[Federal Register Volume 70, Number 89 (Tuesday, May 10, 2005)]
[Notices]
[Pages 24583-24586]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-9299]


=======================================================================
-----------------------------------------------------------------------

FEDERAL TRADE COMMISSION


Notice of Agency Information Collection Activities Regarding a 
Pilot Study Pursuant to Section 319 of the Fair and Accurate Credit 
Transactions Act of 2003

AGENCY: Federal Trade Commission.

ACTION: Notice and request for comment.

-----------------------------------------------------------------------

SUMMARY: The information collection requirements described below have 
been submitted to the Office of Management and Budget (``OMB'') for 
review, as required by the Paperwork Reduction Act (``PRA''). The 
Federal Trade Commission (the ``Commission'' or ``FTC'') is seeking 
public comments on its proposal to conduct a pilot study in connection 
with Section 319 of the Fair and Accurate Credit Transactions Act of 
2003 (``FACT Act'' or the ``Act'').

DATES: Public comments must be received on or before June 9, 2005.

ADDRESSES: Comments should refer to the ``Accuracy Pilot Study: 
Paperwork Comment (FTC file no. P044804)'' to facilitate the 
organization of the 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 Y), 600 
Pennsylvania Avenue, NW., Washington, DC 20580. Comments containing 
confidential material must be filed in paper (rather than electronic) 
form, and the first page of the document must be clearly labeled 
``Confidential.'' \1\ 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].
---------------------------------------------------------------------------

    \1\ 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).
---------------------------------------------------------------------------

    All comments should additionally be submitted to: Office of 
Management and Budget, Attention: Desk Officer for the Federal Trade 
Commission. Comments should be submitted via facsimile to (202) 395-
6974 because U.S. Postal Mail

[[Page 24584]]

is subject to lengthy delays due to heightened security precautions.
    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 http://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: Peter Vander Nat, Economist, (202) 
326-3518, Federal Trade Commission, Bureau of Economics, 601 New Jersey 
Avenue, NW., Washington, DC 20580.

SUPPLEMENTARY INFORMATION: Section 319 of the FACT Act, Public Law 108-
159 (2003), requires the FTC to study the accuracy and completeness of 
information in consumers' credit reports and to consider methods for 
improving the accuracy and completeness of such information. Section 
319 requires the Commission to issue a series of biennial reports to 
Congress over a period of eleven years. The first report was submitted 
to Congress in December 2004 (``December 2004 Report'').\2\
---------------------------------------------------------------------------

    \2\ Report to Congress Under Sections 318 and 319 of the Fair 
and Accurate Credit Transactions Act of 2003, Federal Trade 
Commission, December 2004. This report is available at http://www.ftc.gov/reports/index.htm#2004.
---------------------------------------------------------------------------

    As discussed in the December 2004 Report, the FTC intends to 
conduct a pilot study which will evaluate the feasibility and 
methodology of a nationwide survey on the accuracy and completeness of 
consumer reports. On October 20, 2004, the FTC sought comment on the 
information collection requirements associated with its proposed pilot 
study. 69 FR 61675. Ten comments were received, which are discussed 
below.\3\ Pursuant to the OMB regulations that implement the PRA, 5 CFR 
part 1320, the FTC is providing this second opportunity for public 
comment while seeking OMB approval for the proposed pilot study.
---------------------------------------------------------------------------

    \3\ The comments are available at http://www.ftc.gov/os/statutes/fcrajump.htm.
---------------------------------------------------------------------------

    The purpose of the proposed pilot study is to evaluate the 
feasibility of directly involving consumers in a review of the 
information in their credit reports. The pilot study does not rely on 
the selection of a nationally representative sample of consumers, and 
as the Commission stated in the December 2004 report (at 32), 
statistical conclusions will not be drawn from this study. The study 
will involve a small group of consumers who give the designated 
contractor permission to review their credit reports. The contractor 
will help the participants to understand their reports and to discern 
inaccuracies or incompleteness in them. This process of review will 
also involve contact with the three nationwide consumer reporting 
agencies (``CRAs'') and those who furnish information (``data 
furnishers'') to these agencies. The pilot study is primarily a tool to 
assess whether the collection of certain data pertinent to credit 
report accuracy can be performed in a way that is not unduly resource-
intensive and would not be cost-prohibitive if extended to a nationwide 
survey (including such matters as identifying and screening 
participants, as well as involving data furnishers).
    Subject to OMB clearance for the study under the Paperwork 
Reduction Act, the FTC has designated a contractor with high-level 
expertise in credit reporting issues.\4\ The design elements of the 
study are the following:
---------------------------------------------------------------------------

