[Federal Register Volume 69, Number 114 (Tuesday, June 15, 2004)]
[Notices]
[Pages 33387-33391]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-13482]


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FEDERAL TRADE COMMISSION


Public Comment To Aid Staff in Preparing the FACT Act Section 
318(a)(2)(C) Study

AGENCY: Federal Trade Commission.

ACTION: Notice and request for public comment.

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SUMMARY: The Federal Trade Commission (the ``Commission'' or ``FTC'') 
is conducting a study of the effects of requiring that a consumer who 
has experienced an adverse action based on a credit report receives a 
copy of the same credit report that the creditor relied on in taking 
the adverse action, as required by the Fair and Accurate Credit 
Transactions Act of 2003 (FACT Act or the Act). The Commission is 
requesting public comment on a number of issues to assist in 
preparation of the study.

DATES: Public comments must be received on or before July 16, 2004.

ADDRESSES: Interested parties are invited to submit written comments. 
Comments should refer to ``FACT Act section 318(a)(2)(C) Study, Matter 
No. P044804'' to facilitate the organization of comments. A comment 
filed in paper form should include this reference both in the text and 
on the envelope, and should be mailed or delivered to the following 
address: Federal Trade Commission/Office of the Secretary, Room H-159 
(Annex M), 600 Pennsylvania Avenue, NW., Washington, DC 20580. Comments 
containing confidential material must be filed in paper form, as 
explained in the Supplementary Information section. The FTC is 
requesting that any comment filed in paper form be sent by courier or 
overnight service, if possible, because U.S. postal mail in the 
Washington area and at the Commission is subject to delay due to 
heightened security precautions. Comments filed in electronic form 
(except comments containing any confidential material) should be sent 
to the following e-mail box: [email protected].

[[Page 33388]]

    The FTC Act and other laws the Commission administers permit the 
collection of public comments to consider and use in this proceeding as 
appropriate. All timely and responsive public comments, whether filed 
in paper or electronic form, will be considered by the Commission, and 
will be available to the public on the FTC Web site, to the extent 
practicable, at www.ftc.gov. As a matter of discretion, the FTC makes 
every effort to remove home contact information for individuals from 
public comments it receives before placing those comments on the FTC 
Web site. More information, including routine uses permitted by the 
Privacy Act, may be found in the FTC's privacy policy, at http://www.ftc.gov/ftc/privacy.htm.

FOR FURTHER INFORMATION CONTACT: Carolyn Cox, Economist, (202) 326-
3434, Federal Trade Commission, Bureau of Economics, 601 New Jersey 
Avenue, NW., Washington, DC 20580.

SUPPLEMENTARY INFORMATION:

I. Background

A. Current Requirements Under the Fair Credit Reporting Act

    Section 615 of the Fair Credit Reporting Act currently requires 
parties who take an adverse action on the basis of information 
contained in a consumer report to provide consumers with an adverse 
action notice that, among other things, contains the name, address, and 
telephone number of the consumer reporting agency that furnished the 
report, that notifies the consumer of his or her right to receive a 
free copy of a consumer report from the consumer reporting agency, and 
explains his or her right to dispute with the consumer reporting agency 
the accuracy or completeness of any information in that report. Section 
615 provides no time limit within which the notice must be supplied. As 
a practical matter, however, most creditors who are required to supply 
an adverse action notice by the Equal Credit Opportunity Act [section 
202.9 of Regulation B, 12 CFR 202.9] , which requires notification 
within 30 days [section 202.9(a)(1) of Regulation B, 12 CFR 
202.9(a)(1)], combine the FCRA and ECOA notices.
    A consumer who requests a copy of his or her credit report 
subsequent to receiving an adverse action notice may receive a credit 
report that looks different than the one that the creditor relied on in 
making its decision. For example, the report that the consumer receives 
may contain more up-to-date information or be in a more consumer-
friendly format. In addition, if the creditor and the consumer each 
provided different identifying information to request a copy of the 
report, then the reports received by the two parties may differ. This 
difference could, for example, be due to errors in transcription by 
clerks or differences in the amount of the identifying information 
provided. In some instances, the creditor may even receive multiple 
reports from a single consumer reporting agency on an individual 
consumer, while the consumer only receives one report. Thus, the report 
that the consumer receives and the report that the creditor receives 
and relies on may differ.
    In contrast, a consumer who experiences an adverse action regarding 
employment obtains a copy of the same consumer report that the party 
taking the adverse action relied on. Section 604 (b) (3) (A) of the 
FCRA notes that, except under certain circumstances, ``in using a 
consumer report for employment purposes, before taking any adverse 
action based in whole or in part on the report, the person intending to 
take such adverse action shall provide to the consumer to whom the 
report relates--(i) a copy of the report; and (ii) a description in 
writing of the rights of the consumer under this subchapter, as 
prescribed by the Federal Trade Commission, under section 609 (c)(1) 
[section 1681g(c)(1) of this title].'' \1\
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    \1\ The exceptions have to do with interstate truckers [section 
604 (b) (3) (C) of the FCRA, 15 U.S.C. 1681b(b)(3)(C)] and 
investigations of workplace misconduct [section 603(x) of the FCRA, 
15 U.S.C. 1681a(x)].
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B. Study Required by the FACT Act

