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As a result, the availability of vital credit information could be reduced as creditors attempt to respond to this potential liability by restricting information furnished to credit bureaus.

The reduced availability of credit information would increase the risks and costs associated with extending credit, without corresponding benefits for consumers.

Moreover, CBA and ABA believe that creditors should not be required to provide disclosures to consumers each time information is provided to a credit bureau. Since tens of millions of items of information are reported to credit bureaus each month, the cost of providing such notices could be staggering.

Also, it is unnecessary to require creditors to provide a separate certification every time a credit report is requested. The Fair Credit Reporting Act currently prohibits credit bureaus from furnishing credit reports for impermissible purposes.

Those who intentionally access a credit bureau's computers to obtain consumer information without authorization are already subject to criminal sanctions under existing Federal law. As a result, attempts to obtain credit reports for impermissible purposes should be addressed by more vigorous enforcement of current law, rather than by unnecessary statutory changes.

If Congress nevertheless decides to enact amendments to the Fair Credit Reporting Act, we urge Congress to preempt corresponding state statutes and establish the Fair Credit Reporting Act as the national uniform consumer protection statute governing credit bu


That concludes my testimony. Once again, CBA and ABA would like to thank the subcommittee for the opportunity to testify on these important issues. I will be pleased to answer any questions the subcommittee might have.

Chairman LEHMAN. Thank you.

[The prepared statement of Mr. Heuer can be found in the appendix.]

Chairman LEHMAN. The next witness is Mr. William Bloom, vice president, credit sales and services, Saks Fifth Avenue, on behalf of the National Retail Federation.


Mr. BLOOM. Thank you, Mr. Chairman.

As we stated during the hearing that was held by this subcommittee in September 1989, it is retailing's position that the Fair Credit Reporting Act is working effectively. The existing legislation strikes a reasonable balance between two important interests-the consumer's rights to privacy, to access the consumer reporting agency's file, and to dispute information in that file, and the creditor's right to immediate access to credit reporting data that is complete and accurate. The creditor's access must also be at a price that is reasonable, because in the final analysis the consumer pays the costs initially borne by business and the prices charged for goods and services and in the finance charges that compensate creditors for extending credit.

My comments today will concentrate on three key concerns with respect to the provisions in the three bills that directly impact upon retailers as users of consumer reports and as businesses that furnish information to consumer reporting agencies.

The first issue is administrative enforcement of the FCRA. With regard to proposals to add rulemaking to the FCRA, the FCRA has worked well for nearly 20 years without the need to superimpose a layer of administrative agency rules. When it has been deemed necessary, as in the case of prescreening, the FCRA has issued an interpretation, and now has published an official commentary that explains a particular statutory provision in the context of a specific practice. This approach works effectively in the case of statutes that spell out consumers' rights and businesses' duties, such as the FCRA and the Fair Debt Collection Practices Act. Rulemaking should be reserved for statutes that demand the application of an administrative agency's discretion. The FCRA is not that type of statute.

The second issue is civil liability. With regard to the proposal to impose civil liability upon businesses that furnish information to consumer reporting agencies, we urge this subcommittee to reject such a proposal.

Section 112 of H.R. 4213 proposes to require that those who furnish information to consumer reporting agencies follow reasonable procedures to assure the maximum possible accuracy of such information, maintain detailed records of those procedures, and make those records available to anyone upon request.

Retailing is strongly opposed to any proposal to impose restrictions on companies that furnish information to consumer reporting agencies. Users of information do maintain records in an accurate manner. It is in their interest to do so. When there is an error, which occurs infrequently, there are procedures in place under the Fair Credit Billing Act to correct any such errors or to dispute items that cannot be agreed upon.

It is, however, not reasonable to impose upon creditors and other users an undefined standard of "maximum possible accuracy" of the information reported to consumer reporting agencies, particularly in view of the enormous volume of data that is regularly reported by creditors to credit bureaus. Even consumer reporting agencies, which are in the business of furnishing such information, have experienced difficulty meeting this standard, which applies to them by virtue of Section 607(b) of the FCRA.

