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Retailers have generally been following the Federal Trade Commission's rule on pre-screening since 1973 and are much less likely to engage in significant post screening that could result in a denial of credit.
Chairman LEHMAN. With regard to pre-screening, last September Ms. Steiger testified about the proposed commentary to the Fair Credit Reporting Act. There was considerable discussion then of the pre-screening interpretation. I understand the FTC finalized the commentary this May. I gather that interpretation did not significantly change.
Can you clarify for the subcommittee what the effect of your interpretation is for users of reporting agencies pre-screening services?
Ms. NOONAN. Certainly. The commentary, the Federal Trade Commission's commentary on the FCRA, continues to assert that pre-screening can be permissible under the Fair Credit Reporting Act provided that when the credit grantor mails or has mailed on its behalf offers to consumers whose names survive the final screening, that it is prepared to make an offer of credit to everyone on the list.
Now that is an offer of credit and not an invitation to apply or to go through further screens. So it is our position that the credit grantor must intend to offer credit to everyone on the pre-screened list.
Chairman LEHMAN. What is the effect of your position on the consumer right now?
Ms. Noonan. I am sorry.
Chairman LEHMAN. What is the effect of your position on the consumer right now?
Ms. NOONAN. I am not quite sure I understand.
Ms. NOONAN. So when a consumer receives an offer, a solicitation from a credit grantor, it should in fact be pre-approved whether it says so or not. That is, the person should be entitled to the credit if he responds affirmatively, with only a few rare exceptions.
Chairman LEHMAN. If you have pre-approved on the envelope, pre-approved inside and then somewhere underneath the signature card had a disclaimer that signing this will trigger a review of your credit and everything that has been said in the larger print all through this is not the fact if we find something negative in your file.
Does your interpretation affect that practice?
Ms. NOONAN. Yes, it does. It would make that practice illegal for two reasons. First, it would probably be a deceptive trade practice. But moreover, it would not comply with the pre-screening interpretation of the commission.
Chairman LEHMAN. Also, would you tell the subcommittee why you asked in September for civil enforcement language and explain exactly what the language you provided that is incorporated in 4213 could allow the FTC to do? How would that differ from Mr. Rinaldo's scheme involving $10,000 in civil money-
Ms. NOONAN. I think they are effectively the same. The language included in your bill tracks the language in other consumer credit statutes where we have civil penalty authority. The Federal Trade Commission in 1975 was given the power to promulgate trade regulation rules and to enforce violations of those rules in federal court and obtain civil penalties of up to $10,000 per violation.
So the language adopted in subsequent legislation and in your proposed bill would say that this law, the amended FCRA, could be enforced as if it were a commission trade regulation rule.
That is the equivalent of saying that an enforcement action can be brought in federal court in the name of the United States to obtain civil penalties, consumer restitution, injunctive relief and the like. That is the enforcement scheme presently in place for most of the consumer credit legislation passed since 1975, specifically the Equal Credit Opportunity Act and the Fair Debt Collection Practices Act.
It seems to us that violations of the Fair Credit Reporting Act are every bit as serious as violations of those acts and should be enforced in a parallel way.
Chairman LEHMAN. I agree. Thank you.
Mr. HILER. Thank you. Ms. Noonan, how many letters, phone calls a year do you get from consumers relating to alleged abuses or problems in the credit reporting area?
Ms. Noonan. We did a search of our records and submitted numbers to that question last fall. We have not done a revised tally in recent weeks.
Mr. HILER. Do you remember?
Ms. NOONAN. It was in the thousands. I don't recall the precise number.
Mr. HILER. Hundreds of thousands? Ms. NOONAN. No. Mr. HILER. Thousands? Ms. NOONAN. Yes. Mr. HILER. That is over what period of time? Ms. NOONAN. We tried to give annualized figures. I know that with respect to the Fair Credit Reporting Act, as I recall, the numbers had increased each year.
