Page images
PDF
EPUB

bureau send this information to any person who has inquired about their credit within the last 6 months.

Section 604 of the law says that there are certain "permissible purposes" for which credit reporting agencies can release consumer reports, "and no other." The industry says that furnishing lists is permissible under section 604(3)(a), which allows a report to be released to someone the agency has reason to believe intends to use the information in connection with a credit transaction involving the consumer. The FTC's interpretation permits prescreening if an offer of credit is extended to everyone on the list. Still others say that the intent of that permissible purpose was only to allow release of a report without the consumer's permission when the consumer knowingly applies for credit. Clearly, the differing interpretations need to be clarified.

With regard to prescreening or the distribution of credit information for marketing purposes, H.R. 194 would prohibit reporting agencies from using consume files to develop lists for solicitation purposes unless the consumer has been given notice of the right to protect his or her file from such use.

I believe Mr. Schumer would like to outlaw the practice outright. I say, if you notify the consumer of their right not to participate, they can opt out.

To provide consumers with a more effective resolution process, the bill specifies that reporting agencies must investigate inaccuracies and make a good faith effort to correct them within 30 days of a consumer's request to do so. It would also require that reporting agencies send consumers written notice when they have finished investigating, so that the consumer can know the outcome.

To improve consumer awareness, the bill would permit consumers to have one free copy of their actual report a year, if they request it, which should make it easier to periodically check for inaccuracies. A limit on the cost of additional reports is placed at $8. That is what the law is in California, and that is what the rationale is for that.

The consumer will also be accorded a written summary of their rights under the Fair Credit Reporting Act with any FCRA-mandated disclosure, as well as information on the credit reporting agencies themselves.

To improve accuracy, my legislation would specify that the agency maintain detailed records of the procedures they follow to meet this requirement. Also, persons furnishing information to an agency about a consumer must establish procedures to ensure that the information is accurate. Those furnishing information must also advise the consumer that they have done so. Any corrected information my be distributed to those who received the report within the last year, rather than the last 6 months. Also, obsolete information, including bankruptcies, must be removed within a short timeframe.

Finally, to ensure enforcement, the bill empowers the Federal Trade Commission with civil penalty authority and the ability to promulgate regulations.

Other bills which have been introduced differ in both minor and major respects from my legislation. Clearly, however, the need for a legislative response is out there. The Fair Credit Reporting Act

has been vital in regulating the use of credit reports over the years. But times have changed, and so has the credit reporting industry. When the law was drafted, no one envisioned the impact computer technology would have on the distribution of information. Increasing sophistication and innovation in the credit arena have changed the face of consumer financing. As a result, some aspects of the Fair Credit Reporting Act have simply become obsolete.

This is not meant as an indictment of the credit reporting industry. I am pleased that the industry has already taken voluntary steps to share corrected adverse information with one another. Unfortunately, many of the needed changes are outside their scope to remedy. For instance, the proliferation of "preapproved" credit card solicitations, which, in my mind, should be viewed as a deceptive trade practice, since they always include a disclaimer that approval is conditional on review of the consumer's complete credit report, is a direct result of the prescreening practice.

To conclude, the legislation which I have introduced updates the Fair Credit Reporting law without hindering the flow of credit information necessary in today's market. It expands consumer's rights and enhances the degree of accuracy that is crucial to a truly "fair" credit reporting system. It involves the consumer in the credit reporting process and gives them a better understanding of how information collected about them is utilized. Finally, it allows consumers the opportunity to limit the use of that information and protect their privacy.

Mr. Chairman, again I want to commend you, as I did at last week's truth-in-savings hearing, on the wonderful job you are doing to address the needs of consumers in the current credit market. I appreciate this opportunity to testify, and I support your efforts to address the needed reforms of FCRA. Thank you.

I also have another meeting to attend. If I could be excused, I could go give a speech.

Chairman TORRES. You can, Mr. Lehman. We appreciate your expeditious statement this morning. We commend your legislation and the work you did previous to this with the subcommittee. You are excused.

