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H.R. 2622—FAIR AND ACCURATE

CREDIT TRANSACTIONS ACT OF 2003

HEARING

BEFORE THE

COMMITTEE ON FINANCIAL SERVICES

U.S. HOUSE OF REPRESENTATIVES

ONE HUNDRED EIGHTH CONGRESS

FIRST SESSION

JULY 9, 2003

Printed for the use of the Committee on Financial Services

Serial No. 108–47

(

(II)

HOUSE COMMITTEE ON FINANCIAL SERVICES 

MICHAEL G. OXLEY, Ohio, Chairman

JAMES A. LEACH, Iowa 

DOUG BEREUTER, Nebraska 

RICHARD H. BAKER, Louisiana 

SPENCER BACHUS, Alabama 

MICHAEL N. CASTLE, Delaware 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

ROBERT W. NEY, Ohio 

SUE W. KELLY, New York, Vice Chair 

RON PAUL, Texas 

PAUL E. GILLMOR, Ohio 

JIM RYUN, Kansas 

STEVEN C. LATOURETTE, Ohio 

DONALD A. MANZULLO, Illinois 

WALTER B. JONES, JR., North Carolina 

DOUG OSE, California 

JUDY BIGGERT, Illinois 

MARK GREEN, Wisconsin 

PATRICK J. TOOMEY, Pennsylvania 

CHRISTOPHER SHAYS, Connecticut 

JOHN B. SHADEGG, Arizona 

VITO FOSSELLA, New York 

GARY G. MILLER, California 

MELISSA A. HART, Pennsylvania 

SHELLEY MOORE CAPITO, West Virginia 

PATRICK J. TIBERI, Ohio 

MARK R. KENNEDY, Minnesota 

TOM FEENEY, Florida 

JEB HENSARLING, Texas 

SCOTT GARRETT, New Jersey 

TIM MURPHY, Pennsylvania 

GINNY BROWN-WAITE, Florida 

J. GRESHAM BARRETT, South Carolina 

KATHERINE HARRIS, Florida 

RICK RENZI, Arizona 

BARNEY FRANK, Massachusetts 

PAUL E. KANJORSKI, Pennsylvania 

MAXINE WATERS, California 

CAROLYN B. MALONEY, New York 

LUIS V. GUTIERREZ, Illinois 

NYDIA M. VELA ́ ZQUEZ, New York 

MELVIN L. WATT, North Carolina 

GARY L. ACKERMAN, New York 

DARLENE HOOLEY, Oregon 

JULIA CARSON, Indiana 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

BARBARA LEE, California 

JAY INSLEE, Washington 

DENNIS MOORE, Kansas 

CHARLES A. GONZALEZ, Texas 

MICHAEL E. CAPUANO, Massachusetts 

HAROLD E. FORD, JR., Tennessee 

RUBE ́ N HINOJOSA, Texas 

KEN LUCAS, Kentucky 

JOSEPH CROWLEY, New York 

WM. LACY CLAY, Missouri 

STEVE ISRAEL, New York 

MIKE ROSS, Arkansas 

CAROLYN MCCARTHY, New York 

JOE BACA, California 

JIM MATHESON, Utah 

STEPHEN F. LYNCH, Massachusetts 

ARTUR DAVIS, Alabama 

RAHM EMANUEL, Illinois 

BRAD MILLER, North Carolina 

DAVID SCOTT, Georgia 

BERNARD SANDERS, Vermont

ROBERT U. FOSTER, III, Staff Director 

(III)

C O N T E N T S 

Page 

Hearing held on: 

July 9, 2003 ....................................................................................................... 1

Appendix: 

July 9, 2003 ....................................................................................................... 93

WITNESSES 

WEDNESDAY, JULY 9, 2003

Belew, Joe, President, Consumer Bankers Association ........................................ 75

Bell, Kayce, Chief Operating Officer, Alabama Credit Union, on behalf of 

the Credit Union National Association .............................................................. 77

Brobeck, Stephen, Executive Director, Consumer Federation of America .......... 37

Dugan, John C., Partner, Covington & Burling, on behalf of the Financial 

Services Coordinating Council ............................................................................ 38

Duncan, Mallory, Senior Vice President, General Counsel, National Retail 

Federation ............................................................................................................. 30

Fischer, L. Richard, Visa U.S.A. ............................................................................. 84

Hoofnagle, Chris, Deputy Counsel, Electronic Privacy Information Center ....... 82

McEneney, Michael F., Partner, Sidley Austin Brown & Wood LLP, on behalf 

of the U.S. Chamber of Commerce ..................................................................... 33

Muris, Hon. Timothy J., Chairman, Federal Trade Commission ........................ 10

Pratt, Stuart K., President, Consumer Data Industry Association ..................... 41

Shelton, Hilary, Director, NAACP, Washington Bureau ...................................... 78

Snow, Hon. John W., Secretary, Department of the Treasury ............................ 8

Spriggs, William E., Executive Director, National Urban League Institute 

for Opportunity and Equality .............................................................................. 34

Taylor, D. Russell, Chairman, America’s Community Bankers ........................... 81

APPENDIX 

Prepared statements: 

Oxley, Hon. Michael G. .................................................................................... 94

Clay, Hon. Wm. Lacy ....................................................................................... 96

Emanuel, Hon. Rahm ....................................................................................... 97

Harris, Hon. Katherine .................................................................................... 99

Israel, Hon. Steve ............................................................................................. 100

Belew, Joe ......................................................................................................... 102

Bell, Kayce ........................................................................................................ 111

Brobeck, Stephen .............................................................................................. 119

Dugan, John C. ................................................................................................. 135

Duncan, Mallory (with attachments) .............................................................. 148

Fischer, L. Richard (with attachments) .......................................................... 157

Hoofnagle, Chris Jay (with attachments) ....................................................... 175

McEneney, Michael F. ...................................................................................... 195

Muris, Hon. Timothy J. .................................................................................... 207

Pratt, Stuart K. ................................................................................................ 224

Shelton, Hilary .................................................................................................. 238

Snow, Hon. John W. ......................................................................................... 243

Spriggs, William E. .......................................................................................... 248

Taylor, D. Russell ............................................................................................. 253

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

American Financial Services Association, prepared statement ........................... 260

(1)

H.R. 2622—FAIR AND ACCURATE 

CREDIT TRANSACTIONS ACT OF 2003

Wednesday, July 9, 2003

U.S. HOUSE OF REPRESENTATIVES, COMMITTEE ON FINANCIAL SERVICES, Washington, D.C. 

The Committee met, pursuant to call, at 10:14 a.m., in Room 

2128, Rayburn House Office Building, Hon. Michael Oxley [Chairman of the Committee] presiding. 

Present: Representatives Oxley, Leach, Bachus, Royce, Lucas of 

Oklahoma, Kelly, Gillmor, Ryun, Ose, Biggert, Shays, Miller of 

California, Hart, Capito, Tiberi, Kennedy, Hensarling, Murphy, 

Barrett, Harris, Renzi, Frank, Waters, Sanders, Maloney, Velazquez, Ackerman, Hooley, Carson, Sherman, Lee, Inslee, Moore, 

Capuano, Hinojosa, Lucas of Kentucky, Clay, Israel, McCarthy, 

Baca, Matheson, Miller of North Carolina, Emanuel, Scott and 

Davis. 

The CHAIRMAN. [Presiding.] The Committee will come to order. 

The Committee meets today for a legislative hearing on H.R. 

2622, the Fair and Accurate Credit Transactions Act of 2003, the 

FACT Act, comprehensive legislation to reauthorize certain key 

provisions of the Fair Credit Reporting Act and make other needed 

reforms to our national credit reporting system. 

The bill was introduced just prior to the 4th of July recess by a 

bipartisan coalition of 32 members of this Committee, 18 Republicans and 14 Democrats, led by the Chairman of the Financial Institution Subcommittee, the hardworking Mr. Bachus, Ms. Hooley, 

Mrs. Biggert and Mr. Moore. 

The FACT Act grew out of an exhaustive series of hearings that 

Chairman Bachus’s subcommittee has held on the FCRA over the 

past several months. Those hearings, which featured testimony 

from some 75 witnesses, representing every conceivable perspective 

on the FCRA, has laid the groundwork for this Committee to act, 

hopefully later this month, to preserve the benefits of the national 

credit reporting system and give consumers important new rights 

in the process. 

I commend Chairman Bachus and all of the members of the Financial Institutions Subcommittee for their diligent and very thorough approach to this complex issue. The legislation that the Committee considers today is a testament to their months of hard work. 

The subcommittee’s hearings have, in my view, established a 

compelling case for reauthorizing the FCRA’s uniform national 

standards. As one of our distinguished witnesses at today’s hearing, FTC Chairman Muris, has stated, the ‘‘miracle of instant credVerDate 0ct 09 2002 12:51 Mar 05, 2004 Jkt 000000 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 G:\DOCS\92230.TXT FIN1 PsN: MICAH
2

it created by our national credit reporting system has given American consumers a level of access to financial services and products 

that is unrivaled anywhere in the world.’’

According to the Federal Reserve Board, since FCRA’s enactment, the overall share of families with general purpose credit 

cards increased from 16 to 73 percent, with low income families 

achieving the greatest increase. 

American families’ ability to buy a home has also increased, with 

ownership levels growing significantly from 60 to 68 percent, again 

with the largest gains achieved by lower income and minority 

groups. 

These improvements in the credit and mortgage systems have 

saved consumers nearly $100 billion annually, according to some 

estimates. The FACT Act is, first and foremost, an attempt to make 

sure that the considerable benefits of that system to consumers and 

to the U.S. economy do not go up in smoke at the end of this year 

when the FCRA’s uniform national standards are set to expire. 

Let me highlight just a few of the provisions that I was particularly pleased to see included in this important jobs and economic 

growth bill. 

The FACT Act incorporates a number of provisions drawn largely 

from legislation introduced earlier this year by Ms. Hooley and Mr. 

LaTourette that aimed to reduce the incidence of identify theft and 

protect those who are victimized by this increasingly common form 

of criminal activity. 

The bill prohibits the printing of complete account numbers and 

expiration dates on credit and debit card receipts and requires 

verification of certain address changes so that consumers are less 

likely to have their accounts stolen. 

It helps consumers who fear they have been victimized by identify theft to place fraud alerts on their credit reports to ensure that 

criminals can’t access their accounts. 

And it allows identity theft victims filing police reports to block 

any fraudulent information from appearing on their credit reports 

to protect their credit reputations from being destroyed. 

With these targeted reforms, the FACT Act will strike a serious 

blow against the identity theft criminals who have succeeded in 

victimizing millions of innocent Americans over the years. 

The FACT Act also contains a number of provisions strengthening consumers’ ability to dispute the accuracy of incorrect or incomplete information that appears on their credit report. 

For example, perhaps the most fundamental protection the bill 

gives consumers is the right to a free annual credit report accompanied by an explanation of their individual credit score and what 

steps they can take to improve it. This will not only help consumers guard against identity theft, but will empower consumers 

to ensure they will not be unfairly denied access to credit or other 

financial products before the need arises. 

Let me again thank Chairman Bachus and the original co-sponsors of this legislation for their leadership and exemplary work. 

Let me also indicate to members that I fully expect this bipartisan consumer protection legislation to continue to be perfected as 

it moves through the markup process. 

3

The ranking minority member, Mr. Frank, has stated that one 

of his priorities will be to ensure that the legislation includes 

heightened safeguards for consumers’ health-related information. 

We have been working hard on that issue and I am committed to 

continuing to work with him in the same bipartisan spirit that has 

characterized the Committee’s review of FCRA thus far. 

Other members on both sides of the aisle have thoughtful proposals addressing various aspects of the FCRA that also warrant 

the Committee’s careful consideration. 

In closing, I want to welcome Secretary Snow and Chairman 

Muris before the Committee and thank them for their constructive 

role in this process. Just last week, Secretary Snow unveiled the 

Bush administration’s proposal for reauthorizing FCRA’s uniform 

national standards, which included sweeping new protections for 

the security of America’s personal financial information. 

And under Chairman Muris’s leadership, the FTC has recently 

begun implementing its national ‘‘do not call’’ registry—bless your 

heart—something that I and many members of Congress have long 

supported to limit unwarranted telemarketing phone calls. Judging 

from the millions of Americans who have signed up for it thus far—

and I understand it is 20 million and counting—this Bush administration effort appears well on its way to becoming one of the most 

popular consumer protection initiatives of all time. 

The Chair would add that pursuant to the Chair’s prior announcement, he will limit recognition for opening statements to the 

Chair and ranking minority member of the full Committee, the 

Chair and ranking minority member of the Subcommittee on Financial Institutions and Consumer Credit, or their respective designees, to a period not to exceed 16 minutes evenly divided between 

the majority and minority. The prepared statements of all members 

will be included in the record. 

The Chair now recognizes the ranking member, Mr. Frank, for 

an opening statement. 

[The prepared statement of Hon. Michael G. Oxley can be found 

on page 94 in the appendix.] 

Mr. FRANK. Thank you, Mr. Chairman. I appreciate the cooperative spirit in which we have been able to work so far. 

I think it is very clear from a wide range of conversations I have 

had that the votes exist, both on the Committee and in the House, 

to continue the existing FCRA, including the seven preemptions. I 

can’t name them all. I think I can get more of them than of the 

seven dwarfs, but I am not sure, but I know them when I see them. 

[Laughter.] 

So that outcome is not in question. There are, I should say, within the responsible consumer community, on our side of the aisle 

here, some people who oppose that. And what I am giving now is 

not my personal preference, but my statement of a fact. It is clear 

to me that there is majority support for extending the preemptions. 

The question is, in what form? 

Now, we should accept reality. It is very clear that if the majority 

party in this House decides to pass something, it will pass. A lot 

of time may pass before it passes, as we learned a week ago, but 

it will pass. 

4

Things are obviously different in the Senate, and that is what is 

relevant here. 

Just briefly, our deliberations will decide, I believe, whether or 

not a bill passes the House extending the preemptions with 240 or 

250 votes or 380 to 390 or maybe even 400 votes. I think it would 

be better if it were the latter. 

One, I think it would be in the interests of the country and of 

the economy for us to pass a bill that extended the preemptions 

with increased consumer protections. 

And I should note that there is, I think, a very high degree of 

agreement among all of the members of the Committee, about the 

consumer protections. There is a very high degree of conceptual 

agreement, areas such as identity theft, medical information, better 

information for consumers about what is in fact happening to them. 

I am impressed with the degree of consensus. 

We have had a very good set of hearings and I congratulate the 

Chairman of the subcommittee and the ranking member of the subcommittee. I read the hearing opening statements over the break. 

I don’t often read opening statements for hearings unless there is 

no other soporific available. But in this case I really found them 

cumulatively quite useful. 

So the question then is, can we translate this conceptual agreement on a lot of things into enough agreement so that we get a 

large vote? And the reason for a large vote is very important. Obviously, the United States Senate is going to be getting this bill, and 

there is a deadline of the end of December, so the bill will be one 

of the things being acted on along with appropriations bill at the 

end of the session. 

And as I said, I acknowledge that in the House the majority will 

be able to pass it. In the Senate, obviously, things are very different. I mean, I have explained to people that if a dog dies in the 

wrong place it can keep the United States Senate from acting. If 

a dog dies in the House it gets a rule and gets passed. 

[Laughter.] 

So, I mean, that essential difference between the two bodies 

ought to be kept in mind. 

The more we can achieve a consensus and a large vote in the 

House, the likelier we are to get a bill that can be signed into law 

in a way that won’t be disruptive by the end of the year. 

Now, there is one particular issue. As I said, I am struck by the 

degree we have had a lot of agreement on more transparency, on 

identity theft, which is a problem both for the consumer and for the 

financial institutions. The consumer bears a great deal of the anguish and stress of this; the financial institutions bear a great deal 

of the burden. 

I think it makes sense to focus on the Fair Credit Reporting Act 

and not on Gramm-Leach-Bliley. There are issues to be addressed 

there. I think opening them up would be—I do not see how the 

United States House and the United States Senate can complete 

action on this between now and December 31 with all the other 

business pending if we broaden this beyond the Fair Credit Reporting Act. 

There are a couple of areas that are particularly important to 

me. Our colleague from New York, Mr. Ackerman, has been raising 

5

the question of giving consumers notice when there is inaccurate 

information, they think, about them. We are all in agreement that 

people should be able to correct inaccurate information about themselves, but if you don’t know it has been put there, then by definition you can’t do anything about it. And waiting until you have 

been penalized for inaccurate information obviously imposes costs 

on the consumer that I think are unacceptable. 

In addition, there is one flaw in the system that I have seen. I 

do believe the consumer credit system works well. I think it works 

well on the whole. It obviously supports a considerable part of our 

economy. We have increased the extent to which people get credit. 

All those are good things. 

I think there is a problem in the extent to which individuals who 

are the victims of identity theft or simple error or whatever are 

able to get some redress. That is, I do believe that the existing procedures whereby a consumer who has been the victim of inaccurate 

information tries to get that corrected are not very good. 

I was told by one of the groups, ‘‘Well, if you have information 

about you that is inaccurate we will include in the statement that 

we send out your statement that what we say isn’t true.’’

So if I want to get some credit people will get a statement about 

how bad I am and a corresponding statement from me saying, That 

is not true, I am really a nice person. 

I think that is the equivalent of the newspaper that having printed an inaccurate obituary corrects that by printing a birth notice. 

Sending out information that is both accurate and inaccurate I 

think is unacceptable. 

I think we can do a better job of mandating that the credit furnishers and the credit reporting agencies take care of those cases 

where there is injustice. 

And I want to address specifically the argument that, well, there 

are people who think the system works very well and there are 

people who think it doesn’t work well. 

I think it works well with the major exception that—and it is a 

relatively small number of individuals who are victimized by inaccurate credit, but I don’t think it is acceptable to say to them that 

in the interest of the system as a whole they are going to have to 

bear that particular burden. I think we can do a better job of cleaning up their accuracy. 

So from that standpoint I hope that we will be able to proceed, 

as the Chairman has said, to take a basically reasonable approach 

and make it stronger, and I look forward to our being able to work 

together, and I hope that with that kind of approach we will be 

able to get a very large majority ultimately for a bill that extends 

the preemptions and protects consumers. 

The CHAIRMAN. The gentleman from Alabama? 

Mr. BACHUS. I thank the Chairman. 

What we are dealing with here is a national delivery system, and 

that is our national credit reporting system. And like our national 

interstate highway system, like our national power grid, like our 

national communications system, they deliver an incredible amount 

of value and are very important to the economy. 

Consumers today are able to move from state to state, they are 

able to finance loans, get mortgages at low rates. And part of the 

6

reason is what they never see, and that is the national uniform 

credit reporting system. 

As much as anything, and I think Secretary Snow pointed this 

out in a press conference last week, we have seen the democratization of credit, where low and middle income families enjoy incredible access to credit today at unparalleled levels. 

And I think that no one on this Committee wants to jeopardize 

that. At the same time, Chairman Oxley earlier this year recognized that many of the uniform standards were expiring, that that 

was a threat to this national uniform system, and he made it the 

top priority of this Committee not only to reauthorize those national standards, but to also improve upon the system. And we can 

improve upon it, and that is what this legislation is all about. 

The ranking member, Mr. Frank, pointed out identity theft. That 

is the fastest growing white collar crime in America. Hundreds of 

thousands of victims. People used to rob banks, and then they 

found that it was easier to rob railroad or trains, because they 

weren’t protected like the banks were. 

Well, the last thing that thieves have discovered is easy to rob 

is people’s credit, because people’s credit has a great deal of value 

to them, and people are now stealing people’s identity and using 

that identity and the credit that goes with that identity to steal 

millions of dollars every day here in America. 

This legislation is the result of a bipartisan group of members—

Ms. Hooley, Mr. Moore, Mr. Frank, even Mr. Sanders has had 

input and his stamp is on this bill, Chairman Oxley, Ms. Biggert. 

Really, you have got 14 co-sponsors on each side of this Committee, 

and every one of them has had a role to play in this legislation. 

This is a work in progress, as any legislation. We are at the beginning of the legislative process, we are at the end of the hearing 

process where we had 75 witnesses. We will continue to work with 

the members to refine this. We are aware of Mr. Ackerman’s concerns. We are aware of concerns of other members. 

And what we will do as we address all these concerns, we will 

try to determine what is in the best interest of the American consumer, the public, and we will try to balance the concern with the 

benefit of the system as it now exists. 

And if we can tweak that system, if we can make refinements to 

that system without erecting barriers to our uniform national credit reporting system, we will do that, and where justice dictates, we 

will do that. 

Now, I want to end, Mr. Chairman, by saying that, as much as 

anything, this bill demonstrates that when the Administration 

works with the Congress what a benefit that is. 

The Treasury Department and the FTC have worked very closely 

with us. Witnesses on our first panel have been very helpful to us, 

and their agencies. 

But as much as anything else, this is a bill where bipartisan cooperation has come together, and we have all put aside some of our 

personal differences to come up with the legislation that is a starting point for renewing the uniform credit system. Thank you. 

The CHAIRMAN. I thank the gentleman. 

The gentleman from Vermont. 

7

Mr. SANDERS. Thank you, Mr. Chairman. And I want to thank 

you and Ranking Member Frank for holding this important hearing 

on H.R. 2622, introduced by Subcommittee Chairman Bachus, and 

I want to thank Spencer Bachus for his openness in this entire 

process, and for his willingness to work in a non-partisan way. We 

appreciate that, and we look forward to continue working with him. 

And I also want to thank Secretary Snow for being with us 

today, as well as our other witnesses. 

And, Mr. Secretary, you and I will be meeting later on today to 

deal with another crisis, and that is the collapse of our pension system, which is affecting millions of American workers, and we look 

forward to that meeting, as well. 

Mr. Chairman, while this bill does include some modest consumer protections, H.R. 2622, as currently drafted, does not include 

a number of reforms that are needed to increase the accuracy of 

credit reports, reduce identity theft, and protect the medical privacy of consumers. 

Most importantly, H.R. 2622 contains a major anti-consumer provision that would permanently bar the States from passing stronger bad credit reporting laws designed to protect their citizens 

against any number of problems, including identity theft and the 

ability to protect consumers’ access to credit by ensuring that the 

notoriously flawed credit reporting system is cleared up, and in my 

mind just that is not acceptable. 

Mr. Chairman, this issue is extremely important to consumers, 

which is why the National Association of Attorneys General, representing all 50 of our states, unanimously passed a resolution opposing this preemptive language. 

They, the Attorney Generals throughout this country, who are 

closest to the problem, know that to protect consumers in this 

country, they have got to have the ability, whether it is in Alabama 

or Ohio or Massachusetts or Vermont, the ability to respond quickly and effectively to the particular consumer problems of people in 

their own State. And we should not deny them that right. 

Mr. Chairman, this preemption provision is also opposed. We 

hear the word consumer very often, but we should be clear that 

this preemption provision is also opposed by every major consumer 

organization in this country, including the Consumer Federation of 

America, or ACORN, the Center for Community Change, Consumers’ Union, Consumer Action, U.S. Public Interest Research 

Group, and the lower-income clients of the National Consumer Law 

Center. 

I look forward to working with Subcommittee Chairman Bachus, 

Ranking Member Frank, and Chairman Oxley, on improving this 

legislation before it reaches the floor. 

Let me also mention a few other concerns that I have. While HR 

2622 does allow consumers to receive free credit reports annually, 

and that is a very important step forward, it is not clear that it 

does allow consumers to receive free credit scores, the most important information consumers need to find out if they qualify for 

credit. 

The language here is vague, and I look forward to working with 

the Chairman to improve that language, to make it clear, abundantly clear, that consumers who receive free credit will receive 

8

free credit scores along with their free credit report, including the 

key factors adversely affect the consumer’s credit score. 

Further, Mr. Chairman, we must address the crisis in the credit 

card bait-and-switch scam, as recently reported by The New York 

Times, the Washington Post, ABC News and other media outlets. 

Credit card companies are penalizing customers who have always 

paid their credit card bills on time by, in some cases, tripling their 

interest rates due to information contained in the consumer’s credit 

reports that were linked to other loans. 

In other words, people pay their bills on time, month after 

month, and because they may have borrowed money for a personal 

crisis, or for another reason, credit card companies around this 

country are doubling or tripling their interest rates, and that is not 

acceptable and we have got to address that issue. 

Lastly, Mr. Chairman, I also support the visions that would protect Social Security numbers from identity thieves, protect the 

medical privacy of consumers, protect the credit of persons in combat or activated to military service, provide notification to consumers when negative information is put on their credit reports, 

protect consumers by disclosing insurance clause, reduce the time 

frame available for credit bureaus to investigate and correct consumer reports, increase the penalties for companies that repeatedly 

report inaccurate information to credit bureaus, and prohibit credit 

and insurance clause for bringing reduced space on the number of 

credit inquiries. 

Finally, Mr. Chairman, credit is more important than ever in our 

society. Consumers need to know that both the Federal and State 

governments are working hard to protect their access to credit. We 

need a strong federal law with flexibility by the States to react to 

local problems. 

I thank the Chairman, and I look forward to working with him 

and Mr. Bachus to improve this bill. 

Thank you. 

The CHAIRMAN. The gentleman’s time has expired. 

And the Chair would reiterate that all members’ opening statements be made part of the record. Without objection, so ordered. 

We now turn to our distinguished panel, beginning with the Secretary of the Treasury, Mr. John Snow. 

And, Secretary Snow, it is good to have you back again before the 

Committee. 

And also to Chairman Muris from the Federal Trade Commission. 

We thank both of you. 

And, Mr. Secretary, whenever you wish, you may begin. 

STATEMENT OF HON. JOHN W. SNOW, SECRETARY, 

DEPARTMENT OF THE TREASURY 

Secretary SNOW. Thank you very much, Mr. Chairman, Chairman Bachus, Ranking Member Frank, Member Sanders. It is a 

pleasure to be back here with you. 

In listening to your opening statements, for the most part I 

would say, as lawyers often say in proceedings, I stipulate to what 

you said and want to identify myself with it and adopt it as my 

own, because you have really hit on the high points of what this 

9

is all about, and there is hardly any reason for me to go through 

a lengthy statement. 

I have submitted a statement for the record, and I would ask 

that it be adopted——

The CHAIRMAN. Without objection. 

Secretary SNOW.——and included in the record. 

As Chairman Bachus said, the FCRA is the invisible infrastructure of the credit markets of the United States, and that invisible 

infrastructure makes possible the most extensive and widely available credit at the best rates anywhere in the world. And it simply 

wouldn’t be possible without that broad sharing of information. 

And that is why it is so important, so important, critically important, that you take the steps to make those standards permanent. 

Consumers have two vitally important interests here. First is access to credit and other financial services. They also, though, have 

a vital interest in the accuracy and the security of their financial 

information. Good legislation is going to serve both interests, and 

any proposals, it seems to me, should be judged by those two standards: Does the proposal advance the availability of credit, and does 

it make the information more secure and more accurate? 

It is important to recognize, I think, as we think about the extension of the FCRA, how important it has been for lower income people and how many people at the lower portions of the income scales 

in the United States have credit today because of the FCRA and 

the information pooling that it makes possible. 

It is also important to recognize just how many people generally 

benefit from the national uniformed standards. 

The Council of Economic Advisers has done some studies in this 

regard that I have detailed in my submitted testimony. They estimate that without the national standards, 280,000 home mortgage 

applications that are now approved each year would be denied. And 

that is roughly $22 billion of new mortgage money made available, 

made available because of these standards. 

And as I say, this democratization of credit has especially benefited minority and lower-income families. And if you look at the 

credit numbers, you will see that credit extension, credit card extension, mortgages and so on have even grown even faster among 

minorities and lower-income people over the last decades than 

among the populace generally. 

Good as it is, it can be improved. And significant improvements 

are suggested by the Administration and are included in the legislation that is pending before you today. A critically important area 

where improvements can be made is in this area of identify theft 

that needs to be addressed. It is a terrible national problem. In my 

written testimony I have offered some examples illustrating the 

lengths that these identify thieves go to rob people of their financial identity, illustrating how clever they are, how adaptable they 

are, how heartless they are as they perpetrate these horrors on innocent victims. And one of the worst aspects of the identity theft 

is how quickly one’s good reputation can be destroyed, and in turn 

how long it takes to get it back. 

Our proposals and your legislation addresses that issue. And it 

is important to recognize how important these national standards 

for sharing information can be in both reducing the prospects for 

10

identity theft and in correcting it once the crime has occurred. And 

I have detailed in my testimony the various ways we would suggest 

that be done. 

In closing, I want to congratulate the sponsors of this important 

legislation, the Bachus-Hooley-Biggert-Moore bill, all of whom I 

think I see here on the podium. This is legislation that is very 

much akin to the proposals that the Administration thinks makes 

good sense and the very proposals I talked about last week. And 

we are in very broad agreement, I want you to know, with what 

you were proposing in that legislation. 

