out. Well, you probably know, then, if 
they're publicly traded.
    Mr. Pratt. But let me just answer the question. The 
question is, assuming it's OK to make money--and I think it's 
OK to make money----
    Senator McCaskill. It is. It's great to make money. I'm 
just curious.
    Mr. Pratt.--we generally like commerce. So my answer is 
they make money in an honest business relationship with 
consumers. They make money in an honest business relationship 
with lenders, providing--they make money selling credit 
reports, they make money selling credit scores. They're not shy 
about that, because that's the business model that they've 
built.
    I know it's like a dark cloud hanging over the industry 
because of kind of the optics of this hearing, but you know, we 
have everybody else in the world coming to the U.S. and saying 
this is by far the best system around the globe, let's export 
it to Tanzania, let's export it to Kenya, let's export it to 
other parts of the world. And in fact we do that as CDIA 
through an international conference.
    That doesn't mean we don't want to focus on these issues. 
But I just want you to know that this system is working well, 
and they are making money, but they are doing it----
    Senator McCaskill. I love that anybody makes money in 
America. I endorse heartily the free market system. But this is 
a system that consumers are captured by. They have no choices 
here. And once they're captured with bad information, it costs 
them money, their hard-earned money. They have to pay more when 
it's unfair. They have to pay more.
    So this isn't just like going out and buying a widget. This 
is a little different because of this unique relationship you 
have with the consumers. And the consumers aren't in the 
position individually to fight you.
    So we are here talking about these issues, trying to fix 
these for the consumers that are captured by this system. I'm 
glad they're all making money.
    Once again, let me ask: Do you know, is the majority of 
their money made selling information to people who lend money, 
or selling scores and credit reports to consumers, or selling 
consumers' data to third parties?
    Mr. Pratt. Well, that would be the same as the first one, 
because when they're selling a credit report that is a 
compilation of all my different lenders to a new lender then 
they're selling--it's a third party transaction. That's what 
the FCRA regulates.
    Senator McCaskill. But when I read their targeting 
advertising policy, it was clear to me that they were telling 
me that they were----
    Mr. Pratt. So that was marketing data as opposed to the 
data regulated under the Fair Credit Reporting Act.
    Senator McCaskill.--right. That's what I'm asking about.
    Mr. Pratt. That's two different worlds.
    Senator McCaskill. The marketing data.
    Mr. Pratt. Our members' product mixes are very different 
and so we really would have to go to the publicly disclosed 
information----
    Senator McCaskill. OK.
    Mr. Pratt.--and see how much of their revenues are derived 
from marketing activities versus credit reporting activities 
versus fraud prevention tools and so on.
    I did want to respond just for the record to this question 
of free credit scores. Credit scores are software. They're not 
credit reports. They're not in credit reports. They're not just 
numbers that somebody pulled out of thin air. There are many 
different score developers in the marketplace. Many of them are 
U.S.-based in terms of their headquarters, one of which is 
headquartered in Minnesota, at least for the time being.
    Senator Klobuchar. Do you know something that I don't know? 
Or is it my questions are going to lead them to leave?
    Mr. Pratt. My point is this. Credit scores are a product. 
It's intellectual property. A credit bureau doesn't own, for 
example, a FICO product. So when somebody drops a bill in that 
says somehow we're going to have to give away somebody else's 
product or we're going to have to pay somebody else to give 
that product away, that's just a bad idea.
    This is not part of the credit report that is my 
information about me, that is stored in that file. This is a 
third party's software technology that has been developed and 
invested in and that is used and sold in the marketplace for 
insurance companies and lenders and others who make risk-based 
decisions.
    Senator McCaskill. So you can buy it and sell it to the 
consumers?
    Mr. Pratt. Well, we build it to sell. We build it.
    Senator McCaskill. So you own FICO?
    Mr. Pratt. No. Our members own other score developing 
companies, and so some score developers will--but FICO partners 
with national credit bureaus to sell scores. But at the same 
time, our members also compete in that same space with scores 
of their own. In fact, they compete globally selling those 
scores. It's an export.
    Senator McCaskill. I see. So you guys have developed your 
own scores and you sell them?
    Mr. Pratt. As well as selling third party scores like the 
product produced by FICO.
    Senator McCaskill. OK.
    Mr. Pratt. So there are many scores out there.
    FICO, by the way, has 49 different versions of its score. I 
don't know how you pick the score you're going to disclose to a 
consumer. I just have no clue, other than scores--disclosure of 
scores is an educational opportunity. It is not about trying to 
connect a consumer with the score used in a given transaction.
    Senator McCaskill. Most of the lenders--I think FICO is the 
most commonly used score.
    Mr. Pratt. It's common, but it's the same competitive issue 
you deal with in the Commerce Committee all the time. Emergent 
companies and competitors want to be the next company that 
beats out that larger player in the marketplace. We have to 
preserve the openness of that marketplace to allow those 
smaller players to build and encroach on that competitive 
position of a large player that exists currently.
    Dr. Beales. Senator, there are numerous lenders that build 
their own scoring models because they think they're better at 
it, frankly, than the conventional marketed scores. And they 
try to compete based on better risk assessment and better risk 
partitioning because they've got their own scoring.
    Senator McCaskill. And it would be your position, Dr. 
Beales, that as long as the information on the underlying 
credit reports were appropriate, then we should keep our big 
nose out of the credit scores?
    Dr. Beales. I think that's right. I would agree with that. 
The score is--consumers need to understand that you do not have 
a credit score; you have hundreds of credit scores, because 
every lender that you deal with may have a different credit 
score.
    Senator McCaskill. Well, they don't really understand that, 
because they are getting bombarded with advertising that tells 
them they can get their credit score if they will only pay 
$14.99 a month for the rest of their life. They can have a 7-
day free trial, but by the way, of the 7 days only three of 
them will be relevant because it takes them that long to get 
the information in. And if they don't withdraw with 7 days, 
they're going to go ahead and get charged with $29.99 for the 
next month.
    I can read you score and verse how they do it. And the 
consumer believes there's one credit score. There is nothing 
that's in that big banner that says, you know, by the way, 
there are a million different credit scores and we're going to 
sell you one, but it's not necessarily relevant to what you 
need to know.
    So I guess that's my problem, is that so much of this is so 
daunting and confusing to the consumer. It seems to me that the 
transparency that is needed for the marketplace to work more 
effectively and efficiently for the people that are putting 
their money in the marketplace--those are the people that are 
making the loans and buying the products--that we have an 
obligation to do that.
    Nowhere does it say on any of these clearly that there are 
a million different credit scores and the one you're buying may 
not be worth squat. So it's a problem.
    Dr. Beales. In terms of what influences a credit score, 
what information is likely to matter in pushing it up or down, 
there's a lot of commonality across scores. But it's not going 
to be identical from score to score.
    Senator McCaskill. Right.
    Mr. Pratt. That's really important, and even the FTC did 
what's called a correlation analysis to look at VantageScore 
versus FICO, and the correlation is very high between the two. 
In fact, it's never going to be perfect. The only time you have 
a one to one correlation is when you're comparing the product 
to the product and you get that perfect correlation.
    But I think Professor Beales is right, these scores are 
competing to say, we have a better way of giving you the delta 
between the average risk and the better risk, and you're going 
to get access to--you'll have a safer and sounder portfolio and 
reach deeper into the marketplace.
    But that's the whole point. These scores are in fact 
educational, and I think that Dr. Beales says it right. This 
gives consumers a chance to understand generally what goes into 
a score, generally how am I affected by a lending decision in 
the marketplace and what can I do as a consumer to position 
myself effectively in the marketplace with regard to my credit 
report data.
    Mr. Rheingold. But they're more than educational, because 
they're being used you companies to make decisions about you. 
So it's not mere education that's happening here.
    Senator McCaskill. Right. I know that Senator Klobuchar has 
one more question. I have a question I need to ask for Senator 
Nelson, but you can go ahead.
    Senator Klobuchar. Well, I just want to followup. Senator 
McCaskill talked about basically following the money. We're 
both former prosecutors, so we get that, because I'm just 
trying to get at what is creating a disincentive for accuracy, 
basically. There's got to be something that's creating a 
disincentive for accuracy, because you just don't see this as 
much in other companies that are having to send bills out, for 