For example, if to meet this standard there is an obligation to verify each item of information before it can be reported, and such a construction is possible, that would effectively eliminate the ability to furnish account history information to credit bureaus. Any report that is alleged to be inaccurate will give rise to the contention that the creditor failed to follow reasonable procedures to assure maximum possible accuracy.

The credit-granting process depends upon the free flow of current consumer reporting data. In the final analysis, consumers, the vast majority of whom pay their bills on time, also benefit from such a system, because it permits creditors to promptly respond to consumers' demands for credit and to extend credit to those consumers whose credit histories show that they are likely to repay their

debts as agreed. The system will break down if creditors can be sued for reporting an item of information in a manner that arguably did not assure maximum possible accuracy.

The result of imposing civil liability upon businesses that furnish information would be that virtually every delinquent customer will be assured of having a new cause of action in the event the creditor seeks to recover the balance due on the delinquent account. That is not warranted. Consumers already have substantial rights to dispute their account balance under the Fair Credit Billing Act provisions of the Truth in Lending Act. When those balances are overdue and not disputed, what in the past has been a straightforward case of seeking to collect the amount due will become threatened litigation by the debtor over the creditor's FCRA compliance. Challenges to the accuracy of the reported delinquent account will be commonplace, a situation analogous to consumers' pre-Truth in Lending Simplification and Reform Act allegations that the creditor failed to adhere to certain technical requirements of the Truth in Lending Act.

We urge Congress not to repeat that mistake. The FCRA should not be amended to impose civil or administrative liability upon businesses that furnish information to consumer reporting agencies.

The third and last issue is the permissible purposes to furnish consumer reports. Certain spokespersons for consumers have alleged that consumer injury occurs when prescreening takes place. We dispute those contentions. No person reviews the consumer's file as part of the prescreening process. A computer-to-computer match of creditor-supplied characteristics takes place. No "inquiry' shows up in the consumer's file as a result of it having been prescreened, and therefore other creditors cannot consider this information in making their credit-granting decisions. The consumer will, however, learn who prescreened the file should the consumer seek access to the file. No credit bureau file information is furnished back to the creditor or is given to other third parties as a result of the file being prescreened. All that results from prescreening is that consumers who do not qualify for the offer have had their files scanned by a computer and those consumers do not get the unsolicited offer. Those consumers have not had their privacy invaded in the sense that information about them has been furnished to a third party, and their only loss is that they do not get an unsolicited opportunity to receive credit. They are, of course, always free to apply for the credit plan of their choice; and in so doing, as a rule, their full credit bureau file will be reviewed. Those consumers who do qualify for the prescreened offer merely receive a solicitation that they are free to accept or decline.

Prescreening permits creditors to save costs by targeting offers to those consumers who will qualify and those consumers who are more likely to desire to receive such a solicitation. The ability to use prescreening is considered essential to retailers that wish to open a store in a new area. Without the capacity to reach new accounts in such areas, the ability to make a successful start is greatly hampered. In addition to the ability of existing businesses to expand into new markets, a prohibition on prescreening would unfairly prevent new entrants into the marketplace from soliciting

customers. Thus, it would be a highly anti-competitive measure. It would also force creditors to rely on other less reliable sources for lists of potential new customers.

Moreover, the prohibition on prescreening would not reduce the volume of unsolicited mail. To the contrary, it would increase such mail, because creditors would be forced to mail to a larger base of consumers offers to apply for new accounts rather than the current practice of mailing offers to open a new account.

Under longstanding FTC interpretation, which the FTC has just reaffirmed in its final Commentary on the Fair Credit Reporting Act, creditors must have a present intention to offer credit to all persons whose files have been prescreened. Both creditors and consumers benefits from the reduced costs that are attributable to the prescreening process. In sum, prescreening results in no injury to consumers that needs to be prevented. The practice is innocent in its operation and the benefits for both creditors and consumers are real.