We look forward to working with the members of the Committee, 

and the sponsors particularly, to move a strong package of reforms 

forward to ensure that the Fair Credit Reporting Act becomes an 

even more effective tool for meeting the financial needs of American consumers. I am confident that the legislation that is being 

proposed does that, and we want to see it become law. 

And I thank you for the opportunity to testify before you this 

morning. 

[The prepared statement of Hon. John W. Snow can be found on 

page 243 in the appendix.] 

The CHAIRMAN. Thank you, Mr. Secretary. And again, it is always good to have you here before the Committee. And thank you 

for your good work in this area. 

We now turn to Chairman Muris from the Federal Trade Commission. Mr. Chairman, welcome. 

STATEMENT OF TIMOTHY MURIS, CHAIRMAN, FEDERAL 

TRADE COMMISSION 

Mr. MURIS. Thank you. Thank you very much, Mr. Chairman, 

and members of the Committee. 

I am certainly pleased to appear here today to discuss the FTC’s 

legislative recommendations with respect to the Fair Credit Reporting Act. The FCRA has been a remarkably effective law and serves 

as a model for our efforts to protect consumer privacy. 

As the Chairman mentioned, the FCRA makes possible what I 

call the miracle of instant credit. This miracle occurs all over 

American every day. For example, if a consumer has good credit he 

or she can borrow $10,000 or more from a complete stranger and 

within an hour drive away in a new car. Now, I am told that you 

need a higher authority than a credit manager to bestow miracles, 

but it is a remarkable event when you focus on it. 

The flexibility of our credit markets is one of our great strengths 

as a nation. 

It is one reason why we are so large, strong, and prosperous. 

Since the FCRA was enacted, over 30 years ago, consumer credit 

has expanded exponentially and today accounts for two-thirds of 

our nation’s GDP. 

Since 1970, access to credit has greatly expanded as well. Thirty 

years ago, less than 10 percent of the least affluent Americans had 

credit cards. Today, more than half do. 

The FCRA has facilitated this growth while at the same time 

protecting consumers’ sensitive financial data. 

Our recommendations for legislation will help fight identity theft 

and improve credit report accuracy. At the same time, they will 

11

preserve the benefits to consumers of the national credit reporting 

system. 

To begin, the Commission recommends that Congress renew the 

existing preemptions of Section 624 of the FCRA. The national 

character of our credit markets is a powerful argument for retaining these provisions. The current system functions well, and we believe there is no compelling justification for fundamental changes. 

This is not to say that the FCRA is perfect, and we have other 

proposals that we believe would improve the act. 

These proposals focus on getting credit reports more easily to 

consumers who want them, streamlining the dispute process and 

easing the burden on identity theft victims. 

I want to finish by highlighting our proposal to expand adverse 

action notices to consumers. 

In its basic operation, the FCRA is an extraordinarily insightful 

statute. Without the consent or choice of consumers, an enormous 

amount of information is collected, information that allows our national credit markets to function. 

Use of this information is strictly limited, however, to permissible purposes as defined under the statute. 

With all of the information, some inaccuracy is inevitable. Here 

to, the FCRA solution is ingenious. The FCRA requires that when 

credit is denied based even in part on a consumer report, the creditor must notify the consumer of one, the identity of the credit bureau from which the creditor obtained the report, two, the right to 

obtain a free copy of the report, and three, the right to dispute the 

accuracy of information in the report. 

Now, the self-help mechanism embodied in the FCRA scheme of 

adverse action notices and the right to dispute is critical to maximize the accuracy of consumer reports. 

It puts credit reports in consumers’ hands when they are the 

most motivated to inspect the report for inaccuracies. That is, after 

they have been denied credit, employment, insurance, or another 

benefit based on the report. 

Moreover, adverse action notices help fight identity theft. An adverse action notice can alert a consumer that he may have bad 

marks on his credit that he doesn’t know about. 

The subsequent free credit report helps consumers discover these 

accounts that an impostor may have opened. 

Enforcing the FCRA’s adverse action provisions is at the heart of 

FTC action, but we believe there is room for improvement. 

Today, the FCRA requires an adverse action notice only when a 

consumer is denied credit based on his credit report. The consumer 

who is offered credit on less advantageous terms and accepts the 

offer gets no adverse notice. 

Ten years ago, consumers simply were denied credit based on 

their credit report. Today, however, with the prevalence of riskbased pricing, it is more likely that consumers are charged a higher 

rate rather than rejected outright. 

For this reason, we recommend that Congress give the FTC rulemaking power to expand the circumstances under which consumers 

will get adverse action notice in these credit transactions. 

We make several other specific recommendations, which I will be 

happy to discuss in response to the Committee’s questions. 

12

It is a pleasure to be here, and particularly to be here with Secretary Snow, and we support his proposals as well. 

Thank you very much. 

[The prepared statement of Hon. Timothy J. Muris can be found 

on page 207 in the appendix.] 

The CHAIRMAN. Thank you, Mr. Chairman. 

And let me begin with a couple of questions for Secretary Snow. 

Mr. Secretary, you testified that the Council of Economic Advisers estimates that if Congress doesn’t reauthorize the uniformity 

under FCRA and the States pass significantly different laws, that 

as many as 280,000 mortgage applications per year could be denied, especially for first-time home buyers. 

Doesn’t that make the legislation that is before us, the FACT 

Act, the top priority for our country and, indeed, guarantee our economic viability? 

Secretary SNOW. Absolutely, Mr. Chairman. 

I couldn’t agree more strongly. These national standards are essential to the way credit gets made available in this country. They 

have made for much more robust credit markets. Those robust 

credit markets lie at the heart of the success of the American economy. They are integral to the success of the American economy. 

As Chairman Muris said, consumers represent some 70 percent 

of all the activity in the American economy. And that depends on 

credit. And we have the best credit markets and the most available 

credit and the lowest cost credit in the world. And that is, in large 

part, due to these standards. 

So I would see the legislation pending here, making these standards permanent, an essential condition for the continued success of 

the American economy. 

The CHAIRMAN. Mr. Secretary, I was struck by some testimony, 

when Chairman Bachus had his series of hearings, as to how mobile our society really is, almost clearly the most mobile society in 

the world. Fourteen percent of Americans move every year. 

We indeed do have a national credit system that is, I suspect, the 

envy of most countries. And despite that, there are those who—including the gentleman from Vermont—who mentioned the attorneys general not wishing to have a uniform national standard. 

It just seems to me that based on this incredible infrastructure 

of credit that we have developed in a national marketplace and 

given the mobility that our people have that it is almost incumbent 

upon us to maintain that national system. Would you agree and expound on that? 

Secretary SNOW. I would indeed. In some ways, credit is as 

American as apple pie. We lead our lives because credit is so readily available. And so many Americans are in the system because of 

widespread credit availability. 

Those numbers on mobility. I have seen that study. It is an astonishing thing. Americans move, on average, every 6 years. That 

is about 17 percent of the U.S. population in a given year. It is an 

astonishing number. 

There is no other country that has that sort of mobility. And that 

sort of mobility is central to keeping this economy fluid and flexible 

with people moving to where the jobs are. 

13

It is at the very heart of having flexible labor markets. And you 

can’t have those flexible labor markets unless people have the credit to be able to buy the home in the new location, unless they can 

open checking accounts, unless they can shop. 

And these standards allow one to take your good credit reputation with you wherever you go. And that facilitates labor mobility 

and is a critical part of what defines the success of the American 

economy. 

So I agree entirely. 

The CHAIRMAN. It just seems that we have such a mobile society. 

They move because that is where the jobs are, which is exactly 

what you want in a vibrant economy. But it is one thing to move 

from Ohio to Arizona and get a job and then have problems getting 

credit, which really defeats the purpose behind the move in the 

first place. 

We appreciate the comments. 

Chairman Muris, how does our current system of credit reporting 

help to ensure that people who should not get credit, who are not 

qualified to get credit, do not get credit? 

Mr. MURIS. Well, the system works, as I mentioned, not at the 

choice of consumers. Consumers who have bad credit can’t hide 

that fact, and that is a very important part of why the system functions so well. 

In many parts of the world, so-called negative information is not 

allowed to be reported. We allow that to be reported, and that is 

of tremendous benefit to the people who have good credit records, 

that the absence of that negative information when it is reported. 

The CHAIRMAN. My time has expired. 

The gentleman from Massachusetts. 

Mr. FRANK. I appreciate the testimony, and particularly, in both 

cases, I think, the witnesses represent what we need to do, which 

is to let us now start to get specific about improvements. 

Mr. Muris, I am particularly pleased to see a couple of things for 

that. As I said, my sense of this is that the one weakness that I 

believe most critical to address is that a very small minority of consumers about whom inaccurate information gets kind of locked in, 

and I think they are inadequately protected, and I think it is within our capacity in this large system to improve the protections for 

these individual consumers without burdening the system. 

I mean, people say it is going to cost more. Yes, we are socializing the cost a little bit, but when we are talking about the hundreds of billions of dollars that are supported here, I don’t think 

we are out of the ball park. I am also, I have to say, joining the 

Chairman congratulating you on implementing the do-not-call list. 

When I read some of the concerns about some of the industry 

groups about some of the consumer protections we are talking 

about, they predict danger to the economy, damage to the economy, 

like the people who are in the call business predict from the donot-call lists. 

And I don’t think they were right there, and I don’t think they 

are right here. That is, the gloom and doom we heard about the 

do-not-call list, I think, will soon be shown to be that I don’t think 

the American economy has really been that dependent on bothering 

people’s dinner. 

14

And I don’t think that perpetuating inaccurate information in 

files is necessary to the consumer credit situation. 

You had a couple of very important specific suggestions, which 

I am going to be asking the people on my staff to be working on. 

One, on page 15, you recommend that the FCRA be amended to 

provide that disputes raised with furnishers receive the same treatment as disputes filed with a credit reporting agency. 

That is very important. To some extent, it is almost like sort of 

18th century England: If you are the consumer, you must go 

through all the right forms, and if you don’t go through all the 

right forms, you are penalized. 

In my conversations, I too often heard with some of the people 

who are in the business of furnishing credit or other credit reporting entities the argument, well, if the consumer does it all right 

then this or that can happen. 

With identity theft, or whatever, if you filed the police report, 

well, not everybody knows they are supposed to file a police report 

or can find it easy to file a police report, or in a lot of communities 

when they are having to lay-off cops you are going find a policeman 

to report it to, because he is busy out there trying to catch a bad 

guy who is trying to whack some guy. 

So, here the notion that you would not have a substantive right 

to get your reinvestigation because you didn’t go to the FCRA, I 

think that is very, very important, and I appreciate it. 

I also was pleased in pages 10 and 11, with your specific endorsement of making it statutorily clear the resellers have the same responsibility as other people. 

I mean, I think we ought to be very clear. You have a right to 

complain, you have a right to a substantive reinvestigation, and 

you have that right with anybody who might be perpetuating the, 

or sending along the misinformation. 

And one of the things that strikes me here, and, well, I know we 

will probably wind up preempting going forward, the advantages of 

not having preempted prematurely seem to me to come forward. 

My own State of Massachusetts, and I was not previously familiar with this, it wasn’t an area I had specialized in, is grandfathered in a piece of legislation which gives the furnishers and 

others a somewhat higher standard, and I am struck by that because apparently Massachusetts has been able to sell things. 

The existing of the higher standard in Massachusetts has not 

had the negative consequences that some of the furnishers predict. 

And so I am going to be looking at that, I think, in that we have 

some happy experience here in those three States that were grandfathered, and I look forward to working with your staff. 

As I said, I am going to be trying to translate these two into statutory language, we will look forward to you working together on 

that, and I appreciate your coming forward with that. 

So I thank you. 

Mr. MURIS. Thank you. 

Mr. FRANK. Mr. Snow, I also appreciate your testimony. I really 

want to talk to you about capital controls in Argentina, but we will 

do that some other time. Thank you, Mr. Chairman. 

[Laughter.] 

The CHAIRMAN. Gentleman yields back. 

15

The gentlelady from New York, Ms. Kelly. 

Mrs. KELLY. Thank you, Mr. Chairman. Secretary Snow, and 

Chairman Muris, I would like to thank you both for appearing before the Committee and voicing your strong support for H.R. 2622. 

As you know, this legislation’s been drafted after careful consideration by this Committee that included a multitude of views from 

many diverse witnesses. We actually began the process by investigating the issue of identity theft in several oversight subcommittee hearings, including a joint hearing that I chaired with 

Chairman Bachus in the beginning of April, and I am pleased that 

this legislation specifically addresses some of the problems we discovered in these hearings and hits at the heart of identity theft. 

In the past few months, in my subcommittee, we have also investigated another important security issue, the blocking of terrorist 

financing under the USA PATRIOT Act. I believe this legislation 

will further help law enforcement combat financial fraud and track 

down criminals and terrorists. 

However, there are some concerns about the privacy under this 

act. And as we move forward with consideration of the FCRA reauthorization, I believe we must also be concerned about the sanctity 

of privacy for the American people in this act. 

As we will hear from several witnesses today, medical information is readily available and easily identifiable on credit reports. I 

am currently exploring language that will protect medical information of individuals without disrupting the access to low cost credit 

and the security of information. In fact, I believe it enhances the 

security of personal information. 

To that end, I would like to ask a couple of questions. 

Chairman Muris, is it the intent of a credit report to specify information outside the realm of the credit-granting process? Would 

you support coding medical information in a way that would allow 

financial transactions to appear on a credit report, but not the actual names of the institutions or the entities that have provided 

those transactions? 

Mr. MURIS. This is a problem or an issue that has recently been 

brought to my attention. First of all, I am not sure the extent to 

which there is a problem. We are looking, and we will be glad to 

work with you and the other members and your staffs, to see what 

the impact of that would be. 

I do know under the FCRA there are separate standards and 

separate procedures for getting medical information. And if you 

want to get a life insurance policy, for example, you will need to 

consent to the insurance company for the right to receive medical 

information about you. That is regulated to a certain extent by the 

FCRA. 

But the specific issue that you mention is one that has just been 

recently brought to my attention, and we would be glad to work 

with you on it. 

Mrs. KELLY. Let me just give you an example of what I am concerned about. In New York City we have a wonderful cancer-treating institution called Memorial Sloan-Kettering. If I am being 

treated and I have a bill dispute with Memorial Sloan-Kettering, 

the assumption would be that I am being treated for cancer and 

the assumption is in many people’s mind still that cancer is almost 

16

inevitably problematic to the extent that it deeply affects your ability to work or can result and does result in death. 

My concern is if that name, like Memorial Sloan-Kettering, appears on a credit report, there may be an assumption made by 

someone who is looking at that credit report that I have a difficulty 

without understanding that I am there because I am actually going 

back in for a checkup and there was a discussion about that bill. 

I want to make sure that we work out a method so that the financial end of that could be presented, but the entity providing 

that service is not listed. That is my intent, that is the legislation 

that I am working on, and I am glad to think that you would be 

working with me on that. I would hope that you would support 

that. 

Mr. MURIS. Well, yes, we would certainly be glad to work with 

you on it, and it may be easy to do that. I don’t know what the 

ramifications are. 

I do know that in the situation that you are talking about, if 

someone currently, under the current law, is denied a benefit because someone drew an inference they didn’t like in their credit report, the person has to be told that they were denied the benefit 

because of the credit report. 

The person has to be told that they were denied the benefit because of the credit report. 

So some protection already exists. And I would be glad to work 

with you on the additional issue. 

Mrs. KELLY. Recognizing that that protection does exist, my 

problem is that it is one more step that we simply, I don’t believe, 

need to have people get involved in if we can stop it before it happens. 

Secretary Snow, in your testimony you discuss the integrity of information and note that one of your most important assets is your 

reputation. Do you believe that there needs to be specific medical 

information on an actual credit report? Or do you think it makes 

sense to consider coding the information in some way, as I have described? 

Secretary SNOW. You raise a good issue, an important issue. And 

I don’t have a fixed answer to it. I want to think about it, though, 

against the criteria that we set forth—I set forth in my statement, 

and that is how would a given proposal such as that, affect the accuracy and security of information to protect the individual, and 

how would it affect access to the credit? 

And I think your proposal is something to be looked at, but 

against those criteria. Today, of course, there is some sharing of 

medical information that grows out of so-called experiential, but 

not otherwise. 

And getting that line right, I think, is something that deserves 

attention. And like the Chairman, we would be pleased to work 

with you to try and get that balance right. But it is a critically important issue and a very sensitive issue. 

The CHAIRMAN. The gentlelady’s time has expired. 

Mrs. KELLY. Thank you very much. 

The CHAIRMAN. The gentleman from Vermont, Mr. Sanders. 

Mr. SANDERS. Thank you, Mr. Chairman. 

17

Gentlemen, the legislation that we are discussing today allows 

consumers to receive free credit reports annually, and that is something that some of us have fought for and we think is a real step 

forward. Unfortunately, the language in the bill is vague when it 

comes to providing free credit numerical scores along with a free 

credit report, including the key factors that adversely affect the 

consumer’s credit score. 

So my first question to both of you is does the Administration 

support the right of consumers in this country not only to get free 

credit reports, but to get the scores and the explanation about adverse numbers that might impact the consumer? Mr. Snow? 

Secretary SNOW. We would support, as we have said in the testimony, access to the credit bureaus of the data. We would also require that with the data go some help in understanding how the 

data is used, so that the individual consumer would be in a better 

position to understand what they might be able to do to improve 

their credit standing. 

The score I am more dubious on, and I will tell you why, Congressman. The score itself is a proprietary product. It comes from 

not the credit bureaus, of course you know, but from these private 

entities, who have invested a good deal of intellectual capital developing their algorithms and so on. 

Mr. SANDERS. Mr. Secretary, you used the word ‘‘proprietary’’; 

that is my information, that is my life that that information is 

about. And to suggest that it is an intellectual property right for 

somebody else when it is information about what the heart of what 

my life is about, I would suggest it is my information. 

Secretary SNOW. But it is your information, but it is there methodology and their intellectual property. 

Mr. SANDERS. But don’t I have a right to know if three different 

credit companies, agencies, provide three different scores, don’t I 

have a right to know how that came about? 

Secretary SNOW. You will have the data under our proposal that 

they use; you will know what the records are. And you will be 

given assistance and help in trying to understand how that data 

would be applied. The scores comes from a different source. 

Mr. SANDERS. Frankly, that is not good enough for me, and I 

think we have got to go further than that. And I look forward to 

working with you and with the majority to clarify that issue. I 

think consumers are entitled to more. 

Second issue, what I call bait-and-switch. As you know, right 

now if I have a credit and I responded to one of the 5 billion applications that people get in this country at 3 percent and then I take 

out a loan because my wife is ill, suddenly it can go up to 25 percent. 

I think that is an outrage. I think that is a ripoff of consumers 

in this country. 

Is the Bush administration going to be strong in protecting consumers against this ripoff and help us include strong language, 

strong language, in this bill? 

Secretary SNOW. This is an area that the Chairman can speak 

to. 

Mr. SANDERS. Thank you. 

18

Mr. MURIS. It certainly is under our jurisdiction. To the extent 

it involves banks and credit cards, it is not. But to the extent it 

is under our jurisdiction and for a lot of lenders, it is. 

There are circumstances under which, I think, this raises a problem. We are looking at this issue specifically and, in general, the 

issue about unilateral modifications to standard form contracts. As 

an old contracts law professor, there are many circumstances in 

which those modifications should not be allowed. 

Mr. SANDERS. Just a question. In English. 

I sign up with your credit card company at 3 percent. You are 

giving me this 1 year at 3 percent. Every month, I pay my bills on 

time. Suddenly, I am now paying, instead of three percent, five 

months later I am paying 25 percent although I have paid what I 

owe you every month promptly. 

Is that appropriate? Is that right? Or should we make sure that 

credit card companies cannot do that. 

Mr. MURIS. I think, again, you would have to look at the circumstances. But if someone on their own, which is what unilaterally means, not bilaterally with the consent of the consumer, 

changes the terms in a one-sided fashion, that can easily be a problem. 

Mr. SANDERS. Well, I look forward to working again with you and 

the majority on that issue. Lastly, I want to make a philosophical 

statement and let you respond. 

Your Administration is, admittedly, in a conservative administration, in my view, one of the most conservative administrations in 

the history of this country. 

Day after day, I hear on the television, hear on the radio, how 

the big, bad federal government should not be taking over the powers that folks closest to the people have, that we have got to protect 

States’ rights, and so forth and so on. And yet, what I am hearing 

from you is that despite what the Attorney Generals of the United 

States want, despite what every consumer organization wants, you 

think that the federal government should crush the ability of state 

governments to protect consumers and fight and pass standards 

that are higher than the federal government. 

Why would a conservative administration that tells us how bad 

the big, bad federal government is want to crush States’ rights in 

protecting consumers’ needs. 

The CHAIRMAN. The gentleman’s time has expired. The gentleman will respond. 

Secretary SNOW. Congressman, I think you know we are not 

alone in this view that these uniform standards should be applied 

in the preemptive way that has been suggested. 

It has come to my attention that the Conference of State Bank 

Supervisors, that is all the state bank supervisors themselves, support the legislation that is pending here and the Administration 

proposal. And they do so because they recognize the greater good 

that comes from the existence of these——

Mr. SANDERS. Then, answer my question why a conservative administration——

Secretary SNOW. Well, because of the greater good. 

The CHAIRMAN. Gentleman’s time has expired. 

Mr. MURIS. Mr. Chairman, could I say something about that. 

19

The Federal Trade Commission has four Clinton appointees and 

one Bush appointee. And the recommendation to support these proposals is unanimous. 

Mr. FRANK. Well, that would explain their disregard for States’ 

rights. 

[Laughter.] 

Mr. MURIS. Well, I would be glad to respond to that. It was a 

two-part question. One is how the conservatives—I don’t think the 

four Clinton administration appointees—but could I respond to——

Mr. FRANK. That is my point. Sure. 

Mr. MURIS. Just as one of the most important things that happened in our country was in 1787, when they formed the Constitution. One of the main purposes of that was because the States were 

preempting a national economy. The states had individual tariffs. 

They had individual standards. 

National credit standards, although not as important as prohibiting states from imposing tariffs, I think national credit standards 

are extraordinarily important. And it is that uniformity which provides enormous benefits for consumers. 

If we need more consumer protection, and I think we do, it 

should come as part of national standards. 

Mr. FRANK. Just for 10 seconds. If you could, maybe, send me the 

reference in Bailyn’s Debates on the Constitution to credit reporting, I would appreciate that. 

The CHAIRMAN. Gentleman’s time has expired. 

The gentleman from Connecticut, Mr. Shays. 

Mr. SHAYS. Thank you. I thank both of you for your good work 

to our country and the sacrifices you make in serving our country. 

I just would like you to respond as clearly as you can to the consequence of not taking action. 

Secretary SNOW. Well, I think, Congressman, that the consequences of not taking action would be to, in a far-reaching way, 

undermine the performance of the American economy. I think these 

national standards are integral to the enormous success of the 

American economy, because they underpin credit, and we are a 

credit-based economy. They underpin, as we talked about earlier, 

labor mobility, and labor mobility is a hallmark of the success of 

this economy. 

The uniform standards make credit available to lots of people 

who otherwise wouldn’t have it, which means they can get into the 

mainstream of economic activity in this country. And I don’t have 

the econometric studies’ results in my mind, but it is pretty far 

reaching, something like 3 percent reduction in the total credit 

availability in the country and something on the order of a 50-

basis-point increase in the cost of credit. Fifty-basis-point increase 

in the cost of credit on a $7 trillion credit economy, we are talking 

gigantic numbers and far-reaching negative impacts on the economy if these national standards aren’t maintained. 

Mr. SHAYS. Yes, sir? 

Mr. MURIS. Just to make a brief amplification, the economy compared to the rest of the world, our economy has a few simple reasons why it is so much better than many other economies, and two 

of those reasons are our labor markets are so flexible, and another 

is our credit markets are so flexible. And I think that flexibility 

20

crucially hinges on having national standards in the credit markets. 

Mr. SHAYS. I have had 13 years in the Statehouse, and I know 

the argument for states being allowed to pass its own laws and supersede what the federal government, and now I have had 16 years 

in the federal level. But it seems to me this issue is so crucial that 

we can get into the ideology of States’ rights versus federal, and 

in the process we risk, frankly, putting our economy in danger. 

I, Secretary Snow, want to just voice a concern about a lack of 

clarity on the Department of Treasury as it relates to Jesse’s. And 

I want to understand what your position is as it relates to why we 

would allow Freddie Mac and Fannie Mae to not have the same 

kind of disclosures as any other Fortune 500 company. And I would 

like to know when this lack of clarity will be clearer. 

Secretary SNOW. Congressman, that is an issue that we are reviewing right now, and in the context of the recent disclosures that 

have made the news at Freddie Mac. We have always articulated 

the need for disclosure, and have been in the forefront of pushing 

for the disclosure under the 34 act. And I am pleased that Fannie 

Mae has now done that and is submitting the 34 act information. 

And once you go into 34 you don’t come back out. 

Mr. SHAYS. Right. 

Secretary SNOW. So they are permanently under 34. 

Mr. SHAYS. But what confuses me is you have Alan Greenspan 

making it very clear he sees no reason why they also shouldn’t be 

under the 33 act. And I am just wondering why there would be any 

argument that they shouldn’t be under it. 

Secretary SNOW. Well, there doesn’t seem to be any current difficulty with their issuances. 

But clearly, there needs to be transparency, disclosure and good 

transparency, and effective regulation. 

Mr. SHAYS. Well, I thank you all for looking at it. 

Secretary SNOW. And that whole subject is, of course, being 

looked at by the Committee. 

Mr. SHAYS. Thank you. Thank you, Mr. Chairman. 

The CHAIRMAN. The gentleman’s time has expired. 

The gentlelady from Indiana is recognized. Ms. Carson? No questions? 

The gentlelady from California, Ms. Lee. 

Ms. LEE. Thank you very much, Mr. Chairman. And let me say 

I, too, am very happy to be able to listen to this testimony today 

and have many of the same concerns that many members, of 

course, on our side have raised. 

One is I would like to ask Secretary Snow a little bit more with 

regard to the issue raised in terms of credit scoring, the proprietary 

information, and I think what Mr. Sanders indicated with regard 

to the fact that this is personal information, private information, 

that is now being packaged, really, and being sold. 

One is do consumers really know that this information is now a 

commodity and that their entire private information is actually a 

product, and that this product is being sold? Is that information we 

know? 

Secretary SNOW. You know, I don’t know what percentage of the 

general public knows that. I would distinguish between the credit 

21

report, the data that is in the file that the credit bureaus have, 

which you should have access to, and which under the proposed 

proposal you would have access to, free access to. All you have to 

do is request it. 

But I would distinguish that, and this is clearly something people can argue about, that and the score. Your information is your 

information, it is your records, but the score, which really comes 

from somebody else, is their application of their methodology, it is 

their undertaking, it is what they have done to evaluate those 

records. 

Now, we think people ought to understand more about how that 

is done, and how scores are set. 

Ms. LEE. Sure, but Mr. Secretary, what I am asking is do consumers have a right to know that this, whatever this methodology 

is is a methodology that is being packaged as a product to be sold 

to make money? 

Secretary SNOW. Yes, they absolutely should have the right to 

know that their records are, and they should have access to those 

records. 

Ms. LEE. Access to the records is one thing, Mr. Secretary, but 

I am asking with regard to the right to know how this scoring information is being used in terms of the sale of it. Should they have 

a right to know that, and if they don’t, then just, they don’t. 

Secretary SNOW. Well, they certainly have a right to know that 

people are putting scores on them. 

Ms. LEE. But that the scores are being sold? 

Secretary SNOW. And there is a market in these scores. 

Ms. LEE. Sure. 

Secretary SNOW. I mean, there are, these companies are selling 

these scores, and they will sell them to you, as an individual. 

Ms. LEE. Sure, but do consumers know that? All I am asking is 

should, and does the Administration and under the bill——

Secretary SNOW. You mean, should there be a disclosure? 

Ms. LEE. Should there be a disclosure that this scoring——

Secretary SNOW. That there are scores, that scoring goes on? 

Ms. LEE. That there are scores, and that the scores are proprietary information——

Secretary SNOW. I have no objection. 

Ms. LEE.——and that this proprietary information is being sold? 

Secretary SNOW. Well, I think if you read the newspapers, that 

is daily fare in the newspapers. 

Ms. LEE. Well, Mr. Secretary, I really want to just know, do you 

think we should work on this a bit in this bill, and maybe tighten 

it up and make some——

Secretary SNOW. Well, I don’t, I would not recommend mandating making the scores available for free. I would recommend, as 

we have, making available on request the records. 