instance, or in banks that are having your account.
    You don't see this percentage of people. The banks may be 
causing this, Mr. Pratt. But there's some kind of disincentive 
in the system that is causing this high percentage of 
inaccuracy. So that is what I'm trying to get at here. There is 
clearly a problem. That's why you now have predators, who are 
super-bad, who are playing on this to try to rip people off, 
too. But that is a secondary problem to the actual inaccuracy 
and why people are contacting other people to try to fix it 
because it's not getting fixed.
    So that is what we have to figure out here to figure out 
how to fix it, because there has got to be a better way to do 
this than these stories that we've been hearing today and 
throughout the last year.
    And also, why has it gotten worse, Mr. Rheingold? Because 
of course we all know back in the old days--when I first got a 
house, for $115,000, I dealt with one bank that I knew, a 
banker that I knew. They could look at my credit report. They 
understood. If something was wrong--I don't remember if there 
was anything; I don't think there was--I could show them that I 
did the bill. It was a very intimate thing.
    Now, years later, even just 25 years later, we're dealing 
with all of this problems with a faceless system, dealing with 
people down in Chile that are doing the credit reporting. So we 
have to figure out what's creating this incentive and how we 
fix it.
    Mr. Rheingold. I think there are two parts here. I think 
that one is easy, that's intuitive, is that the credit 
reporting system has become a mechanism for debt collectors, 
for creditors, to force people to pay. I think Senator 
McCaskill's point is exactly on point. Parking debt on your 
credit report, parking information on your credit report--how 
many times is a consumer going to go to closing, they'll see a 
debt on their closing of $500 that they've been disputing all 
along--I didn't pay it; Comcast stuck that debt on my account; 
I'm not going to pay it--and they're sitting at closing saying: 
You've got to take care of it. So you pay the $500.
    So there's an incentive for companies to put that 
information on there because they know it's a way of collecting 
debt. Simple. I think that's easy, and that's intuitive.
    The piece that I've never really--that doesn't make 
complete sense to me. I know I've been told this and I know 
this is true--but I think that industry would much rather have 
overinclusive information than completely accurate information. 
What I mean by that is the problem of the Social Security. One 
would think that if we're making judgments about people we 
would want it to be point-blank. We would want to make sure we 
have absolutely accurate information.
    And it's really hard for me to say, after living through 
the sub-prime crisis and seeing all the credit that was offered 
to people who should never have received it, in ways that were 
completely inefficiently and wrongly priced, but I think there 
really, there's an effort by industry to have--they'd rather 
have more bad information than have completely accurate 
information, because they'd rather make a mistake denying 
people than making a mistake giving credit to people who 
otherwise couldn't qualify. I think that really is one of the 
factors here.
    Mr. Pratt. That just could not be more wrong. The reason 
that could not be more wrong is because lenders are incented to 
provide their data accurately on behalf of their customers, 
because they want to have those customers. That same small bank 
is likely still there, doing business with local consumers, and 
they care about how they report that data.
    But the bottom line is the incentives are strong today for 
accuracy, but they're market-based and their also based in law. 
But it is a system of, depending on how you do the head count, 
10 to 15,000 data sources and probably more than 100,000 
different fingers on various keyboards data-entering 
information. There's going to be a--if you had any professor 
come in here and talk about this, you'd find there is a likely 
low-grade error rate that flows into that. And then we have to 
do a data quality process to make sure that we exclude data we 
can't report.
    I will say this, though. This is just so wrong--to say that 
we would rather be inclusive rather than exclusive. We want the 
right data in the right file and we don't want any information 
in that file other than the information that should be in 
there.
    Senator Klobuchar. But then more resources of your profits 
have to be put into making sure it's accurate.
    Mr. Pratt. To the contrary, what we have to do is we have 
to work with the data furnishing community through the FTC 
report to better understand where we think some of the patterns 
lie. So it isn't CDIA members not investing. They are 
investing. It is about the partner process and also making sure 
that we can encourage other furnishers in the future so that 
underbanked and unbanked individuals can participate in the 
traditional credit process as well. But that's the key.
    Dr. Beales. Senator, if I could just briefly, I think 
they're both right. There is----
    Senator Klobuchar. It's getting late in the day. Anything 
is possible.
    Dr. Beales. As I said in my statement, there is a tension 
between accuracy and completeness. It is a mistake to put 
something into my file that doesn't belong there because it 
doesn't match me, but it's also a mistake to leave something 
out of my file because somebody typed the Social Security 
number wrong. Both of those are mistakes.
    The system and the lenders care about having the most 
comprehensive and accurate information possible, but that is 
information that almost inevitably is going to have some of 
each kind of mistake. It's going to leave some stuff out that 
really belongs to my file and it's going to put some stuff in 
that probably doesn't.
    Senator Klobuchar. Just one last point that I made. I wrote 
a note to Senator McCaskill, because when you said, Mr. Pratt, 
that people have choices like for security systems, the 
difference here is Congress didn't mandate that people have a 
free security system. So in this case we have mandated that 
they get a free security report, and I hope 1 day a score, and 
so the difference is once we've mandated that it has to be very 
clear and understandable that they get that.
    So we may have to make some other legal changes. If they 
don't understand that, it's not their fault. I would Google it, 
too, and I can't figure it out. So I think that is something 
that we're going to have to look into more.
    Senator McCaskill. I have a question from Senator Nelson 
for Mr. Pratt: Why is a short sale being coded as a 
foreclosure?
    Mr. Pratt. Well, they're not. But I think that Mr. Stone 
said it right. The short sale is a new--we've had deed in lieu 
of, we have foreclosures, we now have short sales. The Metro 2 
task force which the CDIA administers is now looking at a new 
short sale code, because in fact it isn't a scoring issue in 
this case; it's a Fannie and Freddie issue. Fannie and Freddie 
are administering some programs and they need to be able to 
identify short sales uniquely, different from any other loan 
which is simply settled for less than the full amount.
    So we have a code that says ``Settled for less than full 
amount.'' Generally, we try to keep codes broad rather than 
narrow, because very narrow codes generally don't populate into 
the database, they don't become scoreable, they don't become 
useful.
    So in this case we probably will have to create a short 
sale code, because Fannie and Freddie are looking for something 
like a short sale code and they want to see it uniquely and 
differently from any other ``Settled for less than full 
amount'' loan that's out there in the marketplace. So that's 
why.
    Senator McCaskill. So you're saying prospectively you will 
code it differently, but now it's being coded the same?
    Mr. Pratt. Lenders are coding it as a ``Paid for less than 
the full amount.''
    Senator McCaskill. Which is the same as a foreclosure?
    Mr. Pratt. No. Actually, a foreclosure is yet a different 
coding. If a lender is coding foreclosure on its own, then they 
are miscoding a short sale, which would be a data furnisher 
issue, which would be an issue that the CFPB can look into, 
just as they can look into our practices with our members.
    Mr. Rheingold. But that coding still has an incredibly 
negative impact on a consumer's ability to get credit.
    I would also add that short sales have been around for a 
long time. I've represented homeowners for 25 years and we were 
doing short sales 20 years ago. So it's not a new phenomenon. 
Maybe the prevalence of it, but it has been around a long time.
    Mr. Pratt. I think that's well said. The prevalence of it, 
and the relevance of it to certain new processes that Fannie 
and Freddie are trying to roll out in the marketplace.
    Senator McCaskill. OK. Well, consumers are needing a cop on 
the beat here still. I think we're going to stay with this and 
continue to look. I'll follow up with CFPB and FTC about some 
of the practices of these free credit scores and 
freecreditreport.com, because I think they are kind of spitting 
in the face of the intent of the legislation that was passed 
and I think that needs to be corrected.
    I do want to recognize and put into the record a letter 
from a member of the Banking Committee, recognize the work they 
have done on this subject. It is one of my frustrations that in 
some ways the FTC has jurisdiction and so does Consumer Finance 
Protection Bureau, so there are two committees that actually 
have jurisdiction over this issue. That's why we are having 
this hearing today. But the Banking Committee has done great 
work on this, and I'll look forward to working with my 
colleague Senator Brown, who wrote a letter for the record to 
kind of document all the work they have also done in this area. 
And we will try to join forces and see if we can.
    [The information referred to follows:]