    The FACT Act was signed into law on December 4, 2003. Pub. L. 108-
159, 117 Stat. 1952. Section 318 (a) (2) (C) of the Act requires the 
FTC to examine ``the effects of requiring that a consumer who has 
experienced an adverse action based on a credit report receives a copy 
of the same credit report that the creditor relied on in taking the 
adverse action, including--(i) the extent to which providing such 
reports to consumers would increase the ability of consumers to 
identify errors in their credit reports; and (ii) the extent to which 
providing such reports to consumers would increase the ability of 
consumers to remove fraudulent information from their credit reports.'' 
Section 318 (a) (3) specifies that the Commission ``shall consider the 
extent to which such requirements would benefit consumers, balanced 
against the cost of implementing such provisions.'' \2\
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    \2\ Section 318 (b) notes that ``Not later than 1 year after the 
date of enactment of this Act, the Chairman of the Commission shall 
submit a report to the Committee on Banking, Housing, and Urban 
Affairs of the Senate and the Committee on Financial Services of the 
House of Representatives containing a detailed summary of the 
findings and conclusions of the study under this section, together 
with such recommendations for legislative or administrative actions 
as may be appropriate.''
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    We believe it is significant that the Act requires the FTC to study 
only the effects of a consumer receiving a copy of the ``same credit 
report that the creditor relied on'' following an adverse action. 
Although ``credit report'' is a commonly-used non-technical term for 
``consumer report,'' because the provision refers also to 
``creditors,'' we interpret the study to encompass only the use of 
consumer reports in credit transactions. Of course, consumer reports 
are not only used to determine credit eligibility; they may also be 
used for the purposes of reviewing an account or making decisions 
involving insurance, employment, or government benefits.\3\ Consumer 
reporting agencies may also provide reports to persons who have a 
``legitimate business need'' for the information, such as a landlord 
deciding whether to rent an apartment to a consumer.\4\ The scope of 
the study, however, would not include situations in which these other 
users of consumer reports rely on a consumer report in taking an 
adverse action.
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    \3\ FCRA section 604(a)(3); 15 U.S.C. 1681b(a)(3).
    \4\ FCRA section 604(a)(3)(F); 15 U.S.C. 1681b(a)(3)(F).
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    Although the FACT Act requires the FTC to study ``the effects of 
requiring that a consumer * * * receives a copy of the same credit 
report * * * relied on'' following an adverse action, it does not 
specify who would be responsible for supplying a copy of the credit 
report or the manner in which it would be supplied. In particular, the 
Act does not specify whether the consumer reporting agency or the 
creditor would be required to supply the consumer with a copy of ``the 
same credit report'' or the manner by which they should fulfill the 
requirement. For example, a creditor could send a copy of the credit 
report or a notification of the consumer's right to receive a credit 
report from them, along with each adverse action notice. Alternatively, 
a consumer reporting agency could comply with a requirement to supply 
the same report relied on by a creditor in taking an adverse action to 
consumers who experience an adverse action by sending a copy of the 
report to consumers (regardless of whether they will experience an 
adverse action) at the same time that they send a copy to the creditor, 
or by responding to requests of consumers who experience an adverse 
action related to credit and request a copy of their report.