Mr. HILER. Thank you. So we have that in our hearing record from last fall?
Ms. NOONAN. Yes, sir, I believe so.
Dr. Guiton, you talked about Utah. Could you enlighten me a little more about the Utah law? It is in effect for whom in Utah?
Dr. Guiron. It is in effect for credit grantors. It is a state law that requires that credit grantors—those providing information to credit bureaus would notify consumers that they do in fact report to credit bureaus and that they do so on a regular basis, and they can tell them the frequency of their reporting and the kind of information that they report so that before consumers have a negative report, they will be aware of how the credit grantors use this information.
Mr. HILER. This would be for Utah based credit grantors?
Mr. HILER. Let's say you are Sears and you got your Discover card going out, and it is coming out of some State in North Dakota or somewhere.
Dr. GUITON. It would basically be outside of the code. It is for consumers in Utah. Anyone dealing with consumers in Utah is required to notify them.
Mr. HILER. Then who is distributing-anyone who would have the type of information that would be reported to a credit bureau for any consumer in Utah is required to put the information you mentioned on a billing statement or an annual report?
Dr. GUITON. They can do it on a billing statement, or they can make it a separate statement in the envelope as a blanket statement.
We have talked with people at the Utah Association of Financial Services. They believe the law is working well. They have no problems with it.
Mr. HILER. It is an annual disclosure that is required? Dr. GUITon. No. However, they could do it annually. Mr. HILER. What is required? Dr. GUITON. They must do it before there is a negative report filed on a consumer.
And it is often done as a blanket statement, which is on each monthly bill.
Mr. HILER. Let's say I am a consumer and I didn't, haven't paid my American Express bill for 180 days. American Express would notify me that, if you don't pay your bill, we are going to report this information?
Dr. GUITON. Right.
Mr. HILER. If they put it on the monthly statement that said, “If you don't pay your bill, you will get reported”. Does that suffice or does it have to relate to a particular billing not paid?
Dr. Guiron. They can put it on the statement, and that will suffice.
Mr. HILER. And that will suffice. All right. By chance do you have a copy of what it is they put on it?
Dr. GUITON. We will get you a copy. [The information referred to can be found in the appendix.] Mr. HILER. Great. Thank you. Ms. Noonan, in the area of the pre-screening, I think this is one of the areas that troubles me most in the sense that I have a hard time reconciling pre-screening being kind of the invasion of privacy that we are all concerned about. Let's say that I am pre-screening a prescribed list to send out an inquiry as to whether someone is interested in a home equity loan and a list comes back. I then send out that offer of credit. The person no longer owns a home. What do I do then? Am I still required to give the offer?
Ms. NOONAN. Well, the commission's commentary acknowledges that there may be some rare and unanticipated events that would justify a revocation of the offer of credit. I think the example that you just gave is a good illustration. Other examples might be a bank that has a marketing area exclusively within the State of Maryland, for example, or Virginia. By the time I receive the offer, I have moved to California, or perhaps I have, you know, moved to Alderson Women's Prison. Those would both be examples of situations where the creditor had a clear intent to offer credit at the outset, and the event that intervened was wholly unanticipated.
Mr. HILER. Bankruptcy?
Ms. NOONAN. I think that it is unlikely that bankruptcy would occur in a very brief period of time, weeks generally, between the pre-screen and the time that the consumer responds.
Mr. HILER. Losing a job?
Ms. NOONAN. Those are the sorts of events that happen after credit is extended in a certain percentage of instances every time credit is extended.
Mr. HILER. Doesn't it increase? In other words, as the time period increases, don't the instances of that type of activity occurring increase?
Ms. NOONAN. Yes.
Mr. HILER. So that what we are saying here is that by doing this, we will undoubtedly increase the cost of providing the credit?