                                       United States Senate
                                        Washington, DC, May 7, 2013

Hon. Claire McCaskill,
Chairman
Senate Committee on Commerce, Science, and Transportation,
Subcommittee on Consumer Protection, Product Safety, and Insurance,
Washington, DC.

Hon. Dean Heller,
Ranking Member,
Senate Committee on Commerce, Science, and Transportation,
Subcommittee on Consumer Protection, Product Safety, and Insurance,
Washington, DC.

Dear Chairman McCaskill and Ranking Member Heller:

    Thank you for holding today's hearing on the consumer credit 
reporting industry. As the Chairman of the Senate Banking Subcommittee 
on Financial Institutions and Consumer Protection, I share your concern 
about the outsized and growing role of the consumer credit reporting 
industry.
    The Senate Committee on Banking, Housing, and Urban Affairs has 
long maintained jurisdiction over consumer credit reporting.\1\ In 
1970, under the chairmanship of Senator William Proxmire, the Senate 
Banking and Currency's Subcommittee on Financial Institutions held 
hearings on and ultimately approved the Fair Credit Reporting Act 
(FCRA), the first legislation to regulate consumer credit reporting.\2\ 
In the succeeding 40 years, the Senate Banking Committee continued its 
oversight of the industry in partnership with enforcement from the 
Federal Trade Commission (FTC) and ushered in additional essential 
consumer protections through the Fair and Accurate Credit Transactions 
Act (FACTA) in 2003.\3\
---------------------------------------------------------------------------
    \1\ See S. R. Rule XXV (2000) (The Committee on Banking, Housing, 
and Urban Affairs shall be referred ``all proposed legislation, 
messages, petitions, memorials, and other matters relating to . . . 
Banks, banking, and financial institutions . . . [and] money and 
credit[.]''); see also id. (The Committee on Commerce, Science, and 
Transportation shall be referred ``all proposed legislation, messages, 
petitions, memorials, and other matters relating to . . . Regulation of 
consumer products and services . . . except for credit, financial 
services, and housing.''). The definition of ``financial institution'' 
includes any entity that engages in an activity that is closely related 
to banking, see 12 U.S.C. Sec. 1843(k), including credit bureau 
services, see 12 C.F.R. Sec. 225.28(b)(2)(v).
    \2\ See Pub. L. No. 91-508 (1970).
    \3\ See Pub. L. No. 108-159 (2003).
---------------------------------------------------------------------------
    When Congress enacted the Dodd-Frank Wall Street Reform and 
Consumer Protection Act (Dodd-Frank Act) in 2010, it reaffirmed the 
consumer credit reporting industry's unique and important role as part 
of the system of ``banks, banking, and financial institutions'' by 
transferring the vast majority of oversight functions as well as new 
rulemaking authority to the newly created Consumer Financial Protection 
Bureau (CFPB).\4\ The CFPB is charged with regulating ``the offering 
and provision of consumer financial products or services under the 
Federal consumer financial laws.'' \5\ As required by statute, the CFPB 
appears before and issues reports to the Senate Banking, Housing, and 
Urban Affairs Committee on a semiannual basis to allow the Committee to 
conduct Congressional oversight of consumer financial products and 
services as provided by the Rules of the Senate.
---------------------------------------------------------------------------
    \4\ See Pub. L. No. 111-203 (2010), Sec. Sec. 1002(12), 1061-67, 
1081-1100g.
    \5\ Pub. L. No. 111-203 at Sec. 1011(a).
---------------------------------------------------------------------------
    Nearly a year ago, the Columbus Dispatch, in my home state of Ohio, 
published an impressive investigative series on the damage that flawed 
credit reporting has caused in the financial lives of far too many 
Americans. This series prominently featured one of your witnesses, Ms. 
Judy Thomas, who was the victim of what is known as a ``mixed file'' 
that commingled elements of her credit history with those of another 
consumer.\6\
---------------------------------------------------------------------------
    \6\ See Mike Wagner & Jill Riepenhoff, Credit Scars: Mixed and 
Marred, Columbus Dispatch, May 7, 2012.
---------------------------------------------------------------------------
    In keeping with its role exercising oversight responsibilities for 
consumer financial products,\7\ the Subcommittee on Financial 
Institutions and Consumer Protection held a hearing on December 19, 
2012, examining the challenges that consumers face navigating the 
credit reporting industry.\8\ Testifying in one of the CFPB's now-33 
appearances before various congressional committees,\9\ the witness on 
the first panel was Mr. Corey Stone, Assistant Director for the Office 
of Cash, Collections, and Reporting Markets. Mr. Stone provided his 
perspective on the industry based upon the CFPB's work to date 
supervising larger nonbank financial market participants,\10\ including 
findings from two reports on the accuracy of consumer reports published 
by the CFPB earlier that year.'' \11\
---------------------------------------------------------------------------
    \7\ The Dodd-Frank Act includes in the definition of ``financial 
product or service,'' ``collecting, analyzing, maintaining, or 
providing consumer report information or other account information, 
including information relating to the credit history of consumers, used 
or expected to be used in connection with any decision regarding the 
offering or provision of a consumer financial product or service[.]'' 
Pub. L. No. 111-203 at Sec. 1002.
    \8\ To our knowledge, this was the first Senate hearing on credit 
reporting since FACTA was passed nearly 10 years ago.
    \9\ See Testimony of Richard Cordray, Director, Consumer Financial 
Protection Bureau, before the Senate Committee on Banking, Housing, and 
Urban Affairs, April 23, 2013 at 1 (``My colleagues and I are always 
happy to testify before the Congress, something we have done 32 times 
now.'').
    \10\ See Defining Larger Participants of the Consumer Reporting 
Market, 77 Fed. Reg. 42874 (July 20, 2012).
    \11\ See Consumer Financial Protection Bureau, Key Dimensions and 
Processes in the U.S. Credit Reporting System: A Review of How the 
Nation's Largest Credit Bureaus Manage Consumer Data, Dec. 2012, 
available at: http://files.consumerfinance.gov/f/201212_cfpb_credit-
reporting-white-oanermdf; see also Consumer Financial Protection 
Bureau, Analysis of Differences between Consumer- and Creditor-
Purchased Credit Scores, Sept. 2012 available at: http://
files.consumerfinance.gov/f/
201209._Analysis_Differences_Consumer_Credit.pdf.
---------------------------------------------------------------------------
    The second panel was comprised of the Consumer Data Industry 
Association (CDIA) and the National Consumer Law Center (NCLC), who 
provided additional insights into structure of the credit reporting 
industry. While it is clear that banks, employers, landlords, and even 
utility companies rely heavily on credit reporting agencies--especially 
the three largest credit reporting agencies--consumers face significant 
challenges fully understanding or correcting their own consumer credit 
information when errors arise.
    The hearing raised a number of issues about the credit reporting 
industry, including:

   The financial incentives of credit reporting agencies 
        (CRAs). Mr. Stone agreed with the subcommittee's assessment 
        that ``the revenues for the three bureaus overwhelmingly come 
        from the financial institutions, not from the consumer,'' 
        potentially creating a situation in which the CRAs have a 
        greater incentive to respond to financial institutions than the 
        consumers that depend on them.

   Lack of information available to consumers. The CFPB's first 
        report noted that sample credit scores available for purchase 
        by consumers could vary substantially from the scores that 
        creditors received, leading consumers to be unexpectedly 
        rejected for credit opportunities or to underestimate their 
        creditworthiness, as was the case for my constituent, Ms. 
        Thomas.

   Overly burdensome and unresponsive dispute processes that 
        favor financial institutions over consumers. Mr. Stone also 
        agreed that consumers ``must provide evidence'' when disputing 
        an aspect of their credit report ``but that creditors are taken 
        at their word.'' This creates a system in which financial 
        institutions could be unjustly favored over consumers, causing 
        financial harm to consumers.

   Insufficient systems for transmitting consumer-provided 
        documentation regarding a dispute to a data furnisher for 
        evaluation. As noted by NCLC Attorney Chi Chi Wu and Mr. Stone, 
        documents that consumers submit when disputing information are 
        infrequently shared with data furnishers. Instead, they are 
        distilled into two-digit codes with a limited associated text 
        field. This system fails to account for consumers' substantive 
        complaints and undermines the integrity of the consumer 
        reporting process. It is my understanding that CDIA is already 
        working with its members to remedy this situation by enabling 
        the E-OSCAR reporting system to transmit consumer-provided 
        documentation to furnishers.

    These are just a few of the many issues that arose during the 
subcommittee's hearing.
    My colleagues on the Senate Banking, Housing, and Urban Affairs 
Committee have continued to draw attention to the credit reporting 
industry, encouraged ongoing CFPB oversight of the market, and worked 
to correct the consumer dispute process. We are considering fundamental 
issues raised under the FCRA, including what constitutes ``reasonable 
procedures'' needed to ensure compliance with the law's information 
reporting requirements,\12\ and whether reinvestigation requirements 
adequately protect consumers, both in law and in practice.\13\
---------------------------------------------------------------------------
    \12\ 15 U.S.C. Sec. 1681e.
    \13\ See 15 U.S.C. Sec. 1681i.
---------------------------------------------------------------------------
    I assure you that the Senate Banking Committee, and the Financial 
Institutions and Consumer Protection Subcommittee, with primary 
jurisdiction over credit reporting agencies, will continue to provide 
meaningful oversight of the consumer credit reporting industry and the 
CFPB's efforts to protect consumers' credit histories.
            Sincerely,
                                             Sherrod Brown,
                                                          Chairman,
                                Subcommittee on Financial Institutions 
                                               and Consumer Protection,
                                          Senate Committee on Banking, 
                                             Housing and Urban Affairs.