[[Page 33389]]

    The Act also does not define ``the same credit report that the 
creditor relied on,'' and it is not clear in all situations what the 
term means. For example, in the case of a creditor who uses a credit 
score to evaluate a consumer's creditworthiness, the ``same'' report 
could consist of only the score itself or it could also include all of 
the information that was used to derive the score. Likewise, if a 
creditor received multiple scores concerning an individual, the 
``same'' report could mean only the score or scores that the creditor 
chose to use or all of the scores the creditor received. In addition to 
issues regarding the content of the report, providing the ``same'' 
report to consumers as to creditors also raises issues concerning the 
format of the report. If the report that the creditor relies on is 
received in an electronic file that can only be understood using 
queries made through a specialized software package, would the ``same'' 
report consist of the unintelligible electronic files, or might it 
consist of a reporting of the information contained in the files in 
some new, more consumer friendly format? The costs and benefits 
associated with providing the consumer a copy of ``the same report'' 
depend on what one means by the term ``the same report.''

II. Request for Public Comments

    The Commission is seeking comment on all aspects of the proposed 
requirement that a consumer who has experienced an adverse action based 
on a credit report receives a copy of the same credit report that the 
creditor relied on in taking the adverse action. The Commission 
specifically requests comment on the questions noted below, but these 
questions are intended to assist the public and should not be construed 
as a limitation on the issues on which public comment may be submitted. 
Responses to these questions should cite the numbers and subsection of 
the questions being answered. For all comments submitted, please submit 
any relevant data, statistics, or any other evidence upon which those 
comments are based.
    The Commission requests that, as a threshold matter, parties 
explain how they define ``the same report that the creditor relied 
on.'' In addition, in answering the questions please use both the most 
restrictive and the most expansive definition possible and feel free to 
comment on how your answer would change if an alternative definition 
were used. For example, in instances where a creditor used a credit 
score, under the most restrictive definition, the ``same report'' would 
consist of only the score, while under the most expansive definition, 
the ``same report'' would include the score and the underlying data in 
a consumer-friendly format. Thus, in instances where a creditor used a 
credit score, the Commission seeks comment on the benefits and costs 
under these two scenarios, but welcomes comment on additional scenarios 
that might arise if an alternative definition were used.
    The Commission notes that the term ``adverse action'' has a 
specific definition under the FCRA. In particular, in terms of credit, 
the term adverse action ``has the same meaning as in section 701(d)(6) 
of the Equal Credit Opportunity Act [Section 1691(d)(6)] of this title 
* * *.'' Thus, the term adverse action means ``(i) a refusal to grant 
credit in substantially the amount or on substantially the terms 
requested in an application unless the creditor makes a counteroffer 
(to grant credit in a different amount or on other terms) and the 
applicant uses or expressly accepts the credit offered; (ii) a 
termination of an account or an unfavorable change in the terms of an 
account that does not affect all or substantially all of a class of the 
creditor's accounts; or (iii) a refusal to increase the amount of 
credit available to an applicant who has made an application for an 
increase.'' Therefore, situations that trigger a risk-based pricing 
notice would not be considered an ``adverse action'' for the purposes 
of this study. The Commission requests that comments use ``adverse 
action'' as it is defined under the FCRA, but welcomes parties to opine 
on how a more expansive definition of the term ``adverse action'' 
(e.g., one that included situations that trigger a risk-based pricing 
notice) would impact specific scenarios.

