[Federal Register Volume 69, Number 117 (Friday, June 18, 2004)]
[Notices]
[Pages 34167-34168]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-13848]


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FEDERAL TRADE COMMISSION

RIN 3084-AA94


Public Comment on Methodology and Research Design for Conducting 
a Study of the Effects of Credit Scores and Credit-Based Insurance 
Scores on Availability and Affordability of Financial Products

AGENCY: Federal Trade Commission.

ACTION: Notice and request for public comment.

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SUMMARY: The Fair and Accurate Credit Transactions Act of 2003 (``FACT 
Act'' or ``Act'') requires the Federal Trade Commission (``FTC'' or 
``Commission'') and the Federal Reserve Board (``Board'') to conduct a 
study on the effects of credit scores and credit-based insurance scores 
on the availability and affordability of financial products. These 
products include credit cards, mortgages, auto loans, and property and 
casualty insurance. The Act requires the FTC to seek public input about 
``the prescribed methodology and research design of the study.'' As 
part of its efforts to fulfill its obligations under the Act, the FTC 
seeks public comment on how the FTC and the Board should conduct the 
study.

DATES: Comments must be received by August 16, 2004.

ADDRESSES: Public comments are invited, and may be filed with the 
Commission in either paper or electronic form. Comments should refer to 
``FACT Act Scores Study, Matter No. P044804,'' to facilitate their 
organization. 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: Federal Trade Commission/Office of the Secretary, Room H-
159 (Annex N), 600 Pennsylvania Avenue, NW., Washington, DC 20580. The 
FTC urges 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 that do not contain any nonpublic information may be filed 
in electronic form (in ASCII format, WordPerfect, or Microsoft Word) as 
a part of or as an attachment to e-mail messages directed to: 
FACTAscoringstudy@ftcgov. If a comment contains nonpublic information, 
it must be filed in paper (rather than electronic) form, and the first 
page of the document must be clearly labeled ``Confidential.'' \1\
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    \1\ Commission Rule 4.2(d), 16 CFR 4.2(d). The comment must also 
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 
the 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: Jesse Leary, Deputy Assistant 
Director, (202) 326-3480, Division of Consumer Protection, Bureau of 
Economics, Federal Trade Commission, 600 Pennsylvania Avenue, NW., 
Washington, DC 20580.

SUPPLEMENTARY INFORMATION:

I. Background

    The FACT Act was signed into law on December 4, 2003. Fair and 
Accurate Credit Transactions Act of 2003, Public Law 108-159 (2003). In 
general, the Act amends the Fair Credit Reporting Act (``FCRA'') to 
enhance the accuracy of consumer reports and to allow consumers to 
exercise greater control regarding the type and amount of marketing 
solicitations they receive. To promote increasingly efficient national 
credit markets, the FACT Act also establishes uniform national 
standards in key areas of regulation regarding consumer report 
information. The Act

[[Page 34168]]

contains a number of provisions intended to combat consumer fraud and 
related crimes, including identity theft, and to assist its victims. 
Finally, the Act requires a number of studies be conducted on credit 
reporting and related issues.
    Section 215 of the FACT Act requires the FTC and the Board, in 
consultation with the Office of Fair Housing and Equal Opportunity of 
the Department of Housing and Urban Development, to conduct a study on 
the effects of credit scores and credit-based insurance scores on the 
availability and affordability of financial products. These products 
include mortgages, auto loans, credit cards, and property and casualty 
insurance. Section 215 further requires the FTC and the Board to study: 
(1) ``the statistical relationship, utilizing a multivariate analysis 
that controls for prohibited factors under the Equal Credit Opportunity 
Act and other known risk factors, between credit scores and credit-
based insurance scores and the quantifiable risks and actual losses;'' 
and (2) ``the extent to which, if any, the use of credit scoring 
models, credit scores, and credit-based insurance scores impact on the 
availability and affordability of credit to the extent information is 
currently available or is available through proxies, by geography, 
income, ethnicity, race, color, religion, national origin, age, sex, 
marital status, and creed, including the extent to which the 
consideration or lack of consideration of certain factors by credit 
scoring systems could result in negative or differential treatment of 
the protected classes, under the Equal Credit Opportunity Act, and the 
extent to which, if any, the use of underwriting systems relying on 
these models could achieve comparable results through the use of 
factors with less negative impact.''
    The study is due December 4, 2005.