    Senator McCaskill. And any suggestions from you, Ms. 
Thomas, and we thank you very much for being here. And you, Mr. 
Pratt, on behalf of the people you represent. Mr. Rheingold and 
Dr. Beales. We don't want to screw up the free market here. On 
the other hand, we want to make sure that consumers are not 
getting unfairly handcuffed to credit scores and credit reports 
they don't deserve.
    Thank you very much, and this hearing is adjourned.
    [Whereupon, at 4:42 p.m., the hearing was adjourned.]
                            A P P E N D I X

 Response to Written Questions Submitted by Hon. Claire McCaskill and 
                  Hon. Bill Nelson to Maneesha Mithal
    Question 1. The stories we heard from Ms. Thomas and that of Ms. 
Campbell were both beyond belief Both of these women have what to me 
seem like obvious errors: someone else's information was in their 
credit files. Yet these women filed dispute after dispute, sending 
every type of paperwork imaginable, and nothing happened. They both 
ultimately had to hire lawyers and have spent years dealing with these 
issues, all the while living with the effects of these errors. Under 
the Fair Credit Reporting Act (FCRA), consumer reporting agencies are 
supposed to have ``reasonable procedures to assure maximum possible 
accuracy'' and are supposed to ``conduct a reasonable reinvestigation'' 
to determine whether disputed information is accurate. Yet from Ms. 
Thomas and Ms. Campbell's examples, it does not appear the measures 
used by Equifax, Experian, and TransUnion meet such a reasonableness 
standard. Do the experiences of Ms. Thomas, Ms. Campbell, and what we 
saw in the 60 Minutes report meet the FCRA's legal requirements for 
accuracy and dispute procedures?
    Answer. I am deeply disturbed to hear stories like that of Ms. 
Thomas and Ms. Campbell, which demonstrate that inaccurate credit 
report information can take an extreme toll on people trying to go 
about their daily lives. I recognize that it is impossible for credit 
reporting agencies (``CRAs'') to guarantee 100 percent accuracy of all 
credit reports, and given the amount of information being handled 
certain amounts of errors are inevitable. That being said, the law 
requires CRAs have reasonable procedures to assure maximum possible 
accuracy. A critical aspect of this standard is that the system for 
responding to consumer disputes must be easily accessible and 
effective. The CRAs should be sure that the dispute system is easy to 
use and that consumers who file disputes are getting a reasonable 
investigation of their claims. If the CRAs' dispute systems 
consistently fail to meet that standard, then they are not meeting the 
FCRA's requirements.

    Question 2. How are your agencies ensuring that these credit 
reporting agencies are living up to the accuracy and dispute 
obligations under the FCRA?
    Answer. The FTC has always considered the accuracy of credit 
reports a vitally important issue and has done many things to improve 
the quality of information in the credit reporting system. For example, 
the Commission recently brought an action against Asset Acceptance, a 
large debt buyer, alleging that it failed to ensure that information it 
provided to the CRAs was accurate. The Commission obtained a $2.5 
million civil penalty against the company. The Commission also recently 
settled an action against a CRA, HireRight, for failing to maintain 
reasonable procedures to ensure accuracy of consumer reports. The 
Commission obtained a $2.6 million civil penalty in this case.
    The Commission has also put a large emphasis on educating consumers 
about the importance of reviewing their credit reports to ensure that 
they are accurate. Improving the accuracy of the credit reporting 
system is complicated by the sheer bulk of information involved and by 
the number of participants in the system. The FTC study discussed in my 
May 7 testimony was an important step in quantifying the number of 
errors in the system and will serve as an important tool for our future 
efforts. In addition, Commission staff have and will continue to work 
with the CFPB, who has supervisory powers over larger CRAs, to continue 
to improve credit report accuracy. Commission staff will also continue 
to coordinate with the CFPB to avoid duplication of our efforts.

    Question 3. It was shocking to learn that the consumer reporting 
agencies have not used consumers' supporting documentation in any 
meaningful way when it comes to disputes. When the consumer reporting 
agencies send a consumer's dispute on to a furnisher for investigation, 
those companies typically do not forward that supporting documentation 
along to the furnisher as well. During the hearing, Mr. Pratt confirmed 
that later this year, technology will enable the nationwide consumer 
reporting agencies to give furnishers the supporting documents 
submitted by consumers.
    Under the FCRA, consumer reporting agencies are supposed to send 
the furnisher ``all relevant information regarding the dispute that the 
agency has received from the consumer.'' However, for some time now, 
consumers like Judy Thomas have carefully compiled documents 
demonstrating the inaccuracy of information in their files, and this 
information has been ignored and replaced by a two-or three-digit code.
    Do the consumer reporting agencies' practices--specifically, the 
failure to forward consumers' supporting documentation to furnishers 
along with their disputes--meet the obligations set forth in the FCRA? 
Shouldn't ``all relevant information regarding the dispute'' 
necessarily include the supporting documentation that consumers submit 
to the consumer reporting agencies?
    Answer. As you note, the FCRA requires CRAs to provide ``all 
relevant information regarding the dispute that is received by'' the 
CRAs from the consumer. In some simple disputes, the preexisting codes 
you describe may be sufficient to provide ``all relevant information 
regarding the dispute.'' In disputes involving unusual or complicated 
facts, however, this system may fail to provide the relevant 
information. In these cases, it may be necessary for the CRA to use 
some other method to provide the information to the furnisher. It is 
our understanding that the three nationwide CRAs will soon be 
implementing a system that will enable documents supplied by consumers 
to be provided to furnishers for disputes. This will hopefully provide 
a more complete picture of consumers' disputes and will better serve 
consumers with difficult or complex cases. Commission staff will 
continue to monitor CRAs' actions in this area.
    Several years ago, advertisers flooded the market with offers of 
``free credit reports'' that were anything but free. These companies 
signed people up for ``credit monitoring services'' and other costly 
products for which they had no interest. The FTC and Congress both 
acted and, in 2010, the FTC issued a rule requiring any company 
offering such ``free credit reports'' to clearly disclose the existence 
of the federal, truly free website, www.annualcreditreport.com.
    However, it appears that these companies are still engaging in 
questionable advertising and marketing practices while skirting the 
intent of Congress. Now, advertisements for ``free credit scores'' and 
``$1 credit reports'' are on the rise. These products appear to have 
the same flaws as ``free credit reports''--consumers who order them 
also unwittingly sign up for ``monitoring services'' and other products 
that they do not want.

    Question 4. Do the advertising and marketing practices for these 
``free credit scores'' and ``$1 credit reports'' violate the Rule and/
or Section 5 of the FTC Act?
    Answer. Section 612(g) of the Fair Credit Reporting Act and the 
Free Credit Report Rule apply only to advertisements that offer ``free 
credit reports.'' In my view, if an advertisement offers only ``free 
credit scores'' or ``$1 credit reports'' without offering ``free credit 
reports'' then the Rule is not violated by a failure to include the 
disclosure. If, however, the advertisement is otherwise deceptive, such 
as by failing to properly inform consumers that they are subscribing to 
a monthly service, then it may violate Section 5. Such advertisements 
need to be evaluated on a case-by-case basis to determine whether they 
are deceptive to consumers.
    In any event, regardless of whether there is a violation of the 
law, I share your concern about potential consumer confusion in this 
marketplace. For this reason, Commission staff are exploring the 
creation of new consumer education materials on the topic of credit 
scores.

    Question 5. Is Congressional action needed to stop these deceptive 
advertisements?
    Answer. Any blanket prohibition on such advertisements or specific 
requirements regarding disclosures would likely require Congressional 
action. In the absence of such action, the Commission will continue to 
scrutinize offers for credit reports or scores on a case-by-case basis 
to determine whether such offers are unfair or deceptive under section 
5 of the FTC Act.

    Question 6. While access to their credit report is important 
information for consumers to have, we know the consumer's credit score 
is an important tool used by creditors in determining a consumer's 
creditworthiness. Should consumers be entitled to receive a free credit 
score along with their free credit report? Why or why not?
    Answer. Because credit scores play an important role in many credit 
transactions, providing consumers with more information about their 
scores could be beneficial, giving them an idea of how they are viewed 
by lenders and an opportunity to address any issues with their scores. 
However, the industry uses many different credit scores and it is not 
clear which score a CRA or other entity would be required to provide. 
When a consumer purchases a score from a CRA, it will most likely not 
be the score that a lender would obtain on the consumer, because there 
are many scores available from various sources, with different scoring 
models designed for specific types of lenders. Instead, consumers get 
scores known as ``educational scores,'' which give them a general sense 
of their creditworthiness.
    There are concerns that, while these scores certainly provide some 
information to consumers about how they are viewed by potential 
creditors, a score that gives a consumer a substantially different 
impression of her credit risk than a score that a lender would use 
could confuse and possibly disadvantage consumers. Therefore, any 
requirement that consumers receive free credit scores will need to take 
these issues into account so that consumers get information that will 
be of use to them.
    Under current law. consumers are sometimes entitled to obtain free 
credit scores when a particular score is used in a decision about their 
credit. Under the FCRA, a consumer that is denied credit based on 
information contained in a consumer report must be provided an adverse 
action notice. If a credit score was used in order to make the adverse 
decision, the adverse action notice must include that credit score. 
Additionally, consumers that apply for credit at a specific rate, but, 
based in whole or in part on information contained in their consumer 
reports, are offered credit at a higher (worse) rate, are entitled to a 
risk-based pricing notice and a free copy of their credit report. If a 
credit score was used to make the decision, the risk-based pricing 
notice must include that credit score. Finally, consumers applying for 
a mortgage are also generally required to receive copies of any credit 
scores obtained by the mortgage lender or broker for purposes of their 
application. In these cases, consumers receive the same score that was 
used by the lender, ensuring that they are receiving relevant and 
useful information.

