sumer does not apply for credit in the first place, that he or she ought not to be damaged by the effect of a negative inquiry on their credit reports.

I should point out in testimony in September, I believe it was Elgie Holstein pointed out that sometimes pre-screen inquiries are getting through and being listed as inquiries on credit reports. We would request that be looked at by the committee.

My testimony goes into several case studies from consumers we have contacted and who have contacted state agencies. We believe the problem is, as I said, much more serious than the industry lets on. We would urge you to take strong notice of what we and the other consumer advocates here have to say. I urge you to work to bring these three bills into one bill and see what we can do about getting something out this session.

Thank you very much.

[The prepared statement of Edmund Mierzwinski can be found in the appendix.]

STATEMENT OF ELGIE HOLSTEIN, DIRECTOR, BANKCARD

HOLDERS OF AMERICA

Chairman LEHMAN. Mr. Holstein, you are next, representing card holders.

Mr. HOLSTEIN. Thank you.

I am Elgie Holstein, Executive Director of Bankcard Holders of American, a non-profit consumer education group that focuses exclusively on consumer credit issues. I think we have heard articulate defenses of the need to change the Fair Credit Reporting Act, some 20 years old now, but I think it would be a good idea to restate the problem that brings us all together this morning. The fact is, the information in our personal credit files makes the difference between a thumbs up and a thumbs down on whether we get a home mortgage, an automobile loan, a college loan, even a job.

As long as this sort of control over our personal financial lives remains in the hands of the private sector, it is not unreasonable for the Congress to revisit the ground rules under which consumers have an opportunity to find out what is going on with their personal credit lives. Congressman Hiler asked earlier about the cost of reforming the system, some of the proposals before you today. I think it is important to answer that question now by asking, what costs can we attach to the loss of a job because of inaccurate information in a credit report? What cost can we attach to the loss of a home because at the last minute a mortgage settlement falls through?

I think that when we consider costs throughout this process, we need to take those very real human costs into consideration. To emphasize that our recommendations to you today are based on the real world experiences of honest people, we have attached to our testimony a large number of letters we have received from consumers we have tried to help over the last couple of years, so you can judge for yourselves whether the credit reporting system is giving consumers the fair shake the FCRA was intended to provide.

I won't go through my entire testimony but skip to certain key sections. I want to touch first on the issue of disclosure of the con

tents of credit reports. The proposed legislation addresses two important aspects of credit file disclosure to consumers: How much the consumer will pay for the disclosure, how the disclosure will be made. We believe that one of the most effective controls over the accuracy of credit reports is to open these reports to the scrutiny of the subjects of these reports, consumers themselves. By doing so, the accuracy of credit files will be improved, to the benefit of the credit community and consumers alike.

Providing easier access by consumers to their credit files, including free copies of their credit reports, will facilitate that process. Given the obstacles consumers face-the high cost of ordering their credit reports, the fact that once they get them, they have great difficulty deciphering what they say, and certainly the difficulty they face in understanding what their credit reports mean to lenders-often means consumers don't order copies of their credit reports. They are likely to assume that if they have never been aware of any credit problem, the information in their files must be correct.

The credit industry, of course, maintains that the current system, which offers a free copy of your credit report after you have been turned down for a loan, takes care of this problem by enabling the consumer to obtain a copy of his credit report and correct it. The problem with that approach is that by the time the consumer goes through all the steps, the credit offer may end, the mortgage loan lock may expire and the consumer may be forced to look for credit elsewhere. Even when a consumer receives so-called free disclosure of his credit report under the current law, it really isn't free. The reason is that consumers find that in many cases subscribers have reported inaccurate information to several different credit bureaus and they have to pay those credit bureaus to see whether or not that inaccuracy exists on those files as well.

Often after a dispute they have to go back and order a copy of their first credit report, pay for it and again see whether or not the first credit bureau has in fact followed through to remove the successfully disputed inaccuracy.