Ms. LEE. But making available the information that the scores 

are being sold to make a profit, should consumers just know that 

as they apply for credit? They may choose not to apply. 

Secretary SNOW. Well, I think sure. I don’t see anything fundamentally wrong at all with disclosure: The data goes into the 

compilation of scores. 

22

Ms. LEE. Then we would like to work with you on an amendment, on a disclosure amendment. 

And let me just ask Mr. Muris one thing with regard to adverse 

actions. With regard to multiple credit inquiries, oftentimes consumers attempt to find the best deal, the best rate, the best terms. 

I know for a fact many individuals have called and indicated to me 

that as they do this they are notified that there is an adverse action now because they are attempting to find the best loan. Why 

is it that multiple credit inquiries become ultimately a negative on 

your credit report when really you are trying to find the best product? And what can we do to correct for that in this bill? 

Mr. MURIS. Well, my understanding is this is an issue that only 

comes up—the credit’s only concerned about if you are doing it a 

lot in a short period of time. 

And I can understand their concern if that is true. If you are applying with several people or making inquiries with several people 

at once, that is something that creditors would want to be aware 

of. 

Ms. LEE. So why would it be a negative when the consumer’s attempting to find the best interest rate and the best terms? 

The CHAIRMAN. The gentlelady’s time has expired. The gentleman may respond. 

Secretary SNOW. Mr. Chairman, can I clarify one——

The CHAIRMAN. Of course, sure. 

Secretary SNOW. As I think we are in agreement on at least making available the scoring process. I mean, we support making available knowledge of the scoring process. So if you are asking do we 

want people to know they are getting scored, the data is being used 

to make scores, yes, we do. The only place that we may have a difference here is making the score itself available——

Ms. LEE. But also making available the information that that is 

being sold——

Secretary SNOW. Well, sure. Because what we are proposing to 

do is to make a free report available along with the knowledge of 

how the scoring process works, so you will be informed that there 

is a scoring process with respect to these records. 

Ms. LEE. And that it is being sold. 

Secretary SNOW. Well, sure, these people are in business. 

The CHAIRMAN. The gentlelady’s time has expired. 

Mr. MURIS. If I could respond? 

The CHAIRMAN. The gentleman may respond. 

Mr. MURIS. Because I think I—right before Secretary Snow responded—I think I misunderstood your question. I was thinking of 

multiple applications. If it is multiple inquiries, I think you are correct. And I think the practice now is to treat multiple inquiries in 

a short period of time as one inquiry. If people are treating it otherwise, I think there is a problem——

Ms. LEE. I would like to work with you on that, Mr. Muris. 

Mr. MURIS. Sure, and I agree with you. 

The CHAIRMAN. The gentleman from Texas, Mr. Hensarling. 

Mr. HENSARLING. Thank you, Mr. Chairman. 

Mr. Secretary, we have heard lots of evidence at the subcommittee level about the fact that as Americans we enjoy the 

23

greatest access and the lowest cost of credit available. I am not 

really sure that anyone cares to debate that proposition today. 

I have a specific question. Now, as a member of the subcommittee, I actually attended what I believed the Chairman described as the exhaustive six hearings, and actually learned something by attending these hearings. I heard evidence from the Hispanic Chamber of Commerce that 7 out of 10 small business in 

America are capitalized with less than $20,000, and that 45 percent of them use credit cards as a major source of financing for 

their capital formation or their capital for expansion. And so the 

question I have is, has Treasury seen similar data? And if so, do 

you have an opinion on the possible adverse impact on employment 

should we fail to reauthorize FCRA? 

Secretary SNOW. Well, I am generally aware that credit cards 

play a critical role in the financing of small business. 

And the virtue of these uniform standards is that they allow the 

pooling of information, which reduces the uncertainty of the credit 

furnisher. And that particularly helps those who have the most difficult time getting credit. Some small businesses would certainly 

tend to fall into that category. 

So I think the failure to extend these standards and I would hope 

make them permanent, the failure to do that, extend the standards, I think would have a differentially adverse effect upon small 

business, certainly, and Hispanic small business would probably 

fall into that category particularly, yes. 

Mr. HENSARLING. Chairman Muris, a lot of folks on the Committee obviously have a concern about identification theft, as do 

many of our constituents. I am actually one of the members of this 

Committee who has been victimized by identification theft. Frankly, I was one of the lucky ones in being able to recover the losses 

and to ensure that my credit rating was not adversely impacted. 

And although we have heard a lot of testimony, I think it really 

comes down to a critical question, and that is when it comes to the 

subject of ID theft are we better off with or without the reauthorization of FCRA? I am curious of your opinion and why you hold 

the opinion. 

Mr. MURIS. Well, I certainly think in terms of the national standards we are better off. We are certainly better off with the ability 

of businesses to share within affiliates, for example, information 

freely. I think that helps in terms of identity theft. 

I do think there are some provisions where we can strengthen 

the law within the context of the national uniform standards, and 

we and Secretary Snow have proposed several. I think they would 

help on identity theft. 

There are things outside this bill or outside—criminal, increased 

criminal penalties, for example—we have supported, and I think 

that would help on identity theft as well. 

It is a very serious problem. We are charged by the Congress 

with providing assistance to consumers. We have taken a lot of 

steps. 

As a minor example, we publish a booklet that we can’t keep in 

stock, because there are just so many people who request it: How 

to Deal with Identity Theft, How to Protect Your Good Name. We 

have recently just started publishing it in the last year or so in 

24

Spanish. And the consumer education is a very important part of 

what we do, but also the legislative proposals we have here, I 

think, will help on identity theft. 

Mr. HENSARLING. Although I am a veteran of six of these subcommittee hearings, I still find it a little challenging to get my 

arms around the number of inaccuracies that may be appearing in 

a consumer’s credit report. I am curious about what data you may 

have, because there have been some accusations that a huge number of reports contain inaccuracies. 

I am curious, Mr. Chairman, about what information you have 

on this matter. To the extent that these inaccuracies exist, is it 

mainly in the nature of a wrong telephone number or an address 

due to a fairly mobile society? What portion of the information may 

actually be used in an adverse action against a consumer? 

Mr. MURIS. Well, I think the implication of your question is the 

materiality of inaccuracies is extremely important, and let me focus 

on that. 

But first there have been some recent studies, and although I 

generally get along and am supportive of and supported by my 

many friends in the consumer groups, this is an area where I disagree with some of the recent studies. 

What you have here are different companies with different standards, and if you pull a credit report on different individuals the information may be reported differently, there may be somewhat different information. 

The key to the Fair Credit Reporting Act we think is in the adverse action notice, which is why we support increased use for new 

techniques of adverse action notices, because what I call the selfhelp feature is extraordinarily important. 

The consumer needs to know when they are denied a benefit 

based on what is in their credit report, because then they are put 

on notice that if there is something wrong, you know, they say, 

well, there is nothing wrong with my credit, then they know that 

they should look at that report and dispute it. 

That is the heart, I think, of the very ingenious system that Senator Proxmire set up over 30 years ago. But I think because of 

changes in credit, we need to expand the use of adverse action notices, and we have made that proposal. 

The CHAIRMAN. The gentleman’s time has expired. 

The gentleman from Illinois, Mr. Emanuel. 

Mr. EMANUEL. Thank you, Mr. Chairman. Thank you for holding 

this hearing. 

My colleague from New York, Congresswoman Kelly, talked 

about health information. I actually have an amendment that when 

we get to marking up the Chairman’s mark and offering it. It is 

a bipartisan amendment that deals with, in fact, health information, which I think we need in the area of health information to 

provide consumers, I think, this safe harbor. And it gets beyond the 

issue of the opt-in and opt-out, but creates what I call a blackout 

as it relates to health information, particularly when it is in the 

credit granting process or in the selling of relevant financial information or services. Obviously, if it is relevant to life insurance, that 

is one thing, but it is not relevant—there should be a blackout on 

health information. 

25

I think that is essential to giving some consumers in a changing 

environment that we have and the technology’s that advancing, 

that safe harbor that that information that is relevant, that their 

health information not be used against them in the credit process. 

And I know it wasn’t in the Administration’s bill of recommendations, but your openness to that, I think, is essential. We have a 

bipartisan amendment. I think it is based on common principles 

that your health information should not be used against you in this 

process. 

Secretary SNOW. Congressman, I think I indicated in response to 

Congresswoman Kelly that we would be open to talking to you 

about that and working with you on that score. 

But it should be looked at in terms of those criteria that I laid 

out. What does it do for the security and accuracy of information? 

What does it do for general credit availability? 

Mr. EMANUEL. To that standard is what does it do to help our 

consumers? Because my view is if you can’t give the consumers in 

this changing world some sense of a safe harbor, it also has an impact. 

This bill has been developed in a bipartisan fashion, we continue 

that effort here. It is one of the things that Ranking Member Frank 

and also Chairman Oxley have talked about the importance here. 

I think this amendment would go a long way toward doing that 

and meeting the standards that you have set out. 

Secretary SNOW. We would look forward to working with you on 

that. 

Mr. EMANUEL. Okay. The other matter is I also want to compliment you, although unrelated to this subject, is working with 

you on the Earned Income Tax Credit and the ability to deal with 

making it simpler so we get more people involved, reduce fraud, 

and simplicity. And want to compliment you and your agency and 

the people involved for working with you on that very important 

matter. 

Secretary SNOW. That is another area where we want to continue 

to work with you. 

Mr. EMANUEL. If this continues we are going to start singing 

Kumbaya at some point. 

[Laughter.] 

So with that, I have no other questions. 

The CHAIRMAN. Don’t push your luck. 

Mr. EMANUEL. You know the words? 

[Laughter.] 

Do you think he knows the words, though? We give you a little 

cheat sheet on that. 

[Laughter.] 

The CHAIRMAN. The distinguished Chairman of the subcommittee, Mr. Bachus. 

Mr. BACHUS. Thank you, Mr. Chairman. 

One of the ways to combat identity theft that we are using in 

this legislation—in fact, the Administration and the agencies have 

also talked about—the use of so-called red flags to detect or inhibit 

identity theft. And there has been a debate on this Committee as 

to how we best institute the use of these red flags. 

26

We have seen cases where when we have too rigidly proscribed 

what the financial institutions will do that it actually inhibits their 

efforts to combat identity theft, because they don’t have flexibility. 

You know, they have a lot of knowledge. They have a lot of experience in how to identify these things themselves. 

And I notice that, Secretary Snow, many of your proposals rely 

on best practices approach or an approach that allows the regulators to come up with the use of red flags. But although it gives 

specific direction to the financial institutions, it provides them with 

flexibility to achieve the desired result. 

What are the dangers of prescribing a rigid approach, as opposed 

to leaving flexibility in dealing with the financial institutions in exactly what they do? 

Could it actually hurt our efforts if we are too rigid, or we prescribe too much? 

Secretary SNOW. Well, that would be our view, Mr. Chairman. 

Because we need to be continually creative and find new and better 

solutions to deal with the creative people who are out there on the 

other side trying to engage in criminal behavior. 

They are determined, they are smart, they are capable and they 

are ruthless, and the red flag idea should be embraced by the 

banking community, but improved upon. 

I mean, it seems to me they are the experts on the use of internal financial information and how best to use it to accomplish the 

objective they have in mind, and their consumers have in mind. 

If somebody is likely to be a victim of this, spread the information quickly, raise the red flags, get it out there. And I think the 

banking institutions themselves are probably better at evolving the 

best way to deal with that. 

That has been a rule that was written at a point in time that 

can’t by its very nature evolve. That would be our basic thinking. 

Mr. BACHUS. Right. In fact, yes, I have heard from talking to 

some of the financial institutions, and actually some of the law enforcement community, that sometimes the law, if it is too structured, it is 20 years behind the criminals, or that they actually use 

the definition of, you know, if it is too carefully prescribed, and 

they know what that definition is, to get around it. 

And I would hope that the Committee would give flexibilities to 

the regulators, and that you, in turn, would give flexibility to the 

financial institutions. 

Secretary SNOW. That is very much where the Administration is 

coming from. 

Mr. BACHUS. Thank you. 

Chairman Muris, some have suggested that this 30-day time 

frame for investigating consumer disputes about accuracy of information contained in their credit reports is too long and should be 

shortened to 15 days. 

Does the FTC have a position on such proposals? Are there any 

negative consequences to the uniform credit reporting system that 

might flow from truncating this reinvestigation process down from 

30 days? 

Mr. MURIS. Well, we have not taken a position on shortening. We 

are supporting the law as it is. My personal view is that there 

27

could be serious consequences from reducing the time, particularly 

by that dramatic of a reduction. 

First of all, this is a voluntary system. 

And a second problem is that we see something called credit repair scams, and one of the things that these people tell you to do 

is to dispute everything in the hope that the clock will run out. And 

if we shortened the system that much, I think that might facilitate 

that sort of tactic, which doesn’t do, you know, the majority of consumers who pay their bills any good at all. 

Mr. BACHUS. I thank the panel. 

I would like to say to the members, and to the panel, that the 

legislation as drafted, and I have discussed with Mr. Moore and 

Mr. Davis, as far as credit scores, it was the intention in drafting 

this legislation, that is the credit reporting agencies had credit 

scores that that would be revealed. Not only would the credit report go to the consumer, but also the credit scores. So there is some 

concern that has been expressed here earlier that the legislation 

may not do that. 

It is an intent, and we will continue to work, because if the consumer is not given the credit score along with the credit report, 

much of the philosophy behind allowing consumers to be able to 

have, to be educated and improve their credit scores. If they don’t 

know what their score is, it is pretty impossible to improve that 

score. 

So it is our intention that they do receive their credit scores, and 

I will work with members on both sides to see that that is done. 

The CHAIRMAN. Thank you. The gentleman’s time has expired. 

The gentleman from Georgia, Mr. Scott. 

Mr. SCOTT. Thank you very much, Mr. Chairman. 

Secretary Snow, I would like to ask you a couple of questions on 

two of the points that I think have been sort of points of contention 

here, one, the scoring, and the other, the free credit report. 

First of all, we are all aware, and I think you mentioned in your 

remarks, the need for consumers to be educated about their credit 

scores. Chairman Bachus has just indicated the willingness to work 

on this issue a little more. 

But I would like to call your attention to the fact that too often 

consumers are not even aware that they have a credit score until 

that credit has been denied. 

What efforts specifically can the Administration take to educate 

consumers and raise awareness about their credit scores before 

that credit is denied? 

Secretary SNOW. Well, the proposal that we have very similar to 

what Chairman Bachus talked about, would give consumers the opportunity to review their credit reports for accuracy and for completeness. They would also be given more information about their 

credit scores and would be informed on what they can do to improve those scores, improve effectively their credit profiles. I am 

not sure where the differences are, if any, between where the Committee bill is the Administration on that, but I will look at that. 

I don’t think we are very far apart at all on that. 

We want people to know their credit reports. We want them to 

know that this information is being used to create scores. We want 

them to have a sense of how the scores are being created. We want 

28

them to have a sense of what they can do to improve their credit 

profiles. And it seems to me, you go to the identity theft issue, it 

is very important they have these records so they can correct them 

if they are wrong, and wrong information doesn’t continue to be circulated in the credit system. 

Mr. SCOTT. Let me ask you another question, because my time 

is slipping, and we have to go vote. But I want to ask you something about the expanded use of giving free credit reports, which 

is very important, we support. 

But there is another side to this. There is some concerns. In my 

district we have Equifax. You are familiar with Equifax as a company, very reputable company in my district and a leader in this 

whole credit reporting industry. They have raised concerns with 

me, and I would hope that they have with you and, if not, I am 

sure that they will, but, I hope, we need to address that, about the 

potential cost of complying with the requirements as they are now 

drafted and written into the law, that there has not been an adequate benefit cost-analysis being given to that. And in order for 

this very important tool of accessing a free credit report, I think 

it has to be done within a way that the industry that is in this 

business can do it in a successful way. 

It appears to me right now that the regulations, or the way it 

is written, are rather loose, that not only would it make it somewhat difficult and problematic for those businesses that are in this 

business and make their business giving credit reports, put this requirement on them, but not do the job that we needed to be done, 

to do what needs to be done if the industry that has to give these 

free reports is not done in a way in which they can maintain their 

business as well. 

And I would like for you to address that in terms of how the benefits might outweigh the costs, and specifically if you could address 

Equifax’s concerns. 

Secretary SNOW. Well, Equifax is one, as I understand it, one of 

these three major credit bureaus that do such a good job of collecting this information and then making it available to credit 

issuers. And they play a very important part in all of this. 

Today, under a variety of circumstances, free reports are available. We are expanding some upon requests. How many requests 

will be made? I don’t know. Certainly, if you have been turned 

down for credit, you can get it free today. Or if you failed to get 

a job because of a financial credit report on you, you can get it free 

today. We would propose expanding it. The Bachus bill would propose expanding it as well. 

I don’t think on a cost-benefit basis, Congressman, this will fail 

to be advantageous to the credit bureaus, because they have such 

a stake in accurate information. 

And what the free reports will do is give anybody who has got 

a question about his credit report a chance to go back and look at 

it, understand how it was created and then try and get it corrected. 

I know there is some concern among the reporting agencies that 

this will be unduly costly. I would hope they would look at the benefits they would get, because they have the biggest stake of anybody, next to the consumer himself, in making sure these reports 

accurate. 

29

The CHAIRMAN. Gentleman’s time has expired. 

The Chair would announce there are two votes on the House 

floor. It would be my intention to recognize two more members for 

this panel, then dismiss this panel and reconvene at 1:00. 

So we will now recognize the gentleman from California, Mr. 

Royce——

Mr. ROYCE. Thank you, Mr. Chairman. 

The CHAIRMAN.——for four minutes, hopefully. 

Mr. ROYCE. Appreciate that. 

Welcome Secretary Snow. And I wanted to ask you specifically, 

I know from public statements that you and your team are studying the issue of government-sponsored enterprise regulatory reform. 

Secretary SNOW. We are. 

Mr. ROYCE. And with that in mind, I am not trying to get you 

to comment specifically on the topic before you all complete your 

study; however, I would like to know, in your view, what are the 

attributes of an effective world-class regulator in respect to GSE 

oversight. 

Secretary SNOW. Well, Congressman, I think the attributes 

would be the ability to understand the risks in the enterprise, the 

ability to understand the business, a command of the facts of a 

business, a command of the facts with respect to the risks that the 

capital structure of a business poses, the ability to get at the information you would need to have to know that. 

So transparency, disclosure, and as with all regulators, the ability to hold the attention of the regulatee, to bring sanctions for conduct that poses risks to the system, to the financial system. So ability to lay in credit standards, risk standards, capital standards, 

and then sanctions to see that the standards are observed. 

Mr. ROYCE. The other question I was going to ask of you, I was 

pleased that the SEC recently approved the New York Stock Exchange and Nasdaq rules that require companies that are listed on 

those exchanges to obtain shareholder approval for stock compensation plans, for management or for their employees. 

Do you see the need for additional compensation reform, or do 

you believe that the new corporate governance rules are sufficient 

to protect shareholders from potential excess in the system? 

Secretary SNOW. Congressman, you are now speaking generally, 

corporate America, right? 

Mr. ROYCE. About corporate America in general. 

Secretary SNOW. Yes. I think the issue of corporate compensation 

ultimately has to be a critical priority for boards, and particularly 

compensation Committees, because ultimately they have to make 

these decisions on how to retain, how to attract and how to motivate senior management. 

So I would not be in favor of highly prescriptive set of rules, but 

I would hold boards of directors, and particularly compensation 

Committees, to very high standards of conduct. 

The CHAIRMAN. Gentleman’s time has expired. 

The gentleman from Kansas, Mr. Moore. 

Mr. MOORE. Thank you, Mr. Chairman. 

Very quickly, Secretary Snow, the Administration proposal includes a direction to the FTC and bank regulators to make opt-out 

30

notices for pre-screened credit officers simpler and easier to understand. And I really appreciate the Administration’s position on 

that. 

Several of my colleagues, and I recently wrote a letter to the regulators asking them to create a simple, understandable privacy notice. Would you agree that it might be—can you agree that it might 

make sense to have both of these in simple English that consumers 

could understand and have an understandable right to opt out in 

both areas? 

Secretary SNOW. Congressman, I am all for plain English. 

Mr. MOORE. And I am a lawyer. So am I. 

Secretary SNOW. And we get too little of it, I think. So that people understand the rights and privileges that are being made available to them. 

And I would be happy to look at what you have in mind, and give 

you my comments on it. 

Mr. MOORE. Very good. We will do that. Thank you, Mr. Secretary. 

The CHAIRMAN. I Thank the gentleman. The gentleman’s time 

has expired. 

Gentlemen, we most appreciate Mr. Secretary and Mr. Chairman 

for an excellent presentation, and the Committee stands in recess 

until 1:00 p.m., at which time we will take up the second panel. 

[Recess.] 

Mr. BACHUS. [Presiding.] I want to welcome you all back from 

the noon break. 

At this time we are going to call the second panel. The Committee is meeting today, the Financial Services Committee, to hear 

testimony on H.R. 2622, which was introduced by Representative 

Hooley, Representative Biggert, Representative Moore and myself, 

and has 28 co-sponsors on the Committee: 14 Democrats and I 

think now 17 Republicans, so a balanced group. 

I very much look forward to the testimony of our second panel. 

From left to right I want to identify the panelists. We have Mr. 

Mallory Duncan, Senior Vice President and General Counsel for 

the National Retail Federation; Mr. Michael F. McEneney, partner, 

Sidley Austin Brown & Wood. And you are testifying on behalf of 

the U.S. Chamber Of Commerce—we welcome you—Dr. William 

Spriggs, Executive Director of the National Urban League Institute 

for Opportunity and Equality; Mr. Stephen Brobeck, Executive Director, Consumer Federation of America; Mr. John C. Dugan, a 

partner in Covington & Burling, on behalf of the Financial Services 

Coordinating Council; and Mr. Stuart K. Pratt, President, Consumer Data Industry Association. 

I want to welcome all of you gentlemen. We have no ladies on 

our second panel. So I want to welcome each of you all. 

And at this time, Mr. Duncan, we will start with your testimony. 

STATEMENT OF MALLORY DUNCAN, SENIOR VICE PRESIDENT, 

GENERAL COUNSEL, NATIONAL RETAIL FEDERATION 

Mr. DUNCAN. Thank you, Mr. Chairman. 

My name is Mallory Duncan. And I am testifying today on behalf 

of the National Retail Federation, where I serve as Senior Vice 

President and General Counsel. NRF is the world’s largest retail 

31

trade association. We greatly appreciate the opportunity to present 

our views on H.R. 2622, the FACT Act of 2003. 

I would like to preface my discussion with a brief illustration of 

the credit underwriting process. The seven preemptions currently 

contained in the FCRA are the underpinnings of the modern credit 

granting system. If we have a clear understanding of the underwriting process, it is much easier to analyze the vital role of the 

policies contained in the FCRA. 

For example, attached to my written testimony there are two 

simple revolving loan portfolio examples, each containing 100 loans 

of $1,000 a piece and each paid off within a year. One has an interest rate of 5 percent, the other a rate of 18 percent. If one loan in 

the 5 percent portfolio were to immediately default, whether because of identify theft, consumer bankruptcy or poor judgment on 

the part of the lender, it would take the interest payments from approximately 41 performing loans to compensate for that default. 

The credit granter can, if it has enough capital to make 41 new 

loans, and hope that they all perform, or the credit granter can live 

with a much lower rate of return. 

If as few as three borrowers default, the credit granter is completely under water and will lose money even before facing the expense of maintaining those 97 other loans. 

If one loan in the 18 percent portfolio defaults, it takes the interest from 12-plus performing loans to compensate for that one default. Even if that credit granter gets it exactly right 92 percent of 

the time, no matter how well those 92 other consumers pay their 

bills, the credit granter is in serious trouble. That is why retailers 

expend so much effort to get it right. 

Now, the complicated part in my example occurs when trying to 

fit the maximum number of borrowers in that continue of rate between 5 and 18 percent while keeping defaults to a minimum. Anything that enhances this process is obvious consumer benefit. Since 

1996, the seven preemptions of the FCRA has enabled retailers and 

other lenders at a national level to take advantage of the technological advances to serve their customers while greatly refining 

their ability to fit the borrower to the right rate. 

Mr. Chairman, as you indicated, in effect, the FCRA and the 

1996 amendment have created an interstate credit superhighway 

that has done an outstanding job of delivering unprecedented volume of credit more cheaply and more quickly to more people at all 

income levels. 

Is the system perfect? No. There are bumps, potholes and accidents along the highway, but very few overall, and especially so 

given the magnitude of the system and the speed at which it operates. 

It seems to us that the policy question today is how much do we 

want to impede credit traffic flow and increase costs for highway 

users in hopes of further reducing the number of accidents and 

bumps? We have reviewed the provisions of H.R. 2622 with this in 

mind, along with the criteria suggested by the Department of 

Treasury. And I would like to just briefly make a few comments 

there. 

The NRF applauds the inclusions in H.R. 2622 of the critically 

important amendment that makes permanent the national uniform 

32

standards under FCRA. The bill also includes a number of provisions to address specific scenarios that involve identity theft. For 

example, the bill imposes new obligations in connection with certain address changes, fraud alert and address discrepancies. The 

NRF supports efforts to address these issues and looks forward to 

working with the Committee to functionally strengthen these proposals. 

A common theme of our recommendations to these provisions 

centers on maintaining flexibility to address these potential identity theft scenarios. In particular, we are concerned, as you mentioned, that if the methods for addressing identity theft are rigidly 

specified in the bill, credit granters will be forced to devote resources to complying with those methods, even if they become ineffective or if more efficient alternatives become available. 

Therefore, we recommend that the bill maintain its approach of 

specifying a particular method for addressing each potential identify theft problem, but also include new provisions that would enable credit granters to develop reasonable alternatives with guidance from the federal agencies. This is the approach taken in the 

USA PATRIOT Act, Section 326, designed to combat terrorism, at 

least as important a problem. 

In short, we need to maintain the flexibility to change our method as rapidly as the criminals change their scheme. 

Now, some examples where the bill would benefit from this approach include the provisions for investigation of change of addresses and those governing conflicts where consumer fraud is 

present. Retailers are particularly concerned if the bill’s provisions 

do not inadvertently frustrate consumer’s ability to use their existing accounts or open up the opportunity for unscrupulous credit 

people to manipulate the system, to the detriment of millions of 

honest consumers. We submitted suggestions to the Committee and 

look forward to working with them on this very important issue. 

In closing, I would like to emphasize the retail industry’s strong 

support for permanent reauthorization of the seven areas of preemption contained in Section 624. Without the extension of nearly 

uniform national standards, it would be harder to judge with any 

confidence the credit worthiness of each individual. It would slow 

the credit process and lending rates would rise. Consumers have 

come to expect instant access to credit when purchasing everything 

from automobiles to consumer goods, such as furniture, appliances 

and apparel. 

In the final analysis, we in the retail industry have a real concern that a more fragmented approval process for credit underwriting would negatively impact consumers and, as a consequence, 

retail sales, ultimately costing jobs and hurting the economy as a 

whole. 

Thank you again for this opportunity. Be happy to answer any 

questions. 

[The prepared statement of Mallory Duncan can be found on 

page 148 in the appendix.] 

Mr. BACHUS. Thank you, Mr. Duncan; and Mr. McEneney? 

33

STATEMENT OF MICHAEL MCENENEY, PARTNER, SIDLEY AUSTIN BROWN & WOODS LLP, ON BEHALF OF THE U.S. CHAMBER OF COMMERCE 

Mr. MCENENEY. Thank you, Mr. Chairman and members of the 

Committee. 

My name is Mike McEneney, and I am a Partner at the law firm 

of Sidley, Austin Brown & Wood. 

I am pleased to have the opportunity to appear before you today 

on behalf of the U.S. Chamber of Commerce. I would like to commend the members of the Committee for their efforts to protect the 

security of consumers’ personal information and ensure access to 

credit at low cost. I would like to commend the sponsors of H.R. 

2622 for their leadership in crafting an important foundation for 

addressing identity theft and FCRA issues. 

The FCRA and its national uniform standards have provided a 

robust framework for the most advanced consumer credit and insurance markets in the world. Indeed, the benefits of the FCRA 

were highlighted in a recent information policy institute study, 

which found that the national uniform standards established by 

the FCRA have contributed significantly to the consumer benefits 

of the current credit marketplace. 

The study concluded that the loss of the existing framework of 

uniformity would threaten the current consumer benefits and that 

Congressional action is necessary to ensure the continuity of our 

national standards. 

We applaud the sponsors of H.R. 2622 for taking such action. 

The national standards established by the FCRA are also an important component of protecting the security of consumers’ personal 

information. For example, the national uniform provision under the 

FCRA ensure that financial institutions can have access to reliable 

credit report information for identity verification and other identity-theft prevention measures. 