    Question 7. Should Congress consider legislation that would require 
companies that generate credit scores to provide a free annual credit 
score to consumers similar to the requirement in place for free credit 
reports? Why or why not?
    Answer. As discussed above, credit scores play an important role in 
today's credit system and allowing consumers' free access to their 
credit scores could be beneficial, giving them important information 
about their creditworthiness. There are many credit scores available, 
however, and any legislation that requires the generation of a free 
credit score will need to address the issue of exactly what score 
should be provided to consumers. A general score similar to the 
``educational scores'' sold by the CRAs today might give consumers 
useful information, but if it does not match the scores provided to 
lenders then it may mislead consumers. Commission staff would be happy 
to discuss any proposed legislation with you or your staff.

    Question 8. If there is no single credit score, should consumer 
reporting agencies be allowed to market and sell consumers ``their'' 
credit score? Do those practices violate Section 5?
    Answer. The ``educational scores'' provided by CRAs may be useful 
to provide consumers with a general sense of their creditworthiness, 
even if they are not the same scores provided to lenders.
    If, however, educational scores are substantially different from 
ones provided to lenders, then consumers may be misled about the 
likelihood that they will be approved for credit. If their educational 
scores are significantly higher than those provided to lenders, then 
consumers may believe that they will obtain rates that they are not 
likely to receive. Consumers that receive scores lower than those that 
would be provided to potential creditors may fail to even apply for 
credit because of a misbelief that they do not qualify. Therefore, a 
company that markets a score that is consistently and significantly 
different from those provided to lenders and that fails to inform 
consumers of this fact, could be violating Section 5, and Commission 
staff would examine this issue on a case-by-case basis.

    Question 9. As we discussed during the hearing, short sales, which 
are encouraged by the government and are an increasingly common choice 
for underwater borrowers are different transactions than foreclosures. 
Yet, they are being coded as foreclosures on people's credit reports. 
Why are short sales being coded the same as a foreclosure in consumer 
credit reports?
    Answer. Based on conversations Commission staff has had with 
industry, we understand that there is currently a code used to report 
completed foreclosures and another code stating that a mortgage has 
been ``settled for less than the full amount,'' which is used to report 
short sales. While these codes are all technically accurate, it seems 
that some underwriting systems have difficulty interpreting the codes. 
This inability to interpret the codes and differentiate between short 
sales and foreclosures on credit reports can have a detrimental effect 
on consumers who have undergone short sales in the past and are seeking 
to reenter the housing market.

    Question 9a. Why is the FTC allowing short sales to be coded the 
same as foreclosures on consumer credit reports?
    Answer. Staff has discussed the issue with industry and the 
Consumer Financial Protection Bureau (``CFPB''), and believes that 
finding and implementing the solution to this problem will require the 
cooperation of consumer reporting agencies and underwriters. Staff is 
encouraging all parties to work on ways to solve the interpretation 
issues, and will support these efforts in any way we can.
    In the interim, Commission staff is working to prepare consumer 
education materials for consumers who have undergone a short sale. The 
education materials will highlight the potential issues consumers might 
face, and provide some concrete steps they can take to ensure that 
their previous short sales do not unduly hinder their future attempts 
to purchase a home.
    Commission staff would be happy to discuss these issues in detail 
with you or your staff.
    Thank you again for the opportunity to testify and for your 
questions. I would be happy to answer any additional questions you or 
your staff may have.
                                 ______
                                 
  Response to Written Questions Submitted by Hon. Claire McCaskill to 
                              Corey Stone
    Question 1. The stories we heard from Ms. Thomas and that of Ms. 
Campbell were both beyond belief. Both of these women have what to me 
seem like obvious errors: someone else's information was in their 
credit files. Yet these women filed dispute after dispute, sending 
every type of paperwork imaginable, and nothing happened. They both 
ultimately had to hire lawyers and have spent years dealing with these 
issues, all the while living with the effects of these errors. Under 
the Fair Credit Reporting Act (FCRA), consumer reporting agencies are 
supposed to have ``reasonable procedures to assure maximum possible 
accuracy'' and are supposed to ``conduct a reasonable reinvestigation'' 
to determine whether disputed information is accurate. Yet from Ms. 
Thomas and Ms. Campbell's examples, it does not appear that the 
measures used by Equifax, Experian, and TransUnion meet such a 
reasonableness standard. Do the experiences of Ms. Thomas, Ms. 
Campbell, and what we saw in the 60 Minutes report meet the FCRA's 
legal requirements for accuracy and dispute procedures?
    Answer. The errors described by Ms. Thomas, Ms. Campbell, and in 
the 60 Minutes report raise important concerns about the file matching 
and dispute procedures at consumer reporting agencies (CRAs). The 
Consumer Financial Protection Bureau (Bureau) understands the 
significant harm to consumers that matching errors can cause, 
especially if dispute procedures do not work as intended. The Bureau 
recognizes that, as a general matter, matching the right pieces of 
information to the right consumer can be complex and challenging when 
information characterizing individuals varies widely and furnisher 
records may contain errors or incomplete identifying information about 
an individual. But this challenge only heightens the importance of 
adequate investigation by the CRA when a consumer disputes a particular 
trade line as ``not mine.'' The Bureau is intent on using all tools 
available to it, including its enforcement, research, and supervision 
programs, to identify the sources of these problems and protect 
consumers. Further, the Bureau's Office of Consumer Response accepts 
complaints from individual consumers about consumer reporting agencies 
and the Bureau encourages consumers to file a complaint if the credit 
reporting agency dispute process does not result in correcting the 
inaccuracy.

    Question 1a. How are your agencies ensuring that these credit 
reporting agencies are living up to the accuracy and dispute 
obligations under the FCRA?
    Answer. The Bureau has the authority to investigate and take law 
enforcement actions against CRAs that violate the Fair Credit Reporting 
Act (FCRA), and the Bureau will use that authority, where appropriate, 
to protect consumers.
    In addition, the Bureau's consumer reporting supervisory program 
went into effect on October 1, 2012, after promulgation of a rule 
defining larger participants in the consumer reporting industry. As 
Director Cordray has noted, three early areas of focus for the 
supervisory program are the reliability and accuracy of information 
provided to CRAs by furnishers; the accuracy of information contained 
in consumer reports; and the difficulties consumers encounter during 
the dispute process.\1\
---------------------------------------------------------------------------
    \1\ Richard Cordray, Director, Consumer Financial Protection 
Bureau, Credit Report Field Hearing (July 16, 2012), available at 
http://www.consumerfinance.gov/speeches/prepared-remarks-by-richard-
cordray-on-credit-reporting/.
---------------------------------------------------------------------------
    Finally, the Bureau is currently pursuing research to better 
understand the root causes of credit reporting inaccuracies. Improving 
the accuracy and responsiveness of the credit reporting system for 
consumers is among the Bureau's top priorities.

    Question 2. It was shocking to learn that the consumer reporting 
agencies have not used consumers' supporting documentation in any 
meaningful way when it comes to disputes. When the consumer reporting 
agencies send a consumer's dispute on to a furnisher for investigation, 
those companies typically do not forward that supporting documentation 
along to the furnisher as well. During the hearing, Mr. Pratt confirmed 
that later this year, technology will enable the nationwide consumer 
reporting agencies to give furnishers the supporting documents 
submitted by consumers.
    Under the FCRA, consumer reporting agencies are supposed to send 
the furnisher ``all relevant information regarding the dispute that the 
agency has received from the consumer.'' However, for some time now, 
consumers like Judy Thomas have carefully compiled documents 
demonstrating the inaccuracy of information in their files, and this 
information has been ignored and replaced by a two-or three-digit code.
    Do the consumer reporting agencies' practices--specifically, the 
failure to forward consumers' supporting documentation to furnishers 
along with their disputes--meet the obligations set forth in the FCRA? 
Shouldn't ``all relevant information regarding the dispute'' 
necessarily include the supporting documentation that consumers submit 
to the consumer reporting agencies?
    Answer. As you note, the FCRA requires consumer reporting agencies 
to forward all relevant information regarding a consumer dispute to the 
furnisher of the information, and I believe that does mean information 
in documents that is relevant to the dispute should be forwarded to 
meet this legal obligation. For the first time, a Federal agency 
responsible for enforcing the FCRA has supervisory authority over 
larger CRAs and the ability to assess how frequently supporting 
documentation is submitted by consumers with their disputes, what types 
of supporting documentation are submitted, and whether supporting 
documentation not forwarded to furnishers ought to be forwarded or is 
otherwise being used by the CRAs in resolving disputes. A key goal of 
the Bureau's supervisory program--already underway--is to examine how 
larger CRAs are meeting their obligations under the FCRA, which include 
this important obligation to forward ``all relevant information'' to 
furnishers when investigating disputes. The three national credit 
reporting companies have announced plans to upgrade their shared 
dispute messaging system to enable dispute documentation supplied by 
consumers to be forward to furnishers. The Bureau will use its 
authority to ensure that these changes are implemented in a way that 
meets these CRAs' legal obligations under the FCRA.

