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Mr. HILER. Mr. Chairman, obviously my time has long since expired. I yield back.

Chairman LEHMAN. Thank you. I would mention on the issue of charging a consumer for the report, right now states often regulate in that area. I think California has a limit of $8.00. I think Maine has $2.00. I think New York is somewhere in between. What we have now is a different fee in every state where states have chosen to limit it.

I am going to recognize the Members in the order in which they came. I know Mr. Schumer has an interest here. I will get to him after Mr. Price.

Mr. PRICE. Thank you, Mr. Chairman. I would like to pick up on the pre-screening for a moment. Am I to understand from your statement that the FTC's position is that the permissibility of prescreening is contingent upon a firm offer of credit?

Ms. NOONAN. The word "firm" isn't used, but I would say generally yes. That is it anticipates that the creditor intends to give credit to everyone who receives the solicitation.

Mr. PRICE. But is it also your position that you are willing to relax that position if the consumer is informed in advance, as in the Lehman bill? Could you clarify that? It is not totally clear to me from your statement what you mean.

Ms. NOONAN. Well, as we understood the Lehman bill, the optout provision would be in addition to the FTC's interpretation of the Fair Credit Reporting Act. But we, frankly, as I tried to indicate in my statement, weren't certain of that from the Act.

Mr. PRICE. So the requirement that an offer of credit be extended would remain whether or not the opt-out provision is in place?

Ms. NOONAN. Well, it certainly depends on whether or not there are any other changes to the proposed legislation. But with no other changes. I believe our answer would be yes.

Mr. PRICE. You indicate a favorable disposition toward the optout provision as drafted, but you do leave yourself a little room for maneuver in discussing the cost issue. You note that some concern has been raised about the cost of these provisions and that there might be some other ways to approach the matter.

What might some of those alternatives be?

Ms. NOONAN. Perhaps the industry is better situated than the commission is to inform the subcommittee as to the various costs of different alternatives.

What we are committed to is a meaningful disclosure of the right to opt-out. That is, one that consumers receive at what Dr. Guiton called a teachable moment, and would be clearly written and understandable and easy to exercise.

Now that need not come from the credit bureaus. Indeed, the credit bureaus have made to me the excellent point that credit grantors who have regular communications with consumers might be able to provide that at a significantly lower cost.

The commission isn't vested in it being provided by one party or the other. Indeed we would favor the most efficient approach, the most economical and efficient approach in that regard.

Mr. PRICE. Dr. Guiton, I gather you and your office are convinced that pre-screening is a problem, that there are significant privacy concerns here. Is this something that you hear a great deal about?


Some users that do a lot of pre-screening dissent from this. They suggest there is no privacy invasion in pre-screening information because no individual information is revealed that the prescreened list is often sent to a third party mailer, so forth and so on.

From your contacts with consumers, what is your sense of consumer feeling about this issue, about the genuineness of the privacy issue involved?

Dr. GUITON. Well, it is interesting. Just yesterday the Lou Harris Poll was released on privacy. There were questions addressed on the issue of pre-screening. When asked the question directly whether or not they felt pre-screening was acceptable, 76 percent of the public said they thought that pre-screening of credit records was not acceptable.

However, when the question was then reworded to explain why direct marketers do this and what benefits consumers receive, then 67 percent of the public felt that pre-screening was acceptable under those conditions.

Mr. PRICE. What were the conditions?

Dr. GUITON. When they have been told what the benefits are that derive from pre-screening and what pre-screening is about.

Mr. PRICE. They have given their explicit consent?

Dr. GUITON. No. This is saying they then believe by 67 percent that pre-screening is acceptable for those purposes. That is the benefits of direct marketing. Our approach is that we believe prescreening certainly could be useful, but under certain conditions, one being that the consumers are told that pre-screening does take place and that they are given an opportunity to opt-out and say, “I don't want my information to be used in that way.

Mr. PRICE. What is your positon on the FTC ruling as to the offer of credit?

