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The Honorable Esteban E. Torres

June 13, 1991

Page 8

employment purposes unless the consumer authorizes the disclosure.

CREDIT REPAIR CLINICS

Credit repair clinics operate on the false and deceptive premise that they can somehow repair a consumer's accurate, negative credit history. Not only do these organizations charge hefty fees to do the impossible, they also prey upon financially disadvantaged consumers who are especially vulnerable to the abusive practices of this industry. While a number of states, including Minnesota, have enacted laws regulating credit repair organizations, federal legislation is needed to stop the deceptive practices of this industry nationwide. I therefore strongly support the provision in H.R. 194 that would regulate credit repair.

Typical of industries that operate in the shadow of the law, credit repair clinics seek out and set up operations in states that have no specific legislation prohibiting or regulating them. In the past year, before it enacted legislation, Minnesota sav several credit repair clinics set up shop in the state. Under the state's deceptive practices laws, my office took successful legal action against these companies, resulting in court orders enjoining the companies from engaging in the credit repair business in Minnesota. Unfortunately, however, conventional deceptive practices actions, by their nature, usually occur after consumers have been misled and damage has been done. The Minnesota legislature recognized this problem and passed legislation severely restricting credit repair from the start, and I suspect that the legislation will be successful in keeping credit repair organizations from beginning operations in the state altogether.

The Minnesota law contains a number of strong consumer protection measures. It prohibits credit repair organizations from accepting any payments from consumers until the organizations have fully performed the services that were promised. The law requires credit repair clinics to register and bond with the State. It compels credit repair organizations to provide consumers with a clear and conspicuous notice (in at least ten-point type) of consumers' credit file rights under State and federal law. The Minnesota law mandates certain contract disclosures, including an explanation of the consumer rights to review and dispute credit file information, the total payments required, a complete description of, and the dates by which, the services are to be performed, and a disclosure for the previous year (or for the life of the credit repair organization, whichever is shorter) of the percentage of past customers for

The Honorable Esteban E. Torres
June 13, 1991
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whom the credit repair organization has fully performed agreed upon services. The law provides for a five-day cooling off period during which the consumer has an absolute, nonwaivable right to cancel any contract with a credit repair organization. The law makes violation a misdemeanor, it provides for enforcement through the Attorney General for injunctive relief, restitution, attorneys fees, and civil penalties of up to $25,000, and it provides a private remedy for actual damages, attorneys fees, and, in some cases, punitive damages.

While Minnesota has implemented strict regulation of credit repair, to provide adequate protection to all consumers, federal legislation is needed. This legislation could take the form of strict regulation of the credit repair industry or, more simply, a prohibition against credit repair. I suggest that, while strict regulatory requirements represent positive steps toward limiting credit repair abuse, they may prove insufficient given the inherently fraudulent nature of the credit repair industry. Credit repair companies take consumers' money for the false promise that they can change the past; credit repair companies typically fail to disclose to consumers that no one can remove current, accurate, and verifiable credit information; and credit repair companies often fail to honor money-back guarantees and other refund promises after the inevitable failure to deliver the "credit repair" services as advertised. Companies that operate on a fundamentally deceptive premise to start with may feel little compunction about walking up to, and crossing over, any legislative lines drawn to protect consumers. I therefore urge the Subcommittee to consider banning credit repair businesses. Exemptions, of course, could be made for valid services delivered through professionals or nonprofit providers.

Because of the urgency of the problem encountered by citizens--especially less sophisticated and financially troubled consumers--in dealing with credit repair companies, I urge Congress to proceed aggressively and immediately on this front, independent of whatever action it takes on the other essential FCRA amendments supported in these comments.

CONCLUSION

In this age of extraordinarily complex and sophisticated data collection and dissemination, consumers do not have the tools they need to control the collection, use, and sale of their personal information. Congress has the opportunity now to correct the unacceptable imbalance that has developed between consumers' privacy rights and the legitimate needs of business to credit information. I thank you for the opportunity to contribute my views on this pressing issue of public policy. I

The Honorable Esteban E. Torres

June 13, 1991

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am confident that, through your efforts, consumers will ultimately receive the legal protection that they deserve and that the unassailable goal of ensuring personal privacy requires.

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Hon. Esteban E. Torres, Chair

House Banking, Finance, and Urban Affairs Committee
Subcommittee on Consumer Affairs and Coinage

604 House Office Building Annex No. 1

Washington, DC 20515

RE:

Comments on Bills to Amend the Fair Credit Reporting
Act

Dear Representative Torres:

Thank you for your invitation to comment on HR 194, HR 421, and HR 670, which the Subcommittee on Consumer Affairs and Coinage heard on June 6, 1991. I am submitting these comments for the hearing record, which I understand will be held open until June 20.

The extension of credit is vital to the nation's economy,
and credit reporting agencies ("CRAs") perform a valuable, and
perhaps, indispensable service. In developing and providing this
service, the credit reporting industry has grown since 1970 from
relying on hand-written file cards to using massive computers to
collect and manipulate huge amounts of data. Unfortunately, the
Fair Credit Reporting Act ("FCRA" or "the Act") has not kept pace
with the industry's development, and no longer is adequate to
regulate the industry.

In my view, the FCRA's chief inadequacies in the context of
credit reporting today are:

1. Consumers are increasingly concerned about inaccuracies
in their credit reports and unauthorized access to them.
The FCRA simply does not address these modern-day
concerns adequately. These concerns are reflected in
recurring media reports of inaccuracies in, and
unauthorized access to, consumers' credit reports.

1

2. Records on consumers are used for purposes other than
originally intended or expected by consumers, such as
prescreening and direct marketing.

3. Competition between the major credit reporting agencies
makes it difficult for consumers to correct erroneous
information in all the major CRAS' files on them.

Hon. Esteban E. Torres

June 19, 1991

Page 2

4. Reports on consumers are being used to evaluate
applicants for rental housing and check cashing
privileges. It is doubtful that the businesses which
prepare these reports are complying with the requirements
and protections of the FCRA.

My comments on the three bills before the subcommittee address these areas of concern.

ACCURACY OF CONSUMER REPORTS

Definition of consumer report: The definition of "consumer report" in existing law focuses on the form, purposes, and categories of information in such reports, and includes categories of information which usually are found in

investigative consumer reports. (§ 604 (d) (15 USC § 1681a(d).) The definition does not address the quality of the information which is used or collected.

HR 670 proposes an amendment to this definition which emphasizes the importance of factual and accurate information in consumer reports. (HR 670 sec. 4(a).) I favor this proposal. The proposed definition also serves to distinguish consumer reports from investigative consumer reports.

Obsolete information: Creditors who report overdue payment information to CRAS have very different standards for reporting this information. One creditor may report a delinquency after 10 days while another may only report a delinquency after 60 days or more. While the 60-day delinquency obviously is much more serious than the 10-day delinquency, a CRA may report both for seven years under existing law. In my view, it would be desirable to limit CRAS' reporting of information on overdue payments, yet not interfere with creditors' standards for reporting such information to CRAS.

HR 194 and HR 670 contain similar proposals to limit CRAS ' reporting of overdue payments (e.g., payments which were not more than 30 days overdue when paid could not be reported more than three years after payment was made). (HR 194 sec. 103(b), HR 670 sec. 4(b).) I believe that such an amendment is desirable because it allows creditors to retain their own standards for reporting overdue payments, yet reasonably distinguishes the seriousness of the overdue payments reported.

Compliance procedures: Under existing law, CRAS are required only to maintain reasonable procedures to avoid

reporting obsolete information and providing consumer reports for

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