    Question 3. Several years ago, advertisers flooded the market with 
offers of ``free credit reports'' that were anything but free. These 
companies signed people up for ``credit monitoring services'' and other 
costly products for which they had no interest. The FTC and Congress 
both acted and, in 2010, the FTC issued a rule requiring any company 
offering such ``free credit reports'' to clearly disclose the existence 
of the federal, truly free website, www.annualcreditreport.com.
    However, it appears that these companies are still engaging in 
questionable advertising and marketing practices while skirting the 
intent of Congress. Now, advertisements for ``free credit scores'' and 
``$1 credit reports'' are on the rise. These products appear to have 
the same flaws as ``free credit reports''--consumers who order them 
also unwittingly sign up for ``monitoring services'' and other products 
that they do not want.
    Do the advertising and marketing practices for these ``free credit 
scores'' and ``$1 credit reports'' violate the Rule and/or Section 5 of 
the FTC Act?
    Answer. As you note, in 2010 the Federal Trade Commission amended 
its Free Annual File Disclosure Rule to prevent the deceptive marketing 
of ``free'' credit reports.\2\ The amended rule requires that certain 
advertisements for ``free credit reports'' include prominent 
disclosures designed to prevent consumers from confusing such ``free'' 
offers with the free annual file disclosures available through the 
single centralized source, wwww.annualcreditreport.com. The amended 
rule also requires nationwide CRAs to delay advertisements for products 
and services available through the centralized source until after 
consumers receive their free annual file disclosures, and prohibits 
other practices that may interfere with the free annual file disclosure 
process.\3\
---------------------------------------------------------------------------
    \2\ 16 C.F.R. Sec. 610.4, now superseded by 12 C.F.R. 
Sec. 1022.138.
    \3\ 16 C.F.R. Sec. 610.2, now superseded by 12 C.F.R. 
Sec. 1022.136.
---------------------------------------------------------------------------
    The Bureau is evaluating market developments in this area and is 
aware that the advertising and marketing of credit reporting products 
has evolved since 2010. In general, each advertisement or marketing 
practice must be evaluated on a case-by-case basis to determine if it 
violates the Free Annual File Disclosure Rule or the prohibition 
against unfair, deceptive, or abusive acts or practices (UDAAPs) under 
the Dodd-Frank Act. Although I cannot comment on whether specific 
advertisements or marketing practices violate the rule or the 
prohibition against UDAAPs, the Bureau will take appropriate action, 
including enforcement action, in cases where it concludes there is a 
statutory or regulatory violation.

    Question 4. Is Congressional action needed to stop these deceptive 
advertisements?
    Answer. As an independent Federal regulatory agency, the Bureau's 
focus is on carrying out, implementing, and complying with the laws 
enacted by Congress. The Bureau would defer to Congress on questions of 
when and whether Congressional action is needed. We continue to monitor 
the marketplace and oversee compliance with the Free Annual File 
Disclosure Rule and UDAAP standards.

    Question 5. While access to their credit report is important 
information for consumers to have, we know the consumer's credit score 
is an important tool used by creditors in determining a consumer's 
creditworthiness. Should consumers be entitled to receive a free credit 
score along with their free credit report? Why or why not?
    Answer. Currently, the FCRA requires the disclosure of free credit 
scores used by certain mortgage lenders and by other lenders in 
connection with the provision of adverse action and risk-based pricing 
notices. In other circumstances, the consumer can purchase a credit 
score. Requiring consumer reporting agencies to provide a consumer with 
a free credit score along with a free credit report could raise several 
issues. In addition to those discussed in response to the question 
below, for example, some CRAs do not generate consumer credit scores 
themselves.
    I note that, while a consumer can get a rough indication of her 
creditworthiness from a credit score, her access to and review of her 
free credit report remains of paramount importance. Regardless of the 
credit scoring model used, inaccurate information in a consumer's 
credit file can harm the consumer's ability to get credit.

    Question 6. Should Congress consider legislation that would require 
companies that generate credit scores to provide a free annual credit 
score to consumers similar to the requirement in place for free credit 
reports? Why or why not?
    Answer. As an independent Federal regulatory agency, the Bureau's 
focus is on carrying out, implementing, and complying with the laws 
enacted by Congress. The Bureau would defer to Congress on questions of 
when and-whether Congressional action is needed.
    We note that a requirement that credit scoring companies issue free 
scores could raise new issues. For example, it is important to note 
that consumers do not have a single credit score. Multiple companies 
sell credit scores in the commercial market and the ranks of scoring 
providers continues to increase. In addition, most scoring providers 
offer multiple versions of consumer credit scores, including generic 
scores, industry- and company-specific scores, and educational scores 
only available to consumers. Media reports indicate that one developer, 
FICO, offers over 49 different credit scoring models.
    Further, not all score providers base the scores they sell on their 
own data. Many providers would need to gain access to underlying 
consumer report data from some other entity in order to generate free 
scores. The Bureau's September 2012 report provides further information 
on the credit scoring market.\4\
---------------------------------------------------------------------------
    \4\ Consumer Financial Protection Bureau, Analysis of Differences 
between Consumer- and Creditor-Purchased Credit Scores (Sept. 2012), 
available at http://files.consumerfinance.gov/f/
201209_Analysis_Differences_Consumer_Credit.pdf.

    Question 7. If there is no single credit score, should consumer 
reporting agencies be allowed to market and sell consumers ``their'' 
credit score? Do those practices violate Section 5?
    Answer. Consumer reporting agencies sell multiple versions of 
commercial scores as well as educational scores. The Bureau agrees 
that, as a result, there is a potential for consumer confusion in the 
marketplace for consumer credit scores.
    As we noted in the conclusion of our September 2012 report:

        This study finds that 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 of 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.\5\
---------------------------------------------------------------------------
    \5\ Id. at 21.

    The Bureau evaluates the marketing of consumer financial products 
and services by CRAs on a case-by-case basis, and will take appropriate 
action, which may include enforcement action, in cases where it 
concludes that such marketing involves an unfair, deceptive or abusive 
act or practice under the Dodd-Frank Act.
                                 ______
                                 
  Response to Written Questions Submitted by Hon. Claire McCaskill to 
                            Stuart K. Pratt
    Question 1. When consumers search for ``free credit score'' on the 
Internet, the results are staggering. Consumers are flooded with 
advertisements and directed to websites operated by consumer reporting 
agencies that market ``free credit score'' and ``$1 credit report'' 
products that have serious deficiencies--namely, consumers who order 
them may also unwittingly order expensive products like ``monitoring 
services'' that they do not want. Yet, unlike ``free credit reports,'' 
these websites lack the federally-mandated disclosure directing 
consumers to the true website for free credit reports, 
www.annualcreditreport.com. In developing these products, the consumer 
reporting agencies appear to be doing nothing more than taking 
advantage of a legal loophole in spite of Congress' clear intent to 
stop these deceptive marketing practices for ``free'' products that are 
not truly free, whether they involve credit reports or credit scores.
    Why don't the consumer reporting agencies you represent include the 
Federal disclosure directing consumers to www.annualcreditreport.com on 
their websites that offer ``free credit scores'' or ``$1 credit 
reports''?
    Answer. Our members care greatly about ensuring that consumers have 
a transparent experience when it comes to the products they offer. They 
want consumers to become long-term customers who value the full suite 
of services offered.
    As an example of our members' approach in the marketplace in this 
regard, technology allows us to identify which websites are most often 
pointing consumers (e.g., referrals via a link) to 
www.annualcreditreport.com. Along with the Federal Trade Commission's 
website, our members' primary corporate websites, which do include 
product offerings for consumers to purchase, also have links to 
www.annual
creditreport.com. All are top-five referral channels for consumers 
wishing to obtain a free annual credit report disclosure. Our members 
will continue to review their transparency efforts. A recent example of 
this ongoing effort is the fact that one of our members has now added a 
link to www.annualcreditreport.com to an additional product site under 
their control as a means of ensuring full transparency for consumers. 
These data and actions speak well of our members' commitment to 
ensuring consumers are not confused.
    Our members built www.annualcreditreport.com with the goal of 
ensuring consumers had an easy-to-find and easy-to-use means of 
ordering their free credit report disclosures. The website is 
extraordinarily successful. Consider the common commercial metric for 
measuring the success of a website's market position: search engine 
result/position. CDIA staff queried ``free credit report'', ``credit 
report'' and ``annual credit report'' on a variety of search engines 
and found that the website is the #1 or #2 search result on all major 
search engines (where it is #2 this is only because the FTC is #1) 
which is good news for consumers wishing to exercise their right to a 
free annual credit report disclosure. Following are details of the CDIA 
research:

