Another provision, the proposed 30-day time limit on the resolution of consumer disputes, may spur the credit bureaus to become more responsive and efficient in handling consumer's disputes and alleviate frustrations complained of in attempting to correct information. Requiring the credit bureau to report the result of the investigation should be helpful in that regard as well.

I turn to prescreening, a hotly debated issue. Prescreening presents significant privacy considerations for consumers as well as financial implications for businesses. Although the FCRA itself does not address the practice of prescreening, in 1973 the Federal Trade Commission expressed the view that the FCRA would permit prescreening if creditors who prescreened subsequently offered credit to those names that appeared on the prescreened list. The Commission affirmed this view in its commentary on the FCRA published last year.

Because of technological advances the potential for invasion of consumers' privacy is greater today than it was when the Commission first adopted its position on prescreening. Prescreening today often uses dozens of interrelated criteria so creditor can learn almost as much about consumers on a prescreened list as it would by reviewing actual copies of their reports.

Thus, reconsideration of the implications of prescreening and the requirements of the law is timely. The bill as introduced by Representatives Rinaldo and Schumer would prohibit prescreening altogether. Representative Lehman's bill, in contrast, would permit it subject to an opt-out option.

On balance, the Commission continues to believe that credit prescreening can be useful and that it is better to regulate prescreening than to ban it. We emphasize, however, that the process through which consumers learn about prescreening and their optout option is important. If consumers do not understand the option, the option will be meaningless.

A second critical issue involving prescreening is whether it ought to be limited to credit transactions, as the Commission believes, or permitted for all types of general marketing and list sales, as some would argue. If Representative Lehman's bill is intended to permit prescreening for purposes other than credit granting, however, it is important to clarify what those purposes are and whether or not they encompass marketing of goods and services.

To permit prescreening for general marketing purposes would be a major shift in the law as we understand it. Although Congress could limit the privacy invasion involved by limiting the prescreening pool to consumers who expressly agree to participate-that is to consumers who affirmatively opt in-the Commission believes permitting prescreening solely for credit granting purposes is far preferable.

These bills would require credit bureaus to provide more specific identifying information on users who obtain access to or receive copies of the consumer report. The Commission believes this information should be disclosed. It would assist consumers and enforcement agencies in identifying instances of unauthorized access and, thus, deter unlawful invasions of consumers' privacy.

Representative Lehman's bill would permit the Commission to seek civil penalties for violations of the FCRA. This provision par

allels those in the Equal Credit Opportunity Act and Fair Debt Collection Practices Act. We think it is more likely companies will comply with the accuracy and privacy requirements of the FCRA if they can be fined for violations rather than merely told to comply with the law in the future.

Although the civil penalties sanction cannot be expected to deter every future FCRA violation, it does increase the cost of violating the law and would represent an important tool in the Commission's efforts to enforce the Act. We can think of no good reason why this remedy ought not be provided under the FCRA.

Consumer reporting capabilities have expanded enormously during the past two decades. We think it useful and important to revisit the FCRA to ensure the consumers will have adequate protection in light of these changes in the coming decade. We applaud you, Mr. Chairman, and Representatives Lehman, Schumer, Rinaldo and Clay and the members of this subcommittee as well for doing so.

This concludes our prepared remarks. I will be pleased to answer question from the subcommitee.

[The prepared statement of Ms. Noonan can be found in the appendix.]

Chairman TORRES. Thank you. We will proceed with Ms. Wallace and then go into questions for both of you.

STATEMENT OF ANN WALLACE, DIRECTOR, U.S. OFFICE OF CONSUMERS AFFAIRS; ACCOMPANIED BY CLAYTON FONG, DEPUTY DIRECTOR; AND PATRICIA FALEY, DIRECTOR OF CONSUMER AND INDUSTRY RELATIONS AT THE U.S. OFFICE OF CONSUMER AFFAIRS

Ms. WALLACE. Good afternoon. My name is Ann Wallace, and I am Director of the United States Office of Consumer Affairs. I am pleased to be here to provide our views on some important issues regarding the Fair Credit Reporting Act. Joining me today are Clayton Fong, Deputy Director, and Patricia Faley, Director of Consumer and Industry Relations at the United States Office of Consumer Affairs.