Dr. GUITON. The FTC is dealing with their interpretation of the law as it stands, which is more legalistic. I won't take exception with that. I am not an expert in that area.

Mr. PRICE. Would you defend that as an essential protection of the consumer?

Dr. GUITON. I would say consumers should have the choice. In essence, I believe the consumers should be able to determine whether they want to receive offers of credit or offers of other products by information derived by pre-screening, and give them the choice. I would not suggest taking it away without the option being offered.

Mr. PRICE. So your position is that the crucial protection is the opt-out provision?

Dr. GUITON. The knowledge and the opt-out. I believe Ms. Noonan said they would look to opting in for those purposes if that was the case, for general marketing purposes. Opting in is certainly another approach. Consumers today oftentimes take things for granted. Many times even when they want something, they don't realize they have to opt-in. I believe consumer education is critical, the understanding of what it is they are being offered and how they can best protect themselves.

Chairman LEHMAN. Mr. Schumer.
Mr. SCHUMER. I have one question.

Your regulations, Ms. Noonan, say it would be permissible if the solicitation is for credit, not for other products. I understand a number of credit bureaus have a different interpretation.

They first use their credit files for non-credit marketing purposes or allow others to use them for non-credit marketing purposes. Time sharing resorts and lots of other things.

What the bureaus in effect are saying is they found a loophole, in fact, that pre-screening is not covered by the Fair Credit Reporting Act at all. So my question to you is is what they are doing for non-credit purposes illegal?

Secondly, do you think that this kind of way of operating, sort of business by loophole in regard to confidential credit acceptable?

The question is right down the middle.

Ms. NOONAN. That is a very direct question. I would say, first of all, that each of the major credit bureaus offers many dozens of services. We need to be specific about precisely what information is being shared with third-party marketers.

We hope that the commission's commentary on the FCRA has corrected any mis-impression on the commission's view of the law and has closed those loopholes. That will be our enforcement position.

Mr. SCHUMER. In other words, if credit bureaus are using this information for purely non-credit purposes, allowing it to be used for purely non-credit purposes, you will start enforcing the law?

Ms. NOONAN. By this information, we are talking about the information that is defined in the Fair Credit Reporting Act as information that would constitute a consumer report.

If that is being disseminated for impermissible purposes, we would absolutely consider that to be a violation of the law.

Mr. SCHUMER. Thank you, Mr. Chairman.
Chairman LEHMAN. Thank you very much.
Members may have additional questions.
I know I do.

We will submit them in writing to you. Any other Member may do the same.

[The information referred to can be found in the appendix.]

Chairman LEHMAN. Panel two will be Ms. Janlori Goldman, Mr. Ed Mierzwinski, Mr. Elgie Holstein, and Ms. Michelle Meier.

Mr. Schumer has an opening statement.
Why don't I give you the opportunity to summarize now.
Mr. SCHUMER. I can do that from here.

Chairman LEHMAN. If you want to make a statement, that is fine

The Chair is going to recognize Mr. Schumer for a statement from the dais.

Mr. SCHUMER. Thank you, Mr. Chairman.

I apologize for not being here to testify with Mr. Rinaldo. With the committee's consent, I would like to add my statement to the record and just summarize it.

Chairman LEHMAN. Without objection.

Mr. SCHUMER. Mr. Chairman, I appreciate the opportunity to appear before the subcommittee this morning in regard to the Fair Credit Reporting Act (FCRA) and I want to commend you for your leadership in assuring that consumers are given the protections and information necessary in the complex and treacherous world of credit information.

In the modern era, one punch of a computer button can instantly deliver to anyone with a terminal more confidential information about an American citizen than a private detective could unearth in a month. As a result of technology, the privacy of American citizens is imperiled more than at any time in our history, making the efforts of Congress to protect those citizens, currently embodied in the FCRA, critical.