    \4\ The designated contractor is a consortium comprised of the 
Credit Research Center from Georgetown University, the University of 
Missouri via its Center for Business and Industrial Studies, and the 
Fair Isaac Corporation.
---------------------------------------------------------------------------

    1. The study group will be drawn by a randomized procedure that is 
screened to consist of adult members of households to whom credit has 
been extended in the form of credit cards, automobile loans, home 
mortgages, or other forms of installment credit. The FTC will send a 
letter to potential study participants describing the nature and 
purpose of the pilot study. The contractor will screen consumers 
through telephone interviews. The selected study group will consist of 
approximately 35 consumers having a diversity of credit scores over 
three broad categories: poor, fair, and good.\5\ As various consumers 
give consent to participate (and thereby give the contractor permission 
to know their credit scores), if the respective categories of credit 
scores have an unequal distribution of consumers, then an array will be 
chosen to favor the consumers with the relatively lower credit scores.
---------------------------------------------------------------------------

    \5\ A credit score is a numerical summary of the information in 
a credit report and is designed to be predictive of the risk of 
default. Credit scores are created by proprietary formulas that 
render the following general result: the higher the credit score, 
the lower the risk of default. The designated contractor for the 
pilot study plans to use the ``FICO'' credit score, which is a 
commonly used score in credit reporting that is developed by the 
Fair Isaac Corporation.
---------------------------------------------------------------------------

    2. The contractor will help the participants obtain their credit 
reports from the three nationwide CRAs--Equifax, Experian, and 
TransUnion--through the Web site http://www.myfico.com. Each 
participant will request his or her three credit reports on the same 
day, although different participants will generally request their 
reports on different days.
    3. The contractor will help the participants review their credit 
reports by resolving common misunderstandings that they may have about 
the information in their reports; this will involve educating the 
participant wherever appropriate (thereby helping them to distinguish 
between accurate and inaccurate information). In addition, the 
contractor will help the consumer locate any material differences or 
discrepancies among their three reports, and check whether these 
differences indicate inaccuracies.
    4. The contractor will facilitate a participant's contact with the 
CRAs and with data furnishers as necessary to help resolve credit 
report items that the participant views as inaccurate. To the extent 
necessary, the contractor will guide participants through the dispute 
process established by the Fair Credit Reporting Act (``FCRA''), (the 
FCRA limits this process to 30 days, but the time may be extended to 45 
days if the consumer submits relevant information during the 30-day 
period). The contractor will not contact the CRAs and data furnishers 
directly during the course of the study, however. The contractor will 
determine any changes in the participant's FICO credit score resulting 
from changes in credit report information.\6\
---------------------------------------------------------------------------

    \6\ In making this comparison, the contractor will not retrieve 
from Fair Isaac's Web site a FICO score after the items have been 
corrected. Fair Isaac, as a member of the designated consortium of 
contractors, will compute a new FICO score based on the information 
in the original credit report and any changes directly related to 
the contractor's review. This method addresses a concern that 
changes in a credit score retrieved from Fair Isaac's Web site could 
be the result of the addition of new items rather than corrected 
items. See comments from the Consumer Data Industry Association at 
5; comments from Equifax at 15.
---------------------------------------------------------------------------

    As discussed further below, the contractor will use procedures that 
avoid the identification of study participants to CRAs and data 
furnishers. The pilot study will not create any hypothetical disputes, 
and it will use procedures that regularly pertain to credit reporting 
activities.

[[Page 24585]]

Summary of Comments to the First Federal Register Notice Regarding 
Pilot Study

    Some of the commenters enthusiastically support the proposed pilot 
study.\7\ Other commenters stated that, because they support a study of 
accuracy and completeness, they want more information about the pilot 
study.\8\
---------------------------------------------------------------------------

    \7\ See the comments of Bixby Consulting and the comments of the 
American Financial Services Association (``AFSA''). The comments 
from Visa USA are also generally supportive and add suggestions 
about additional studies.
    \8\ See comments from Springboard Nonprofit Consumer Credit 
Management (``Springboard'') and Privacy Rights Clearing House 
(``PRC'').
---------------------------------------------------------------------------