The Fair Credit Reporting Act (FCRA) has protected consumers for 20 years by requiring Consumer Reporting Agencies to provide accurate and complete information when a consumer applies for credit, insurance or a job. Twenty years, however, is a long time and much has changed, including the structure of the industry and the way in which consumer information is collected and used.

We believe it is important to be alert and responsive to these changes as we discuss how the FCRA can be brought up to date and better serve the consumer. At the same time, we do not want to create unnecessary or overly burdensome new responsibilities for the credit organizations which handle consumer information.

I also commend the credit industry for its voluntary efforts to meet concerns raised in the last round of congressional hearings. Despite these efforts, I believe that consumers still have difficulty dealing with the credit bureau structure, and there are several areas which warrant attention-one, increasing accuracy of credit records; two, increasing for consumers the understandability of the

credit reporting process and the credit reports themselves through appropriate disclosure and; education; and, hence protecting consumer privacy.

Regarding accuracy, there are several common soures of credit reporting inaccuracies. Inaccurate information may be provided by the creditor to the credit bureau. Information may be attributed to the wrong person or the consumer might provide inaccurate or incomplete information.

I recommend that creditors which collect information and credit bureaus which receive, store and provide this information should be accountable for the accuracy of the information. Additionally, creditors should tell consumers at time of application how and why it is in their interest to provide accurate and complete information. Consumer education continues to be a pressing need as it relates to the credit industry. I believe that many consumers are not aware of how their credit is reported or what is done with their credit information. Consumers must be informed partners in the credit process so that they can help ensure accuracy and fairness. In order to become better informed partners, however, consumers must be educated on the credit process, and we urge the support of creditors and credit bureaus in providing written information to consumers at appropriate "teachable moments."

These "teachable moments" occur when a consumer has a vested interest in the outcome of the credit reporting system.

Many consumers do not know that their credit information can be in the files of all three large credit reporting data banks.

We would recommend that credit grantors inform consumers about how often and what kind of information is routinely forwarded to credit bureaus.

We would recommend that credit grantors tell the names and addresses of each credit bureau to which the creditor reports.

We would recommend that consumers who discover errors in their report be told of the existence of all three data bases and how to access them.

We should pursue mechanisms to ensure that inaccuracies do not reappear.

Consumer privacy is an issue of great importance to consumers. The control of access to confidential consumer reports is one of the great benefits of the Fair Credit Reporting Act. USOCA supports leaving the choice of whether a file is available for direct marketing purposes in the hands of the consumer.

A survey indicates the majority of consumers appreciate the benefits of direct marketing as long as they are informed and given the opportunity to opt out of the marketing process. We believe these options must be a part of any consumer information plan.

In conclusion, informed consumers can help business resolve many of the problems stated here today. We help consumers function better in the marketplace but cannot achieve maximum results without the active support of industry and business groups. I appreciate the chance to provide you with our concerns and look foward to working with you and industry to make the marketplace work for consumers and business. Thank you, sir.

Chairman TORRES. Thank you, Ms. Wallace.

[The prepared statement of Ms. Wallace can be found in the appendix.]

Chairman TORRES. I would like to ask a question on your last comments there. You recommended in your statement to improve the accuracy of the information as reported about consumers, creditors should be accountable for the accuracy of the information they provide to credit bureaus. That is consumers. How would you suggest such accountability be achieved?

Ms. WALLACE. In getting the correct information, I think they should tell a consumer that when the consumer is applying for credit how important it is to give accurate information and then be sure that that information is sent in correctly.

Chairman TORRES. That is generally the case. When one is applying for credit, the creditor is asking the consumer to provide accurate information on the application form. Is that not correct?

Ms. WALLACE. It is correct. But I believe that sometimes people do not fully fill out their application, so the consumer may be involved in some of this.

