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One, access by creditors or others to an individual's consumer credit report;

Two, the use of the information from an individual's consumer credit report by financial institutions in the marketing of products and services;

And three, pre-approved offers of open or closed-end credit made to consumers by direct mail in which the consumer was ultimately denied credit.

So far 31 states have responded. Responses as to the level of complaints range from "none" to "perhaps a dozen." A state-by-state summary of the responses is attached as an appendix to our written statement. AFSA would be happy to provide copies of each state's response to the subcommittee.

The FTC has sent us coded computers printouts on consumer complaints. We are reviewing the data.

The OTS has referred our request to their Consumer Affairs Division.

The OCC has denied our request based on their contention that it relates to pending investigations of regulated banks. AFSA is appealing the OCC decision.

We have not discovered a significant number of consumer complaints and we are confident that this trend will continue as we hear from more states.

In sum, there seems to be no public unhappiness with the current system and no need for significant legislative change.

Again, we urge congressional review of the degree of enforcement of current privacy protections and additional cooperation between creditors and the consumer reporting industry to develop a voluntary initiative for consumers to opt-out of the system. AFSA would be more willing to host such an effort.

Thank you for your time, and I too would be glad to respond to any questions.

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

Chairman LEHMAN. Thank you. I want to thank each of the panelists for their testimony.

Let me get to the heart of the matter. We have put an easel up here because I want to ask you a question about it. For example, shortly after the hearing we had in September, I checked my mail, and I received one of these applications for preapproved credit. The envelope on the outside said preapproved. And then it had my address on it.

Inside it had a letter to me-I have dozens of these, I asked my staff from then on to stick them on my desk when they got themit says "Preapproved status. Dear Mr. Lehman, you are personally invited to use the silver seal above and say yes to the First Card Visa with no annual fee and preapproved credit line of $2000. Obviously this invitation is so remarkable it can't be made to everyone. It can only be extended to a very select group of special individuals who have proven their ability to handle credit responsibly and wisely."

Some people might question that.

"I am delighted to count you among this discriminating group and to offer you services, benefits, and prestige of this account."

And I don't have to pay the regular $20 annual fee, and later on it says $2000 preapproved line of credit, and later on in the same letter it says that is why you will especially appreciate the fact that you have been preapproved for a high credit line.

Then the letter goes on, "If you would like more details, I invite you to read the enclosed brochure." I have copies of the brochure here. It has a picture of the family, kids walking through the field, and it says I have been preapproved, and on the back it says I have a preferred line of credit. If I want to purchase a VCR, new stereo or take a dream vacation or capitalize on some investment opportunity, I will have the financial resources to do that. It says I am preapproved for those benefits, no annual fee, just say yes.

Then it has questions and answers about the First Card Visaand I am not singling out First Card here. I could show you a dozen more of these from other people.

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Question, "Don't I have to tell you my salary and credit history?" The answer is no, you are preapproved for this First Card Visa with a generous credit limit. This means all you have to do is return the request certificate, which should take less than a minute. "No lengthy application procedures or personal questions.' When I got this-this came to my attention in Fresno. I gave it to a person on my staff of above average intelligence and asked him to look at it and tell me if I was really preapproved. He looked at it and said yes.

I have had experience with this as Chairman of the committee. I went through the fine print and found in one spot below the signature card that is attached at the bottom of the letter, at the very bottom is very small print saying we certify that I/we are 18 years of age or older, that the information provided is accurate.

The second sentence says, "FCC National Bank reserves the right to obtain a current credit bureau report and to cancel its offer if adverse information appears on such report if it is unable to get a report or if we are not able to verify any of that information." Not just if there is adverse stuff found there, but if they can't verify what they think they have already found.

Attached is the language you see here, in very small print, there is small print, dark print, small print, second to the last thing, "Information from credit bureaus may be obtained with respect to this request for credit and any renewal or future extension of credit. If you ask, you will be told whether or not consumer reports were requested and the names of the credit bureaus with their addresses that provided the report."

Do your members routinely use techniques like that-this is not the first request I got, that is why I knew to look at the small print-why that is not deceptive advertising. Why shouldn't there be some protections in there for the unsuspecting consumer who may in this instance, knowing that they are preapproved, go out and make an investment or purchase something that they can use that cash advance that they get on these things to pay for it? There is a potential, it seems to me, for harm there.

I will listen. Why don't you answer me?

Mr. HEUER. I will respond. I am not giving a legal opinion, but that strikes me as clearly a misleading solicitation in that it is subject to significant additional checking and it is not clearly and

prominently disclosed. My answer to your question is it misleading, is it wrong-my answer is yes.