Although renewal of the FCRA national standards is an important step, we agree with the Committee that more can be done. The 

proposal legislation includes provisions to address a number of potential scenarios involving identity theft. The Chamber strongly 

supports efforts to address these important issues and appreciates 

the opportunity to provide comments on the legislation. 

In general, we believe that there is a common theme that may 

be helpful in guiding consideration of provisions to combat identity 

theft. In particular, as Secretary Snow mentioned earlier, the 

methods used to address potential identity-theft scenarios should 

be flexible, allowing companies to utilize the most efficient means 

to thwart identity thieves. 

We believe that this goal is embodied in several provisions in the 

bill. For example, the legislation includes a provision requiring federal banking agencies to develop so-called red flags for use in detecting identity theft. This provision relies inherently on recognition that a one-size-fits-all approach may not work. 

The red flags presented by identity thieves will invariably change 

over time, and the tools used to combat the thieves should change 

as well. The legislation takes important steps in the direction of 

providing this flexibility, and we hope that this theme can be further explored. 

34

The bill also addresses the important issue of a consumer’s ability to access his or her credit report. The Chamber welcomes consideration of how to make credit reports more available to consumers. 

We believe, however, that this issue requires careful study before 

next steps are taken. In particular, there should be a full examination of the cost associated with a free report in order to ensure that 

there are no unintended consequences, particularly for consumers. 

Moreover, the frequency and volume of demand for free reports 

will be difficult, if not impossible, to predict since a widely circulated press report or e-mail could drive extremely high volumes 

in short periods of time. Given the inherent unpredictability, it is 

unclear how credit report companies would be in a position to adequately manage this problem. For example, even the most basic 

issues, like establishing adequate staffing levels, are difficult to address when you cannot predict the volume of the demand. 

The Chamber is pleased that the bill includes the provision that 

would make it clear that companies can conduct investigations of 

wrongdoing in the workplace without the inappropriate application 

of the FCRA. Because of the difficulties in conducting an investigation while complying with the FCRA’s requirement, the FTC interpretation on this issue deters employers from using experienced 

and objective outside organizations to investigate workplace misconduct. 

While the FTC’s interpretation affects all businesses, it is particularly damaging to small and medium businesses that do not 

have in-house resources to conduct these investigations themselves. 

Once again, I would like to commend the Committee for its efforts to maintain the consumer benefits of our current financial 

marketplace, while also protecting the security of consumers’ personal information. 

The Chamber looks forward to working with the members of the 

Committee as the legislation moves forward, and I thank you again 

for the opportunity to appear before you today. I would be happy 

to answer any question you may have. 

[The prepared statement of Michael F. McEneney can be found 

on page 195 in the appendix.] 

Mr. BACHUS. Thank you, McEneney. And Dr. Spriggs, we welcome your testimony. 

STATEMENT OF WILLIAM SPRIGGS, EXECUTIVE DIRECTOR, 

NATIONAL URBAN LEAGUE INSTITUTE FOR OPPORTUNITY 

AND EQUALITY 

Mr. SPRIGGS. Thank you, Mr. Chairman. My name is William 

Spriggs. I am the Executive Director for the National Urban 

League’s Institute for Opportunity and Equality. 

The National Urban League is the nation’s oldest and largest 

community-based organization dedicated to moving African-Americans to the economic mainstream. 

We are very encouraged by the language in H.R. 2622 that seeks 

to ensure that consumers can get a summary of their credit score 

and information on how it was derived so that the score can be approved. 

35

We applaud the Committee for that step. And I was very encouraged by your comments earlier in the first panel that you also 

meant the credit score to be available along with the credit report. 

We would like to see the Committee go one step further, however. Credit scores have now dominated the way in which home 

mortgages are made. Home mortgage is, of course, important to 

home ownership, and home ownership is at a record level in the 

United States. 

While 75 percent of white non-Hispanic households are home 

owners, for African-Americans that is only 47.7 percent, and for 

Hispanics it is 46.7 percent. 

Part of that differential seems to be a persistent gap in access 

to home mortgage, and the loan denial ratio unfortunately has 

stayed constant for African-Americans, at around 2 to 1, and for 

Hispanics at 1.5 to 1, compared to whites, this despite the fact that 

in 1995 there was a mushrooming of the use of credit scores. 

Many people believe that credit denial took the form of differential treatment using credit scores everyone is now convinced has 

not just been for differential treatment, but we must remain on 

guard for differential impact. 

So it is not just access to the scores; it is access for the Committee and for the FTC and for the American citizens, and to understanding the accuracy—not just the tendency, not just the averages, but the accuracy of the scores themselves. 

We need to have transparency of the score creation in the same 

way that we have transparency with HMDA data. This has allowed 

us to look behind the veil at how home mortgages are done. We 

need to be able to look behind the veil of the credit scores, as well. 

Now, the credit scores is a statistical thing, and it is subject to 

all sorts of statistical problems. I just want to mention a few of 

them. They really aren’t race-specific, they really deal with consumers. 

You have had a series of reports presented to you on levels of accuracy. All statistical models assume that the data is accurate. It 

is very difficult to deal with statistical models when you start with 

data that has measurement error in it. 

It is important for outside researchers, it is important for Congress, it is important for the FTC to understand how the scoring 

industry treats this measure and error, because how that gets 

treated is very important as to whether there would be an introduction of bias into the system. 

Missing data. You have also heard information presented to you 

at other hearings that for a number of reasons, either credit card 

information, or sub-prime loans in the mortgage industry, don’t get 

reported to the credit bureau. 

So how does the industry handle missing data? Again, there can 

be a great introduction of bias when it comes to what is the way 

in which missing data is handled. 

Finally, there are omitted variables, variables that you would 

imagine ought to be in the model, things like employment, things 

like even regional variations in terms of the economy’s performance. 

36

But they aren’t in the model. And it is not possible for us to understand, for instance, if there is a slow-down in manufacturing in 

Illinois, as an example. 

Are those workers’ credit records really the same if they fall behind as an employed worker living in northern Virginia, where the 

unemployment rate is 0.1 percent, who falls behind? 

Do they really present the same credit risk if we are looking forward? Probably not. But the way that the scores get treated if we 

don’t understand the model means that we could have unexpected 

differences in credit scoring across the country that are unintended. But we need to be able to have access to that information. 

Now, what is the importance here, as people would say that the 

credit scores now allow people to get credit? But it is credit at different prices. So accuracy matters. Just yesterday, when I was preparing, I looked at the Fair Isaac Web page. The difference between a 699 score, which is a decent credit score, not great, and 

720 would be 0.66 points on your mortgage. That is enough everybody here would rush out and refinance their mortgage over 0.66. 

That is just 21 points different in your credit score. 

So it is really important that the FTC, that Congress, that government have access, bring some sunshine to these models, and 

then provide us with a report card so that consumers, so that regulators have a better understanding of what has been going on. 

In that respect, we have a series of things we would like to see 

the FTC report in this report card. We want to make sure that 

there isn’t a disparate impact of the credit scores, and we have not 

liked the information that has been provided so far on that. 

The issue isn’t average tendencies, it is not just that, yes, the 

models will predict equally well the average tendency for default 

rates, it is the mean prediction error. Is it the same for all subgroups? And if it is not, why models have been considered, which 

ones ended up on the cutting room floor, which ones ended up 

being the models that were used? And if we look at the mean prediction error of those models by subgroup, is it possible that some 

of the scoring methods that aren’t used were better for some subgroups? We need to have that information. 

We need to have information on how errors were handled. We 

need information on the relative performance of the models that 

were rejected but not accepted. All of that needs to be in place so 

that we can understand what is going on. 

The day has now changed. Getting your credit report doesn’t tell 

you anything anymore. This credit explosion is really the result of 

the ability to use credit scores. And the credit information industry 

has in many ways now moved beyond the legislation. So giving information to consumers on what is on your credit report doesn’t 

give them what they need. They need the credit score, and then we 

need the information on the accuracy of those credit score models. 

And I will be happy to answer any questions. 

[The prepared statement of William E. Spriggs can be found on 

page 248 in the appendix.] 

Mr. BACHUS. Thank you. 

Mr. Brobeck? 

37

STATEMENT OF STEPHEN BROBECK, EXECUTIVE DIRECTOR, 

CONSUMER FEDERATION OF AMERICA 

Mr. BROBECK. Thank you, Mr. Chairman. 

Mr. name is Stephen Brobeck. I am Executive Director of the 

Consumer Federation of America. And my testimony today is on 

behalf of my own organization and Acorn, Center for Community 

Change, Consumer Action, Consumers Union, U.S. PIRG, and the 

low-income clients of the National Consumer Law Center. 

At the outset, we want to commend the Committee for holding 

the comprehensive series of hearings on the Fair Credit Reporting 

Act. These hearings have established the huge and growing influence of credit reporting in the lives of Americans related to consumer access to affordable credit, insurance, rental housing, utilities and even to employment; to consumer vulnerability to socially 

unacceptable invasions of privacy involving medical information, as 

well as financial information; and to consumer vulnerability to the 

horrific experience of identity fraud. 

The extent, frequency and severity of problems in these areas, 

well documented in your hearings, must never be forgotten in seeking solutions that are considered by financial services providers to 

be inconvenient or even somewhat disruptive. 

At the outset we also want to commend you and other sponsors 

of H.R. 2622 for including in your legislation important new consumer protections. For example, there is no question that measures 

designed to curb identity theft would reduce its incidence. While we 

believe these measures need to be strengthened, they would require 

credit bureaus and lenders to make more serious efforts to reduce 

this theft. 

Similarly, the requirement that bureaus make available a free 

credit report annually would increase the ability of consumers to 

detect and correct errors. 

While we believe more adequate government regulation of bureaus and lenders is also needed, the greater involvement of consumers in what is largely a self-regulated system would ensure a 

more accurate, fairer system that would benefit lenders in the long 

run, as well as consumers. 

We also believe, however, that these protections could be improved in ways outlined in our written testimony that would further reduce abuses against consumers while not imposing unreasonable burdens on credit bureaus and lenders. 

Let me give just two examples. It is not enough to give adversely 

impacted consumers free access to their credit reports and scores 

through credit bureaus. It would not only greatly increase consumer access to the actual reports used by lenders, but would actually ease the burden on credit bureaus if lenders were required to 

provide to adversely impacted credit applicants the merged files 

and scores that served as the basis for their decisions. 

Typically in the purchase of mortgage and installment loans, this 

would require nothing more than a loan officer handing to the applicant a copy of the file. In most cases, they would probably also 

help explain this file, urge the applicant to check for errors, explain 

how to correct any errors and perhaps even assist in this correction. After all, lenders would prefer to make, not deny, loans. 

38

Second, consumer remedies against inaccuracies and abuse need 

to be more effective. Certainly, regulators need to be given more responsibility and authority for addressing credit reporting abuses 

against consumers, but they cannot conceivably resolve more than 

a small fraction of individual problems. It is also essential to empower consumers to resolve their won legitimate grievances. That 

could be largely accomplished by giving them the ability to seek 

first, minimum statutory penalties of, say, $100 to $1,000 per violation and, second, injunctive relief to stop reporting agencies from 

spreading false information. 

In our opinion, however, the greatest weakness of H.R. 2622 is 

its permanent limiting of the ability of states to pass needed protections. The states need this ability to address regional concerns, 

to respond quickly to new credit reporting problems, and to experiment with protections not contained in federal law. Any increase 

in efficiency, whose claims we believe to be wildly exaggerated by 

credit bureaus and lenders, is a small price to pay for the many 

benefits of the ability of states to remedy abuses. And we do not 

understand why the legislation would also make preemption permanent when it directs agencies to undertake studies that are intended to examine problems and remedies. 

At the very least, the preemption should be sun-setted shortly 

after the completion of these studies. Principally for this reason, we 

cannot endorse H.R. 2622 despite its many merits, but we would 

urge its sponsors, as well as all members of this Committee, to reconsider this provision as well as the others that were the subject 

of our written testimony. 

In conclusion, because both industry and consumer groups basically support the passage of legislation, Congress has an historic 

opportunity to reduce serious and growing abuses in the credit reporting system. It may not have this chance for many years to 

come. 

Thank you for the opportunity to provide this testimony. 

[The prepared statement of Stephen Brobeck can be found on 

page 119 in the appendix.] 

Mr. BACHUS. Thank you, Mr. Brobeck. 

Mr. Dugan? 

STATEMENT OF JOHN DUGAN, PARTNER, COVINGTON AND 

BURLING, ON BEHALF OF THE FINANCIAL SERVICES COORDINATING COUNCIL 

Mr. DUGAN. Thank you, Mr. Chairman. 

My name is John Dugan. I am a Partner with the law firm of 

Covington and Burling. I am testifying today on behalf of the Financial Services Coordinating Council, the FSCC, whose members 

are the American Bankers Association, the American Council of 

Life Insurers, the American Insurance Association, and the Securities Industry Association. These organizations represent thousands 

of large and small banks, insurance companies and securities firms 

that, taken together, provide financial services to virtually every 

household in America. 

The FSCC strongly support H.R. 2622, which renews and 

strengthens the Fair Credit Reporting Act. We believe its core provisions strike the right balance in preserving the FCRA’s uniVerDate 0ct 09 2002 12:51 Mar 05, 2004 Jkt 000000 PO 00000 Frm 00042 Fmt 6633 Sfmt 6633 G:\DOCS\92230.TXT FIN1 PsN: MICAH
39

formed national standards in adding strong new provisions to deter 

and remedy identity theft. Our member trade associations pledge 

to work hard for the enactment of this critical yet measured approach to FCRA reauthorization. 

While the FSCC recognizes that the legislation is still a work in 

progress, we believe it is imperative that it retains this balanced 

approach throughout the legislative process. 

For example, we would strongly oppose addition of the types of 

restrictions, however well intended, that would substantially increase consumer costs without commensurate consumer benefits, or 

ones that would deter financial institutions from making the type 

of full and voluntary information submissions to credit bureaus 

that they do now. At the same time the bill’s provision should preserve adequate flexibility for the industry to address legitimate 

concerns in the most efficient manner possible. 

In addition, our members have technical concerns with some of 

the bill’s provisions that we hope can be addressed. Let me now 

provide detail about each of these points. 

Title 1 of H.R. 2622 makes permanent the uniform national 

standards that underpin the FCRA. These standards make our extraordinary credit insurance markets truly national, which, in turn, 

have brought unprecedented benefits to Americans throughout the 

country. By virtually any measure, the 7-year experiment with uniform national standards has been a resounding success, stirring 

strong industry competition that has resulted in, among other 

things, more and cheaper consumer credit and insurance, a wider 

variety of consumer products and, most fundamentally, economic 

growth. 

By improving the performance of the entire market, as described 

in more detail in my written statement, FCRA’s uniform national 

standards have lowered the cost of credit and increased the numbers of Americans who qualify for credit. 

Accordingly, the lynch pin of the FSCC’s strong support of H.R. 

2622 is the permanent extension of all of the FCRA’s core uniform 

national standards. 

Let me now turn to identity-theft provisions and other key provisions in the bill. 

Stopping identity theft before it occurs and resolving those unfortunate cases that do occur is of utmost importance to the financial 

services industry. As technology and the Internet have made more 

information readily available, financial institutions have redoubled 

efforts to help educate consumers about how to prevent and resolve 

cases of identity theft. 

That said, the financial services industry has no illusions about 

the enormity of this problem. The FSCC fully appreciates why the 

Committee is now considering the identity-theft provisions in this 

bill, which are woven through the fabric of most of the title. 

In addition, several of the bill’s provisions provide consumers 

with greater access to credit report information and address related 

consumer protection provisions. 

Before commenting on these provisions that affect our financial 

institution members most directly, let me note that many of the 

bill’s other provisions impose new responsibilities on consumer reporting agencies. While the indirect effect of these credit bureau 

40

provisions could result in significant new costs for our members, we 

believe the credit bureaus themselves, who are also testifying here 

today, are in the best position to address practical issues or concerns that are raised by such provision. We do implore the Committee, however, to recognize that none of these provisions, however beneficial to particular consumers, comes without cost. And 

these new costs must ultimately be borne by consumers. 

The FSCC believes that, before taking action on any of these 

credit bureau provisions, the Committee should weigh carefully the 

expected all-end cost to consumers as well as expected benefits because, in some cases, the ultimate consumer cost may, in fact, be 

quite substantial. 

Section 201 includes specific statutory procedures that require a 

credit card issue or that receives a request for an additional credit 

card within 30 days after receiving a notice of a change in address 

to notify the cardholder of the request. While FSCC supports the 

intent of this provision, one possible improvement would be to delegate greater authority to the Federal Reserve to craft regulations 

to address the problem, which could be adapted to changing circumstances over times much more easily than could specific standards codified in statute. 

Section 202 addresses fraud alerts, which the FSCC agrees are 

a critical tool for containing the magnitude of losses caused by 

identity theft. We believe the provision should be clarified, however, so that once a fraud alert is placed in a file, it does not require separate authorization each and every time a consumer uses 

a credit card, which we think would be unworkable. 

Instead the provision should apply to the making of a new loan 

or a new credit account. Further clarification would also be useful 

regarding the duration of the fraud alert. 

The FSCC also supports Sections 203, requiring truncation of 

credit and debit card numbers, and 206 requiring regulators to 

issue red flag guidelines to identify possible identity theft. 

In connection with the guidelines, however, the provision should 

be modified so as not to duplicate the account opening requirements imposed by the banking regulators under the USA PATRIOT 

Act. 

The FSCC also supports Section 301, regarding coordination of 

consumer complaint mechanisms, and Section 303, which requires 

a study of investigations of disputed consumer information. 

In both cases, we would urge more direct coordination and cooperation between the Federal Trade Commission and the federal 

banking regulators, and with respect to the study, we believe the 

financial services industry should be provided the opportunity to 

provide input before it is finalized. 

Finally, Section 402 would prevent furnishers from providing information to a credit bureau where the furnisher knows or has reason to believe that the information resulted from fraudulent activity. 

The FSCC remains concerned that the reason-to-believe standard, while seemingly sensible, would in fact be triggered too easily 

in some circumstances where a financial institution was truly acting in good faith. 

41

We believe that is not the Committee’s intent, and we hope to 

work with you and your staff in the coming week to see if there 

is an appropriate way to address this concern. 

Indeed, since our credit reporting system depends on voluntary 

submissions of information to credit bureaus, it would be counterproductive to impose restrictions on furnishers that would make 

them more reluctant to provide information in the first instance. 

As described at the outset, our hope is to provide additional comments on provisions in the bill as it proceeds to its first markup. 

Again, the thrust of our comments will be to preserve adequate 

flexibility for provisions to adapt over time to changing circumstances, to weigh carefully potential costs, as well as potential 

benefits, and to preserve the incentives for information furnishers 

to voluntarily provide full information to credit bureaus. 

And with that, thank you very much. 

[The prepared statement of John C. Dugan can be found on page 

135 in the appendix.] 

Mr. BACHUS. Thank you. At this time, Mr. Pratt, actually as our 

witness representing the credit bureaus, and I hate to segment 

that testimony, but Mr. Pratt, you all have sort of been singled out 

for a lot of——

[Laughter.] 

A lot of the burden of this legislation is going to fall on the credit 

bureaus. And, in fact, I think we are pretty far, pretty close to the 

line, if we are not over the line, on you being able to handle that 

burden. 

But we do have votes on the floor, we have about three and a 

half minutes left, so we are going to dismiss the hearing at this 

time. we will come back and we will hear your testimony, and then 

we will have questions. 

So at this time we are recessed, hopefully for about, let us just 

say until 2:15 p.m. Thank you. 

[Recess.] 

Mr. BACHUS. We welcome the second panel back. 

And at this time we will hear the testimony from Mr. Stuart 

Pratt, who is the President of the Consumer Data Industry Association; to most people that means the credit bureaus. And as I 

said before the break, many of the burdens and requirements are 

going to fall quite heavily on the credit bureaus, and I know that 

there is quite a bit of concern there. So we recognize you for your 

testimony, Mr. Pratt. 

STATEMENT OF STUART PRATT, PRESIDENT, CONSUMER 

DATA INDUSTRY ASSOCIATION 

Mr. PRATT. Mr. Chairman, Ranking Member Frank and members 

of the Committee, thank you for this opportunity to testify before 

you today on the subject of H.R. 2622, the Fair and Accurate Credit 

Transactions Act of 2003. 

For the record, I am Stuart Pratt, and I am President and CEO 

of the Consumer Data Industry Association. And Mr. Chairman, as 

you indicated, we do our represent what are sometimes called the 

big three consumer credit reporting systems in this country. We 

represent all of the major check acceptance system, all of the major 

mortgage reporting systems in this country as well. So a lot of difVerDate 0ct 09 2002 12:51 Mar 05, 2004 Jkt 000000 PO 00000 Frm 00045 Fmt 6633 Sfmt 6633 G:\DOCS\92230.TXT FIN1 PsN: MICAH
42

ferent companies involved in this consumer credit marketplace, 

providing the information that has been in large part the subject 

of the many hearings that you held over the course of June. That 

was quite a marathon. 

We join with everyone else who has applauded you and the Committee at large and those who have sponsored the bill for the introduction of H.R. 2622, and in particular for Title 1, Section 101, 

which does reauthorize and make permanent the national uniformed standards which are so essential to the continued success 

of our nation’s economy. 

Reauthorizing and making permanent these standards under 

FCRA ensures that consumers can continue to enjoy $30 billion in 

additional disposable income per year, due to increased competition 

and due to the availability of credit that we see today in the marketplace. 

Your bill also looks at and takes a serious look at the question 

of identity theft. And we agree with many other panelists that 

identity theft is a serious problem. It is one that requires serious 

solutions. And we applaud a number of the ideas that are provided 

for in the FACT Act, including the idea that fraud alerts can be 

an excellent deterrence. We agree with that. Our members do administer fraud alerts, and we see value in that being codified on 

a go-forward basis. 

We do believe, like others, that the fraud alerts should be time 

limited on the file, because they should operate more like a red 

flag. They should operate during a period of time when there is a 

heightened sense of urgency, of concern. If they stay on the file in 

perpetuity, we begin to have a cry-wolf kind of effect, where they 

stay on forever and eventually a lender has to try to pull apart the 

wheat and the chaff, and that becomes progressively more difficult. 

So we suggest that there is a time limitation for fraud alerts if they 

are to remain on the file. 

You suggest a summary of rights for consumers relating to, candidly, some of the changes you are making in this act and also relating to the Fair Credit Reporting Act and other acts as well. Consumer reporting agencies are always willing to deliver the right notices to consumers that explain their rights under, particularly the 

FCRA. 

Some of the other statutes that were cited simply are not statutes that regulate us. If consumers were to receive a notice from 

us about those laws, our consumer relations folks just wouldn’t 

know how to answer questions about those. 

I think some of that may be covered under the FTC ID theft 

clearinghouse and the fact that they, too, provide a great deal of 

information. That might be a better solution for how some of the 

notices are delivered. 

Blocking information with police reports, I think, is a good idea. 

It is one that we can effectuate for the national credit reporting 

systems in our marketplace. It is an idea that works well for that 

type of consumer reporting system. You will find throughout our 

testimony and throughout our work with the Committee, there are 

times where consumer reporting agencies of various types don’t fit 

as well with one duty or another duty. And that these duties will 

43

have to be custom fit to the type of consumer reporting agency that 

we really want to focus on. 

Coordination of consumer complaint investigations in Section 

301, again, makes sense for nationwide consumer reporting agencies. It allows us to allow a consumer to make a single phone call 

and to have fraud alert information, if you will, transferred between other nationwide agencies. 

Your bill does have some proposals in it. The bill does suggest 

some things that we want to visit with you about here today in the 

time I have remaining. In particular, two items under Section 5, 

Sections 501 and 501, propose free reports for consumers and a 

score disclosure requirement of sorts for consumers, as well. And 

I think there has been some discussion today of the intentions of 

that provision relative to scores. And let me just share a few 

thoughts on each one. 

Free reports are provided widely today. In fact, 16 million free 

file disclosures are given every year in this country. The 1996 

amendments to FCRA did address free file disclosures for a wide 

range of consumers who had particular need. And we think that 

that was the balance that was necessary then, and we think that 

is roughly the balance that is necessary now. 

That law, in our mind, is working very well because, again, 16 

million consumers every year are getting their files for free. The 

vast majority get it free of charge. Very few consumers seem to be 

harmed or impaired by the way the act is operating in that area. 

Score disclosure concerns us because in fact, we don’t own many 

of the scores that I guess consumers think we have or that others 

think we have. And in fact, in many cases, we would have to purchase scores from others if score disclosure was to take place. And 

that is one of the points of confusion. 

That, plus in our testimony we do offer some context for how the 

marketplace seems to be providing consumers quite frequently to 

scores, access to advice, access to how scores are analyzed, credit 

history information and so on and so forth. 

So you will find us looking forward to continue to work with you 

on the file disclosure issues, the score disclosure issues. And we applaud the fact that this bill does, again, make permanent and reauthorize those national standards under the FCRA. And we thank 

you for the opportunity to testify here today. 

[The prepared statement of Stuart K. Pratt can be found on page 

224 in the appendix.] 

Mr. BACHUS. Why, thank you. 

With that, we will go to questioning. And I think my first question will be actually to you, Mr. Pratt. What I think Title 5 of the 

bill says is that if you have those credit scores, you disclose them. 

So, you know, if you have them, you would be required to disclose 

them. Obviously, I don’t think we can require you to disclose something you don’t have. That would be my interpretation. 

We have heard from your members about their concerns about 

the cost of providing the free credit reports. 

And I think, as you have said, the present law requires a broad 

range of free credit reports: people that have been denied credit, 

been denied a job, several other exceptions. Do you have any idea 

44

how much it would cost to supply these reports? And what if they 

were done online? What are some provisions? 

Mr. PRATT. Two questions: Let me break that down, if I may, Mr. 

Chairman. We are still trying to run the numbers based on a whole 

range of factors that we tried to outline here in our testimony, but 

let me go through some of those. Some of the factors are simply the 

fact that if free is free for everyone, National Media could create 

spikes of activity. By parallel example, today even with the opt-out 

number we use for prescreened offers of credit, an e-mail circulates 

every year. During any given year, the opt-rate spikes by as much 

as fourfold from what it is today. 

We estimate that we might have as much as a fourfold increase 

in files disclosed for a range of reasons. Security breeches, which 

we have discussed in a hearing that, in fact, you co-chaired earlier 

this year. We talked about the fact that a single security breech 

cost our members each respectively about $1.5 million. I think we 

are approaching numbers that are a quarter of a billion dollars in 

incremental cost increase for the cost of file disclosures. 

Mr. BACHUS. How much? 

Mr. PRATT. A quarter of a billion. 

Mr. BACHUS. A quarter of a billion? Okay. 

Mr. PRATT. And that is based on the information I have. I have 

been visiting with the CEOs of the major systems. And this is 

based on what we know are the unit costs for disclosure and the 

estimated number of disputes that would follow and the servicing 

and the requirements of law that we know that we must comply 

with today. And it doesn’t entirely allow us—even that doesn’t really tell us whether we are going to be successful. 

If, for example, we have a rush of consumers who decide to make 

a phone call, and you can look at the parallel of the numbers of 

folks who have been trying to us the new FTC Do Not Call List——

Mr. BACHUS. Of course, that was a one-time——

Mr. PRATT. It was. And candidly, I guess, the question is, how 

often will we have that sort of one-time event to occur over and 

over again? 

Mr. BACHUS. But maybe we could build something into the legislation to——

Mr. PRATT. Maybe so. Those are the kinds of issues I think our 

members—we are not trying to be arbitrarily against access. We 

are all for access of files. 

Mr. BACHUS. You have been very cooperative. Your industry has 

been very cooperative in working with us on this legislation. 

Mr. PRATT. To your other question, certainly delivery online is 

going to be vastly less expensive than the production of paper. 

Mr. BACHUS. But would that hurt you competitively? For instance, if you could get that information online, some of the people 

that you now sell reports to, institutions, could they not go online 

and get those reports? Is there a danger of that? 

Mr. PRATT. You know, that is a good question. I don’t know. I 

suppose large institutions tend to have very high-tech hookups between the national systems that are highly secured and encrypted. 

And I don’t know that would happen. 

Absolutely, some smaller institutions would probably think that 

maybe pulling a free file disclosure would be the way to go, and 

45

that would be perfectly fine for their credit lending purpose. And 

so, yes, that could poach on traditional business. That kind of idea 

would poach on the current, direct to consumer marketplace, and 

some companies estimate tens of millions of dollars in lawsuits 

from that as well. 

Mr. BACHUS. Right. 

Mr. Dugan, I think, you and Mr. McEneney have both mentioned 

idea of not too rigid of standards, flexibility built into the system. 