    Several of the commenters are concerned about the purpose of the 
pilot study. Springboard (at 1-2) summarizes the focus of the proposed 
pilot study as ``gauging how difficult it is for people to obtain, 
understand, and correct inaccurate information in their credit reports 
on a `do-it-yourself' basis;'' Springboard further fears that the goal 
of the pilot study is to conclude that the ``do-it-yourself model'' is 
adequate ``as is.'' In the opposite direction, industry representatives 
have expressed the fear to FTC staff that the pilot study may be 
designed to conclude that consumers should generally have expert 
assistance made available to them in reviewing a credit report. Both of 
these fears express misunderstandings about the purpose of the pilot 
study. The pilot study is not intended to replicate normal 
circumstances under which consumers generally review their credit 
reports; nor is it intended to evaluate the adequacy or complexity of 
the dispute process. The purpose of the pilot study is to evaluate the 
feasability of involving consumers in a review of the accuracy and 
completeness of the information in their credit reports. The scrutiny 
applied to the reports of study participants, via the help of an expert 
coach, would not at all be indicative of a consumer's normal experience 
in reviewing a credit report. The FTC recognizes that consumers often 
are not familiar with credit reporting procedures and may have 
difficulties in understanding a credit report (which may be partly due 
to a consumer's own misconceptions). The pilot study seeks to evaluate 
the feasibility of obtaining information pertinent to credit report 
accuracy by directly involving consumers under expert assistance. This 
evaluation is a first step in designing a more comprehensive study of 
credit report inaccuracies.
    Several commenters are concerned that the FTC is apparently doing 
just ``one'' pilot study, further stating that a single pilot study 
cannot adequately address the issues to be dealt with in preparation 
for a national study.\9\ The Commission has stated in its December 2004 
Report (at 35) that several pilot studies may be needed in preparation 
for a national study.
---------------------------------------------------------------------------

    \9\ CDIA at 2; Equifax at 10.
---------------------------------------------------------------------------

    Privacy Rights Clearinghouse (``PRC'') (at 2) asks whether measures 
are in place to mask the identity of participants from both CRAs and 
data furnishers. The study is designed to use only the normal business 
procedures of the CRAs and data furnishers, and therefore masks the 
identity of consumers as study participants. First, participants will 
request their credit reports through the Web site http://www.myfico.com. For the CRAs that receive and process these requests, 
they will be identical in form to thousands of requests that are 
regularly processed; indeed, nothing in the nature of the request 
identifies the consumer as a study participant. Second, any follow-up 
contact by study participants with a CRA or data furnisher will be 
through the normal process used by consumers when clarifying or 
disputing information in their credit reports. Thus, CRAs and data 
furnishers will not be able to identify communications from study 
participants. In addition, each member of the contractor consortium has 
signed an agreement not to disclose the identity of any study 
participant to parties other than the FTC.
    PRC questions whether participant's credit reports will be agency 
records subject to the Privacy Act, 5 U.S.C. 552a, and, if so, whether 
participants will receive any notice required by that Act. To the 
extent, if any, that the Act applies, the reports would be part of the 
agency's existing system for legal, investigational and other 
records,\10\ and, whether or not the Act applies, the FTC intends to 
include a notice consistent with the Act on any information collection 
forms (e.g., the letter sent by the FTC to potential study 
participants). PRC has also questioned whether there will be any 
express agreement to prohibit secondary uses of the collected data by 
the contractor. The letter to potential participants will inform them 
that the contractor has been permitted to collect the data only for the 
purpose of pilot study, and that other uses by the contractor have been 
prohibited.
---------------------------------------------------------------------------

    \10\ See http://www.ftc.gov/foia/sysnot/i-1.pdf
---------------------------------------------------------------------------

    Industry commenters such as the Consumer Data Industry Association 
(``CDIA''), Experian, Equifax, TransUnion, and the Coalition to 
Implement the Fact Act (``Coalition''), raise a number of other 
questions and concerns. They ask what definition the FTC will use for 
the ``accuracy and completeness'' of credit reports in the pilot study, 
as well as for a more comprehensive study. The pilot study is not 
employing a specific definition of accuracy and completeness.\11\ 
Instead, the pilot study is assessing a potential methodology for 
directly involving consumers in a review of the information in their 
credit reports. The pilot study will list possible outcomes of the 
items reviewed on credit reports, as follows:

    \11\ See also December 2004 Report at 5 n.10 (discussing 
different definitions of completeness) and at 16-18 (discussing the 
accuracy and completeness requirements of the FCRA).
---------------------------------------------------------------------------

``Item not disputed by consumer'';
``Disputed by consumer and relevant party agrees to make a change'';
``Disputed by consumer and the relevant party disagrees and maintains 
the information as originally reported'';
``Disputed by consumer and deleted due to expiration of statutory 
[FCRA] time frame'';
``Data item not present on report''; or
``Item not applicable.''

