you for $35.00. You will become part of our plan. That got consumers furious and with good reason.

This is information about each person, and that information belong to each person. Each person should have the right to check on it. To charge money for it doesn't make sense. There are lot of other ways credit bureaus make money in using this information. They don't have to charge the consumer for it. They now charge as much as $15.00.

You have mentioned some states are limiting it. I think it ought to be free.

Other issues which I will touch on briefly: Disputes, consumers must be guaranteed that disputed information will be investigated by credit bureaus rapidly, within 30 days, that credit bureaus will be required to take into account information that the consumer provides and that bureaus will follow established and publicly available procedures in conducting the investigation. That relates then to suppliers of information. Consumers get information deleted from their file only to have their bank report it to the credit bureau again.

Once the information is wrong, all the tentacles that went out originally to report that incorrect information should go out again to make sure that that information is corrected. So, we feel also there should be understandable format. I don't think I have to elaborate on that. Inquiries, creditors often denied credit if a consumer has a large numbber of inquiries often denied credit if consumers have a lot of inquiries in his or her file.

That seems that things are unfair and we need correction.

In conclusion, I thank the committee for their indulgence here. As an author of legislation on this subject, as a member of the subcommittee, I look forward to the testimony in working with you and other members of the subcommittee to craft responsible reforms to an important consumer protection that is rapidly losing its relevance in a changing society, the Fair Credit Reporting Act. [The prepared statement of Hon. Charles Schumer can be found in the appendix.]

Chairman LEHMAN. Thank you, very much, Mr. Schumer. We have 3 panels and in about 2 hours we have to vacate this room. I am going to try to limit each panel to 40 minutes as we go. We will start with Ms. Goldman, attorney for the ACLU.

STATEMENT OF JANLORI GOLDMAN, STAFF ATTORNEY, PRIVACY PROJECT, AMERICAN CIVIL LIBERTIES UNION

Ms. GOLDMAN. Thank you. I appreciate the opportunity to testify here today on the three bills before us on the Fair Credit Reporting Act. We welcome this hearing as we welcomed the hearing last September at which we also testified. We congratulate the three Members who did introduce legislation after that hearing.

We ask that our full statement be entered in the record.

Chairman LEHMAN. Without objection, we will put your statement in the record.

Ms. GOLDMAN. There are major problems with the Fair Credit Reporting Act. We have detailed what we think should be amend

ments to the law. We support the strongest provisions of the 3 bills that have been introduced.

We can take a conglomeration of them and hopefully this subcommittee will favorably report it. As a number of people have said this morning, an imbalance exists in the law. Consumers have very, very little control over the personal information about them which is currently held by consumer reporting companies and which is reported by credit grantors. Until they get some control back, until they are able to say how information about them should be used, until they have access to that information, until they get the information corrected, until they say who should be able to use it and for what purpose, the Fair Credit Reporting Act will continue to have loopholes, it will continue to be perceived as weak. Unfortunately, we will probably have to come back here year after year and continue to document the problems with the Act.

Let's start first with access. Consumers should be able to get a free copy of their report every year. They should not have to write to a consumer reporting company and ask for it. It should be sent to them every year for free. If for whatever reason they want an additional copy of that report, we would understand a moderate fee being charged for that report.

In this way, consumers will know what is in their credit report, what potential problems exist, flag those problems and get the information corrected. That would benefit everybody in this situation.

At the heart of access is notice and consent. Consumer reporting companies collect information. They use it for a number of purposes. The consumer is left out of that information bargain, as Dr. Alan Westin coined the phrase yesterday. We need to put consumers back into the bargain. They need to be able to say they don't want information used without their consent. Our solution to this problem is somewhat similar to the one that Congressman Lehman and a number of other representatives have endorsed, which is that consumers should be able to say for any purpose, whether it is marketing, whether it is credit, whether it is developing consumer profiles, that information should not be used without their consent, particularly in a transaction that does not even involve the consumer's initiation, where the consumer has not asked for their credit report to be checked.