With regard to the proposal in Section 102 of H.R. 4213 to prohibit prescreening unless consumers are notified of the right to reject the practice and they fail to opt-out, until it can be demonstrated that there is a significantly adverse impact on consumers from the limited access to consumers' files that prescreening involves, we believe that the substantial burdens incident to implementing the proposed opt-out system cannot be justified.

In summary, we cannot support the bills under consideration today for a number of reasons, the most critical of which is that they propose to create substantial compliance obligations and impose major civil and administrative liability upon the hundreds of thousands of creditors that report their customers' account payment history to consumer reporting agencies. That would be a drastic departure from the longstanding policy that Fair Credit Reporting Act compliance obligations and civil and administrative liability should be concentrated upon those companies that are in the business of assembling and disseminating third-party information. NRF strongly opposes any departure from this approach to regulating the field of consumer reporting on the ground that it would unfairly burden creditors and would be an open invitation to litigants to challenge otherwise legitimate and reasonable business practices.

Thank you, Mr. Chairman. I will be pleased to answer any questions.

[The prepared statement of Mr. Bloom can be found in the appendix.]

Chairman LEHMAN. Thank you very much.

The next witness will be Mr. Kenneth Hoerr, Chairman and CEO, USA Financial Services, speaking on behalf of the American Financial Services Association.


Mr. HOERR. Thank you, Mr. Chairman.

My name is Kenneth E. Hoerr, Chairman and CEO of USA Financial Services, Inc., Peoria, Illinois, a consumer finance company operating 195 branches in ten states. I am a director and member of the Government Affairs Committee of the American Financial Services Association, AFSA. I would like to express my appreciation for the opportunity to present AFSA's view on proposed legislation to amend the Fair Credit Reporting Act (FCRA).

To summarize our industry's position, we believe the credit reporting system works well and balances industry needs with consumer protections.

Privacy concerns. AFSA shares the public concern about unauthorized access to the files of consumer reporting agencies. Such agencies have a responsibility to protect the integrity of their computer systems, and we believe that they do a good job. Unfortunately, no system is immune from unauthorized intrusions by those intent on breaking in.

AFSA believes that the current strict penalties for unauthorized access to consumer reporting agency reports are justifiable for those engaged in these illegal activities.

Before this subcommittee considers enacting a new credit reporting law in the interest of consumer privacy we urge that Congress direct the Attorney General of the United States to make a study as to the enforcement actions brought under existing laws and to make recommendations as to the need for additional penalties in this area.

Prescreening. AFSA believes that all consumers benefit from efficient marketing techniques like prescreening through greater accessibility to consumer credit. We commend the Chairman for recognizing in H.R. 4213 that prescreening should continue.

However, we recognize that some consumers simply do not wish to receive such offers. We believe that a voluntary program allowing consumers to opt-out of the marketing of such products may be a workable solution.

The Direct Marketing Association—the national trade association of the direct mail industry-already operates a successful voluntary national program under which consumers may opt-out of mailing lists. A number of national creditors have, or are considering, a similar program. We support such a voluntary effort and believe it could be constructed by consumer creditors, marketers and the consumer reporting industry.

AFSA would be willing to convene a summit meeting of all of these groups to discuss the feasibility of such a voluntary cooperative program and present the findings to the subcommittee on a timely basis.

Are consumers injured by the current system? In an effort to determine whether or not consumers in any numbers are concerned about the credit reporting issues, on April 5, 1990, AFSA filed requests under the state Freedom of Information/Freedom of Access Acts with the banking or financial institutions agencies of all 50 states.

We also filed with the Comptroller of the Currency, the Office of Thrift Supervision, and the Federal Trade Commission. We asked for complaints and copies involving:

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