----------------------------------------------------------------------------------------------------------------
    Search Engine Results for       Query: ``Free Credit       Query: ``Credit         Query: ``Annual Credit
   www.annualcreditreport.com             Report''                 Report''                   Report''
----------------------------------------------------------------------------------------------------------------
Bing                                  #1 is official site      #1 is official site           #1 is official site
----------------------------------------------------------------------------------------------------------------
Yahoo                                 #1 is official site      #1 is official site           #1 is official site
----------------------------------------------------------------------------------------------------------------
Google                                #1 is official site  #2 is official site \1\           #1 is official site
----------------------------------------------------------------------------------------------------------------
AOL                                   #1 is official site  #2 is official site \2\           #1 is official site
----------------------------------------------------------------------------------------------------------------


    Question 1a. Search results will also always include advertisements 
for products, some of which may result from our members, but also 
because of the offerings of other companies in the marketplace. There's 
no indication that consumers who are choosing to take advantage of free 
credit score offers are doing so because they are commonly confusing 
these offers with their right to obtain their free credit report 
disclosures through www.annualcreditreport.com. Will you and your 
members commit to offering such disclosures?
---------------------------------------------------------------------------
    \1\ #1 was the FTC's site which is also the top site for referrals 
to www.annualcreditreport.com.
    \2\ #1 was the FTC's site which is also the top site for referrals 
to www.annualcreditreport.com.
---------------------------------------------------------------------------
    Answer. Our members would not want consumers to confuse free credit 
score offers with their right to obtain a free credit report disclosure 
through www.annualcreditreport.com and as discussed above, our members 
do include links on their corporate websites. This said, it doesn't 
appear to us that consumers are confused when encountering a free 
credit score offer which brings into question the need for a new 
notice. As always, however, we welcome additional dialogue on this 
point. Our members believe in establishing an honest and transparent 
relationship with consumers and these are the values which guide them 
as they design both their advertising and their products.

    Question 2. During the hearing, concerns were raised that your 
members have so far failed to utilize sufficient resources to properly 
address consumer disputes. How many individuals do the nationwide 
consumer reporting agencies employ to answer the toll-free number? Are 
those staff members based overseas or here in the United States? What 
is the average on-hold time for consumers?
    Answer. We are working with our members to determine whether the 
data requested is proprietary or has competitive implications. It is 
important to note that the CFPB, via its supervisory powers, can review 
the information you request in the context of their examination of our 
members, while still keeping competitive data secure from general 
public disclosure.
    Regarding use of employees overseas, each of CDIA's nationwide 
consumer credit reporting agency members maintains a U.S.-based 
consumer relations service center. However, our members, which are 
global companies, also maintain operations centers around the world to 
meet the needs of their businesses in various markets including 
assigning some aspects of their U.S. consumer relations processing to 
service centers outside of the country. This decision brings with it 
many benefits including redundancy of services and also ensuring our 
members' service levels are maintained for all U.S. consumers even 
during peak service hours across all time zones.\3\ Regardless of where 
our members' service centers are located, these operations are in full 
compliance with the requirements of the Fair Credit Reporting Act and 
the extensive data security requirements imposed by rule as a result of 
the Gramm-Leach-Bliley Act.
---------------------------------------------------------------------------
    \3\  In addition to the four time zones which divide the 
continental United States, the U.S. has the following five additional 
time zones:

      Alaska Standard Time Zone

      Hawaii-Aleutian Time Zone

      Atlantic Standard Time Zone--Puerto Rico and U.S. Virgin 
Islands

      Samoa Standard Time Zone

      Chamorro Standard Time Zone--Guam and Northern Mariana 
Islands

    Question 3. The stories we heard from Ms. Thomas and Ms. Campbell 
described ``mixed files'' that should have been fixed, yet both women 
used your members' dispute processes for years to no avail. In fact, 
those consumers, and others like them, still struggle today to get fair 
results from the nationwide consumer reporting agencies, and are still 
being stonewalled by the companies you represent. Does the existing 
processes to ensure accuracy and dispute errors comply with the FCRA? 
Are the nationwide consumer reporting agencies really acting 
reasonably?
    Answer. Our members' have a shared commitment to ensuring that the 
highest quality data is reported to their databases and that consumers 
are well served when consumers wish to dispute the accuracy of data in 
their credit reports. We do believe the processes to ensure accuracy 
and handling disputes comply fully with the FCRA.
    With regard to handling consumer disputes please consider the 
following excerpt from our written testimony which goes into greater 
detail regarding our members' efforts to ensure consumers receive a 
consistent and high quality experience when they have disputes 
regarding data in their credit reports:

        ``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 [2011] PERC 
        data quality study discussed in the next section of this 
        testimony measured consumer satisfaction with the 
        reinvestigation process and fully 95 percent of consumers were 
        satisfied with the results. This fact offers a compelling 
        rebuttal to the unfounded accusations offered 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. \4\
---------------------------------------------------------------------------
    \4\ 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.''

    With regard to accuracy of data see below the excerpt from our 
written testimony that summarizes the various reports and studies 
regarding the baseline accuracy of our members' databases. Consistent 
with both CDIA's written and oral statements, our members are pleased 
that 98 percent of credit reports are free of a material error, but 
they remain committed to focusing on the 2 percent of cases where a 
material error may affect a consumer.

        ``The accuracy of credit reports is at the center of our 
        members' values and there is ample empirical evidence that 
        their efforts are a success. Consider the findings of the 
        following studies/reports:

        In 2004 the Federal Reserve Board published a study of 300,000 
        credit reports and stated that `` ``. . . the proportion of 
        individuals affected by any single type of data problem appears 
        to be small . . .''

        In February of 2013 the Federal Trade Commission released its 
        comprehensive study of the accuracy of credit reports (see 
        CDIA's full news release in Appendix I of this testimony). It 
        focused on errors in reports that could adversely impact the 
        price a consumer would pay. These errors were defined as 
        ``material errors.'' The study found that 98 percent of credit 
        reports do not contain a material error.

        Further, in December 2012, the Consumer Financial Protection 
        Bureau (CFPB) published a white paper on credit reporting 
        stated the following: ``. . . the number of credit-active 
        consumers who disputed one or more items with an NCRA 
        [nationwide credit bureau] in 2011 ranges from 1.3 percent to 
        3.9 percent.''

        The Federal government reports continue a consistent narrative 
        about the integrity of the data contained in credit reports. In 
        2011, the Political and Economic Research Council study found 
        that only 1 percent of credit reports contained a material 
        error.''

    Question 3a. Why have your members not been able to help these 
people?
    Answer. It is very difficult for CDIA to speak to the details of 
the consumer experiences discussed during the hearing. However, our 
members do stand ready to assist these consumers if problems still 
persist and none of our members would be satisfied with the results as 
described by these two consumers. Ensuring that systems work for all 
consumers is our members' shared goal.

    Question 4. I hear from my constituents that they try for months to 
get an error fixed and when they finally do, it re-appears six or 
twelve months later. Ms. Thomas has experienced the same problem, over 
and over again. Why do errors that have been acknowledged as such and 
corrected by the nationwide consumer reporting agencies continue to 
reappear on consumers' credit reports? The FCRA requires your members 
to have ``reasonable procedures'' to prevent the reappearance of errors 
in consumers' files that have been deleted. What systems do your 
members have in place to prevent such reoccurrences? How can they 
possibly be reasonable if these problems continue to persist?
    Answer. Our members employ a number of strategies to prevent the 
reappearance of errors. For example, the fact that data is deleted due 
to a consumer dispute is transmitted back to the originating source of 
the data to ensure that the source is aware of the deletion so that it 
can take action on its part to not continue to re-report such data. 
Once data is deleted, it is maintained in a suppression file (not the 
consumers report) so that if a data source re-reports the same 
information it is blocked by our members. When a data source attempts 
to re-report data contained in a suppression file our members also 
notify the data source of this fact to again ensure that the data 
source can take actions to prevent downstream attempts to report 
previously deleted data.
    Data may end up being re-reported where a portfolio is sold and the 
account numbers have been changed and the buyer is unaware of problems 
with the account due to mismanagement by the seller. In the context of 
debt collection agencies, if the client of the agency is not notified 
by the collector of the deletion of data due to a dispute submitted by 
a consumer to a consumer reporting agency when an account is returned 
as uncollectable and the client is unaware of the fact of a deletion of 
data and turns the same account over to a new agency for additional 
attempts to collect. This may result in an attempt to re-report the 
previously deleted account via the new debt collector. CDIA and its 
Metro 2 Task Force have issued special guidance to the data furnisher 
community to address debt collection practices, debt selling practices 
and portfolio sales practices in an effort to ensure that all data 
sources are aware of what must be done to prevent the re-reporting of 
data. Our members have significantly increased their outreach to and 
training (both remote-learning and in-person) of data sources in the 
last three years.