On the issue of pre-screening, (a big issue here today). We think that any kind of uninitiated disclosure of personal information from a credit report is a violation of the Fair Credit Reporting Act. So even if a marketer or a credit company goes to the credit bureau and says "here are the following criteria, please give us a list of people who fit this criteria," that in itself is a disclosure of information from the consumer reporting company and should be limited.

Another big issue here is data quality. I know you have heard a number of different percentages of inaccuracy, from one to 40 percent. The numbers that we do have about inaccuracy range from 30 to 40 percent of information in people's files is inaccurate, incomplete or outdated. People don't even know the information is inaccurate and outdated. They often have a difficult time finding that out until something bad has happened to them, they have been

denied employment, or lost a credit opportunity. Some adverse consequence has to happen before they are then notified that there may be bad information in their credit file.

With such an incredibly high percentage of inaccurate information, the information is inherently unreliable and the consumer reporting company has an obligation to correct that information. They have an obligation before the consumer contacts them to do internal audits so we don't have to hear anymore about how the 30 to 40 percent numbers are wrong, that they are inflated.

We have heard this from the industry for a long time. If those numbers are inflated, I challenge them to come forward and show us how they are wrong. Let the industry perform internal audits, let them take 2000 credit reports, check the accuracy of the information, verify the information and come back and show that the 30 to 40 percent number is inflated.

We don't have any numbers other than the ones I have cited to you to prove otherwise. If there is a dispute, again, after an adverse consequence has already occurred to a consumer there should be very rapid resolution of that dispute, 30 days, and only in very limited circumstances, an extension.

One of the problems with the Act is that consumers right now have the burden of enforcing the Act. The law is weak and a number of loopholes are being used. What we would like to see, and the FTC would like to see, is to give the FTC broader authority to enforce and oversee the Act, to report to Congress on a regular basis about industry practices that we are currently unaware of, to report about problems with the Act.

As Congressman Hiler asked the FTC, how many complaints do you receive? That is not a very fair question given the FTC's current role. Consumers have no idea they should contact the FTC if they have a complaint about a credit reporting company. Some people contact their state consumer affairs people. Some people throw their hands up. They have no idea where to turn. There is no oversight mechanism, no concerted centralized oversight mechanism in the Fair Credit Reporting Act. We don't have the numbers that we need. As far as remedies, individuals need a strong remedy to enforce the Act. I agree with the civil penalty provisions in a number of the bills. We strongly support them.

Not only do we have witnesses here today who support amendment to the Fair Credit Reporting Act, there was a Lou Harris survey released yesterday that showed, as we have seen before, that people are very deeply concerned about their privacy. They fear that new technologies are eroding their privacy.

They want to see stronger protections. At the heart of their concern is their inability to control personal information about themselves once they have given it over. It is not so much that they don't want to tell a credit grantor information about themselves in order to get a credit card, in order to get a mortgage. It is not even that most people would object to being marketed to. It is that once they give the information over for one purpose, they object to having it used for any other purpose without their consent.

That is a central principle of fair information practice policy. It has been for 20 years. It has been the Administration's policy a

long time. We would like to see that principle put back into the Fair Credit Reporting Act.

An over arching problem is data bases are being compiled on people from many different sources. We are seeing marketing having a tremendous impact on the credit reporting industry. Even as we said earlier, new technologies are threatening to erode privacy protection and other civil liberties. We need to protect consumers in this way and grant them new protections.

On the credit repair provision, as Congressman Schumer said, the TRW credential services and credit repair clinics cropping up are a real problem. What they do is point out that consumers are at a disadvantage. They feel desperate about information in their credit reports. They feel that they have lost control over that infor

mation.

That is why credit repair clinics are successful. That is why TRW, as it testified in September, has made millions of dollars already off the Credential Services. People don't feel they can just write to the credit reporting company and get a copy of their record, and get it corrected.