A. Extent to Which the Proposed Requirement Would Benefit Consumers

    1. How does the credit report received by the creditor currently 
differ from the information that consumers receive from a consumer 
reporting agency when they request a copy of their credit report in 
response to an adverse action notice?
    a. What are the different types of consumer reports that are used 
by a creditor (e.g., credit score, ``in file'' credit report,\5\ merged 
credit report)? To what extent are credit scores, as opposed to ``in 
file'' or merged credit reports, relied on by creditors in making 
decisions regarding the extension of credit? To what extent do 
creditors rely on two or more types of consumer reports (e.g., a credit 
score, an ``in file'' credit report, and/or a merged credit report) in 
their decisions on whether to extend credit? Does the form in which the 
credit file information is revealed to creditors differ significantly 
among creditors? If so, how?
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    \5\ The term ``in file'' credit report refers to a set of 
information that a party (e.g., creditor or reseller) receives from 
a credit reporting agency in response to a request for information 
about an individual.
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    b. How frequently are multiple ``in files'' and/or multiple credit 
scores received in response to a request for information on a single 
individual? How are multiple ``in files'' and/or multiple credit scores 
treated by parties in their credit granting decisions?
    c. Does the creditor use all of the information that it receives in 
response to a request for information on an individual, or, in certain 
situations, does it use only a subset of that information? For example, 
if a reseller or a creditor receives multiple ``in files'' does the 
creditor rely on all of the ``in files'' in making its credit granting 
decision, or does it screen the ``in files'' to determine which files 
it will rely on in making its decision? What are the situations in 
which the creditor relies on a subset of the information in its credit 
granting decision?
    d. Are credit scores based on more information than that which 
appears in a file that is disclosed to consumers? For example, is 
information used that is blocked or suppressed from the consumer's 
file?
    e. Do consumers ever receive multiple file disclosures in response 
to their request to see their credit file? If so, how often does this 
occur?
    f. What factors account for the differences in the consumer report 
that is relied on by a creditor versus the credit report that is seen 
by a consumer who requests a credit report after receiving an adverse 
action notice? In particular, are there differences due to (i) 
differences in the time at which the credit report is requested, (ii) 
differences in the format in which a credit report is presented to a 
consumer versus a creditor, or (iii) differences in the identifying 
information that is used to request a credit report? Are there 
differences due to the matching technologies used to respond to 
requests for information by the consumer versus the user of a consumer 
report? If the same identifying information was used by the creditor 
and the consumer to request a credit file and if the requests were 
placed at the same time, could the creditor receive multiple ``in 
files'' while the consumer only receives one file? Are there 
differences due to other factors? If so, what are these factors and why 
do they result in different credit reports being relied on by the 
creditor

[[Page 33390]]