And I believe that is going to be a key to being able to modernize 

and keep up with the criminals in ID theft cases. I think if we 

adopt too rigid of standards, we really put our law enforcement efforts and our efforts to identify these people in a straight jacket. 

And as you know, we have just addressed check truncation in 

this Congress, this session, even though the marketplace has probably been there for 20 years. So it is sometimes not encouraging 

how long it might get around to us if we put something in concrete, 

it might actually inhibit efforts. 

Mr. DUGAN. Well, that is exactly our concern, Mr. Chairman. 

And we know that in the provision that does the red flag guidelines, that does have quite a bit of flexibility and vision that you 

are not trying to proscribe those things at once. It will have to 

evolve, and you have given authority to the regulators to do that. 

That is the kind of thing in some places that we think is a useful 

way to look at things. 

Mr. BACHUS. Your testimony, I think, has been very helpful in 

identifying areas that we need to address. 

You all have followed the hearing and where we are going on 

this, and we do get suggestions for provisions on almost a daily 

basis. 

It might help one consumer in a particular circumstance, but 

when we run that down and we balance it, we find that the end 

result of that would be shutting down our national uniform credit 

reporting system as we know it now today. 

And that would have a detriment on literally millions of consumers each day. In an earlier panel, and I think someone that 

needs bearing in mind, is that today in America you can walk in 

and you can get a car loan in an hour, or thirty minutes. 

You can get credit extended in a matter of 30 seconds. In countries, in Europe particularly, where they have much more stringent 

requirements, credit availability, particularly to low-and middle-income citizens, is simply not there like it is here. 

If it is there, it is at a much greater cost, and they may be able 

to get credit, but the result may be at a 1 or 2 additional percentage differences. 

So we certainly want to establish some meaningful standards, 

but give the regulators, the financial institutions and even the 

credit bureaus flexibility to address these issues. One thing that I 

think we have seen from these hearings is the you all are very motivated to address these issues because they affect you, too. 

Even when we have had our two identity theft witnesses, both 

said they had lost over $40,000. Now, when they said that actually 

a credit card company in both cases took 90 percent of the actually 

that $40,000 of bad charges, the credit card companies took those 

hits. 

46

Now, they did have quite a considerable expense. It was a nightmare situation for them. But everybody took a hit. I mean, the institutions took a hit, the credit card companies took a hit, and they 

took a hit, so there is quite a bit of identity of interest there. 

So I think that as we go forward you can help us to refine this 

approach, and then I would hope that we would maintain flexibility. 

At this time, we recognize Mr. Frank. 

Mr. FRANK. Thank you. 

Mr. BACHUS. I was hoping to recognize you before you were prepared to go home. 

Mr. FRANK. That is okay. I was going to defer, I was going to be 

outside, but I will be quickly here. To Mr. Brobeck, and I apologize 

for not being able hear all the testimony, but I have made a point 

of reading it. 

You address, what seems to me to be the biggest current weakness of the system now, which I believe generally works well. But 

there does seem to be this weakness. 

You talk about the failure to guarantee the accuracy of credit reports. Now, the knowledge I have gotten from both from reading 

and talking is that people acknowledge that there are situations 

where you the consumer learn that there is inaccurate information 

about you. And one of the good things about the bill, and there is 

a great agreement that we should give the consumer more information, so as a result the consumer is likely to be able to discover that 

there was inaccurate information. 

The problem then comes is, okay, well, what can you do about 

it? And I am beginning to think in some of these cases from the 

peace of mind of the consumer she might be better off not knowing, 

because in some cases she just can’t do anything about it. 

And I am told that there are situations in which you the consumer learn, and I am working with the gentleman from New York 

and others, make the going even more quickly, that there is some 

inaccurate information about you, but that there are really no adequate means for you to combat that in every case. 

That is, you can contest it, as I understand it, you contest it to 

the consumer reporting agency, and you can submit a lot of documentation, and the consumer reporting agency individual may have 

literally only a few minutes to review your information, then sends 

a two-letter code to, in some cases, the furnisher of the information. 

I must say, as I thought about that, various combinations of two 

letters came to mind to describe what was happening, but, then the 

credit furnisher, in effect, checks his or her own arithmetic and 

spelling. 

And if the credit furnisher determines that, yes, I did tell the 

credit reporting agency that, that is considered to be the reinvestigation, and that is where we stand. 

Now, and I am told that in many cases the credit reporting agency will then accommodate the consumer by accompanying the negative information with the consumer saying, it ain’t so. 

Am I correct that there is not now in the system a way for you 

to document the inaccuracy and to show that even though they 

may have correctly reported what they had reported, that the unVerDate 0ct 09 2002 12:51 Mar 05, 2004 Jkt 000000 PO 00000 Frm 00050 Fmt 6633 Sfmt 6633 G:\DOCS\92230.TXT FIN1 PsN: MICAH
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derlying data was incorrect? And if that is true, what can we do? 

What is a way to break out of that? 

As I said, I think it probably occurs in a fairly small percentage 

of the cases. But I would say to those on the industry side, the 

smaller the number of cases, the less you have to worry about it. 

The less the burden ought to be. But it just is unacceptable to say 

that the few individuals—of course, a few when you cover the 

whole country is tens of thousands, hundreds of thousands—won’t 

have to pay that burden. 

So, Mr. Brobeck, am I accurate in the facts? And what do we do 

about it? 

Mr. BROBECK. Certainly, there are inaccuracies that are detected 

in a small minority of cases. We would argue that there are a number of inaccuracies that adversely affect consumers, who purchase 

sub-prime mortgages, other sub-prime loans, or are denied credit, 

who are not aware of these inaccuracies. And that that number is 

far larger than the number——

Mr. FRANK. Right. We now understand. With credit, it is not just 

either-or, but more-or-less, and that it has been a conceptual view 

that credit was an either-or situation, but we are now into a moreor-less situation. 

Mr. BROBECK. So there is no question there is a minority, but we 

think it is a larger minority than most people assume currently. 

And it is true that even the minority have trouble getting redress. 

So how do we fix the problem? 

Well, there is no magic bullet. One way is a combination to give 

everybody the ability to access their credit report for free and if 

they find, in fact, that there are a large number of errors, that will 

basically create a pressure group for the industry to fix the problem. And if they don’t, we will be back here in 7 years. 

It comes down to, they have to make a sufficient commitment. 

That is to say, you have got to require them to do certain things, 

including spending enough money to correct any inaccuracies. We 

have heard estimates of what seems to me to be far too large an 

expenditure, but even that $250 million suffers in comparison with 

the tens of billions of dollars——

Mr. FRANK. What is his number, $250 million? 

Mr. BROBECK. It is $250 million to basically provide everybody 

with a free credit report. I can’t believe that——

Mr. FRANK. In the context of all the great good that this does for 

the country, after all, the economy in the United States is, apparently, from what I read, substantially dependent on this. What was 

the gross domestic product? What percentage of the gross domestic 

product is $250 million? It seems to me we are talking about 

rounding errors. 

Mr. BROBECK. Some mountain track will be socialized throughout 

the systems, and all lenders will pay a little bit. And then, consumers will end up paying a little bit. And nobody will really feel 

the difference. 

So even if it is high, it is $250 million, always keep in mind the 

cost of tens of billions that consumers——

Mr. FRANK. I understand, but I really want to focus. 

Are there things we can do in this bill that would mandate a better performance in the collection process? 

48

Mr. BROBECK. Yes. Consumers need better, stronger individual 

remedies. And we would recommend a couple here. 

They need the ability to obtain injunctive relief. And instead of 

having to prove that there are damages, there should be statutory 

violations of relatively small amounts, $100 to $1,000, that would 

act as an important deterrent to the repositories and the lenders. 

Mr. FRANK. Let me ask you. This would have to be in federal 

court. Right? Because this is a totally federal operation. 

Mr. BROBECK. I am not certain. 

Mr. FRANK. Part of the problem is that we don’t have jurisdiction 

over the remedies. I almost wish we could create sort of a small 

claims court to deal with this. Because this is really what we are 

talking about. And that may frustrate us to some extent because 

the Committee on Judiciary would have jurisdiction over some of 

the remedies. 

But I would be interested, from you or anyone else, and that includes people in the industry. Remember, I want suggestions for 

how to fix this. If the suggestions for how to fix it only come from 

the consumer groups, then the industry is going to say they are too 

harsh. So the way to deal with that is to send me your solution. 

But I will fight very hard against allowing this bill to go forward 

if we don’t do something to improve the ability of consumers to deal 

with this. We are doing a lot in the bill, I believe, and will do a 

lot better to inform consumers about the inaccuracies. And I don’t 

think the inaccuracies are rife, but I do think that we need to tell 

people. 

We give incentives. You give incentives for people to get the data 

a little bit right in the first place. 

So I agree with you. This is the cost which when socialized 

throughout the entire economy, is bearable. And I would be welcoming of any specifics about how we improve the process by which 

corrections are made. 

I don’t know of any other place where I have been involved as 

a public official where I have been told, well, you have to tell people that the answer is ‘‘tough,’’ that in the interest of the old system, there may be some inaccuracy about them, and there really 

isn’t any way that they are going to be able to prove that it is an 

inaccuracy. But we will manage to tell people that they think it is 

inaccurate. 

I would not be content for it to rest that way. 

Thank you, Mr. Chairman. 

Mr. DUNCAN. Congressman, may I take a quick stab at that? 

Mr. FRANK. Yes, sir. 

Mr. DUNCAN. And that is if you look at the bill, there are really 

three things going on, the current and the FACT Act. 

The first of those, of course, is that there is this dispute process 

you mentioned. The consumer can avail themselves of that, and 

many, many disputes are resolved in the consumer’s favor. 

The second thing is that as a retailer, we have multiple reasons 

to want to have someone shop in our stores. You do not want a situation——

Mr. FRANK. Multiple reasons? 

Mr. DUNCAN. Multiple reasons. I mean——

49

Mr. FRANK. I was thinking of one, but it is a pretty big one: 

money. 

You like their company? You are lonesome? You are there to 

make money. That is a good thing. Don’t apologize. 

Mr. DUNCAN. But the bottom line is that is you have someone as 

a credit customer, you also have them as a retail customer. And if 

that customer complains that there was something and they file a 

dispute, most retailers will put a thumb on the scale in favor of 

that customer because they want to keep that customer as a shopper in their store. So it is more often than not, it is going to be 

resolved in the customer’s favor. 

And then the third thing is this unusual ‘‘he said, she said’’ situation, which occurs very seldom as you mentioned. It is often the 

result of identity theft. One of the advantages of 2622 is that there 

is now a provision that would allow someone to follow the port and 

have that trade line blocked so that no one would get what they 

claimed to be that false information. 

So we think there really is a remedy right here. 

Mr. FRANK. Well, I agree. But the fact that it is sometimes as 

a result of identity theft strengthens my view that we have to be 

very protective of the consumer. 

Yes? 

Mr. PRATT. My only addition was that the bill does require a 

study of the re-investigation process to make sure that it is working well. 

Mr. FRANK. I have great faith in a variety of studies around here, 

but that is still not nearly as reassuring to me, as it apparently is 

to you. 

Mr. PRATT. Well, I don’t know if it is reassuring to us either, but 

I think the most important part of this that re-investigations can 

be complex, particularly in the situation that Mr. Duncan described. We think a study is the best place to try to look at that 

issue to try to pull it apart and understand the——

Mr. FRANK. The effect of a study is status quo. 

Let me say. I might be willing to go along with a study if the 

extension of the preemptions was co-terminus with the period of 

the study. But if you get a permanent extension of the preemptions, then the study becomes less attractive because the leverage 

to enact the results of the study is attenuated. 

So if you wanted to have a short-term extension of the preemption while we study this and decide what to do, okay. But a permanent extension of the preemption attenuates the value of a study 

because given the way this works—you know, people talk about, 

well, money is the most important thing in the legislative process, 

politics is the most important thing in the legislative process. 

We don’t talk about that inertia is the most important thing in 

the legislative process. And once these preemptions are made permanent, that is the end of the ball game. So the study doesn’t do 

me any good at that point. 

Mr. BACHUS. I thank the gentleman. 

One thing that, as Chairman, and I know Chairman Oxley is 

committed to continuing to work with you and with Mr. Ackerman 

and Mr. Sanders and others to try to come up with wording on imVerDate 0ct 09 2002 12:51 Mar 05, 2004 Jkt 000000 PO 00000 Frm 00053 Fmt 6633 Sfmt 6633 G:\DOCS\92230.TXT FIN1 PsN: MICAH
50

proving—I think we can probably do that. I appreciate that. I think 

we will do that. 

Our problem, I think Mr. Brobeck, you know, we have not been 

able to come up with that magic solution or the wording at the 

present time that doesn’t impact the delivery of credit reporting, of 

reports and the free flow of information. So we are still searching 

for the solution. 

Gentlelady from Illinois, Ms. Biggert. 

Mrs. BIGGERT. Thank you, Mr. Chairman. 

One of the questions that I had wanted to ask Secretary Snow 

when we had to adjourn, in a recent appearance he had said that 

‘‘Another goal of the uniformed standards of the Fair Credit Reporting Act is to help consumers learn how to manage their credit 

to obtain the best outcomes for their personal finances. In the modern American economy, smart credit management is an elementary 

lesson in financial literacy.’’

And I would like to ask you if you think that the FACT Act does 

adequately address this issue? For anyone that would like to respond. Dr. Spriggs? 

Mr. SPRIGGS. If I may, Congresswoman? That is my concern 

where the legislation doesn’t go far enough in looking at credit 

scoring. Because the reality is that with consumers today, their 

score is so much more important than just the report. And as you 

heard just a moment ago, you are directing the credit bureaus, but 

they don’t own the credit scores. 

And earlier questions got to the issue of who owns the credit 

score, they get to sell them, et cetera. This is a portion of the industry that is not being adequately covered here. 

And for a consumer to make a difference in their home mortgage, 

as an example, the example I gave when I talked earlier, it means 

a 21 point difference in your credit score means a lot of money to 

a consumer. And so, I think we have to bring the credit scoring industry in the same way that we are very concerned about what the 

credit bureaus do. 

And we have asked them to be accurate, but we have no data or 

measurement made public about the accuracy of the credit scoring 

mechanism. Some of the concerns about inaccuracy within the credit bureau data get magnified in ways we don’t know within the 

scoring, because we don’t know what the weights exactly are. 

So I think if we want to educate consumers, we have to have a 

far more transparent scoring system so that consumer groups or 

that the government, so that others can talk about: What are the 

indicators? What are the real ways that you can clean up that 

score? Because the score has now become so much more important 

than the report itself. 

The Consumer Federation of America’s report points out—and I 

think some you have experienced this when you go to refinance 

your home—you can get three or four different credit scores on 

yourself and they are all over the place. So you know, different 

scoring companies will score you differently. 

And without having the transparency, without the overlay so 

that you can talk about what do those differences mean. It is very 

hard for consumers to get that education to manage that. 

51

Mrs. BIGGERT. Well, in the legislation then, how would you propose putting that in? Is that just elementary financial literacy for 

consumers? Or is there something that needs to make sure that an 

agency doesn’t have to report a score or explain a score when they 

really don’t have the proprietary rights over that? 

Mr. MCENENEY. Congresswoman, could I——

Mrs. BIGGERT. Mr. McEneney? 

Mr. MCENENEY. Yes, if I could just make a comment here. This 

hearing is obviously to focus on the Fair Credit Reporting Act. But 

there is another statute here that I think is relevant, and that is 

the Equal Credit Opportunity Act, which prohibits discrimination 

in any aspect of a credit transaction. 

And also has that same effect in the context of the use of credit 

scores. Any credit scoring model has to be developed in a way so 

that includes only factors that are neutral, don’t include race or 

any other prohibited basis. 

The banks that use those credit scores are examined for compliance with those standards. So the agencies are looking at these 

issues. 

Also, you mentioned that it might be helpful to have a mechanism for consumers to understand how these scores affect them. 

Well, the Equal Credit Opportunity Act does that as well. One of 

the things it provides is that if a consumer is denied credit, that 

consumer is entitled to receive the principal reasons for the denial. 

Now, if a credit score was involved in that denial, what that consumer must have access to under the ECOA are the principal reasons that went into that score that created the denial for the consumer. And the idea behind that is to focus the consumer in on the 

most important information, which are the principal factors that 

are holding back the consumer score. 

Mr. BROBECK. Congresswoman? 

Mrs. BIGGERT. Mr. Brobeck. 

Mr. BROBECK. In terms of educating consumers, making available a free copy of a credit report will do more than just about anything that I can think of for two reasons. First of all, it would generate an enormous amount of media coverage, which people will 

have difficulty avoiding. It will also stimulate a great deal of consumer demand for information about the data in the credit report 

and scores. And if that is properly explained by the repositories, 

that will represent a very useful educating mechanism. 

And then we would also, as I indicated in our testimony, recommend that those consumers who are adversely impacted by a 

credit decision be given the file that is used by the lender and the 

score used by the lender. And in most cases, because lenders are 

interested in lending money, not denying credit applications, they 

will probably help the applicant to understand their credit file and 

perhaps even advise the applicant about how to improve the accuracy of that file. 

Mr. PRATT. If I could just respond to the—we continue to talk 

about the file disclosure. And we have always agreed as the industry that access to files is important for consumers. It is part of how 

I learn about all the different—in fact, sometimes consumer discover they have more open lines of credit than they may have reVerDate 0ct 09 2002 12:51 Mar 05, 2004 Jkt 000000 PO 00000 Frm 00055 Fmt 6633 Sfmt 6633 G:\DOCS\92230.TXT FIN1 PsN: MICAH
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membered just because some are less active and maybe not in their 

wallet as frequently. 

We are still struggling with why the current approach that the 

law has in it is not working. We are giving away 16 million files 

a year to consumers. That is a good number of files for consumers. 

They are educating a lot of consumers. We think the educable moment is quite often, and Mr. McEneney referenced this to one extent, is the point I want to look at my file when something has 

happened, when there is a question that I have about what my 

record looks like. 

What we seem to be losing track of is the literally tens of millions of transactions that go through successfully every year in this 

country. And the system does work well. And of course, all of us 

have a right of access to our file. And the fee is capped and determined by the Federal Trade Commission under the current FCRA. 

There is a lot of free file disclosures that are available today. We 

are just still struggling with why free seems to be the panacea solution for all the ills that we seem to be suffering when it comes 

to financial literacy. We don’t think that is the case because consumers certainly can have access to files and certainly can, in 

many cases, free and in some cases not. 

Mrs. BIGGERT. Still the question that you had was the proprietary that is not right. 

Mr. PRATT. That is more difficult, that is true. We can’t disclose 

another company’s score. And that is so important for the Committee to know that. Our members do develop scores ourselves. We 

compete in that marketplace. But we can’t disclose another company’s score, their intellectual property. 

It is just the way the law works. I think and generally that is 

probably the right way for the law to work. 

Mr. SPRIGGS. Excuse me, Congresswoman. 

And again, that reiterates my point that that is the industry that 

is not brought to the table here and why the credit score access for 

consumers needs to be there. But if the FTC could issue a report 

card—it is not enough—unfortunately, the Equal Credit Opportunity Act doesn’t get enforced properly on this issue of the credit 

score because of the issue of disparate impact. 

A consumer who gets denied who may think that there was some 

racial bias on the score gets their report and is told maybe this is 

the key ingredient. But they don’t get a report card that says if I 

look at the Fair Isaac model, if I look at somebody else’s model and 

I see three different credit scores for myself, I don’t get the objective view of someone like the FTC might be able to provide and 

say, look, if you look at how well this one predicts and how well 

this model predicts and these are the key elements and this is how 

they handle errors and this is how they handle missing data. That 

gives me a lot of clues as a consumer, and to you as policy makers, 

about well what do we think is wrong here and what can we improve. 

Currently, because we don’t have that on the table, we can’t even 

really talk about some of those elements. So I think the first thing 

is that we need that report card from the FTC evaluating the score, 

the different score companies. And then if they sell my score in the 

same way that we stick it to the credit bureaus and say if someone 

53

looked at my report, they have to give me the report, then the scorers need to give me my score. 

And that—and if I get that score with the FTC report attached 

to it, that is going to give me a lot of clues as a consumer about 

how my credit rating really works. Because, again, if I get that 

credit report and I haven’t used five lines of credit in the last 10 

years, I maybe got a credit card when I was in college and I left 

it open, I don’t know about it. That hurts my credit score. 

Now, as a consumer and I look at that and I say, well, I am not 

even using it. It has got a zero balance. What is the problem here? 

I don’t see why I am being denied credit. Okay, I have got 10 lines 

of credit out there, but I am not using any credit cards. 

As a consumer, I am not really being made intelligent enough 

about it until I see a credit score that says, boom, that is bad. You 

are being a bad boy. You don’t need 10 lines of credit. 

And so, that is why, again, you need to bring the credit score in, 

regulate them like you regulate the bureaus, if someone gets that 

information or uses the credit score, then they have to be as accountable as the credit bureaus and say, okay, you got denied because of the score, here is your score, here is the FTC report card 

with all the different scoring mechanisms, here is how these models work, here is how they predict, and that will inform the consumer. 

Mr. HENSARLING. [Presiding.] The gentlelady’s time has expired. 

The Chair now recognizes Mr. Sanders. 

Mr. SANDERS. Thank you, Mr. Chairman. Let me ask, to start off, 

Mr. Brobeck, over the weeks we have been hearing an enormous 

amount of testimony from the industry, and today from the Secretary of Treasury, that Western civilization would collapse as we 

know it if states were given the full power to protect consumers in 

this area. 

Do you think civilization would collapse, or do you think maybe 

consumers might get some benefit if we had attorneys general 

throughout this country, and legislatures and governors, who wanted to stand up and pass a stronger consumer protection law than 

Congress is apt to protect? Can you comment on that, please? 

Mr. BROBECK. Mr. Congressman, I don’t even think a small part 

of civilization would collapse. After all, before 1996 a number of 

states passed some very strong measures that were grandfathered 

into the 1996 law, and the sky did not fall, the industry adapted. 

In fact, they ought to be better able to adapt now because of technological improvements. 

In the area of provision of social services, because of computers, 

we have dramatically lowered cost. I can’t imagine that those cost 

savings are not available to the industry, as well. 

And there is going to be a small cost here, some inefficiency, but 

I would urge this Committee to ask the industry whenever they allege that the sky is going to fall on them that they document carefully the cost of interventions by the States that they have already 

taken, that are enforced right now, and that they then compare 

those costs with the benefits that have accrued to consumers as a 

result of those interventions. 

Mr. SANDERS. Now, what am I missing, Mr. Brobeck, when I 

think that if there are particular problems in a state, whether it 

54

is Alabama or Vermont or California that the legislatures and the 

Attorney Generals of those states might be able to respond more 

effectively and quicker at the statewide level than waiting for the 

United States Congress to move? What am I missing in terms of 

the needs of consumers? 

Mr. BROBECK. We don’t think you are missing anything. In fact, 

our federal system is wonderful because it gives the States an ability to respond more quickly, which they often do, because there are 

50 of them, rather than just one U.S. Congress, to problems that 

arise. 

Sometimes those problems are local or regional, so there is more 

interest in that state in responding to a problem than there is, say, 

in Washington. 

But, I mean, where is the harm? We have, we have seen the 

macro-economic analysis that ascribes the growth in our economy 

in the 1990s to the credit reporting system. 

I would argue that there are many other far more important factors. One could even perversely argue that the credit reporting system is somehow related to the rise in consumer bankruptcies, because, after all, if consumers’ scores are inaccurately high, then 

they are more likely to take on credit that will lead to default. 

If they are inaccurately low, the creditors will turn around and 

charge them higher rates. In both cases, that will tend to drive borrowers into insolvency. 

Mr. SANDERS. Let me take that statement and lead to a second 

question, and Mr. Spriggs, Dr. Spriggs, or anyone else can comment on it, but let me address it to Mr. Brobeck again. 

I have been concerned about a scam which I call switch and bait, 

bait and switch, by which companies, credit card companies say, we 

are going to give you, Mr. Brobeck, 3 percent for a year. 

You pay every month faithfully what you owe the credit card 

company, and lo and behold, after four months of paying on time, 

suddenly your interest rates have gone from the 3 percent they 

promised to 25 percent. 

And the reason that they will explain to you is that you borrowed 

more money because your wife was ill, and so forth and so on. 

What do you think about that type of action, and what should Congress do to address it? 

Mr. BROBECK. Well, we think that is unfair. What is driving that 

is that in a certain sense credit card markets have become more 

competitive, and the so-called traditional rates, they are basically 

tiered rates, the promotional rates being under 5 percent, typically, 

traditional rates, traditionally were 18 percent, but now they are 

as low as 10 or 11 percent. 

And then you have the penalty rates. Well, competition in middle 

markets and upper markets basically drove the traditional rates 

down. That squeezed the margins of the creditors, so they looked 

for other income opportunities, and what they did is they raised 

the fees and they created this penalty rate category, and now what 

they are doing is figuring out clever ways to move people from the 

traditional rates into the penalty rates. 

And unfortunately, they are using credit scores as an excuse to 

do that, or other material in credit records. 

55

Mr. SANDERS. Right. Dr. Spriggs, do you want to comment on 

that? 

Mr. SPRIGGS. Well, I did, because it gets right back to the issue 

of the credit scores, because that drives the market so much more 

than just what comes out of the credit bureau. 

And that intermediary effect is what gets you out of that, allows 

them their out, because probably in that fine print that you didn’t 

observe. 

It is not as unilateral as it may appear is something to deal with 

your credit standing. And the moment that extra loan came, your 

score changed. So they may not be making as unilateral a switch 

as it at first appears. 

That issue is important because we don’t know what is in the 

models. We don’t know—maybe after you looked at the models, you 

might say I see their point, it looks valid. But you may also look 

at their models and say, well, if you modeled it different, and here 

is a different scoring company that models it differently, they 

wouldn’t have scored me that way. Why does this model say that 

that is bad? 

We could have that exchange. But we can’t have that now, and 

so we need to get them out of that loophole by making this more 

transparent. 

Mr. SANDERS. Does anybody have an idea—I am kind of curious, 

that when—we understand that about 5 billion applications, credit 

card applications, are sent out a year, which is an astronomical 

number. I would be curious to know if we have some figures on 

what percentage of people who sigh up for one promotion or another end up paying higher rates than was on the original promotional application. Does anybody have a guess on what percentage? I mean, if they come to me and they say, Mr. Sanders, you 

can have 3 percent for a year and they raise me to 20 percent, 

what percentage of the American people are in that box? 

Mr. MCENENEY. You know, Congressman, I don’t know. But I 

just want to mention that I think there is a law on the books today 

that squarely addresses the issue that you raise in the context of 

the potentially bait and switch scenario. The Truth in Lending Act 

requires, pursuant to a recent Federal Reserve Board amendment 

to Regulation Z, that any credit card account that offers an introductory rate, that introductory rate has to be disclosed on those 

Schumer box disclosures and the penalty rate has to be disclosed 

as well. 

Under those—and the circumstances under which the penalty 

rate may be imposed must be disclosed also. 

Mr. SANDERS. Excuse me, let me just ask you for clarification. Is 

the penalty—if I borrow money from another source, is that considered now a penalty? 

Mr. MCENENEY. Well, actually I think what you are referring to 

is risk-based pricing. 

Mr. SANDERS. Yes. 

Mr. MCENENEY. And what can happen in a risk-based pricing 

scenario is a creditor obviously has one view of a particular consumer’s experience with that creditor. What it will do, in some circumstances, is go out to a consumer report to see if there is a more 

56

complete picture that gives a better understanding of that consumer’s risk. 

In some cases they may find that the consumer has defaulted on 

several other loans, therefore presents higher risk. And the creditor 

at that point has a couple of choices. It can either allow the other 

consumers in the portfolio to pay for that consumer’s risk or can 

price that consumer’s product, so that that consumer pays for the 

risk that consumer presents. 

Mr. SANDERS. Bottom line, let me ask you this, and then I will 

give back the mike here. Is that if I signed up with your credit card 

company and I faithfully pay you every month what I owe you, do 

you believe you have the right to double or triple my interest rates 

even though I have never missed a payment with your company? 

Mr. MCENENEY. Well, I can’t get into the doubling or tripling. 

Mr. SANDERS. That is what happens. 

Mr. MCENENEY. But I am aware that what will happen is that 

when that introductory offer is made, what will be disclosed to the 

consumer is the fact that this rate, this introductory rate, may go 

away under certain circumstances. And under the Truth in Lending Act, the creditor has got to describe those circumstances before 

the consumer even applies for the account. 

Mr. SANDERS. But sometimes those—that language is written in 

very, very tiny writing, is it not? 

Mr. MCENENEY. Well, actually, these disclosures, under that recent Federal Reserve Board amendment I mentioned, have to be in 

a certain type size. 