Our recommendations for changes in the FCRA are predicated on the view that consumers who pay for the system and whose personal financial lives are the raw material of the system, have a right to know what is being said about them and to whom. We believe that consumers will not mind paying a fraction of a cent more, for example, for a pair of sneakers if it means opening the door to the mysteries of their credit reports.

We support the provisions of all three bills, Mr. Chairman, that would give consumers free copies of their credit reports upon request. In addition, we believe consumers, of course, should continue to be entitled to a free copy of their report in the case of adverse action. In the case of disputes that prove to be the result of mistakes by the subscriber, we believe that the consumer should be entitled to free disclosure of his file from any and all of the credit bureaus to which inaccurate information previously was reported. Also, consumers should be provided with actual hard copies of their files by subscribers when reports are used as the basis for adverse action. Those subscribers who are not able to provide hard copies of reports should be required to contact the credit bureaus

and have the credit bureaus supply that hard copy to the consumer within a reasonable time frame, such as two weeks.

Finally, both your bill, Mr. Chairman, and Congressman Schumer's bill would require written disclosure of credit files. While most credit bureaus do that already, some do not. We certainly support that provision of your bill.

Standards for reinvestigation is another important part of the bill because we consider the dispute and reinvestigation process as potentially the most effective means of assuring accuracy in credit reports. Our experiences have shown many reinvestigations go no further than a perfunctory contacting of the original source of the information. Reinvestigations usually consist of a standardized request from the credit bureau to the creditor asking the nature of the dispute and asking the creditor to respond. We found it is the policy of some credit bureaus to refuse to modify information on a report unless the subscriber reports the change.

Thus, a consumer who is in the midst of a dispute and offers evidence upholding his position in the dispute may find that he cannot convince the credit bureau to change the mark unless the subscriber agrees to do so. Nothing in the FCRA requires either the subscriber or the credit bureau to take any further action.

Yet another problem with reinvestigations arises when previously-deleted information reappears on the report. Even if a consumer successfully challenges inaccurate information and the credit bureau corrects it, the same data may reappear on the report. This is because the magnetic tape systems used by subscribers are often not corrected during the dispute resolution process. We support putting a time limit of 30 days on reinvestigations.

Mr. Chairman, I think your provision is a reasonable one that allows for longer reinvestigation periods if the subscriber responds promptly and meets certain other requirements. But we would suggest that you incorporate the idea contained in the Fair Credit Billing Act and impose some sort of maximum time period. In this case we would suggest a 90-day limit on the total reinvestigation period. We support the provisions of Congressman Schumer's bill requiring creditors to take into account any information that a consumer provides that indicates the credit report information is incorrect or incomplete.

We also support the provisions of his bill requiring credit bureaus to disclose the name and address of any person contacted in a reinvestigation so the consumer knows who he can follow through with as that dispute proceeds.

The FCRA should be amended to require credit reporting agencies to establish procedures to ensure previously deleted inaccurate information does not reappear on the report.

Finally, we do urge the subcommittee to adopt the Credit Repair Act, incorporated as Title II in your bill. We will benefit by having corrections made promptly. Once we do that, Mr. Chairman, the burden on the industry of always keeping consumers at arm's length because of their fear of being exploited by creditors will hopefully be lessened.

Chairman LEHMAN. Thank you. Next we will hear from Michelle Meier.

STATEMENT OF MICHELLE MEIER, COUNSEL FOR

GOVERNMENTAL AFFAIRS, CONSUMERS UNION

MS. MEIER. Thank you. I am Michelle Meier, counsel for Government Affairs with Consumers Union, an organization founded in 1936. We publish Consumer Reports m'agazine. We have over 4 million subscribers and 300,000 members. We commend you, Mr. Chairman, and Mr. Price, a cosponsor of H.R. 4213 and Mr. Schumer for introducing legislation on this very important subject.

We believe that H.R. 4213 and the companion pieces of legislation take important steps forward in correcting some of the problems presented by the original Fair Credit Reporting Act that have come to light as problems during its implementation during the past 20 or so odd years.

We are very supportive of some of the significant improvements, although we do believe that in certain areas the problems that are addressed could be addressed with some further corrections.