[The prepared statement of Mr. Lehman can be found in the appendix.]

Chairman TORRES. Mr. Rinaldo, you are the next witness on our list. We would like to hear from you.

STATEMENT OF HON. MATTHEW J. RINALDO, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF NEW JERSEY

Mr. RINALDO. Thank you, Mr. Chairman. I also want to take this opportunity to express my appreciation to you and the members of the subcommittee for the opportunity to work with you and for the courtesy and cooperation that your staff has extended to mine.

As we have already seen, this is not a dry, technical issue. The problems with credit records go well beyond simple computer mistakes. Credit records are more than just account numbers; they are a consumer's reputation.

Today this subcommittee will hear more about lost opportunities, emotional pain, suffering families, and violated privacy. You will also hear about an insensitive and unresponsive credit bureaucracy.

For example, a New Jersey man wrote to me to say he was turned down for a mortgage because his credit report had 16 separate errors in it. This included 13 listed accounts that were not even his.

The credit bureau informed him that it would take 6 to 8 weeks to correct the errors.

This case is not an isolated incident. Consumers Union, as you may know, has just completed a study which showed that about 48 percent of the credit reports that they checked contained errors. About 20 percent had errors that were serious enough to cause a denial of credit, employment, or insurance. This parallels a 1989 study of about 1,500 credit reports that found a serious error rate of between 42 and 47 percent.

Even more shocking is the cavalier attitude that credit bureaus have shown toward these errors. The U.S. Public Interest Research Group has just completed a study of complaints registered with the FTC that suggests that over 60 percent of the consumers who wrote with unresolved complaints had already contacted the credit bureau five times or more. The average duration of their complaints was over 20 weeks.

The law should be changed, Mr. Chairman and members of the subcommittee, to require a revision within 30 days.

To be fair, the errors are not always the credit bureau's fault. Retail stores and car dealers are slow to issue corrections and canceled accounts. Because of this, the Fair Credit Reporting Act should explicitly require providers of credit information to meet a strict standard of accuracy and timeliness.

Also, there is the issue of disclosure. Banks and even credit bureaus urge consumers to check their credit records regularly or at least before making a major purchase, such as a new home. Then, however, the credit bureau charges a heavy fee, usually $15 or more, before the consumer can get a copy of his or her credit history. I urge the subcommittee to allow consumers to get a free copy of their report at least annually.

Creditors should be required to notify consumers whenever adverse information is sent to a credit bureau. This disclosure could be as simple as an additional line on the next statement, but it would prevent cases where a consumer is unaware of damaging information in his or her credit record.

In addition to problems with credit report accuracy, I hope the subcommittee will examine privacy of credit records. The current law contains limited privacy protections, but they are easily and routinely ignored.

In the most famous case, a Business Week reporter decided to test the privacy of information. He called a wholesaler of credit information and pretended to be a business. On the application blank, he left a number of questions unanswered. He was approved anyway. They also advised him how to avoid complying with the Fair Credit Reporting Act privacy requirements. Once he had

access to the computer, he called up Vice President Dan Quayle's credit file. He could just as easily have been a thief.

Obviously, credit files are not secure from some, from unauthorized use by swindlers and crooks. There are minimal restrictions on what credit records can be used for. The credit bureau's imagination seems to be the only real limit on what it can do with the information.

Credit information can easily be combined with demographic data and other information to create a complete picture of an individual's life.

While banks that issue credit cards get most of the attention, the company requesting such a list could be a person specializing in time-share vacation homes, or a mail order clothing retailer.

The bill I have introduced, H.R. 670, would grant the FTC power to issue regulations to enforce the Fair Credit Reporting Act and to assess civil money penalties against those who misuse credit information. Currently, the FTC only has the ability to seek criminal penalties or cease and desist orders against violators. Civil penalties are more of a deterrent than cease and desist orders, but they do not burden Federal courts with relatively minor cases.