Ms. NOONAN. Well, let me say that in my experience creditors who have used pre-screening without post-screening, that is have made a pre-approved offer, and they have honored it have found their loss experience to be quite favorable. There are undoubtedly situations where the consumer's credit worthiness declines after receiving the offer just as it declines after receiving credit for which they have applied in a more traditional manner.
The reason, though, for the commission's pre-screening interpretation was not because we thought that creditors ought to be denied this information. Rather, we were trying to interpret the Fair Credit Reporting Act in a way that was most consistent with the language and with the intent of the statute. We have a statute that doesn't specifically permit pre-screening as a permissible purpose at all. There are certainly those who think pre-screening ought not be permitted under the FCRA as it presently exists. There are others that think pre-screening ought to be permitted in a much freer manner than the commission has interpreted it.
The commission in 1973 made a difficult legal call and a pragmatic decision, I believe, to permit pre-screening with some limitations. It would be helpful if the act were more specific. It certainly would be helpful to us in interpreting the act if it gave more guidance on this point. We saw no bright line between offering credit to a consumer and offering credit with a lot of qualifications or something that amounts to no more than an invitation to apply for credit. It is very reasonable for credit grantors to say I would like this additional piece of information or that additional piece of information or 12 additional pieces of information.
But it didn't seem possible to the commission in final analysis for us in our interpretive role rather than a rule making role to say, yes, you can ask for this and you can consider that in a subsequent evaluation, but not the whole ball game.
Mr. HILER. Do you in your own mind or in the commission's mind, is there a distinction between pre-screening for the providing of credit and pre-screening for other marketing activities?
Ms. NOONAN. Yes, sir. Our pre-screening interpretation permits pre-screening for an offer of credit and pre-screening is not permitted otherwise.
Mr. HILER. So that-your interpretation does not have the force of law?
Ms. NOONAN. It is our enforcement position.
Ms. NOONAN. It means the position that will guide the commission on making decisions on bringing enforcement actions in our law enforcement role.
It is intended to guide the industry and consumers as to the commission's view of what the law requires.
Mr. HILER. What, Dr. Guiton, you mentioned, I think not so much in your statement but in response to a question that there is no free lunch and that there are costs and that you do have concerns about those types of costs.
Can you quantify what you think is a legitimate increase cost to be borne with the passage of any of these pieces of legislation?
Dr. GUITON. Well, at the present I think there are none that charge over $15 for a report.
Mr. HILER. I am talking about increase in cost that will come about because of the prohibition of certain types of activities and the increased cost of the procedures that have to be followed.
Dr. GUITON. You mean the cost to the bureaus?
Mr. HILER. Well, to the bureaus and ultimately to the provider of the credit.
Dr. GUITON. Well, I think it would-
Dr. Guiron. I don't have a specific number on what it would cost. But, I have talked to people in the industry, and they have shared with us what providing information does entail. It is a costly endeavor. We know that with the increase in postage as well that there will be an increase in cost across the board.
I don't know percentage wise exactly what it would be.
Mr. HILER. There is no particular cost that would make you say the cost is too high for what we are trying to do?
Dr. GUITON. I am sure there is a cost that would be too high, absolutely
Mr. HILER. You don't know what the costs of any of these things are?
Dr. GUITON. No, not at this time.
Mr. HILER. You are just surmising that the cost has not gotten too high yet?
Dr. GUITON. Right. I have not had complaints on the cost from consumers.
Mr. HILER. What about the cost in terms of fewer people being provided credit? Is that a cost that has to get factored in?
Dr. GUITON. I don't know. The reason I don't know is there is also the cost of more people who do get credit not being able to pay for it.
Mr. HILER. You mentioned the Williams' Report.
Dr. GUITON. Yes, on the errors. He did a report on credit reporting and came up with a different percentage of errors that were found.
Mr. HILER. Could you provide that to the committee, that report. Dr. GUITON. Certainly.
Mr. HILER. Maybe we will put it in the record. I would appreciate seeing that report.
[The information referred to can be found in the appendix.]