Chairman TORRES. Your information, I guess-again, you are saying creditors should be accountable for the accuracy of the information. I am simply saying how do they do that? Is it an education program?

Ms. WALLACE. I believe it is educational. I believe if they are going to turn in any negative information, I think they should inform the consumer or the person that they are turning the negative information in on.

Chairman TORRES. Another question. The Associated Credit Bureaus has recently commissioned the accounting firm of Arthur Andersen and Co. to study the issue of accuracy within the industry, the same thing you are talking about. What do you think about such a study?

MS. WALLACE. I think it is wonderful.

Chairman TORRES. Why is that?

Ms. WALLACE. I think it would then show what the error is and, hopefully, get resolutions to clear problems up.

Chairman TORRES. Has your agency received complaints about the inaccuracies of the field?

Ms. WALLACE. We hear the horror stories. Yes.

Chairman TORRES. You hear horror stories like the ones we had today?

Ms. WALLACE. We have heard those.

Chairman TORRES. Many of them?

Ms. WALLACE. I don't think that we hear that many of them in our offices.

Chairman TORRES. What is many?

Ms. FALEY. Our office is really not in the business of complaint handling. And when we get a complaint, we would refer it to the agency that would handle it. Most of those complaints would be immediately referred to the FTC which I understand received about 9,000 complaints in 1990.

Chairman TORRES. In the same frame, do you believe a study such as the one we are discussing without direct input from consumer advocates or Federal regulators and agencies would be unbiased?

Ms. WALLACE. I would like to see an independent study.

Mr. FONG. We just heard about the study ourselves yesterday morning.

Chairman TORRES. The Arthur Andersen study?

Mr. FONG. Right. Or the intention to have one done. It does need to be independent, I think we all acknowledge if it is commissioned by the industry that there may be some slant to it. But we acknowledged as very positive is the fact that the industry-by virtue of commissioning the study-is probably really indicating there is a need to look at accuracy. I think we applaud that side of it.

I am detecting that you would like to see something a little more independent, and I think we would also concur with that, something that would balance both industry, consumer groups as well as Federal agency input into the design of such a study.

Chairman TORRES. Thank you. Let me just say something and then I am going to direct my question to Ms. Noonan.

Since I have been elected the chairman of this subcommittee early this year, I have found the issues over which we have jurisdiction, and there are quite a few areas, that complaints about the credit reporting industry outnumber all other complaints almost on a 10 to 1 basis. I wanted to ask you what is your experience in this regard over at the FTC?

Ms. NOONAN. We received 9,000 complaints and inquiries about credit bureaus in 1990. I don't know what the total number of complaints the agency received. Historically, credit bureaus have led the pack in terms of the number of complaints that the agency receives. Automobile defects is a close second and debt collectors come in third, I think.

Chairman TORRES. I was going to ask you, does the FTC receive a disproportionate number of complaints in this area as opposed to other areas?

Ms. NOONAN. It would depend on how you measured it. Certainly it is one of the leading areas of consumer complaint in all of American industry.

Chairman TORRES. You are saying there are 9,000 at this point? Ms. NOONAN. Nine thousand last year. Those were written inquiries. We also receive several dozen phone calls every week.

Chairman TORRES. Ms. Wallace, collaborating your statements and joining you there, you have two associates. I would like to have them provide their names for the recorder so we have that for the record. Would you do that?

Ms. WALLACE. Yes. I thought I had done that.

Clayton Fong-F-O-N-G-that would be Deputy Director of the United States Office of Consumer Affairs. And Pat Faley-F-A-L-EY-Director of Consumer/ Industry relations.

Chairman TORRES. Would you do the same, Ms. Noonan, for your associates?

Ms. NOONAN. Kathleen Buffon-B-U-F-F-O-N.

Chairman TORRES. Thank you.

Mr. McCandless.

Mr. MCCANDLESS. Thank you. I have quite a series of questions that I think are very relevant to what it is we are here for today and why we are asking you to come and join us.