This list of outcomes demonstrates that the pilot study will be useful 
in designing a nationwide survey regardless of how accuracy and 
completeness are defined for such a survey. No decision has yet been 
made regarding the definition of these terms for a nationwide survey.
    TransUnion (at 3) states that ``[it] is particularly concerned that 
the FTC has not indicated how it will evaluate the completeness of 
consumer report information, nor can the FTC's intent be inferred from 
the Notice.'' Although the pilot study is not measuring incompleteness, 
one of the outcomes of the review will be ``data item(s) not present on 
the report.'' The FTC staff recognizes the different reporting cycles 
of data furnishers and also the voluntary basis on which information is 
provided to a CRA. Hence, there may be several possible explanations 
for why an anticipated item is not on a particular credit report.\12\ 
If the results of the pilot study indicate that its methodology is 
inadequate to study incompleteness, other methods will be considered.
---------------------------------------------------------------------------

    \12\ The item may be missing because a data furnisher did not 
provide the information to a certain CRA (or to any CRA), or--due to 
the specific reporting cycle of the data furnisher--because it was 
provided at a time after the credit report was inspected by the 
consumer. It could also be that the item was submitted to a CRA but 
was not placed in the correct consumer's file.
---------------------------------------------------------------------------

    Regarding the pilot study's methodology, Equifax asks (at 17) what 
the FTC means by ``informal contact.'' \13\

[[Page 24586]]

For the purpose of the pilot study, ``informal contact'' means any 
communication between a consumer and CRA or data furnisher that does 
not involve a formal FCRA dispute. From data presented in testimony 
before Congress by the Consumer Data Industry Association, it can be 
inferred that a significant number of participants in the pilot study 
will use informal contact to resolve discrepancies in their credit 
report.\14\
---------------------------------------------------------------------------

    \13\ The October 20, 2004 Notice indicated that both formal and 
informal contacts with CRAs and data furnishers may occur in the 
process of having consumers review their credit reports. 69 FR 
61675.
    \14\ See Statement of Stuart K. Pratt, CDIA, Before the 
Committee on Banking, Housing and Urban Affairs of the United States 
Senate, July 9, 2003. CDIA states that there were approximately 16 
million consumer-requested credit reports from the three CRAs for 
year 2003. Roughly 50% of these reports did not lead to a further 
response from the consumer (such as a call to, or dispute with, a 
CRA). Regarding the remaining reports, about half of these (i.e., 
about 4 million reports) involved questions or clarifications; the 
other half (roughly another 4 million reports) involved a formal 
dispute.
---------------------------------------------------------------------------

    Some commenters ask how the pilot study will resolve disputed items 
about which the consumer and data furnisher simply disagree.\15\ The 
FTC staff does not intend that the pilot study resolve such items, 
because this study will not be used to draw conclusions about credit 
report accuracy. Thus, wherever appropriate, the contractor will report 
that there was no agreement on certain disputed items. Following 
completion of the pilot study, the FTC staff plans to evaluate the 
number and potential seriousness of unresolved disagreements in an 
effort to determine whether there is an appropriate methodology to 
assess them in a nationwide study.\16\
---------------------------------------------------------------------------

    \15\ CDIA at 4; Equifax at 12; TransUnion at 4, 6.
    \16\ Fair Isaac, as a member of the consortium of contractors, 
will calculate the potential change in a FICO score regarding 
information that was challenged by the consumer but not changed on 
the credit report. This will help FTC staff assess the potential 
seriousness of unresolved items.
---------------------------------------------------------------------------

    Industry commenters believe that an assessment of credit report 
accuracy should evaluate the materiality of errors, i.e., the impact of 
errors in the context of decisions made by the grantors of credit.\17\ 
As a precursor to the possible study of materiality in nationwide 
survey, the contractor will determine the change in a commonly used 
credit score (the FICO score) whenever credit report information is 
changed by the mutual consent of the consumer and the relevant party 
(CRA or data furnisher).\18\ Some commenters are concerned that the 
pilot study only uses one credit score.\19\ Although the FTC staff 
acknowledges that there are a variety of credit scores, i.e., different 
scoring techniques used by the industry, that may be relevant in 
assessing the materiality of errors, the current pilot study is not 
making such an assessment because no statistically valid conclusions 
can be drawn from the small sample of participants.
---------------------------------------------------------------------------

    \17\ CDIA at 1, 4; Equifax at 9, 16; Experian at 1-2; TransUnion 
at 4, 6-7.
    \18\ See supra note 6 for an explanation of how the contractor 
will determine the change in the credit score.
    \19\ CDIA at 4, 5; Equifax at 14-16; Experian at 2.
---------------------------------------------------------------------------