Some credit bureaus and issuers have talked about how prescreening allows consumers additional opportunities to get credit. However, it can also hurt them. A Maryland woman who wrote to me had her credit card number stolen, and the thief changed the address on the account. The credit bureau changed the address on her credit file to the thief's address.

Two department stores sent her preapproved credit cards at the false address. The thief accepted them and ran all the accounts up to the limit and disappeared. The victim never knew that the department store accounts were opened. The victim's credit record included all three accounts, and she was denied credit twice and had a problem with a background check.

My bill, along with some of the other bills, many of which have excellent provisions in them, would require a consumer's permission before his or her credit file could be accessed. This would ban credit prescreening, which the department stores used in this case to send out preapproved credit cards.

There is more at stake in prescreening than just credit solicitations. If the subcommittee chooses to still allow credit prescreens, consumers should be allowed to opt out of credit prescreening through the use of a toll-free phone number and a central clearing house that will inform all three major credit bureaus of the consumer's wishes.

Finally, the law should also require the credit bureaus to respect the consumer's desire for privacy. I believe that a thorough reform of the Fair Credit Reporting Act is long overdue.

I look forward to working with you, Mr. Chairman, and your subcommittee as this effort continue through Congress.

[The prepared statement of Mr. Rinaldo can be found in the appendix.]

Mr. RINALDO. I want to commend you and the subcommittee for looking into a serious problem that denies people some of the rights that all of us should be accorded. Once again, I salute you for the work you are doing and hope it will result in a bill enacted.

Chairman TORRES. Thank you. We will be looking at your bill to understand the real importance of its provisions as we develop this legislation.

At this time I would ask Mr. McCandless if he has any questions of Mr. Rinaldo.

Mr. MCCANDLESS. No. The outline of his bill I have is pretty explicit.

Chairman TORRES. Mr. Hubbard.

Mr. HUBBARD. No questions.

Chairman TORRES. Mr. Barnard.

The Chair would acknowledge the presence of the gentleman from Vermont, Mr. Sanders. Mr. Sanders, would you have any questions, and perhaps an opening statement, since I missed you earlier?

Mr. SANDERS. I have no questions at this time.

I want to congratulate you for bringing before this subcommittee what is clearly an important issue that touches the lives of millions of people, and I look forward to working with you on this issue. Chairman TORRES. Thank you.

Mr. Rinaldo, there being no questions, you are now excused. This is the gentleman from Florida, Mr. E. Clay Shaw, Jr., who also has introduced a bill on this matter.

Mr. Shaw, the floor is yours.

STATEMENT OF E. CLAY SHAW, JR., A REPRESENTATIVE IN CONGRESS FROM THE STATE OF FLORIDA

Mr. SHAW. Thank you, Mr. Chairman. I would ask that my full written statement be made a part of the record.

Chairman TORRES. Without objection, so ordered.

Mr. SHAW. Mr. Chairman, I would first of all like to associate myself with your opening remarks. Indeed, all is not at peace in the credit area. The consumer today depends very heavily upon his credit rating, whether he be a millionaire or a wage earner.

Mr. Chairman, I would also like to associate myself with the remarks of the gentleman from Kentucky, Mr. Hubbard. Indeed, credit reporting agencies perform a very vital service in our community.

Under our form of economic system, as I said, credit is so important. Those of us who pay our bills on time, those of us who keep our credit rating high, as consumers we help pay for the indiscretions and the nonpayment of those who do not. When they can be weeded out in a credit search, it is certainly to all of our advantages.

However, I feel that there is a desperate need for some reform. That is why I have filed H.R. 1751, Mr. Chairman and members of the subcommittee. Very simply, H.R. 1751 would require credit reporting agencies to disclose to any consumer any adverse information received by the agency that is placed on the consumer's credit report, within 30 days after the information is received by the agency. The disclosure must be in writing and provided to the consumer free of charge.

Credit reporting agencies are selling information about us, about you and about me and about our families, and what less could we

« PreviousContinue »