    Question 5. Your testimony announced that later this year, Equifax, 
Experian, and TransUnion would begin to utilize technology that allows 
the supporting documentation that consumers submit to be forwarded to 
furnishers along with their disputes. While these efforts are 
encouraging, they have taken far too long to implement.
    Why have your members failed to forward supporting documentation to 
furnishers with consumers' disputes? Under the FCRA, your members are 
supposed to send the furnisher ``all relevant information regarding the 
dispute that the agency has received from the consumer.'' Shouldn't 
that include the supporting documentation that consumers submit to 
support their disputes? How can these practices possibly comply with 
the FCRA?
    Answer. Our members designed the eOscar automated dispute system 
with the goal of serving consumers and ensuring a proper and timely 
transmission of the facts regarding a consumer's dispute. Making sure 
consumers are well-served is an important priority.
    In terms of what law requires, Federal courts have reviewed the 
eOscar system and found it compliant. The Federal Trade Commission's 
July 2011 staff report on the FCRA helps clarify the approaches that 
may be taken under law when transmitting a dispute where it states the 
following with regard to the handling of ``all relevant information'':

        ``. . . a CRA may provide all relevant information received 
        from the consumer in the notice of the dispute to the furnisher 
        by (a) placing a description of the relevant information in the 
        narrative field (e.g., ``12/15/01 ltr from S. Jones at Sears 
        states never late'' or ``point-of-contact D. Smith at 203-555-
        1212''); and (b) employing a code that adequately and fully 
        describes the nature of the evidence received from the 
        consumer.

    Our members want to meet consumer expectations and one measurement 
of the results of their efforts is the 2011 PERC study which reported 
that 95 percent of consumers were satisfied with the results of the 
reinvestigation of the data they disputed. The new eOscar enhancement 
which will require images of consumer-submitted information to be 
viewed by lenders is a significant new technology undertaking which is 
driven by our members' desire for ongoing improvements that benefit 
consumers. While our members have chosen to build a new enhancement to 
the eOscar system, it is not being installed in response to a question 
of the current system's compliance with the FCRA.

    Question 5a. Why has it taken so long to do something that seems so 
fundamental to the process, and so simple to do?
    Answer. The timing of the decision to add an enhancement to the 
current system is based on a number of factors:

   We believe that with the new CFPB as our regulator we can 
        address various legal issues that have been relevant to our 
        discussions in the past. Questions of law have been a 
        significant impediment to moving forward in the past.

   Since the Metro 2 data format was issued our members have 
        actively worked with the data furnishing community (over 10,000 
        sources) to convert them to this new format. Only recently, and 
        in part as a result of both relatively new rules regarding 
        accuracy and integrity as well as the creation of the CFPB, 
        have we seen the majority of data sources convert to furnishing 
        data in the Metro 2 Format which is the format upon which the 
        eOscar system is based.

   Similar to our members' experience with Metro 2 adoption 
        rates, it has taken significant time and investment to move 
        virtually all data furnishers onto the eOscar platform and only 
        recently has adoption be sufficient to consider adding 
        enhancements such as the new imaging project.

    Question 6. While access to their credit report is important 
information for consumers to have, we know the consumer's credit score 
is an important tool used by creditors in determining a consumer's 
creditworthiness. Should consumers be entitled to receive a free credit 
score along with their free credit report? Why or why not?
    Answer. Congress has addressed the question of under what 
circumstances consumers should have access to a score and also when 
their access should be free of charge. Consider consumer's right of 
access under the current Fair Credit Reporting Act as amended by the 
FACT Act and more recently the Dodd Frank Act:

   Free from the lender when receiving an adverse action 
        notice.

   Free from the lender when receiving a risk-based pricing 
        notice.

   Free from the lender when a consumer makes an application 
        for a mortgage.

   At a fair and reasonable fee upon request of the consumer.

    In establishing significant access to credit scores for consumers 
when purchased by lenders it has recognized that credit scores are a 
significant investment in software design and ultimately are 
intellectual property and that those who invest in the development of 
credit scoring software should be compensated. Congress has created a 
careful balance of providing free access to credit report disclosures 
(the data which underlies credit scores), free access to scores 
purchased by lenders (whether it is a credit approval or declination) 
and a regulated ``fair and reasonable'' price for credit scores 
otherwise obtained by consumers from consumer reporting agencies.

    Question 6a. Should Congress consider legislation that would 
require companies that generate credit scores to provide a free annual 
credit score to consumers similar to the requirement in place for free 
credit reports? Why or why not?
    Answer. No, for the reasons stated in the previous question. 
Congress has already ensured that consumers have access to credit 
scores in general and specifically in the context of many common credit 
transactions.

    Question 6b. If there is no single credit score, should consumer 
reporting agencies be allowed to market and sell consumers ``their'' 
credit score? Do those practices violate Section 5?
    Answer. CDIA member products which provide access to credit scores 
are a benefit to consumers. Our members should be allowed to market and 
sell their credit scores to consumers and there is no Section 5 
question on the table with regard to them.
    Because there is no single credit score in the marketplace all 
score disclosures serve the important purpose of expanding financial 
literacy of consumers. In fact, in 2012 the Consumer Federation of 
America stated that ``[w]hat's most important about a score is not its 
absolute level, but its relation to other scores from the same 
source.'' In other words the disclosure of a score is educational. It 
helps consumers understand where they fall relative to the rest of the 
consumer population.
    The CFPB's reports on credit scores set the record straight with 
regard to making credit scores available in the marketplace. Consider 
the two very important points excerpted from the July 2011 report:

   ``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.''

   ``lenders use credit scores produced by many different 
        scoring models.''

    The CFPB's September 2012 report made clear that credit scores of 
all types correlate closely with each other and thus all serve a 
valuable educational purpose for consumers. Consider the following 
excerpt from the executive summary of their report:

   ``Correlations across the results of scoring models were 
        high, generally over .90 (out of a possible one).''

    It is clear that the current marketplace of credit score access is 
benefitting consumers and expanding their understanding of a variety of 
core financial literacy issues, including taking advantage of having 
access to free credit reports on an annual basis.
                                 ______
                                 
  Response to Written Questions Submitted by Hon. Claire Mccaskill to 
                          J. Howard Beales III
    Question 1. While access to their credit report is important 
information for consumers to have, we know the consumer's credit score 
is an important tool used by creditors in determining a consumer's 
creditworthiness. Should consumers be entitled to receive a free credit 
score along with their free credit report? Why or why not?
    Answer. Consumers should not be entitled to receive a free credit 
score along with their free credit report. The requirement to provide 
each consumer with a free credit report each year is a useful mechanism 
to help assure the accuracy of credit reports. Consumers are often the 
only ones who can identify errors in their credit report, so inspecting 
credit reports and disputing inaccuracies increases the value of the 
credit reporting system for everyone. When it first supported the 
requirement for a free annual report in 2003, the FTC specifically 
pointed to this benefit of free disclosure.\1\
---------------------------------------------------------------------------
    \1\ Prepared Statement of the Federal Trade Commission on The Fair 
Credit Reporting Act Before the Senate Committee on Banking, Housing, 
and Urban Affairs, July 10, 2003.
---------------------------------------------------------------------------
    In contrast, a credit score is an analytical summary derived from 
the information in a credit report. Although consumers can identify 
errors in the underlying credit report, they cannot identify errors in 
their score. Thus, unlike credit report disclosure, score disclosure 
would not advance the public purpose of improving the accuracy of 
credit reports. Moreover, because there are numerous credit scoring 
models in widespread use, disclosing a single score could do more to 
create consumer confusion than it would do to enhance consumer 
education.
    Some credit scoring models are developed by the credit reporting 
agencies themselves. Others are developed by third party providers such 
as Fair Issac. Still others are developed by individual creditors, may 
be different for different types of transactions, and may incorporate 
information that is not available in the credit report itself. Thus, a 
single credit report can generate numerous credit scores, depending on 
the creditor and the scoring model employed. Credit reporting agencies 
may not even know some of these scores. They may provide third party 
scores as a service to their customers, but they do so under a license 
from the third party score developer, and would likely have to pay to 
give a consumer a copy of that score. Requiring any business to 
purchase a product from another business for the sole purposes of 
giving it to consumers for free is problematic at best. Although credit 
reporting agencies could provide their own scores, those scores may not 
be as widely used as other scores in making credit decisions.

    Question 2. Should Congress consider legislation that would require 
companies that generate credit scores to provide a free annual credit 
score to consumers similar to the requirement in place for free credit 
reports? Why or why not?
    Answer. No. As discussed above, providing consumers with their 
credit score does not serve the public purpose of enhancing the 
accuracy of the credit reporting system. If scores are to be provided, 
the logical place to do so would be to require the lender to disclose 
the score as part of an adverse action notice. Even there, however, the 
score may distract consumers from the more useful information contained 
in adverse action notices, particularly the key elements of their 
credit report that produce the largest reductions in their credit 
score.

    Question 3. If there is no single credit score, should consumer 
reporting agencies be allowed to market and sell consumers ``their'' 
credit score? Do those practices violate Section 5?
    Answer. Restricting the ability of participants in the credit 
reporting system to market credit scores, truthfully, to interested 
consumers would serve no useful purpose. Sellers should be clear that 
they are offering a score, and avoid creating the misimpression that 
the offered score is the consumer's only score.

                                  
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