II. Request for Comments

    The Act requires the FTC to seek public input about ``the 
prescribed methodology and research design of the study.'' As part of 
its efforts to fulfill its obligations under the Act, the FTC seeks 
public comment on how the FTC and the Board should conduct the study. 
Public comment is requested on all aspects of the study. In addition, 
the FTC seeks comment on the following questions:
    1. How should the effects of credit scores and credit based 
insurance scores on the price and availability of mortgages, auto 
loans, credit cards, other credit products, and property and casualty 
insurance be studied? What is a reasonable methodology for measuring 
the price and availability of mortgages, auto loans, credit cards, 
other credit products, and property and casualty insurance, and the 
impact of credit scores and credit based insurance scores on those 
prices and availability?
    2. An effect can often only be measured relative to a 
counterfactual (that is, relative to some hypothetical alternative 
situation). To determine the effects of credit scores on the price and 
availability of credit products, what is a reasonable counterfactual to 
the current use of credit scores? To determine the effects of credit-
based insurance scores on the price and availability of property and 
casualty insurance, what is a reasonable counterfactual to the current 
use of credit-based insurance scores?
    3. Paragraph (a)(2) of section 215 requires a study of ``the 
statistical relationship, utilizing a multivariate analysis that 
controls for prohibited factors under the (ECOA) and other known risk 
factors, between credit scores and credit-based insurance scores and 
the quantifiable risks and actual losses experienced by businesses.'' 
(The ECOA ``prohibited factors'' are race, color, religion, national 
origin, sex or marital status, and age.) What is an appropriate 
multivariate technique for studying this relationship? What data would 
be required to undertake such an analysis? What data are available to 
undertake such an analysis?
    4. What is an appropriate methodology to determine whether the use 
of credit scores or credit based insurance scores results in ``negative 
or differential treatment'' of ECOA-protected classes?
    5. What is an appropriate methodology to determine whether the use 
of specific factors in credit scores or credit based insurance scores 
results in ``negative or differential treatment'' of ECOA protected 
classes?
    6. What is an appropriate methodology to determine whether there 
are factors that are not considered by credit scores or credit based 
insurance scores that result in ``negative or differential 
treatment''of ECOA protected classes?
    7. In order to address paragraphs (a)(2) and (a)(3) of section 215, 
data are needed on the geography, income, ethnicity, race, color, 
religion, national origin, age, sex, martial status, or creed of 
borrowers, potential borrowers, insurance customers, or potential 
insurance customers. Are these data available, and if so, where?
    8. If the data discussed in question 7 are not available, what 
proxies are available for the geography, income, ethnicity, race, 
color, religion, national origin, age, sex, marital status, or creed of 
borrowers, potential borrowers, insurance customers, or potential 
insurance customers?
    9. If there are proxies for the geography, income, ethnicity, race, 
color, religion, national origin, age, sex, marital status, or creed of 
borrowers, potential borrowers, insurance customers, or potential 
insurance customers, what type of analysis would allow inferences to be 
drawn using the proxies instead of actual data on individual 
characteristics? What limitations are there to the inferences that can 
be drawn using proxies in place of data on individual characteristics?
    10. One potential proxy for individual characteristics may be 
Census data about the location where a borrower or insurance customer 
resides. What type of analysis would allow inferences to be drawn using 
data about the characteristics of the location where a borrower or 
insurance customer resides instead of data on individual 
characteristics? What limitations are there to the inferences that can 
be drawn using data about the characteristics of the location where a 
borrower or insurance customer resides in place of data on individual 
characteristics?

    Authority: Sec. 112(b), Pub. L. 108-159, 117 Stat. 1956 (15 
U.S.C. 1681c-1).

    By direction of the Commission.
Donald S. Clark,
Secretary.
[FR Doc. 04-13848 Filed 6-17-04; 8:45 am]
BILLING CODE 6750-01-M