Also, I have to state that we are very concerned about the prescreening or the permissible purpose section to the extent they address the prescreening question. Although I would have to say, and I will get to this a little bit later, that I share Ms. Noonan's expression of at least some concern that what I believe was intended to be a section in the bill to address the prescreening situation does allow some disclosures actually outside of the prescreening situation and beyond the prescreening for credit situation.

My testimony goes through the important sections of the legislation, our response to those sections, our description of why we think those sections will improve current FCRA, and our recommendations for how to improve those sections where applicable.

Here I will just briefly go through the four general areas in which I think the bill is a big, significant step forward for consumers in the areas of privacy and accuracy of credit report files, and then close out by addressing the prescreening concerns that we have.

We believe that H.R. 4213 is significant in requiring credit agencies or consumer reporting agencies to disclose to consumers their rights under the Act. Time and again, we have seen problems and have heard from consumer complaint agencies and local jurisdictions and other sources that rights under federal legislation, including FCRA, are simply not understood by the consumer and therefore not exercised. So the disclosure of the rights provisions is extremely important.

We also believe that the provision in H.R. 4213 that gives the consumer access to the entire file is a significant step forward. The nature and substance disclosure, which is all the information the consumer is entitled to at this point, simply doesn't do what I think is one of the goals of the original FCRA and any amendments to FCRA, which is to enlighten consumers as to what a credit report is, what types of information are included in it and the information they need to see if there are any inaccuracies in the report.

We are supportive of the addition to FCRA in section 4213 of new duties for the providers of information to credit reporting agencies. We think that the requirement that those who furnish in

formation maintain procedures, reasonable procedures to insure maximum accuracy will be a big step forward in insuring accuracy. After all, the accuracy of information maintained by consumer reporting agencies is only as good, to a large extent, as the information they get from providers. We do believe in this area, though, that the providers of information should also be given duties in the reinvestigation context, again, towards the goal of insuring that this information is accurate. Once information is determined not to be accurate, the provider should inform all the recipients of that information, that is, other credit bureaus, that the original information is inaccurate so the information can be corrected for their files.

In that context, in the reinvestigation context, we think it important that the law specify that the provider of information, once contacted by the Consumer Reporting Agency that there is a reinvestigation, that is, some question about the accuracy of the information it provided, should have a duty to respond. Once it is determined that the information is inaccurate, if that is the case, the provider of the information should have to correct it in its own files and disseminate the corrected information to those to whom the originally inaccurate information was disseminated.

Time and again, we hear problems of consumers who go through a long, arduous process getting inaccurate information corrected. Only years down the road the same inaccurate information pops up on another credit agency's files.

The tightened reinvestigation procedures will also go a long way towards one of the major goals of the Act, which is accuracy. We do think, though, that the 30-day reinvestigation limit, which is stated as a general requirement in H.R. 4213, should be a definitive requirement. In other words, the exception provision which allows credit reporting agencies to go beyond the 30 days if the agency deems it necessary should be eliminated. The information, if not verified within 30 days, should be deleted subject to reinclusion in the file once it is verified.

On the permissible purpose question, which gets into prescreening, first I would like to say I strongly agree with Mr. Schumer, who raised a point that tends to get overlooked here, which is that by describing a certain collection of data as not a consumer report under the Fair Credit Reporting Act, all the protections of that Act don't apply. This results in a system that operates by loophole, unintended loophole. The problem here arises because the consumer report, by definition in the Act, is defined as information that is collected or intended to be used for certain purposes. That definition cross-references to the permissible purposes section of the Act. There are two problems here. One is there have been courts that have found that because of the circular definition, if what would otherwise be a consumer report is not provided for a permissible purpose, then the FCRA does not apply. So that what would otherwise be an impermissible disclosure is allowed with impunity. There is no violation of the Act found. We think that is a great misinterpretation of the original Act and hopefully one that will be explicitly rejected during the course of the legislative process here. Second, let's realize that no matter what we say about prescreening here, if an agency collects what is otherwise information com