You are probably not going to get the impression that the industry supports the legislation before you today. What we would urge is for the industry to look at the Harris survey released yesterday, actually commissioned by Equifax, and to say a mandate for legislation exists, that consumers are concerned. I think we can reach consensus on a number of proposals before us today. We look forward to working with you on that.

I will be happy to answer any questions at the end.

Thank you.

STATEMENT OF ED MIERZWINSKI, CONSUMER LOBBYIST, U.S.

PIRG

Chairman LEHMAN. Mr. Mierzwinski.

Mr. MIERZWINSKI. Thank you. If there were a movie to be made about this problem, it would be called Nightmare on Credit Street. If a book were to be written, it would be called How the Credit Bureau Ruined My Life.

We have looked at consumer credit reporting complaints over the last six months since we testified in September. We find the problem to be very serious. We also find it to be very persuasive. In the recent past there have been stories in Time magazine and in the Washington Post where reporters have trouble with their credit records. One reporter writes "for the past two years I have been the victim in a case of mistaken identify that has ruined my credit rating. Despite my efforts to rectify the situation, I am beginning to fear my epitaph may read, Here lies a dead beat."

Another reporter writes "not only was my credit a disaster, I was officially dead." Reporters are people that gather information for a living. They access computer database on a regular basis, they talk to people on the phone. They shouldn't be subject to the Nightmare on Credit Street. But they are because it is so difficult to deal with these agencies.

We believe there are five serious problems that the bills introduced by you, Mr. Schumer and Mr. Rinaldo address. The first

problem is credit reports with serious errors which affect an individual's access to credit and insurance and employment. We have looked at testimony of the industry association and the big three of the industry from September. We find it flawed. The industry essentially said that about 9 million consumers contact them each year out of the 400 million reports given. Only 3 million or fewer of these reports are then corrected. 3 million is a small percentage of 400 million, they argue. The number they should be looking at is 3 million, is a large percentage of 9 million. 3 million which is 33 percent of 9 million.

It concurs with the information from the already quoted report from James Williams of Consolidated Information Service. Mr. Williams and his company handle large credit reports for mortgage grantors in the New York area. They look at people considering getting mortgages over $20,000. As Mr. Williams told me, they have to be correct. They have to be right. They look at all three of the credit reports if they can. If they can get a report from TRW, Equifax and Transunion, they will on a consumer. They analyzed 1500 of their reports and found that errors ranged up to 43 percent. I believe that the 33 percent number of 3 million out of 9 million and the 43 percent number gives us a much better correlation as to how many errors there actually are in these reports. If you take the 43 percent error figure and extrapolate it out to 400 million, you would find there are errors in 172 million credit reports. That is a very disturbing number to me.

Credit reports also have problems of obsolete information being reported. The second problem that happens when there are mistakes in credit reports is consumers face great difficulty finding out about errors and having them corrected.

Fourth and fifth are invasion of privacy. The first invasion of privacy is pre-screening. The second one is unauthorized access to credit reports. U.S. PIRG's view on pre-screening is the following. First, pre-screening should only be allowed when there is a proximate credit purpose. It should not be allowed in any situation for use by direct marketers or database creators or any other purpose other than an offer of credit to be made. Consumers should have the right to opt-out in advance of pre-screening. We believe that that right should be enforced by stricter regulations on the credit reporting companies.

That is, magazines currently have the magazine preference service located in the back of the magazine. That is okay for magazines, but in this area or this matter, we believe that the credit reporters and the users of credit reports should have an additional burden to notify consumers of their right to opt-out. Our testimony goes into some details about that. We understand that the industry is concerned about the FTC's current opposition to post screening. We would consider supporting an amendment that would allow post screening provided first that the opt-out is allowed. Second, that the offer in the pre-screen is clear and in large print discloses that it is not a "pre-approved" or "you have been selected because of your outstanding credit history" kind of a mailing. Third, we would submit that if you are denied credit on the basis of a post-screen following a pre-screen, that you would not have a negative inquiry on your credit record as a result of that. We believe when a con

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