Mr. SANDERS. Thank you, Mr. Chairman. 

Mr. PRATT. Mr. Sanders, if I could just respond to one comment 

that was made about the credit reporting industry as though it was 

somehow responsible for bankruptcies in this country. And I just 

can’t leave the record void on that. 

That literally 2 billion consumer reports are sold every year in 

this country. Sixteen million consumers look at their files every 

year in this country. Less than half those consumers ever even call 

the credit bureau back, although they have toll free numbers and 

access to live personnel. And for us to be left with the impression 

here on this hearing record that somehow whole cloth credit reporting systems are vastly inaccurate and somehow contributing to 

bankruptcy is just a falsehood. 

Mr. SANDERS. Well, I think Mr. Brobeck was attempting to do 

what some in industry have done and suggest that if we give the 

States the right to protect consumers, somehow this will be causing 

devastation. He was being a bit hyperbolic, I guess, is the word, 

right. 

Mr. BROBECK. I was trying to analyze the last 7 or 8 years and 

suggesting that was one plausible explanation for the rise in consumer bankruptcies. One of many. 

Mr. SANDERS. Okay. Thank you very much. 

Mr. GILLMOR. [Presiding.] We will go to Mrs. Kelly. 

Mrs. KELLY. Thank you, Mr. Chairman. 

Gentlemen, I, in my subcommittee, held two hearings on this. 

This is now the sixth hearing that we have held on this topic in 

this subcommittee. The problem—it is obvious that this is a pretty 

57

sticky wicket. And I would like to address something that was just 

said. 

One of the problems is that the public does have access to a lot 

of information right now. The problem we, I believe, have is that 

we have a financially illiterate population in the United States of 

America. I think we need to also ask you all to go back and do everything you can to teach people to protect themselves with regard 

to some of these issues. 

This is a very sticky wicket with people who want to have credit. 

They want to get life insurance. They want to get mortgages. And 

to do that, they are going to have to give up some information. 

But one of the interesting things here that Mr. Sanders was just 

talking about was the fact that we need more transparency. We 

need it in A, B, C. We need it so that people can read it, understand it and grab hold of that information and use it in the way 

it should be used. 

My concern here goes to the other part and that is the blocking 

of a certain amount of information. I believe that when you order 

a credit report, there ought to be a way that we can block certain 

specific things. One of them is the medical information. 

And I would like to ask you, Mr. Pratt, because I am concerned 

about that, if, for example, if an employee okays the information 

being delivered. 

And that employee’s investigation goes on into the credit history 

by the employer. I would like to know what you think about the 

trade lines for the health care providers that were showing up, like 

a cancer center, or a substance abuse clinic, don’t you think that 

could create a possibility of discriminatory treatment here? 

And don’t you think it would be possible for us to encode things 

like that, so that, on the trade line report, so that it gets the information that is necessary with regard to financial information, gets 

there, but we are able to encode on the trade line report the names 

that get provided to the users other than the consumer? 

Mr. PRATT. I think we share your concern about making sure 

that information like that doesn’t end up easily displayed on a 

credit file today. 

Very few health care providers are reporting any kind of regular 

information to credit bureaus. The majority of data that might 

have some medical information on it, I suppose, would be through 

debt collection. 

Even there, we provide advice to all data furnishers in the marketplace about how to make sure that they do not give us information that would otherwise be an indicia of some sort of treatment 

that consumers, you and I both individually, would prefer not to 

have on a credit report. 

We also have tables of key words that are used to scan incoming 

data to strip out data like that, so, for example, psychiatric, cancer, 

and those sorts of tables are used today to strip data out of the 

credit reports, which I think tells you that we, in essence, share 

your concern about trying to make sure that a credit report is for 

the decision at hand, but that the medical aspect of it is not relevant, in our opinion, either. 

58

It would be up to lenders to decide how else they might need to 

use medical information, but that would not be found on a credit 

report, the way our credit reports operate today. 

Mrs. KELLY. Having once in my very far distant past started out 

programming on computers, it seems to me that there are possibilities, we can do things with that type of information as it is transferred around to help get the amount of information to the people 

who need it without indicating certain things about people that 

they would rather not have known. 

And I would like to work with you, if possible, on some wording 

that I think might very well solve this problem. I think that words 

are a nice thing, but I think there may be a way that my concern 

also attends to the liability of who is doing the reporting, and I 

want to make sure that we have very clear indications of that liability, as well. 

So perhaps you would be willing to work with me on some language. We have some, and perhaps you would review it for this. 

Mr. PRATT. We would be happy to work with you to see——

Mrs. KELLY. I thank you very much. I really appreciate this 

panel being here. Your testimony has been very interesting. It is, 

as I said, a sticky wicket. I hope we can get there. I think we have 

a pretty good bill here, it perhaps needs a little more tweaking and 

this is one area where I would like to do that. 

Thank you. I yield back the balance of my time. 

Mr. GILLMOR. The gentlelady yields back. The gentleman from 

New York, Mr. Ackerman. 

Mr. ACKERMAN. Thank you very much, Mr. Chairman. I have a 

quick question, I think, for Mr. Pratt. Under the Fair Credit Reporting Act, the credit bureaus are required to remove inaccurate 

information from a consumer’s credit report, the word is in the law, 

promptly. 

Mr. PRATT. That is right, sir. 

Mr. ACKERMAN. Is there a definition for promptly? 

Mr. PRATT. Not that I am aware of. In other words, case law 

might give you some indication of promptly, if there was case law 

in that area. I just don’t have that information at my fingertips to 

be able to give you a more, a finer point, if you will, on what that 

means. 

But promptly means promptly. You need to get it into the file, 

obviously, in order to ensure that the consumer’s file is brought 

back to a correct standing. 

Mr. ACKERMAN. And you would be amenable to putting some 

kind of reasonable definition in the law on what promptly might 

mean? 

Mr. PRATT. We would be happy to have that discussion with you 

in order to understand how that would work. 

Mr. ACKERMAN. If promptly meant taking it out as promptly as 

the average for putting in negative information, you would be in 

favor of that? 

Mr. PRATT. Promptly for us means taking inaccurate information 

out of the file in a timely manner in order to ensure that the consumer’s file is brought back to accuracy. 

Mr. ACKERMAN. If somebody reports negative information and 

that gets reported to the credit bureau and is made public through 

59

the agency within a matter of two weeks or 60 days or 30 days, 

and that was the average, it is pretty prompt to get it in there, 

would it be fair to say that we should be taking it out if it is inaccurate——

Mr. PRATT. Well, I think the law——

Mr. ACKERMAN.——within that same time frame? 

Mr. PRATT. Well, I think the law sets the outer limit. We have 

got to get this done in 30 days. That was something that was done 

in 1996, because prior to that——

Mr. ACKERMAN. So you would be in favor, if 30 days was not the 

outer limits for promptly, you would be in favor of 30 days, at 

least? 

Mr. PRATT. I think it is the wrong place for me to be negotiating 

the details of an amendment, but if you are saying, are you interested in looking at the issue of promptly, and is there something 

better than the word promptly, we are happy to have that discussion. But I can’t start negotiating an amendment here. 

Mr. ACKERMAN. We will schedule it promptly, then. On the FICO 

and other related scores, this is for the whole panel, I don’t know 

if anybody here can help me, I don’t know if anybody wants to, but 

it is still very perplexing as to what goes into this, and why people 

are interested in it from other agencies, such as the Transportation 

Security Administration. 

I am in the process of refinancing some properties, and was told 

that my FICO score was in the, let me just say, the high-700s, and 

my wife’s was in the mid-700s. 

I don’t know what went into my score that is different than her 

score, because basically everything is, but this has caused a lot of 

family tension, and she thinks I am holding out on her. 

[Laughter.] 

And I don’t know what is in her report that is not in my report, 

but everything is joint, and all that kind of stuff. And if it is the 

same formula by the same company, it gets confusing to a lot of 

people, and to make her a better consumer she would like to know 

what she would have to do to, because she is very competitive, to 

at least have the same score that I have, and nobody can tell me; 

although you can tell me the ingredients, you can’t tell me the 

exact recipe. 

The use of the FICO and other scores like that by the transportation people to make determinations as to who are better risk to 

put on the transportation system is baffling. 

I don’t recall any question of it being asked when I applied for 

a credit card or a mortgage or a car loan or anything like that that 

would give away whether or not I ever hijacked a plane or derailed 

a train or committed an act of piracy on the high seas. I don’t know 

that you put down that I was late in paying for my latest shipment 

of nerve gas or something. I could understand that being a clue to 

those people. 

But what is it in your reports, or the reports? Is it just that people who are not as economically or financially dependable are 

greater risks for terrorists? What is in—to be terrorists? And if my 

score was so high, can I get upgraded to first class? I mean, you 

know, what is their interest in this? 

60

Mr. SPRIGGS. If I can, Congressman, I mean, what people have 

done with the scores is the scores, in many instances, have replaced the credit report. It is viewed as an objective way of summarizing the information and taking away the discretion that some 

people felt, maybe even me, was discriminatory in the way that 

people might have evaluated that information. In that sense, they 

may be putting a lot more into the score than what deserves to be 

in the score. 

The fact that it is proprietary, to me, again, if not excuse enough, 

we need to have transparency. We need to have the FTC scoring 

the scoring cards. Maybe if they understood it over at TSA, they 

would rather have the credit report and not have the credit score, 

because again, the credit score is going to include judgments about 

whether in the future you would default on the loan, which may 

be different than the type of reliability, responsibility that was implicit in——

Mr. ACKERMAN. We are in total agreement. I just don’t know 

what people think is in there, and I don’t know what is in there 

because nobody is really telling me, that would indicate that a person might be a greater risk to be a terrorist if he missed a payment 

on his car loan. 

Mr. SPRIGGS. And the score may not be telling that at all. 

Mr. ACKERMAN. Darn, I missed that—they repossessed my car, 

I think I will go blow up a boat. 

Mr. SPRIGGS. But again, the score may not be even telling you 

that you missed a payment. Your score can be lowered for a number of factors dealing with how that model predicts your total outstanding liabilities to your income whether you access that credit 

line or not. 

Mr. ACKERMAN. You cited before the Equal Credit Opportunity 

Act and that prohibits discrimination. Now, why can—if that is the 

case, why can the federal air transportation security people discriminate against somebody with a low FICO score? 

Mr. SPRIGGS. Well, again——

Mr. ACKERMAN. Is somebody going to, you know, make me take 

my shoes off again because I missed a mortgage payment this week 

or something? 

Mr. SPRIGGS. The problem is I don’t think that—given we don’t 

ask the right information of these credit scorers, I don’t think that 

we know whether they comply with the Equal Credit Opportunity 

Act. Because the issue isn’t just do they on average not discriminate and have an average disparate impact, to measure whether 

they have a real disparate impact, you would have to know the 

mean prediction error by each subgroup that is protected under the 

Equal Credit Opportunity Act. 

And we don’t have that kind of information. We don’t have information on how they use missing data. Many credit cards, many 

mortgages aren’t being reported. 

Mr. ACKERMAN. Well, you and I are on the same wavelength. 

There is a complete lack of transparency. But the people who are 

looking into terrorism and, you know, blowing up planes and things 

like that seem to think that there is a message in that score for 

them. And I don’t know that they just think that poorer people or 

people with less credit or people who can’t meet their financial obliVerDate 0ct 09 2002 12:51 Mar 05, 2004 Jkt 000000 PO 00000 Frm 00064 Fmt 6633 Sfmt 6633 G:\DOCS\92230.TXT FIN1 PsN: MICAH
61

gations as quickly are more predisposed to be terrorists. I have not 

seen that study. 

And you know, maybe those people who know what is in the report here can tell us what the indication is that they are looking 

for. What is it that helps them? 

Anybody? 

Mr. DUNCAN. Congressman, I cannot speak on the use of the 

scores by the TSA. And it is quite possible that they are misusing 

scores. But the broader issue is what is a score? And I think Ms. 

Kelly was on the right track when she said we need broader information and broader education for consumers. 

Now, one way that might be accomplished is similar to methods 

used in California, is to come up with a composite score and explain how that composite score is developed so consumers can get 

a sense of what the factors are they should be looking at in seeing 

those scores develop and how your wife, for example, might drop 

one of the credit lines that is in her name and not in yours, and 

that might change your score. 

But we don’t need to have the specifics of each and every score 

that is developed in order to provide general information any more 

than we need to have each college that admits people go into great 

detail about the factors they use in making a decision as to whether to weight your grade point average versus your SAT versus your 

outside academic activities. 

So a general education is needed, but not this great specificity. 

Mr. ACKERMAN. Without beating this issue to death, it would 

seem to me you are absolutely right. And we are not getting a lot 

of help from the industry as to how one might improve that score, 

as far as educating the public. I would like to know, and I think 

this information that can be provided by some of the people here, 

how many files of scores have been actually requested and turned 

over to the Transportation Security Administration? 

You probably don’t know that, anybody, off the top of your head. 

But could I ask those of you who have access to that information 

to provide it to the Committee? Not just FICO, but any of the like 

kinds of scores. 

Mr. MCENENEY. I can say that we would absolutely be willing to 

follow up. I am not aware that TSA has access to any of these 

scores, but be happy to follow up and see what we can learn on 

that and get back to you. 

They have interpreted the PATRIOT Act as allowing them not 

just to access banking financial information, which was the intent, 

but to go to any agency that does any kind of record-keeping. And 

the Transportation Committee staff has been briefed. And unless 

their member was on both that Committee and this, they are much 

more in the dark about FICO scores. They didn’t even know what 

it meant. 

But the answer to your presumed question is yes, they say they 

have the authority under the law. They have found that loophole. 

And being that the briefing took place, it is presumed by us that 

they have made the request. 

And my request to each and every one of the panelists is to go 

back, find out what has been requested. We don’t need the names 

62

or any of the specific details, but how many files actually were 

turned over. 

I know that we can buy that list. If I wanted to get everybody 

that was 65 or over, you probably will sell it to me, with the names 

and addresses. 

Mr. GILLMOR. The gentleman’s time has expired. 

The Chair will recognize himself for some questions. 

I want to deal with one area. And that is something which surprised me and, I think, a lot of other people when I learned it. That 

your score is lowered if somebody makes an inquiry about your 

credit. 

I guess to me, I see no relationship between somebody making 

an inquiry about credit and the likelihood of repaying. Could somebody explain to me or justify or condemn, as appropriate in their 

view, why that happens and what is the justification? 

Mr. MCENENEY. I would be happy to respond. 

There are, I think, questions about the circumstances under 

which an inquiry will result in an impact on a credit score. And 

there are variations in terms of how scoring models look at those 

developments. But let me give you one example of how this can be 

relevant to someone’s credit history. 

If a creditor has a relationship with a consumer, obtains a consumer report on that consumer, and learns that the consumer is 

applying for a variety of different credit accounts in fairly rapid 

fashion in a short period of time, that may indicate that the consumer is overextending himself or herself and thereby presenting 

a risk to the creditors. 

That is one situation where that can occur. Now in the past, 

there have been concerns about issues that might occur with somebody shopping for a home mortgage, for example. In a home mortgage context, I may go to three or four or five different lenders in 

a short period of time. And those lenders may make inquiries to 

the bureau, separate inquiries to the bureau. 

What is happening today, as I understand it, is that creditors are 

identifying those multiple inquiries of the type I just described, 

that happened quickly, and treating them as one, recognizing them 

for what they are, somebody shopping around for the best deal, 

treating them as one and not creating that adverse, potential impact on somebody’s credit score that might happen in other situations where the multiple high velocity of inquiries suggests a risk. 

Mr. SPRIGGS. Again, Congressman, because the models are not 

transparent, neither you nor I can say with certainty what they are 

really doing. And that is the problem. 

If we saw their model and saw the explanation, then we might 

agree with the explanation we just heard, that this is a risk factor 

because this is someone who is trying to extend their credit. 

We might look at their model and go, You are kidding me? 

But without the data to analyze the model and see whether the 

introduction to that variable adds anything measurable or not and 

what is the bias of that? Does it affect all subgroups in the same 

way? Does it affect first-time home buyers as folks who already 

have mortgages who are out refinancing? 

We need that transparency. We need the FTC to have the specific scores. It is not enough for consumers to get a general process. 

63

I think most consumers can get the general process quickly. But 

because of the type of question you just asked, a lot of consumers 

will do some things like that because they don’t know specifically 

what is in the model. And you may look at your credit score and 

go, I pay my bills on time. How did this happen? 

Because maybe it took you five months to look for a house, and 

so it didn’t clump. Maybe you had three inquiries here and three 

there and three there, and suddenly you found your score lowered. 

Without the transparency, we can’t have that kind of debate. It 

would be the same as if the credit bureaus were being asked, just 

to say, we got a report on you, and it was blank. That would be 

the equivalent. 

Well, the answer to the question was that it would only apply if 

those inquiries were bringing out evidence of other things, which 

is multiple application for credit. But we don’t have any assurance 

that that is true. It may be just somebody inquired, or that different people inquired. 

Do you want to respond to that? 

Mr. MCENENEY. There are different types of inquiries. One inquiry, for example, occurs when a consumer’s file is accessed for 

pre-screening. Another inquiry is an inquiry is registered when an 

existing creditor, for example, obtains a consumer report on the individual, not at the consumer’s initiation, but because the creditor 

wants to assess risk with respect to the consumer. 

Those two types of inquiries are set aside. The consumer has access to those. But other creditors or other users of the consumer 

report don’t. So they do not impact in any way the consumer’s credit score or credit history. But obviously, the consumer is entitled 

to see who is looking at the account. 

So that leaves, in large part, the types of inquiries that I talked 

about where the consumer initiates some contact with someone is 

seeking to obtain some financial product or service. And that organization, after being contacted by the consumer makes an inquiry 

on the consumer. 

Mr. GILLMOR. But you cannot ensure me that in arriving at these 

scores that nobody is just taking an innocent inquiry and lowering 

the score, can you? 

Mr. MCENENEY. If I understand the question correctly, is it possible that there are some out there who have scoring models that 

when I go and visit one consumer, one creditor, rather, and that 

creditor pulls a single report? If what you are asking me is might 

it be the case that another creditor looking at that single inquiry 

might have a scoring model that treats that single inquiry as risky, 

I can’t assure you that that doesn’t happen. I am not aware of it 

happening. I would be happy to look into it and see if we can’t find 

whether that is the case. 

Mr. GILLMOR. Well, suppose somebody wanted to—didn’t like you 

or somebody else and the orchestrated multiple inquiries just to 

drive your credit down? You can’t assure me that wouldn’t be successful, can you? 

Mr. MCENENEY. Well, actually, I think the existing law provides 

strong assurances that that doesn’t happen. Under the FCRA, a 

person is entitled to obtain a consumer report only for limited permissible purposes. And the example you described clearly would 

64

not be a permissible purpose. That would be someone obtaining access to a consumer report without permission and there are significant penalties under the FCRA for doing so. 

Mr. SPRIGGS. But again, Congressman, your question is no point. 

If I am searching for a job and my employer, as we heard about 

TSA, requires a credit report on me and it is not clear whether the 

modeler is being fine tuned enough to say, you know, here is a 

company making a credit request on this person. They got five out 

there because I am looking at five different potential employers. 

We don’t know whether the modeler is discerning those credit inquiries differently than they would any other credit check on me. 

So again, we have to have the transparency. We don’t let the 

credit bureaus give us blank reports, and we can’t really let the 

scoring companies give us the blank reports that they give us. We 

have to have an understanding of is that what you did? Is that in 

your model? 

And then we could get into an agreement or a disagreement with 

as to whether enough added reduction in error from adding that 

variable was present so we could feel comfortable that maybe we 

could live with the one or two times that might happen. Maybe we 

might look at their model and say for the increased accuracy of 

adding that, we think there are so many more costs that we don’t 

agree with why that is in your model. That is why we have to have 

the transparency. 

Mr. GILLMOR. My time—over my time. I will just follow up with 

one thing. Just very briefly, how would you assure that transparency which you describe? 

Mr. SPRIGGS. I think to give some respect to the proprietary nature of the data, that the FTC was required to run their model, 

was required to give us a report card and let us know which variables were in, how those variables were treated, what they do with 

missing values, what do they do with discrepancies, if they get a 

report that says that the delinquency was being disputed. 

If we could get a report card so that we would have enough information on the various models that are out there, how they were 

making their decision, then we could be able to have a better discussion about what would need to be regulated about that industry. 

Mr. GILLMOR. Yes, I think nobody has any problem with really 

relevant information. But when you have a bad score partly dependent on irrelevant information, it is a real injustice. 

The gentlelady from Texas. 

Ms. LEE. Thank you, Mr. Chairman. 

And I would like to follow up with that line of questioning. I 

don’t want to be redundant, but I want to continue to pursue this 

whole issue with regard to credit scoring, and I guess it also could 

speak to financial literacy in terms of the public, one, knowing up 

front that credit scoring is proprietary information and that in fact 

this is a product for sale. 

Now, those who are financially literate may know that. But I 

think that it is very important that somehow as we move forward 

that those disclosures are somewhere on credit applications so that 

a consumer who may or may not know this may or may not want 

to apply for credit. 

65

I mean, I would like to get, I guess from Mr. Pratt, your feedback 

on that because certainly this is a business. Some of us know this, 

many don’t. And when you have such personal, private information 

that is packaged for sale, certainly minimally the consumer, I 

think, should know that it will be sold. 

Mr. PRATT. Well, I think we are going to probably revisit some 

of the ground we have covered previously, but only because I want 

to make sure I am answering the question properly along the way. 

The credit file that you and I have in the credit reporting systems has all the information about how I pay my bills and I suppose, how I don’t pay my bills if I happen to be somebody who 

chose to do that. And the scoring model is this mathematical algorithm over here. And Dr. Spriggs has talked quite a bit about how 

he would like to see or understand more about that model. 

And so when a lender orders a credit report and a score, or orders a score, the score—the credit file data—is run through the 

scoring model and a score then pops out on the other side, if you 

will. That is sort of the layman’s version of it, which is good enough 

for me. 

So the score itself doesn’t contain personal information about 

you. It just looks at your credit report and looks at risk factors, statistically validated risk factors, and says this is the level of risk we 

think you have with this consumer based on the credit report. 

Ms. LEE. But it is a formula that provides that information. 

Mr. PRATT. Well, the formula doesn’t—the information that is in 

your credit file, so in that sense, you have transparency. You can 

look at your file, you have the right to. We know that, we have it 

under law today. You can access your file and you can see it and 

you can look at it and dispute it and correct it and so on. 

If you wanted to look at them, the mathematical model is just 

that, it is just a formula on a page, or on pages and pages, depending on how complicated it is. 

It wouldn’t tell you, you may be a mathematician, it wouldn’t tell 

me a lot, because it is just a mathematical formula which is used 

to then analyze the data. 

Ms. LEE. Yes, I understand that. All I am saying is that we need 

to go one step farther, and at least provide information to consumers that, in fact, this score is being sold. It is a product. 

Mr. PRATT. Or being used. Is your interest in the use of it, meaning a lender using a score, or——

Ms. LEE. Well, how does the lender get the score? It gets the 

score, it pays for it, right? 

Mr. PRATT. Well, lenders may have scores on their own technology platforms that they built themselves, lenders may buy what 

might be called a credit bureau score, a credit score from a bureau. 

The bureau actually doesn’t own that score in all cases, sometimes that is a score developed by Fair Isaac. 

Ms. LEE. Who owns the score? 

Mr. PRATT. Fair Isaac, for example, would build a score, and the 

credit bureau would, it would be built based on credit history data, 

but FICO, the common term for the company, owns the intellectual 

property, which is this mathematical formula. 

66

And so, every time the bureau a file is ordered, the credit bureau, in order to use that score, actually pays a royalty to Fair 

Isaac. 

Ms. LEE. All I am saying is don’t we have a right to know that? 

Don’t consumers have the right to know that? Or shouldn’t they 

know that? 

Mr. PRATT. I think the idea of making sure consumers understand scores are used in the marketplace seems like a good——

Ms. LEE. Yes, that is all I am saying. 

Mr. PRATT. I don’t, you know, we are working hard at this to get 

there, but——

Ms. LEE. Yes, that is all I am asking. I would think that people——

Mr. PRATT. Using scores are very common, and having consumers understand that scores are used is very common. In fact, 

there is a whole marketplace of Web-based, you know, scoring systems where I can go and I can learn about a score and I can——

Ms. LEE. So a notation saying that your credit score will be, 

could possibly be, sold is very sensible. 

Mr. PRATT. I don’t——

Ms. LEE. Okay. What prevents the sale of credit reports that are 

really faulty? I mean, how——

Mr. PRATT. Well, the Fair Credit Reporting Act does two things. 

I mean, the FCRA has always said that a consumer reporting agency must employ reasonable procedures to assure the maximum possible accuracy of the report. 

And that would be the liability, if you will. That is the duty, and 

hence the liability for the credit bureau. In 1996, the Congress enacted a new section of law which said that the data furnisher, the 

company that provides data to the credit bureau, and this would 

be the basis for your credit report, those companies, too, have a liability for the accuracy of the information. 

Ms. LEE. So can a consumer seek injunctive relief now? Can they 

go to court? 

Mr. PRATT. Well, they do have private rights of action under the 

FCRA for willful and negligent standards, and states attorneys 

generals all have enforcement rights under the federal FCRA, as 

well. And the FTC has enforcement. 

Ms. LEE. Mr. Brobeck, let me ask you, what is your response to 

that in terms of consumers seeking injunctive relief through the 

court system for the——

Mr. BROBECK. My understanding is that they have to prove damages, and that is very difficult to do in many cases. And so it 

doesn’t happen. And as a result, there are massive amounts of inaccurate information that is distributed, despite the best efforts of 

the repositories. 

Ms. LEE. Okay, and finally, Mr. Chairman, let me just close with 

regard to going back to the multiple applications, or multiple inquiries. I know there is a difference between multiple applications 

and multiple inquiries. 

But in terms of adverse actions, again, Mr. Spriggs, I understand 

what you are saying in terms of transparency, and I certainly think 

we need to get there, but I also think we need to know sooner or 

later, I mean, before, because this is going to take a while, but I 

67

think very soon, and maybe with this bill we should at least provide the consumer the ability to understand the fact that if they 

do apply three or four times within two weeks they are going to 

get an adverse action on their credit report. Or how do we make 

sure that people know that they will get dinged if, in fact, they are 

trying to find the best interest rate, the best terms, if, in fact, they 

do apply to Visa, Discovery, MasterCard, to see which credit card 

company has the best terms? 

I mean, that is a reasonable way to live. You are, I mean, right 

now, it is assumed that the consumer, it is on the negative, they 

are overextending themselves, they may be a risk, without giving 

them the benefit of the doubt. 

I mean, this gives the credit card company, or the financial institution, the benefit of the doubt. And so I am trying to figure out 

how we can make sure that in this bill we change that. 

Mr. SPRIGGS. The language currently asks for a credit score with 

the waits and the explanation of how you might improve the score. 

And if the language gets, I don’t think you want the language to 

get too specific, because these models do change. 

The Fair Isaac model today isn’t the Fair Isaac model 5 years 

ago, so I don’t know that I want to have you get too specific. But 

you may want to get a little more specific as to what you mean by 

waits and what the consumer could do to improve their credit 

score. 

Now, the other problem you have, though, is that, as Mr. Pratt 

pointed out, they don’t, the credit bureaus, don’t always own the 

score. They don’t own the FICO score. 

And so I think you may want to look for a provision that said, 

if a negative action was taken because of the score, and you have 

to get creditors to, try to get lenders, to be more honest about 

whether they were looking at the credit bureau report or whether, 

as many of them are doing now, getting much more mechanistic 

and looking at the score, if a negative effect was taken on the score 

then you got to give me the score——

Ms. LEE. But I am not talking about——

Mr. SPRIGGS.——and tell me what were the waits and what do 

I need to do. Because if they did that, then when I get my report 

I would see these are negative factors, applying too many times for 

credit, having too many balances, even if they are zero balances, 

even if you pay them all on time you have too many balances out 

there. 

I mean, those types of things should be with that score to the 

consumer, so I just don’t know how specific I would want you to 

get in that language. 

Ms. LEE. But that is after the fact, after a consumer has been 

denied. What I am saying is, on the front end, Madam X wants to 

apply for a mortgage from financial institution A, B, C and D, to 

see which financial institution provides the best rate and terms. 

By the time Madam X gets the to financial institution four, financial institution five that she is getting ready to apply to says, 

Oh, you have already, you know, put in four applications, and so 

you are a credit risk. 

And at that point I would have to——

68

Mr. SPRIGGS. If the FTC gives us that report card sooner rather 

than later, we can have that information out there. 

Mr. MCENENEY. Congresswoman, I actually think the level of detail that Dr. Spriggs is talking about could, if you give it to the consumer, be counterproductive, but I hear exactly what you are saying, and I think the key is educating consumers. 