versus the consumer? Please describe in detail the source of any 
differences.
    g. What information do consumer reporting agencies require 
consumers to provide to obtain a copy of their credit report? What 
information do consumer reporting agencies require creditors to provide 
to obtain information on an individual? To the extent that there are 
differences in the credit report seen by the creditor versus the 
consumer due to differences in identifying information, are these 
differences due to (i) differences in the amount of information that is 
required (e.g., a creditor is not required to provide the middle name 
of the individual, but the consumer is required to provide a middle 
name), (ii) differences in the completeness of the information (e.g., 
the consumer reports his name as John Doe, Jr., but the creditor 
reports only John Doe), (iii) typographical errors (e.g., social 
security number or name is typed in incorrectly by the creditor), or 
(iv) something else? Please describe in detail the source of any 
differences, as well as the extent to which they occur.
    2. What current problems exist when the consumer receives a report 
that is different in form or content from the report relied on by the 
creditor? Please provide examples of specific situations in which 
consumers would benefit from the proposed requirement that a consumer 
who has experienced an adverse action based on a credit report receives 
a copy of the same credit report that the creditor relied on in taking 
the adverse action.
    a. Do the problems arise primarily from differences in the scope of 
the information seen by the creditor versus the consumer, differences 
due to the time at which the report is requested, or both? For example, 
are the concerns related to situations in which a consumer does not 
know what information led to the adverse action because the information 
is already corrected by the time the report is normally seen by the 
consumer? Or, is it more likely that any problems come from a situation 
where the creditor has information in a consumer report or in multiple 
``in files'' that actually pertains to another individual?
    b. Would the proposed requirement increase the ability of consumers 
to identify errors in their credit reports? If so, how?
    c. Would the proposed requirement aid consumers who seek to have 
the adverse action decision reversed because of inaccuracies or 
incomplete information in the credit report relied on by the creditor?
    d. Would the proposed requirement aid consumers who seek to obtain 
credit from other parties following an adverse action?
    e. Would the proposed requirement increase the ability of consumers 
to identify identity theft and/or remove fraudulent information from 
their credit report? If so, how?
    f. Is the proposed requirement, in and of itself, sufficient to 
generate the benefits noted above, or are other requirements also 
necessary (e.g., credit report must be provided by a certain party at a 
certain time in the credit granting decision process) in order for the 
benefits to be generated? If so, what additional requirements are 
necessary?
    g. Would the proposed requirement generate benefits other than 
those noted above? If so, what benefits would likely be generated?
    3. What information would consumers gain if they receive the same 
credit report that the creditor relied on in taking the adverse action?
    a. Is there any information that appears in the report that the 
creditor relied on that is not currently reported to consumers, that, 
if corrected or deleted, would improve the consumer's ability to obtain 
credit?
    b. Is there any information that appears in the report that the 
creditor relied on that is not currently reported to consumers that 
would enable the consumer to detect if he/she is a victim of identity 
theft, or if he/she continues to be a victim of identity theft?
    c. Is there information that appears in the report that the 
creditor relied on that is not currently reported to consumers that 
generates benefits other than those noted above? If so, what additional 
information generates the benefits and what are the benefits?
    4. Are there situations in which the consumer already has an 
opportunity to see a copy of the credit report that the creditor is 
relying on prior to the creditor taking an adverse action? In 
particular, what is the extent to which this situation occurs in the 
mortgage industry?
    5. Are there situations in which the consumer already receives a 
copy of the credit report that the creditor relied on in taking the 
adverse action, after the action is taken? In particular, what is the 
extent to which this situation occurs in the mortgage industry?

B. The Cost of Implementing the Proposed Requirement

    1. What are the various means by which the proposed requirement 
that a consumer who has experienced an adverse action based on a credit 
report receives a copy of the same credit report that the creditor 
relied on in taking the adverse action could be implemented? What would 
be the costs associated with implementing the proposed requirement via 
these various means? Which party (creditor versus the consumer 
reporting agency) can provide the same report that the creditor relied 
on in taking the adverse action to consumers at least cost?
    2. Why do consumer reporting agencies not currently give consumers 
a copy of the same credit report that the creditor relied on in taking 
the adverse action? What would be the costs to consumer reporting 
agencies of requiring them to do so?
    a. Is the data base that is maintained by a consumer reporting 
agency kept in such a way that the consumer reporting agency can easily 
reconstruct a credit report from a prior date? If not, what would be 
the cost associated with requiring a change that would enable the 
consumer reporting agency to do that?
    b. Would a consumer reporting agency know what information is drawn 
from a credit file by a creditor and the manner in which it is 
displayed to them? If not, how costly would it be for the consumer 
reporting agency to obtain this information?
    c. Are there situations in which the cost of requiring the consumer 
reporting agency to provide a copy of the same credit report that the 
creditor relied on in taking the adverse action to a consumer who has 
experienced an adverse action would be minimal and/or nonexistent? If 
so, what are these situations?
    3. Why do creditors not currently give consumers a copy of the same 
credit report that the creditor relied on in taking the adverse action? 
What would be the costs to creditors of requiring them to do so? Does 
the cost vary depending on the credit granting situation (e.g., 
mortgages versus instant credit)? Are there situations in which the 
cost of requiring the creditor to provide a copy of the same credit 
report that they relied on in taking the adverse action to a consumer 
who has experienced an adverse action would be minimal and/or 
nonexistent? If so, what are these situations?
    4. What would be the cost to consumers associated with obtaining a 
copy of the credit report that the creditor relied on in taking the 
adverse action in addition to or in lieu of the credit report that the 
consumer currently receives if he or she requests one after receiving 
an adverse action notice?
    a. Would the proposed requirement lead consumers to mistakenly 
conclude that there are inaccuracies in their credit reports? Would 
giving consumers an