    Industry commenters question why the FTC may permit an ``over-
sampling'' of low credit scores in the pilot study, and is thus likely 
to have a similar procedure for a national study.\20\ Although over-
sampling is not important for this pilot study (it involves only a 
small sample, and no statistical conclusions will be drawn from this 
study), the sampling methodology is potentially important for a 
nationwide study. One of the goals of the nationwide study under 
consideration, however ultimately executed, would be to categorize 
errors by their type and seriousness in terms of consumer harm (FTC 
December 2004 Report at 34.) In relation to this goal there is a 
recognized statistical procedure, called ``stratified sampling,'' that 
divides a population into an array of ``strata'' and knowingly over-
samples certain strata.\21\ A reason for over-sampling consumers that 
have low credit scores is that such people are likely to experience 
greater harm if their credit reports have errors contributing to the 
low score.
---------------------------------------------------------------------------

    \20\ Equifax at 11; TransUnion at 6; CDIA at 3.
    \21\ Textbooks in statistics explain the advantages of this 
method and also explain the prior knowledge about the strata that is 
needed to ensure the statistically reliability of the results, 
including the results for the population as a whole. For an 
elementary treatment of stratified sampling, see Harnett, Donald L., 
Statistical Methods (3rd ed.), Addison-Wesley Publishing Co., 1984 
(pages 253-254).
---------------------------------------------------------------------------

    Industry commenters also express a number of additional concerns 
about the nationwide survey under consideration, which they assert 
should be addressed by the FTC before the pilot study begins. The FTC 
staff believes it is premature to resolve these concerns now because 
the pilot study will be used to assess the utility, costs, and design 
of the potential nationwide survey.

Estimated Hours of Burden

    Consumer participation involves the initial screening and any 
subsequent time spent to understand, to review, and if deemed 
necessary, to dispute information in credit reports. The FTC staff 
estimates that up to 225 consumers may need to be screened through 
telephone interviews and that each screening interview may last up to 
10 minutes, which totals up to 38 hours (225 contacts x (\1/6\) hour 
per contact).
    With respect to the hours spent by study participants, in some 
cases the relative simplicity of a credit report may render little need 
for review, and the consumer's participation may only be an hour. For 
reports that involve difficulties, it may require a number of hours for 
the participant to be educated about the report and to resolve any 
disputed items. For items that are disputed formally, the participant 
must submit a dispute form, identify the nature of the problem, present 
verification from the participant's own records to the extent possible, 
and, upon furnisher response, perhaps submit follow-up information. All 
participants will have expert assistance available to them, and staff 
estimates that, on average, approximately 5 hours would be spent per 
participant, resulting in a total of 175 hours (5 hours x 35 
participants).\22\ Total burden hours are thus approximately 200 hours 
(38 hours for screening plus 175 study participant hours).
---------------------------------------------------------------------------

    \22\ Data from the Consumer Data Industry Association (see supra 
note 14) can be used to help create an estimate of the average time 
spent by participants in reviewing their credit reports. This 
general estimate, given for the purpose of calculating burden under 
the Paperwork Reduction Act, is conservative and likely 
overestimates the amount of time that will be spent by study 
participants. For reports that do not require the participants to 
pose any questions to a CRA about their report (estimated to be 50% 
of reports), the FTC staff estimates the participant's time spent to 
be an hour or less. For reports that involve questions to a CRA but 
not a formal dispute (estimated to be 25% of reports), staff 
estimates the participant's time spent to be 2 to 3 hours. For 
reports that involve a formal dispute (estimated here to be 25% of 
consumer-requested reports), there may be significant differences 
for time spent by the participants, and this variation is itself one 
element to be discerned by the pilot study. FTC staff believes that, 
as a preliminary estimate, a formal dispute would not involve more 
than 15 hours of the participant's time, particularly in light of 
the fact that the participants will have expert assistance available 
to them, including guidance through the FCRA dispute process. 
Overall, the staff has calculated the average time per participant 
by using the weighted average over the three categories of reports: 
(.50 x 1 hour) + (.25 x 3 hours) + (.25 x 15 hours) = 5 hours.
---------------------------------------------------------------------------

Estimated Cost Burden

    Participation by the consumer is voluntary. All participants will 
benefit by receiving assistance from the contractor in reviewing their 
credit reports, and identifying and resolving any errors. No monetary 
costs are involved for the consumer; specifically, participants will 
not pay for their credit reports.

William Blumenthal,
General Counsel.
[FR Doc. 05-9299 Filed 5-9-05; 8:45 am]
BILLING CODE 6750-01-P