Now, there are a variety of ways to do that, but if you look at 

the protections that exist under the FCRA, the consumers actually 

are empowered today to do almost everything you are talking 

about. 

They can go and whenever they want gain access to the information the credit bureaus have on them, and it is that information 

that forms the basis for the credit scores. 

So they can look at that. There are products out there that help 

educate consumers on what a score means. Today, and I know this 

is after the fact, but today if a consumer gets denied credit, and 

it is based on a score, the creditor has to make available to that 

consumer the principal reasons that went into the score, so that 

the consumer can do two things, one, figure out whether there is 

any discriminatory issue that resulted in the decline, but two, in 

this context focus on those aspects of their credit history that are 

causing the score to decline. 

And just to use your example, if one of the reasons that the score 

failed to enable the consumer to get credit was too many inquiries, 

the consumer would have to be told that. 

Ms. LEE. That is after the fact. They have been denied. 

Mr. MCENENEY. Absolutely, so then I think the key is——

Ms. LEE. The purchase of a home would be put on hold. 

Mr. MCENENEY. I agree with you, Congresswoman. The key is 

educating consumers on what tools they have under the FCRA 

today, because I think it gets them pretty much where you want 

them to go on this under existing law. 

Mr. GILLMOR. The gentlelady’s time has expired. 

Mr. BROBECK. Could I——

Mr. GILLMOR. Very briefly. 

Mr. BROBECK. I am going to address your question, as well, Congressman. 

There is a fundamental issue here, and that is the actuaries are 

really interested in establishing strong correlations, not causal relationships. And though it may be beyond the scope of the legislation, and we have had this debate in the insurance area for decades—we need to establish the principle. That there needs to be 

causation before a factor is considered to be a risk factor that affects pricing. 

Ms. LEE. Thank you. 

Mr. GILLMOR. Thank you. 

The gentleman from Texas? 

Mr. HENSARLING. Thank you, Mr. Chairman. 

As a veteran of the subcommittee, I have sat through six different hearings and this full committee hearing will be my seventh. 

I have heard a wide range of testimony as we consider the reauthorization of FCRA. Obviously the Committee is focused on a 

number of consumer protections. 

69

Paramount to me is the consumer protection of having a competitive market place for the extension of credit. I think the testimony 

has been overwhelming that we do enjoy the greatest access to 

credit at the least cost of any nation in the world. 

That one principally seems to be off the table. 

Another concern we have obviously is identification theft. I have 

said before that I am a member of this Committee who has actually 

been victimized by this. It is something I take very seriously. 

But at least at the subcommittee level we have heard testimony 

from a number of different law enforcement officials, as well as the 

Federal Trade Commission, all who seem to be of the unanimous 

opinion that we are better off with the reauthorization of FCRA as 

a tool to combat identity theft. Perhaps there is still some debate 

on that. 

That really leaves us to the questions of accuracy and privacy. 

I would like to focus, Mr. Pratt, as representing the credit reporting industry, on one of the questions I asked at the subcommittee 

level. I am still grappling with this somewhat, but you hear a variety of opinions on the extent of inaccurate information contained in 

these credit reports. 

And so from the credit reporting industry standpoint, what measurement do you have? 

Mr. PRATT. We actually recently have looked at a couple of different measurements. Let me share those with you. And if you 

would like me to provide more information in writing, we can do 

that for the record or in some way that you might like. 

We recently asked one of our resellers or several of our resellers 

who are in the mortgage reporting area to look at credit reports as 

they went through their systems, because they are in fact in this 

situation where there is greater involvement with the mortgage 

broker, the realtor, the loan officer. It is more labor intensive. It 

is a different system, although maybe more mechanistic than it has 

been historically. 

And we had—we asked the reseller to do two things. One was 

to say, How often are you dealing with the file because something 

is accurate that needs to be updated, versus, how often is it really 

wrong because it was just reported wrong in the first place? The 

account never should have been on the file or the balance was 

never right, or I never missed a payment, according to the consumer? 

Out of the 500 and some odd files that were reviewed, about 32 

percent of the time there was an update of information that the reseller was engaged. And I think that speaks well for our reseller 

members in our association, who provide a valuable service of making sure in the mortgage lending process data is as updated as possible. 

But it also—in only 1 percent of the cases was there an actual 

identified inaccuracy. 

We then went back and looked at several populations of consumers, because similarly the consumer groups have often said, 

Well, let us sit down with consumers and have consumers look at 

reports and see how those reports look. And let us try to identify 

what is right or wrong with those. And in this case, we picked out 

several sets of data, gathered one over a 24-month period of time. 

70

And these were consumers who, at the rate of 100,000 a month 

were in fact ordering credit files, their file disclosures, because they 

were concerned about fraud. And we asked the question, How 

many ever contacted us afterwards? 

In other words, these are consumers who really looked at their 

files. That is a good measure. And only 10 percent of the consumers 

ever called us back, even called us back, not necessarily disputed 

something, but called us back to ask a question. 

We looked at another population of consumers, 180,000 consumers. And we asked the same questions and we said how—they 

got their files. They literally ordered them. They were not adverse 

action oriented. In other words, these aren’t consumers who got a 

negative notice saying that, You are getting this file because of adverse action. 

And again, we asked the question, How many of you called us 

back? The rate was 5 percent. 

Now we drill down and look at the rate of disputes and then you 

can—there is a lot of other data. And I don’t now how far you want 

me to go into this. We aggregated those several sets of data to 

begin to get a better sense of what accuracy really means. And we 

did it from a market perspective with mortgage reporting. We did 

it from a consumer’s perspective, using populations of consumers 

who literally order their files, exercise their rights under FCRA 

and looked at their file. 

They had access to toll-free numbers. They had access to live personnel. It was not a complicated process for them to have disputed 

information. And again, the percentage response rates were quite 

small in these two populations. 

Mr. HENSARLING. Mr. Duncan, you represent the National Retail 

Federation, which I assume has countless, countless members 

across the nation. My assumption would be that those who use 

credit reporting services, have an interest in those reports being accurate. Do you perceive that there is has been competition among 

the players in the marketplace, in the credit reporting services? 

In other words, would a company that consistently produced inaccurate information to your membership, would they be punished 

by the marketplace? 

Mr. DUNCAN. There is actually quite a bit of competition in the 

marketplace for accuracy of scores. And you are absolutely correct, 

the major bureaus come to our members all of the time arguing 

that their reports are slightly more accurate than the next guys report, or much more accurate than the next guys report. 

And there is quite a bit of competition. And our members in fact 

will sometimes pull two or three and compare them and run models themselves to determine which might be more accurate. And 

they may find that that varies slightly from area to area within the 

country. 

Mr. HENSARLING. So the people who are using these reports, like 

your membership, have an interest in accurate information as well 

as the people who produce the report, assuming they are logical 

profit-making ventures. 

And assuming the consumer wants to receive the credit that he 

feels he is due, he has an interest in seeing that there is accurate 

information in the system. I guess I am trying to figure out who 

71

has the incentive to put a lot of inaccurate information in the system? 

I see that my time is just about to run out. Let me ask one more 

question. 

And that is to you, Mr. Pratt. The issue of offering free credit reports has arisen. And I believe you gave testimony that, if I heard 

you correctly, the vast majority of credit reports that are issued 

today already are free. Did I hear you correctly? 

Mr. PRATT. Yes, sir. About 95 percent of the 16 million files that 

are given to consumers each year are given free of charge. 

Mr. HENSARLING. Well, I certainly have an open mind on the 

issue, but I am just curious, if that is indeed accurate data, if this 

is maybe a remedy in search of a problem, considering we already 

have 95 percent of the credit reports being issued for free, in the 

first place. Obviously, identity theft is a very serious matter, but 

increasing the cost in the system that would raise the cost of our 

credit or make it less accessible is still an open question in my 

mind whether this is a good method by which to attack that problem. 

And with that, I will yield back the balance of my time, Mr. 

Chairman. 

Mr. GILLMOR. The gentleman yields back. 

The gentleman from Washington. 

Mr. INSLEE. Thank you. 

Just following up on what Mr. Ackerman brought up a while 

back about access to credit reports for use by the Transportation 

Safety Administration for deciding who gets on airplanes, I just 

want to tell you at least one member has a real concern about that 

because the whole TSA system is broken. And we are keeping people off airplanes right now because of the failures in our system? 

We had a city administrator and a police chief from a little town, 

Bothell, Washington, where I am from, couldn’t get on a airplane 

because the computer system is so fouled up with the TSA and the 

airlines cannot guarantee the correct identity of the decision 

whether to let you on an airplane or not. And if you happen to have 

the name of somebody who is under suspicion, you have had an 

identity theft and a sort of travel theft by the U.S. government. 

So I want to tell you there is real sensitivity about this. And we 

are—at least I am going to try to work to make sure that we don’t 

allow this system to get out of hand as it is right now preventing 

people from getting on airplanes. 

But I want to ask you a deeper question and that is whether the 

fair credit reporting system is really just going to become a nullity, 

give the consolidation in the industry? And the reason I ask you 

that question is that we have substantial rights for consumers that 

are guaranteed by this act as long as there are not affiliates involved in interpreting or scoring their credit or providing their 

services. 

But where we have—and which I believe we will now have very 

significant consolidation in the industry where we have affiliates 

both involved in lending and selling insurance and providing securities and a whole host of other services, we don’t have that same 

level of protection, or any of those protections for consumers, either 

from the sharing of transactional experience amongst affiliates, 

72

which consumers can’t stop even if they wanted to, under federal 

law. And the situation where they are going to get opt out notices 

that nobody can read or understand. 

And basically, all of the protections that all of the 60 members 

of this Committee that are assiduously trying to protect aren’t 

going to exist for a significant number of our consumers once they 

become customers of a consolidated industry. 

Essentially, basically, what we have told consumers is you don’t 

have these rights vis-a-vis any credit authorizing or granting organization that has affiliates as to transactional experience. And as 

to all of your other experience, unless you are smart enough to read 

a five page disclosure opt-out statement to opt out of that, you 

won’t have any rights in that regard. 

So we are really going to a two-tier system of consumers in this 

country. Those who deal with non-affiliated credit authorizing and 

issuing organizations, they have certain rights under the statute. 

But those who deal with other consolidated parts of the industry 

do not in real life. 

Now, is that a valid concern? And if it is not, why not? And if 

it is a concern, how do we move to a situation where the general 

thrust of the whole credit reporting protecting system will include 

those consumers who deal with what I believe are efficient systems 

of consolidating these multiple organizations? 

It is a big question. I will just throw it open to the panel. 

Mr. MCENENEY. Congressman, if I may provide some feedback on 

that. 

First of all, I don’t see a situation where affiliated entities would 

ever be in a position to forego the information that is provided by 

credit bureaus. And the reason I say that is even the largest affiliated entities only have limited contact with their customers. They 

need, for risk assessment purposes, including identity theft and 

credit control purposes, to access the other portions of a consumer’s 

record which they don’t have. And the source of that information 

is the credit bureaus. 

So I don’t see it being at risk for consolidation where those with 

affiliated entities can forego the products that are subject to the 

protections of the FCRA. 

In the context of affiliate sharing, though, it is clear that in 1996 

Congress set up a mechanism where affiliates could share information amongst themselves about individuals so long as they gave 

those individuals certain rights, namely the notice and opt out 

right that you mentioned. 

Now, the FCRA notice and opt out right is a simple one. I understand that there have been some complications as a result of other 

disclosure requirements that perhaps have reduced that simplicity. 

But in at least one respect, consumers in an affiliate sharing context have a more powerful tool than exists for them with respect 

to more traditional FCRA situations. And that is the tool to opt 

out, to say, affiliated entities, you may not share these types of information at all with your affiliated entities. It is a very powerful 

consumer protection tool. 

The other thing I would point out is that the whole reason for 

affiliate sharing is to try and enhance and expand customer relationships. And so these affiliated entities have very powerful incenVerDate 0ct 09 2002 12:51 Mar 05, 2004 Jkt 000000 PO 00000 Frm 00076 Fmt 6633 Sfmt 6633 G:\DOCS\92230.TXT FIN1 PsN: MICAH
73

tives to make sure that the way they use this information meets 

those goals. And I think that is a significant impediment to the 

sorts of problems arising that might arise in other contexts like 

where you have a credit bureau that doesn’t have customer relationship with the individual. 

Mr. INSLEE. Let me—since you volunteered for this duty, let me 

just ask you a follow-up question. What do we tell consumers—I 

have just read some testimony in the Senate Banking Committee 

by a particular financial group, I won’t name them here. And it 

says that ‘‘It is able to use the credit information and transaction 

history that we collect from affiliates to create internal credit 

scores and models that help determine a customer’s eligibility for 

credit.’’

Now, I understand what they are saying is that they are able, 

if I understand the testimony, they are able to create internal credit scores and models that determine credit worthiness and whether 

or not to issue certain products, whether to actually make a solicitation for a product, without being subject to the protections to consumers that are outlined in this act. 

And I suspect that that will increase over time with the further 

consolidation in the industry. If that is true, shouldn’t we be concerned to somehow expand these protections to this increasing, 

what I understand to be, internalization of this credit worthiness 

in the recording system? 

Mr. MCENENEY. Well, I am familiar with the testimony of which 

you speak. And my understanding of how that works is as follows. 

Yes, it is possible to use this information, shared among affiliates, to develop models, for example, to decide who you may want 

to market to. Now, the decision of whether or not to solicit somebody for a product typically is not viewed as adverse action. In fact, 

there are some consumers out there who may view not being solicited as a positive thing. 

I am also aware that what typically happens in the affiliate sharing context is once the solicitation goes out, there has been information that may be shared amongst affiliates. And a consumer responds. Typically, what happens is a credit report will be pulled 

from the credit bureau to make a fresh assessment as to whether 

or not the consumer meets the risk profile based on the consumer’s 

entire credit history, not just what was had by the affiliates up 

front. 

And of course, under those circumstances, all of that information 

in the credit report is subject to full protections under the FCRA. 

And if that credit report results in adverse action, the consumer receives an adverse action notice indicating that the report was used 

for the adverse action and tells the consumer the consumer’s got 

the right to a free report by going to the credit bureau that furnished the report. 

Mr. GILLMOR. The gentleman’s time has expired. 

Mr. BROBECK. There is a risk that among these large financial 

institutions that they will try to identify sub-prime borrowers, and 

they will use their own credit scores that may not be accurate as 

a basis for targeting customers to try to sell them high-priced 

loans. And then, if they do not utilize the credit scores and the information in the repositories, the consumers will not have the right 

74

to that information that is in the repositories and they will not 

know that, perhaps, the reason that they were only offered a subprime loan, is because of inaccurate information within that large 

financial institution. 

Mr. GILLMOR. Mr. Dugan. 

Mr. DUGAN. The premise of the question is that it is somehow 

a bad thing to share information from one affiliate to another to 

offer another product to the consumer. And I think that is the 

thing that our industry would take issue with. 

Mr. INSLEE. I am not saying that. 

Mr. DUGAN. Well, I guess the kind of thing that we see is someone has a loan with a bank, for example, and realizes that if they 

share that information with their mortgage lending affiliate, based 

on the information that they know about their consumer, they 

could put them into a loan, a home equity loan, say, at a lower interest rate that is tax-deductible, that is in the consumer’s interest. 

And that is exactly the kind of thing that affiliate sharing allows. 

It is a good thing. 

And the distinction between the bank and its affiliated mortgage 

bank is not one that we think the consumer is aware of, thinks is 

a meaningful distinction, treats it all as one entity, and is appropriate. That is the reason why diversified companies are able to 

offer those sorts of products. And we think it is a good thing, not 

a bad thing. 

Mr. DUNCAN. If I may amplify on just one point that Mr. 

McEneney made. And that is typically retailers use affiliate sharing to extend their reach to the customer, to expand on the services 

offered. 

I am aware of one retail creditor, a traditional retailer who has 

credit in the back operation. They have an affiliated catalogue operation. What they will do is that if a consumer who doesn’t quite 

have a high enough score to qualify for a credit card with them, 

they will look at their affiliated entity, in this case the catalogue 

operation, and say, This is someone who has been shopping with 

us regularly through the catalogue. This is someone we would like 

to have a long-term relationship. 

And they will give them a few extra points so that they will qualify, thus bringing more people into the credit market and more people into the system. 

The goal in affiliate sharing is to become closer to your customer, 

certainly for retailers and I know it is true for others in the business as well. 

Mr. INSLEE. Sir, can I make one brief comment. 

I respect all you said about the benefits of affiliate sharing and 

the marketing incentive that folks have. I just think there is a 

valid concern here while the combination of greater use of transactional information together with what I consider sort of a defective process of opting out will not assure the consumer that the correct information is used in credit, life insurance and other decisions. And I just think there is some fat process we need to go into 

to assure that. 

Thank you. 

Mr. GILLMOR. I thank the gentleman. The gentleman’s time has 

expired. All time for this panel has expired. 

75

And I want to thank all of our panelists for your very helpful testimony. And we will proceed to the third panel. 

I would like to welcome panel three. And without objection, all 

of your written statements will be a part of the record. And you 

will be recognized for five minutes to summarize your testimony. 

Mr. Joe Belew? 

STATEMENT OF JOE BELEW, PRESIDENT, CONSUMERS 

BANKERS ASSOCIATION 

Mr. BELEW. Thank you, Mr. Chairman. 

In the interest of time, I am going to drastically shorten my testimony. 

Mr. GILLMOR. All will be very grateful and appreciative. 

Mr. BELEW. My name is Joe Belew. 

Mr. GILLMOR. And give your testimony much more weight because——

[Laughter.] 

Mr. BELEW. I thought it might be taken more seriously. 

My name is Joe Belew. I am President of the Consumer Bankers 

Association here in Washington. Our members include most of the 

nation’s largest bank holding companies, as well as regional and 

super-community banks. Those members collectively deliver about 

two-thirds of all bank-issued consumer credit in the United States. 

Thank you very much for the opportunity to testify on the importance of extending and improving the Fair Credit Reporting Act. 

This is one of CBA’s top priorities, if not the top priority this year. 

We do have numerous suggestions for improvements in the bill 

to refine it. But the authors and co-sponsors really are to be congratulated for the incredible amount of time and effort that has 

gone into this so far. They are also to be congratulated for trying 

to move this piece of legislation which is so critical because of the 

sunset provisions. 

The two most important items for us are that the bill recognizes 

the need for an efficient, nationally uniform credit reporting system, and it also provides new tools to fight identity theft. We also 

are pleased that the bill addresses the ways that disputed credit 

information is handled, the accuracy of credit files and the issue of 

credit scores. We should note that we have also written a letter to 

Speaker Hastert asking that he be on the ready to provide floor 

time in a speedy fashion when the Committee has, with all due 

process, considered the legislation and hopefully passed it out. 

Let me talk for a moment just about national uniformity and 

rules governing credit information and procedures, because they 

truly are essential. They ensure that lenders have consistent information about consumers throughout the country that can be used 

to make fair and equitable credit decisions on highly competitive 

prices and terms. Without preemption, the States could establish 

different rules for the reporting of late payments, defaults or other 

information in a well-intentioned, but mis-directed, effort to protect 

their consumers. 

Lenders today can rely on the accuracy of reports, and that is 

why we have record rates of home ownership and greater access to 

credit by all sectors of society. This is especially true for low and 

moderate income borrowers. 

76

I do want to go on the record as pointing out that far from being 

a ‘‘grab of power’’ by the federal government, there is no new preemption. We are simply extending the status quo. There are no 

new restrictions on the States. 

Secondly, thank you very much for addressing the issue of identity theft. CBA and its members have been actively working with 

the Treasury Department, the banking agencies and other industry 

groups on this critical subject. We would remind the members that 

we have financial concerns, as well as altruistic ones, since our 

members must absorb the losses from these frauds. We also want 

to spare our customers the serious problems that follow ID theft. 

And regrettably, we also must make sure that the solutions we end 

up with don’t actually aid the fraud artists. 

The bill’s formalized system for fraud alerts on credit reports is 

an important part of any solution. They will warn financial institutions and other lenders of past identity theft and we endorse this 

concept. 

Again, however, there is a cautionary note. Consumers must be 

forewarned that fraud alerts are serious and they should only be 

used where it appears that ID theft has actually occurred. These 

alerts will likely impede the consumer’s ability to get the fast credit 

that they have become accustomed to. Still, we support the concept. 

The bill helps consumers keep fraudulent information from being 

placed in their file, which is good, through Section 205. Again here, 

CBA members have one caution. We also must acknowledge the existence of unscrupulous so-called credit repair clinics that try to delete accurate but unfavorable information in credit files. This area 

may need still more scrutiny. 

We support and encourage the development of best practices and 

especially enhanced efforts for consumer education. CBA in particular has been in the forefront of tracking and encouraging financial literacy efforts by financial institutions. And in this regard, the 

Federal Reserve Board should also be recognized, along with the 

FTC, for their good work to date. 

Third and last, we would ask that particular attention be given 

to coordinating this bill with existing law and with the banking 

regulators’ roles. For example, one section directs the federal banking agencies to establish procedures for banks to spot possible identity theft. We really need, as has been mentioned earlier today, to 

coordinate that with Section 326 of the PATRIOT Act. 

And I will offer one other example: in Title 3, banking regulators, 

and not just the FTC, should be charged with developing model 

procedures for consumers to contact creditors and agencies regarding fraudulent information in their files. 

Mr. Chairman, as you know, we have a great number of other 

comments. They are in the written record. But we congratulate you 

and the Committee and will certainly take questions when it is appropriate. 

Thank you. 

[The prepared statement of Joe Belew can be found on page 102 

in the appendix.] 

Mr. GILLMOR. Thank you. 

Ms. Kayce Bell? 

77

STATEMENT OF KAYCE BELL, CHIEF OPERATING OFFICER, 

ALABAMA CREDIT UNION, ON BEHALF OF THE CREDIT 

UNION NATIONAL ASSOCIATION 

Ms. BELL. Thank you, Chairman Gillmor. 

Good afternoon. And as did Mr. Belew, I will strive for brevity. 

It is an honor to be here to present testimony for you today on 

the Fair and Accurate Credit Transactions Act of 2003. I am Kayce 

Bell, the chief operating officer of Alabama Credit Union in Tuscaloosa, Alabama. I am here on behalf of the Credit Union National 

Association, which represents more than 90 percent of the nation’s 

10,000 credit unions and their 84 million members. 

My written statement submitted earlier addresses most of the 

provisions of this important legislation in full detail. But because 

of time constraints, I would like to address only certain portions of 

the bill. 

CUNA and America’s credit unions wholeheartedly support Title 

I of H.R. 2622, which makes permanent the reauthorization of the 

expiring uniform national standards of the Fair Credit Reporting 

Act. If the broad set of preemptions that apply to the seven key 

provisions of FCRA are not reauthorized, consumers will be subject 

to a confusing and overwhelming patchwork of requirements. 

Consumer’s personal information would be less accurate and secure in a Balkanized, patchwork national system. And there could 

be proportionately greater harm by lack of access to credit for those 

of low to moderate incomes and for small business owners. 

CUNA therefore applauds the Committee’s efforts to make the 

uniform national standards permanent. We also commend the 

sponsors of this legislation for addressing the very serious problem 

of identity theft. We support the identity theft provisions of H.R. 

2622 in general and think that they will significantly reduce the 

occurrence of identity theft. With regard to some of the specific provisions, the Section 201 investigation of changes of address will be 

a sound identity security practice. However, we will need some 

time to change our systems and would recommend 1 year before 

this provision would become effective. 

Section 202 requires the consumer reporting agencies to include 

a fraud alert in the consumers file, when requested, and to notify 

all users of the existence of that fraud alert. We support this provision because it provides protection to consumers. 

However, we would like to draw your attention to the fact that 

Section 202 does not address under what circumstances and procedures the fraud alert would be removed and the users would no 

longer be subject to Subsection 3. 

Section 203 calls for the truncation of credit card and debit card 

account numbers, and we feel this is another sound security practice. 

Section 205 calls for the blocking of information by the consumer 

reporting agencies resulting from identity theft. We support the 

provision, but we are concerned that some consumers may file 

bogus police reports to either remove or correct derogatory information on their credit report to obtain credit. 

We recommend that the consumer reporting agency also be required to notify the furnisher of information when the agency declines or rescinds the block under this section. 

78

Section 206 requires the establishment of procedures for depository institutions to identify possible instances of identity theft, i.e. 

red flag guidelines. 

The red flag guidelines will be a very useful tool, but we request 

that there be a good-faith standard in any compliance requirement 

imposed on depository institutions to protect against unwarranted 

liability. 

Section 301 requires the FTC to prescribe rules for the coordination of consumer complaint investigations. We think this idea is an 

excellent one, particularly if it results in a system whereby the victim need only report the identity theft to a single entity. 

We support Title IV, as well, pertaining to accuracy of consumer 

records in general. Section 402 provides that furnishers may not report information to CRAs if the furnisher knows or has reason to 

believe it resulted from fraudulent activity, including identity theft. 

While we certainly understand the intent, we are concerned that 

the reason-to-believe language is problematic and may well result 

in an interpretation that leads to more lawsuits and/or enforcement 

actions. 

We support Title V in general, too, and commend its sponsors for 

providing consumers, upon request, with a credit report and credit 

scores, including a summary of how the scores were derived and 

how the consumer can improve the scores at no charge and on an 

annual basis. 

We fully recognize that providing consumers upon request with 

the aforementioned information will result in indirect costs. We believe, however, that such costs will be significantly outweighed by 

the benefits to our members in terms of a better understanding of 

their credit status. 

In conclusion, CUNA strongly supports the permanent extension 

of the preemptive provisions of the Fair Credit Reporting Act. In 

that regard, we also welcome the Administration’s support of this 

important goal, as well as several of their ID theft suggestions. 

Although the consumer groups do not support preemption, their 

testimony does include several suggestions worth serious consideration. But making these national standards permanent is a critical 

claim in assuring that our nation’s consumers have easy access to 

credit, and to ensure that they receive fair and appropriate protections of their financial information, is extremely important to us. 

And nearly as important are the provisions to provide greater 

protection to our consumers against identity theft. Our economy depends on it, and our citizens deserve it. 

Thank you, and I will be happy to answer any question of the 

Committee. 

[The prepared statement of Kayce Bell can be found on page 111 

in the appendix.] 

Mr. TIBERI. [Presiding.] Thank you. Mr. Hilary Shelton, thank 

you. 

STATEMENT OF HILARY SHELTON, DIRECTOR, NAACP, 

WASHINGTON BUREAU 

Mr. SHELTON. Thank you. Thank you for inviting me here today, 

Chairman Oxley, ranking Member Frank, ladies and gentlemen of 

79

the Committee. As you mentioned, my name is Hilary Shelton, director of the NAACP’s Washington bureau. 

The NAACP is our nation’s oldest and largest and most widely 

recognized civil rights organization in our country. Over 2,200 

membership units across our country, 500,000 card-carrying members and branches in each of the 50 states in our nation. 

Credit and the ability to obtain credit is crucial to our nation 

today. Thus, I was especially pleased to be invited by the Committee to talk to you about the unique problems faced by racial and 

ethnic minority Americans in obtaining and maintaining a solid 

credit rating. 

Despite years of civil rights progress, laws and education, racial 

bias and discrimination are still crucial problems in the United 

States today. 

It is in our nation’s financial arena that this is especially true. 

Race, national origin and gender continues to control the type and 

terms of credit availability to any individual. 

Unfortunately, there seems to be a quiet acknowledgment and 

acceptance on the part of credit report providers that credit scorers, 

the lenders and the regulators that racial and ethnic minorities on 

average have significantly worse credit reports and lower credit 

scores than their Caucasian counterparts. 

This, in turn, means that lenders today disproportionately reject 

racial and ethnic minority applicants, or on the whole racial and 

ethnic minority Americans end up paying more for credit. 

In the spring 2000 edition of the Federal Reserve of Boston’s 

newsletter, Peter McCorkell, the executive vice President and General Counsel of Fair Isaac and Company, was asked if credit scoring resulting in higher rejection rates for certain racial and ethnic 

minorities than whites. 

His response was, yes. He then went on to justify this response 

by stating that, unfortunately, income, property, education and employment are not equally distributed by race or national origin in 

the United States. 

Since all of these factors influence a borrower’s ability to meet 

financial obligations, it is unreasonable to expect an objective assessment of credit risk to result in equal acceptance and rejection 

rates across socio-economic or race, national, origin lines. 

This assumption, that low-income and racial and ethnic minority 

Americans are less likely to meet their financial obligations, is simply wrong. 

Studies have shown that the majority of low-income people pay 

their bills on time, and that, in fact, low-income Americans have 

lower default rates on their loan and credit card bills than their 

wealthier counterparts. 