While the FCRA does provide substantial protections, four changes during the 20 years since its passage have fundamentally altered the balance that was stuck between the right to privacy of consumers and the often conflicting needs of business to have access to credit information :

First, technology, computerization has enabled credit bureaus to obtain and utilize far greater amounts of sensitive information and to link that information to other databases including the phone books and census records.

Confidential information is being used in ways that could never have been anticipated 20 years ago.

Second, arbitrariness, the granting of consumer credit has become a much more computerized process dependent upon profile "screens" which select good statistical credit risks and reject others.

While more efficient, this computerized screening process is also more arbitrary with little if any considered, human judgment. Small errors take on enormous importance when no human being is involved.

Third, monopoly power, the credit bureau industry has consolidated dramatically in the past few years, increasing the amount and comprehensiveness of information held by each of the three major credit bureaus. There is not even full competition among the big three because each of the bureaus has a near monopoly on the credit report business in particular regions.

Fourth, expanding use of credit information, credit files are now regularly used by employers to check up on their employees, by sales paper at car dealerships and similar establishments to assess the buying power of customers, and by marketers to produce mailing lists for everything from credit cards to time-sharing resort complexes.

These technological advances have increased the availability and usage of credit information at the expense of the right to privacy of consumers. The balance set in the original act must be redressed to compensate.

I am particularly troubled that certain credit bureaus have sought to create and exploit possible loopholes in the FCRA to expand the uses to which they can put consumer credit information. Some credit bureaus claim that, under certain circumstances, marketing lists developed from credit databases do not constitute credit reports and, therefore, are not subject to the protections of the FCRĂ.

Business by loophole, particularly in an area as sensitive as the privacy of credit information, is intolerable.

The Congressional Research Service and, in most respects, the Federal Trade Commission agree that the FCRA currently prohibits the use of credit information for marketing purposes.

It is somewhat amusing, then, to hear the angry reaction from the credit bureaus to a provision in my bill that restates current laws prohibition. They love their loophole, I suppose.

There is a third reason for fixing the system and it is a very human one: consumers are being hurt by the system in its current form. Since I have been involved in this issue, I have received hundreds of personal stories of frustration and, in some cases, financial ruin. Their problems are real and not unique.

They dramatically demonstrate how important credit information is and how crucial it is that the act designed to protect that information is effective and comprehensive. The potential damage to people is too great to just leave things alone.

I have a list of the examples which I will forego and put them in the record.

[The information referred to can be found in the appendix.]

At the beginning of this year, Mr. Chairman, you took the lead in highlighting this important issue. Based on testimony I heard at your hearing and on subsequent investigations, I developed and ultimately introduced legislation to reform the FCRA.

Subsequently, you developed his own legislation and I was honored to be among the original cosponsors.

The protections provided to consumers by those two pieces of legislation say better than I can today what it is I hope that Congress will ultimately pass. Regardless of which vehicle ultimately becomes law, I want to highlight the following issues.

Pre-screening and target marketing, the usage of credit file information to generate mailing lists presents privacy concerns as sig. nificant as those gathered when a full credit report is provided. If we do not restate and enforce the current apparent prohibition on pre-screening and target marketing, it is imperative that we explicitly ensure that any alleged loophole is closed.

If this information is to be used for marketing, it must be subject to protections in the FCRA and consumers must be made aware of how the marketer got their names and how to prevent further use of his or her credit information. We must also guarantee that sensitive information is not distributed to marketers.

Consumer credit bill of rights, at every possible step in the credit process, consumers must be made aware of the importance of credit reports and of their rights and remedies if they have a problem. To this end, an understandable "Bill of Rights” should be given to consumers each time they contact a credit bureau.

This information must also let consumers know which state and federal agencies are responsible for enforcing their rights and how to contract them.

Free access to your credit information. One of the things that outrages me the most is that when people are asked information about them, they are charged for it. One of the big three credit bureaus, the way I got involved in this issue is two years ago my district was blanketed with information from one of the credit bureaus saying we will correct any bad information we have about

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