[[Page 33391]]

older version lead them to dispute inaccuracies that may have already 
been corrected? What sort of costs might result from these disputes?
    b. Would the proposed requirement make it more difficult for 
consumers to determine if there are inaccuracies in their credit 
report? Are there situations where a consumer who views the version 
that the creditor has relied on might miss the opportunity to fix 
inaccurate information that appears on the report after it was 
requested by the creditor? What sort of costs (e.g., denial of future 
credit) might result from these situations?
    c. What would be the cost to creditors associated with retooling 
their credit granting process to produce consumer friendly versions of 
the consumer report that they relied on?
    d. Would the proposed requirement make it more difficult for 
consumers to determine if they are, or continue to be, a victim of 
identity theft? If so, why?
    e. Could the proposed requirement unintentionally increase identity 
theft, particularly in situations where credit is denied because 
identity theft is suspected or in situations in which multiple ``in 
files'' or scores are received by the creditor in response to a request 
for information on a single individual?
    f. Could the proposed requirement raise privacy concerns in 
situations in which multiple ``in files'' or scores are received by the 
creditor in response to a request for information on a single 
individual?

C. Additional Information

    1. Do the experiences of other countries (e.g., Sweden) that have a 
similar, but not identical requirement that consumers receive the same 
report as that relied on by the creditor, inform our analysis here?
    2. Do the FCRA's section 604 requirements regarding adverse action 
in employment, where the consumer already receives a copy of the same 
consumer report that the party taking the adverse action relied on 
inform our analysis here?
    3. What other additional information should the Commission consider 
in studying the effects of the proposed requirement?
    All persons are hereby given notice of the opportunity to submit 
written data, views, facts, and arguments addressing the issues raised 
by this Notice. Comments must be received on or before July 16, 2004. 
Comments should refer to ``FACT Act Section 318(a)(2)(C) Study, Matter 
No. P044804'' to facilitate the organization of comments. A comment 
filed in paper form should include this reference both in the text and 
on the envelope, and should be mailed or delivered to the following 
address: Federal Trade Commission/Office of the Secretary, Room H-159 
(Annex M), 600 Pennsylvania Avenue, NW., Washington, DC 20580. If the 
comment contains any material for which confidential treatment is 
requested, it must be filed in paper (rather than electronic) form, and 
the first page of the document must be clearly labeled 
``Confidential.'' \6\ The FTC is requesting that any comment filed in 
paper form be sent by courier or overnight service, if possible, 
because U.S. postal mail in the Washington area and at the Commission 
is subject to delay due to heightened security precautions. Comments 
filed in electronic form (except comments containing any confidential 
material) should be sent to the following e-mail box: 
[email protected].
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    \6\ Commission Rule 4.2(d), 16 CFR 4.2(d). The comment must be 
accompanied by an explicit request for confidential treatment, 
including the factual and legal basis for the request, and must 
identify the specific portions of the comment to be withheld from 
the public record. The request will be granted or denied by the 
Commission's General Counsel, consistent with applicable law and the 
public interest. See Commission rule 4.9(c), 16 CFR 4.9(c).
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    The FTC Act and other laws the Commission administers permit the 
collection of public comments to consider and use in this proceeding as 
appropriate. All timely and responsive public comments, whether filed 
in paper or electronic form, will be considered by the Commission, and 
will be available to the public on the FTC Web site, to the extent 
practicable, at www.ftc.gov. As a matter of discretion, the FTC makes 
every effort to remove home contact information for individuals from 
public comments it receives before placing those comments on the FTC 
Web site. More information, including routine uses permitted by the 
Privacy Act, may be found in the FTC's privacy policy, at http://www.ftc.gov/ftc/privacy.htm.

    By direction of the Commission.
Donald S. Clark,
Secretary.
[FR Doc. 04-13482 Filed 6-14-04; 8:45 am]
BILLING CODE 6750-01-P