This acceptance of the existing racial bias furthermore also failed 

to recognize the fact that many middle-and upper-class income 

Americans are subject to predatory lending at a higher rate than 

low-income white Americans. 

When racial and ethnic minority Americans are blocked out of receiving loans or are charged more in interest, they have less to invest and their wealth-building capacities are diminished. 

Thus, not only is the current system blatantly unfair to racial 

and ethnic minorities, but it is self-perpetuating, as well. 

80

In my written testimony, I have provided just a few of the many 

reasons that we can identify that are behind the racial and ethnic 

disparities that exist in credit reporting and credit scoring. 

For the sake of time, I will not repeat them here. But I hope that 

all of the members of this Committee will take the time to review 

my written submission. 

In summary, let me just say that disparities in credit reporting 

and credit scoring is becoming more and more problematic as credit 

reports and credit scoring are being used increasingly for more 

than mortgages. They are also being used now to determine if 

homeowners or automobile insurance will be underwritten and at 

what rate, for car loans, house or apartment rentals, utilities and 

in some cases, even hiring decisions. 

Lastly, while I was invited here today to primarily discuss the 

impact of credit reporting and credit scoring on racial and ethnic 

minority Americans, as well as some of the reasons behind the unfairness, the NAACP would also like to make a recommendation for 

improving the process. 

It has long been the contention of the NAACP that openness, 

transparency and sunlight help us understand what we are up 

against. It also intends for companies to be more sensitive to the 

needs of racial and ethnic minority communities. 

The NAACP would love to see the process behind credit reporting 

and credit scoring more open, better regulated and better understood by the American public, the people being rated and scored. 

Specifically, the NAACP joins other groups such as the Center 

for Community Change in recommending that the Congress establish an effective federal oversight process of all statistical scoring 

systems. Such oversight should be conducted on a regular basis, 

and should focus on fairness and the validity of all systems. We 

also support any and all initiatives that create credit reports making them more available to individuals on a consistent basis. 

If we are a nation—if we as a nation are going to meet our full 

potential, we need to ensure that the opportunities are made available to all Americans regardless of their race, national original, 

gender or age. 

Ensuring that they have access to credit would be a big start. 

I would like to again thank the Committee for the opportunity 

to be here with you today and to discuss the impact that credit reports and credit scoring has on racial and ethnic minorities. 

I join with the leadership, the staff and the general membership 

of the NAACP in offering my assistance to develop national policy 

that will help all Americans regardless of their race, age, gender, 

ethnic background or other to obtain a solid credit rating. 

I also thank you for the opportunity to be here today, and welcome the opportunity for questions. 

[The prepared statement of Hilary O. Shelton can be found on 

page 238 in the appendix.] 

Mr. TIBERI. Thank you, Mr. Shelton, for your testimony. 

Mr. Taylor? 

81

STATEMENT OF D. RUSSELL TAYLOR, CHAIRMAN, AMERICA’S 

COMMUNITY BANKERS 

Mr. TAYLOR. Yes, good afternoon. Thank you, Mr. Chairman. And 

thank you to the Committee. 

My name is D. Russell Taylor. I am the President and CEO of 

a state-charted mutual savings bank located in New Jersey, a $431 

million state-charted mutual savings bank located in Rahway, New 

Jersey, and have the privilege today of testifying on behalf of 

America’s Community Bankers, serving this year as its chair. 

I would like to thank you for the opportunity to testify today on 

H.R. 2622, the Fair and Accurate Credit Transactions Act of 2003. 

ACB wholeheartedly endorses H.R. 2622 and urges Congress to 

pass this legislation expeditiously. 

First and foremost, ACB supports Title I’s permanent reauthorization or the FCRA’s uniform national consumer protection standards. The preservation of these uniform national standards is imperative to maintain the efficiency of consumer credit markets and 

the competitiveness of the economy as a whole. 

FCRA is too often evaluated in the context of large financial institutions. This does not paint the whole picture. For example, the 

Rahway savings family of companies includes both the bank and an 

insurance agency. We are by no means a large financial institution. 

Yet FCRA’s uniform national standards helps small and mediumsized companies like mine better serve our communities. 

As both a bank executive and also a victim of identity theft, I 

also appreciate the tools provided in Title II for banks and consumers to address the growing problem of identify theft. We are 

concerned, however, about the new legal liabilities Section 202 

would place on the users of credit reports. 

Credit reports currently include an alert facility allowing consumers to indicate they have been victims of identity theft and to 

caution lenders that credit applications could be fraudulent. 

Because their alerts have a variable degree of accuracy or completeness, lenders should not be bound by specific instructions 

found in the fraud alert. 

Instead, lenders should be permitted to use whatever reasonable 

and practical measures are appropriate to verify the identify of the 

person, rather than blindly adhering to specific instructions found 

in the fraud alert, which may or may not be complete. 

Section 202 should also be clarified such as the new penalties 

apply only to credit fraud, and not to legitimate credit applications. 

ACB understands that the accuracy of credit report information 

is the foundation upon which our national credit reporting system 

is built. 

It is in the best interest of all parties that information be as accurate as possible, errors be corrected quickly and consumers identified theft claims be handled in an efficient and timely manner. 

We believe that title four will help improve the accuracy of credit 

information. 

The continued integrity of the national credit reporting system 

demands that credit reports be as accurate as possible. In our June 

12 testimony, ACR supported empowering consumers to proactively 

manage their credit information by providing them access to free 

82

annual credit reports. Such access is already available in six 

States, including my home State of New Jersey. 

We are pleased that this bill will offer this to all Americans as 

well as provide consumers with information on how a credit score 

is derived, and how their credit score may be improved. 

ACB also believes that H.R. 2622 should include a general effective date of 1 year following the bill’s enactment. For provisions of 

the bill requiring the issuance of regulation, the effective date 

should be 1 year after the regulations are issued. The removal of 

the sunset provisions in Title I of the bill should take effect immediately. 

Given that the FCRA’s uniform national standards for consumer 

protections are scheduled to expire by the end of the year, we sincerely hope that consideration of other issues will not slow down 

or threaten the passage of this legislation. 

One subject the Committee will likely consider is an issue previously raised by Congressman Gary Ackerman. ACB and others in 

the industry have significant concerns about the impact this 

amendment would have on paperwork burden, operational costs, 

and the continuing commitment of furnishers to provide accurate 

credit report information. 

We continue to work with members of the Committee to resolve 

the concerns on both sides. 

ACB believes that provisions in the bill, such as access to free 

annual credit reports and the threat of stronger penalties on both 

users of credit reports and furnishers of credit report data, will 

help address the concerns raised by Representative Ackerman. 

In conclusion, ACB believes that H.R. 2622 strikes the appropriate balance of protecting consumers and properly regulating information sharing practices. We commend the authors of this legislation for crafting a fair, balanced and effective bill to improve 

FCRA and our nation’s credit system. 

ACB strongly endorses H.R. 2622, and urges the Committee in 

the 108th Congress to pass this measure as expeditiously as possible. 

Again, we thank you for the opportunity on behalf of ACB to be 

able to testify today, and we look forward to your questions. 

Thank you. 

[The prepared statement of Hon. D. Russell Taylor can be found 

on page 253 in the appendix.] 

Mr. TIBERI. Thank you. You get bonus points for finishing for 

under five minutes. 

Thank you very much. 

Mr. Hoofnagle? 

STATEMENT OF CHRIS JAY HOOFNAGLE, DEPUTY COUNSEL, 

ELECTRONIC PRIVACY INFORMATION CENTER AND MR. L. 

RICHARD FISCHER, VISA U.S.A. 

Mr. HOOFNAGLE. Thank you, Mr. Chairman, for extending us the 

opportunity to testify today on H.R. 2622, the FACT Act of 2003. 

My name is Chris Hoofnagle, and I am deputy counsel with the 

Electronic Privacy Information Center. We are a Washington-based 

research group that was founded in 1994 that concentrates on privacy and civil liberties. 

83

Our written statement for the record today has been endorsed by 

the Privacy Rights Clearinghouse, Junkbusters Corporation, Computer Professionals for Social Responsibility, Privacy Times, Consumer Action, Privacy Activism, the Electronic Frontier Foundation 

and the National Consumers League. 

We are unified today in stating that the FACT Act does not go 

far enough to address the problems identified in the House and 

Senate hearing records. The record shows that there is a widespread public concern about the relationship between information 

sharing and identity theft, that there is a desire amongst the public for real protections for privacy, and that there is a renewed concern that credit scores undermine the openness principles of the 

FCRA. 

We believe that the Congress can address these problems and 

urge the Committee to go farther, to create more protections in 

2622. 

First, we recommend that Congress should not tie up state legislators by preempting State law. We strongly believe that the case 

has not been made for permanent preemption. As was pointed out 

by previous witnesses this year in the hearing record, the 1996 

amendments themselves create an uneven State landscape. The 

1996 amendments specifically exempt three States from some requirements. And they also allow the settlements of the attorneys 

general to stand. 

There is not a nationwide standard for credit reporting. We 

should not pretend that it exists. Nor should we pretend that creating a nationwide standard promotes consumer protection principles. 

We have heard a lot of talk about this issue today, but I would 

point out that there are seven separate provisions that are going 

to be preempted if this bill passes. And there hasn’t been an analysis of all these seven provisions and whether or not all of them 

are appropriate for preemption. 

Take the example of pre-screening, it would be very easy to comply with an uneven landscape, where different states made an optin standard for pre-screening. However, representatives of the industry have made it sound like compliance with an opt-in system 

would be impossible. And that is simply not the case. 

We have also heard that the industry would like flexibility and 

that they don’t want a one-size-fits-all solution for identity theft. 

But at the same time, they are asking consumers to accept a onesize-fits-all standard for affiliate sharing and for other preempted 

provisions. 

They get flexibility whereas consumer protections are cut off on 

their procrustean bed. Eliminating States’ ability to develop additional safeguards for privacy is a dangerous precedent, and it has 

only occurred in a few privacy statutes. 

By and large, federal privacy laws operate and allow states, the 

laboratories of democracy, to develop innovative safeguards as required. Accordingly, we strongly recommend the Committee remove 

Section 101 from the bill in its entirety. 

Second, substantive privacy protection should be added to the 

FCRA to protect individuals against identity theft. H.R. 2622 does 

not include these protections. Let me suggest some just briefly. 

84

If credit grantors were required to spend just a little bit more 

time before granting credit, evaluating accuracy of the application, 

a lot of identity theft would be prevented. Beth Givens of the Privacy Rights Clearinghouse estimates that, perhaps, the majority of 

identity theft could be prevented if credit grantors were simply required to inspect credit applications more carefully and make sure 

that there are not inconsistencies with information on the CRA file. 

We also strongly recommend that consumers receive notice whenever suspicious activity occurs on their report. Suspicious activity 

includes multiple inquiries in a short period of time or when negative information is furnished to the CRA. Giving notice to the consumer will allow the consumer to take proactive steps to protect 

privacy. 

Our third recommendation is to make substantive improvements 

to the credit reporting systems to minimize inaccuracies. Documents obtained by EPIC under the Freedom of Information Act indicate that the number of consumer complaints to the Federal 

Trade Commission regarding the credit reporting agencies is increasing dramatically. 

In 2001, the FTC received over 8,000 complaints. Last year, it received over 14,000. We received these documents just a few days 

ago, and we request they be placed in the hearing record. 

In our written statement, we detailed the frustration that consumers face when dealing with the consumer reporting agencies. In 

sworn statements before courts that we have included in the 

record, former employees of the CRAs claim that they were required to handle 100 consumer files a day. That means that they 

only had four minutes to dispose of each consumer’s case file. 

Clearly, investigation and reinvestigation cannot be done in four 

minutes. We think that there is an opportunity in the FACT Act 

to improve reinvestigation duties. 

As I am running out of time here, let me conclude by urging the 

Committee to carefully reconsider the record based on this debate. 

We think that the FACT Act fails to even mention many of the 

problems raised by the public interest community. It simply tends 

to require studies, rather than the creation of new rights and responsibilities. Consumers deserve and need more to protect themselves from identity theft, to protect their privacy and to ensure accuracy and fairness in the credit reporting system. 

[The prepared statement of Chris Jay Hoofnagle can be found on 

page 175 in the appendix.] 

Mr. TIBERI. Thank you. 

Mr. Fischer. 

STATEMENT OF L. RICHARD FISCHER, VISA U.S.A. 

Mr. FISCHER. Good afternoon. The last panelist in the last panel. 

My name is Rick Fischer. I am a Partner in the law firm of Morrison and Foerster. I am pleased to be here on behalf of Visa. 

Visa is the largest consumer payment system in the world. There 

are more than 1 billion Visa branded cards in use. And at the 

present time, Visa transaction volume now exceeds $1 trillion annually. 

I have submitted a very detailed statement, so that I am not 

going to repeat it here. What I am going to do is focus on two or 

85

three points and then comment on some of the things that I have 

heard in this panel and other panels very briefly. 

First of all, Visa supports the Committee’s important work on 

H.R. 2622, particularly Title 1, which we think is essential, the reauthorization of the uniformity provisions of the FCRA, for the 

many reasons stated earlier, which I won’t repeat. 

Also, Title II establishing workable identity theft prevention 

measures is critical. Visa has long been active in protecting consumers from ID theft. You will see that set forth in the statement 

and the attachment. And obviously, Visa applauds the Committee 

strongly for its efforts in this area. 

The fraud alerts, in particular, I think can be very helpful in this 

regard. But I do want to post one warning in that respect, because 

of the expectation that credit grantors will not grant new credit if 

a flag is posted without first talking with the consumer about it, 

or contacting the consumer in some way. 

I think that that is perfectly appropriate with respect to new 

loans and new accounts. But with respect to existing accounts, it 

really is impractical. 

For example, currently, Visa handles as many as 4,000 transactions a second, every second of every day. And while Visa successfully employs sophisticated neural networks to detect fraud, 

and in fact, many of you probably received calls at merchants or 

thereafter checking on fraud, it is simply not possible to check 

fraud alerts and to contact consumers in some separate fashion, 

certainly not 4,000 times a second. 

Finally, in this respect, it is very important that the rules established under Title II be uniform across the country. It is simply not 

possible to have multiple rules dealing with fraud alerts, customer 

notices, locking of accounts. If we really want ID theft to be effective, then there has to be one set of rules. 

Now, in terms of comments by others, I want to actually reemphasize a point that Mr. Hoofnagle raised just a second ago when 

he said that the FCRA is not uniform nationwide. And I applaud 

him, frankly, for saying that. That is absolutely right. 

The point here, though, is that there are seven key areas of uniformity. Those are the ones up for reauthorization. I think it is 

critically important that they be reauthorized. And there still is 

plenty of room for the States to act in other areas, enforcement, 

score disclosures, additional notices beyond the seven areas. So 

there really is much room for the States left by the federal government. 

Now, also, Mr. Shelton mentioned a Pete McCorkell study. I am 

familiar with that study. It is actually a statement that was made 

by Mr. McCorkell that was published on the Web site of the Federal Reserve Board—Federal Reserve Bank of Boston, I should say. 

I think it is very important that the Committee consider that report in its entirety. 

The principal focus of the report was whether credit scoring is 

accurate even for minorities. And went into great detail to establish the fact that it is. And that, I think, is the critical factor here. 

What is also important is what we heard earlier from Secretary 

Snow, and that there has been on the increase in the availability 

of credit for minorities. You have heard that repeated. There are 

86

also studies by HUD and the Federal Reserve Board that go to this 

point directly, which I think are very important. 

But Mr. Shelton said one point that is very important. And that 

is we have not done enough. And that frankly, I believe is true. He 

focused on predatory lending. And I would like to correlate predatory lending with ID theft, because they both get to the same point. 

You both have wrongdoers. The predatory lender, the ID thief, 

they both hurt consumers. They both impact on consumer’s credit 

bureau files. And therefore, they both impact adversely on credit 

scores. But I think the goal here really should be to get to the evil: 

the predatory lenders and the ID thieves and not really to focus on 

credit scoring as a wrong in this context, because, in fact, it is accurate. 

Until we get at that, we won’t get scores, that are equally appropriate for all. In this context, for example—and there have been 

questions that have been raised about who is looking at the credit 

scores in this particular context—I think the primary answer to 

that are the regulators. That the banking regulators, at least for 

financial institutions, will look at them regularly. 

Thank you. 

[The prepared statement of L. Richard Fischer can be found on 

page 157 in the appendix.] 

Mr. TIBERI. Thank you for your testimony, last but not least. 

Mr. Fischer, expand on something that you have in your written 

testimony. And you say that, in your written testimony, that banks 

have ‘‘an adequate incentive to prevent identity theft.’’ Don’t banks 

just internalize the cost of identity theft? Can you expand upon 

that? 

Mr. FISCHER. I would be happy to. 

Without any question, if a bank suffers a loss, then it must absorb that loss. So in that sense, they are going to internalize the 

loss. And for example, Visa has a zero liability rule. If there is 

fraud on credit cards or debit cards, zero liability. And that was 

mentioned earlier today. So banks are going to suffer those as well. 

But to suggest that ID theft and fraud losses are acceptable because they are a cost of doing business, I think is not correct. And 

that is one of the reasons, for example, Visa strongly supports Title 

II. There are two victims. In fact, Chairman Bachus mentioned 

this, as did Chairman Oxley, the banks and the consumers. In this 

case, the banks need Title II as much as the consumers do. 

Mr. TIBERI. I apologize for coming late to this hearing. Mr. Fischer, just one more question for you. 

Past hearings we have heard from witnesses somewhat—and this 

is about the evils of affiliate sharing—can you comment on your 

perspective of affiliate sharing? How it might be evil and how it 

might be harmful if we eliminate the ability to affiliate share? 

Mr. FISCHER. I would be pleased to. 

First of all, I will give you just a couple of examples. Obviously, 

given the industry that I represent, it is not surprising that I support affiliate sharing, and, in fact, support it strongly. 

The example that I will give you is a client, of course that I will 

not name, that came to me many years ago with the ultimate program that they had set up for a single unit within the holding comVerDate 0ct 09 2002 12:51 Mar 05, 2004 Jkt 000000 PO 00000 Frm 00090 Fmt 6633 Sfmt 6633 G:\DOCS\92230.TXT FIN1 PsN: MICAH
87

pany that would service customers from all of the companies and 

then could cross market at the same time. 

Consumers called in and one unit could handle it on behalf of all. 

And of course to do that they would need information from all 

of the organizations. And I said, Well, I am sorry, but it doesn’t 

work. This was in 1992. It doesn’t work—this was before the 1996 

amendments—because either you are going to take all of this information and use it only for permissible purposes under the FCRA, 

and therefore you can’t use it for marketing, or you can’t have the 

information at all. 

And I think one of the wonderful things, the benefits of the 1996 

amendments, is the customer management, relationship management systems that exist today that could not exist otherwise. 

In terms of possible evils, I think most of those were addressed 

in the 1996 legislation itself. There was a concern that people 

would not be told if decisions were made, adverse decisions, based 

on information from an affiliate. And that was corrected in the legislation. There is a notice requirement in that respect. 

And the concern that perhaps information in those files might 

become stale over time—and I think that that was addressed in 

part in the last panel by the fact that financial institutions know 

that—to the extent that they have this information, they can make 

initial decisions about someone’s possible qualification. But they 

really can’t make decisions at all until they go back, get a new 

credit report or credit score, to make that decision. 

And so I think the combination of possible evils, if you will, or 

problems that might develop have been addressed. 

Mr. TIBERI. Thank you. 

Mr. Belew, I am sorry I missed your testimony. Can you kind of, 

expand upon the issue of your companies—your member companies 

interest in fighting identity theft? 

Mr. BELEW. On what? 

Mr. TIBERI. Identity theft, fighting identity theft. 

Mr. BELEW. Identity theft, indeed. 

To amplify what Mr. Fischer just said, it goes beyond just the 

cost of doing business. Our members oftentimes are in the position 

of trying to help their customers, their good customers, get through 

this. We have been very interested in finding additional expedited 

procedures, both through our member banks using the credit bureaus and the entire system. 

I have here something I would be happy to give you for the 

record. We did a little survey, certainly not statistically accurate, 

but a summary of some of the major banks’ efforts. They have undertaken work in three areas: prevention, serving the customer 

needs and monitoring inside the bank. 

In prevention, they are looking at all of their authentication 

practices and looking at record destruction. For the customers, they 

are doing ID theft awareness kits and remedial and preventative 

advice. And then they are also even doing what they call 

footprinting, which is fencing off employees on a need-to-know 

basis, almost like the Central Intelligence Agency. 

There is a lot going on out there. We take it very, very seriously. 

Mr. TIBERI. Thank you. 

88

Final question for Ms. Bell. We have credit unions throughout 

the Hill complex here. If a member of a credit union today, if I 

went to apply for a car loan, my understanding, and I haven’t done 

that here, my understanding is I could get it pretty quickly done 

if my credit was okay. 

What happens for a typical credit union member if we don’t extend the preemptions past the end of this year? If they expire and 

I go in and get a car loan, or try to get a car loan? Can you talk 

me through the process? 

Ms. BELL. Unfortunately, it will delay that process. 

Mr. TIBERI. By how long? 

Ms. BELL. For example, just as you maintain a permanent residence in another state, so do many of our other members. The credit union then would have to have a relationship with credit reporting agencies, that could be up to three credit reporting agencies in 

that state, plus any other states where you may have conducted 

business. Unless you disclose those states to us, it may suppress 

important information that we need to use to make a credit decision, or credit pricing decisions. 

So although the loan would still be obtainable, it could slow down 

your opportunity to buy the car that you just saw that you would 

really like to have for the weekend, or to take advantage of a cruise 

that you would like to give to your spouse for an anniversary gift. 

It slows the process down. It could be extensive. 

Mr. TIBERI. How long does it take for an average credit union 

member to get a car loan today? 

Ms. BELL. They can occur instantaneously. Our Internet lending 

site, for example, returns a response in as few as 15 seconds. 

Mr. TIBERI. That is pretty quick. 

Ms. BELL. We strive to be fast. Our members ask us to make 

credit available to them quickly and inexpensively. 

Mr. TIBERI. Thank you. 

I had more questions. I ran out of time and I am going to yield 

five minutes to the gentleman from New York. 

Mr. ACKERMAN. Thank you very much, Mr. Chairman. 

I have a question for Mr. Taylor, actually, who referenced the 

likelihood of an amendment that I would be offering to the bill next 

week, and the likelihood is very good that I will be doing that. 

And I am sorry I missed your presentation, but I did read your 

testimony. Could you be specific as to what the concerns are that 

you have that you can——

Mr. TAYLOR. Certainly, Congressman. 

To begin with, let me say we think that you have identified an 

issue. So it is not to suggest that the issue doesn’t exist. It is a concern that is raised about how we might deal with the issue. 

To begin with, for example, within the FCRA, there is the provision that consumers would have access to their credit reports. We 

are seeing that happen in New Jersey over the last few years. And 

we recognize that that has worked quite well. We feel it has 

worked quite well in New Jersey. When consumers have the ability 

to look at that credit report and judge whether or not anything——

Mr. ACKERMAN. We are on the same track there. But specifically, 

what are the problems in——

89

Mr. TAYLOR. Okay, specifically on that would be that there are 

certain operational issues within different institutions which may 

not allow that easy implementation. For example, I may have some 

loan products that I do not send out a monthly statement on, so 

I may not be able to provide that without additional costs or additional operational setup. 

I may have another mechanism. Example, in my institution, not 

meant to be representative of the industry, but I would send out 

a late notice, perhaps, which I do, in letter form. In that letter I 

can certainly advise the consumer, and I already do, that what 

they are doing with their loan by not paying it on time could adversely affect their credit. 

So it may be the mechanism or the manner in which consumers 

get that information that we just would like to deal with you and 

your staff on and talk a little bit more about it. 

Mr. ACKERMAN. Let me in return say that you have identified, 

as well as others in the industry, some concerns that we did not 

anticipate in the drafting of the amendment. And we greatly appreciate the cooperation we have been having from various parts of 

the industry that have been sitting down and meeting with us. And 

as a matter of fact, Mr. Davis of your organization has been a part 

of that ongoing discussion, Bob Davis, and expressing what those 

concerns are. 

And I think we have basically come to a point—and it is good 

that we are in the same room at the same time today because 

maybe we can come to a better understanding of where we are on 

this—the point you raise in your written testimony is the paperwork burden, the operational costs. 

And I think those are the two. 

Mr. TAYLOR. Yes, those are the main issues. Just that——

Mr. ACKERMAN. Let me just tell what we have done on that and 

where we are. And we are just waiting for a sign-off from you and 

a couple of others on specific language that would be suggested to 

be reported. 

We have obviated the necessity of any costs of mailing other than 

the mailings that are currently done. And we have basically said 

in the legislation as contemplated, the amendment as contemplated, that in the statement prior to notifying the credit bureaus or even within 30 days after the credit bureaus have been 

notified, if I were on the business end of this, on your end, or on 

Mr. Fischer’s end, and he was sending out a statement to somebody 

he wasn’t getting paid from, that last statement, then I would even 

put it under the last three statements, leading up to the final time 

that I am about to report you to the, you know—if we don’t get 

payment, and if you are not in compliance by such and such a date, 

we will report you to the credit agency. 

I look at this not as punitive, but as a businessman. I used to 

be on that side of the table. But as businessman, you have got to 

be bottom line focused, and not say, The son of a B didn’t pay me 

and I am going to get him somehow. 

But the object is to get my money. And if you put in a statement 

in there that I am about to turn you over, people get into compliance a lot quicker knowing that there is a date certain. And they 

all know the rules and regulations. They all know it is going to afVerDate 0ct 09 2002 12:51 Mar 05, 2004 Jkt 000000 PO 00000 Frm 00093 Fmt 6633 Sfmt 6633 G:\DOCS\92230.TXT FIN1 PsN: MICAH
90

fect their credit. They all believe somehow you are not going to pull 

the trigger on it. 

So if there is some kind of a statement, which clearly I put it in 

a neon sign in the biggest light that I could shine on it, and even 

on the envelope saying, On August 2, we are turning you over to 

the credit bureau if we don’t hear from you. 

And the worst thing that is going to happen is you are going to 

get paid. 

It is the same effect of putting a police car on the side of a highway that has ongoing traffic. Everybody gets into compliance. You 

know it is about to happen. 

So additional mailing is necessary. Put it on the same statement. 

Not even an additional piece of paper. 

The entire statement is computerized. They program it; you 

know how late the guy is. There will be a statement there in some 

form where people will see it that says, Hey, you ain’t going to pay 

this bill, good things are not going to happen next week. 

But we have taken care of the cost of all that, the paperwork, 

et cetera. And it is just a computer function that gets done automatically just as everybody’s individual interest and payment, the 

number and what they do is report it. 

Mr. TAYLOR. I couldn’t agree with you more. It is a good business 

decision and one that we practice in my institution to make sure 

that those concerns are alerted. The only thing we wish to bring 

up with that was to make certain that there wasn’t a mechanism 

in place that put some at a disadvantage, i.e., those that might not 

do a monthly statement. They may do something that alerted the 

consumer, but make sure that we weren’t in a technical non-compliance situation——

Mr. ACKERMAN. If you send out statements every two months, it 

could be two months, that could before—I would do a countdown, 

three months before, two months before. You know, Your time is 

up, buddy. 

Mr. TAYLOR. Right. 

Mr. ACKERMAN. You know, we are turning you over. You know, 

the idea is for you on the lending end is to get your money out 

rather than secretly turn the guy in——

Mr. TAYLOR. Absolutely. 

Mr. ACKERMAN.—to somebody that is not going to help you, because he is not going to pay it if he doesn’t know you have reported 

him, and probably believes half of the time that he is getting away 

with it. 

Mr. TAYLOR. Yes. 

Mr. ACKERMAN. So I think that you will find that very helpful, 

like the insurance people now who fought second opinions before 

going for surgery now won’t even let you do anything until there 

is a second opinion, because they discovered the bottom line is 

helped tremendously by that which was forced upon them at a 

time. 

But I thank you and others in the industry who have brought all 

of these kinds of concerns to the table that we didn’t anticipate. We 

want this to be as quest free as possible, and as bottom line productive as it can be. 

Mr. TAYLOR. Thank you. 

91

Mr. ACKERMAN. Thank you very much. 

Mr. TIBERI. Thank you, sir. 

The Chair notes that some members may have additional questions for this panel which they may wish to submit in writing. 

Without objection, the hearing record will remain open for 30 

days for members to submit written questions to these witnesses 

and to place their responses in the record. 

I would like to thank all six of you for patience and for your testimony today. And we begin next week marking up this bill in subcommittee. 

But for this day, this hearing is adjourned. 

[Whereupon, at 5:05 p.m., the subcommittee was adjourned.] 

(93)

A P P E N D I X

July 9, 2003

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