Chairman LEHMAN. My point is this is not something I drummed up and had a contest for people to send in. I have another to another member of my staff, "Janice Morris, credit standing excellent." Good to know that. The wife of my administrative assistant. Kathleen has one here.

I could show you the same things in each of them, with the small print and everything. I am interested in what kind of self-policing you do in this area.

Mr. HEUER. As was cited in our testimony, we acknowledge that there have been in the past misleading offers made of that type, that we think by and large the industry has cleaned up its act. I would sure hope that that was not representative of the type of offering that is generally in the mail today, because it is not clearly prominently disclosed that the offer is subject to confirming no major adverse information factors.

Chairman LEHMAN. You use the work "prominently." Do you have a policy that it be prominently displayed?

Mr. HEUER. We do, and I am aware that other major creditors in our industry have that policy. I don't accept that exhibit as representative of what is out in the marketplace today. I hope I am right.

Chairman LEHMAN. For the record, I will submit these, but I could show you many, many more. The term "preapproved" is a lead-in, and I don't think what the percentage is of these that actually end up being approved once sent in is, but there is a potential there for harm, and that is what this is about.

[The copies of solicitations can be found in the appendix.] Chairman LEHMAN. Mr. Bloom.

Mr. BLOOM. As immediate past chairman of the NRMA, now the NRF, and as a credit management executive at Saks Fifth Avenue, to my knowledge most retailers work within the guidelines of the FTC commentary which Ms. Noonan stipulated today, that the names we receive we make an offer of credit to those people, the offer is unequivocal and the accounts are approved if they receive it.

I am surprised that what you are showing here would nearly be a common practice. I think someone might be stretching that commentary beyond the original intention.

Chairman LEHMAN. I have one here from Chase, too. Preapproved, Chase Advantage credit. "Because of your good credit history, you have already been approved for a Chase Advantage credit account with a line of $1500. To take advantage of your preapproved account, complete the form above and return it in the postpaid envelope."

Somewhere on the back side you get into a notice at the bottom and you get the disclaimer. I think there is a problem here. You think there is a problem here. That is what we are trying to straighten out.

Mr. HOERR. I work for a consumer finance company and I am not involved in credit cards, but I would not think that that is an appropriate way of solicitation. Our company has done two things; offered a guaranteed credit which we will honor, or we have also

done through prescreening a nonguaranteed offer which goes out and based on an application submitted and appropriately approved, the loan is made.

With our guaranteed loan we make it no questions asked, and that is the way it is. It appears that from what the FTC in their commentary has said, subject to further challenge, any prescreened offer that is now sent out, you can't do postscreening and it is a guaranteed offer, and you are going to have to live by it unless there are exceptions such as somebody moving from New York to California.

Chairman LEHMAN. We have to move quickly-let me ask this. Mr. Bloom and Mr. Heuer, what is the effect of the FTC's commentary that they described earlier on the way business is done? Is that going to be contested?

Mr. BLOOM. In retail, we will not contest that commentary. That commentary is something that I think retailers can live with, to make an offer to everyone. If I heard Ms. Noonan correctly, they might enforce postscreening with a prohibition against postscreening. I think retailers could live with that.

Mr. HEUER. It is unclear to most of us in the banking world just what the FTC commentary means. Our regulators are trying to help us understand it, and they have a lot of questions also. If the comments made by the witness for the FTC this morning are what we end up with, which is a clear prohibition against any postscreening, that will be a major problem.

It almost gets into a safety and soundness issue where if after a prescreening exercise it is disclosed that there is major adverse information like bankruptcy or loss of a job, there is almost a fiduciary dimension to extending credit when you are aware of those circumstances. I think our industry is going to have a harder time with the FTC commentary if it comes out that way.

Chairman LEHMAN. What is wrong with giving consumers notification that this practice exists and giving them the right to optout?

Mr. HEUER. Two different things.

As far as opting out of prescreening, I don't have any conceptual problem with that. There are serious practical issues. That is something I think the credit bureaus might talk to this morning, and it is a cost benefit type of issue. But conceptually we would support consumers' right to opt-out of the process, but I think the challenge is related to the cost/benefit analysis of all of that.

Mr. BLOOM. The Saks Fifth Avenue trade line on a credit bureau report may be one trade line out of 22, and I am not sure that it would be appropriate for the retailer to advise his customers about the credit bureau's practices in terms of marketing those lists. I would think that the credit bureau should be responsible for any notification under any opt-out, and because of that I think it would be unduly expensive to accomplish it.

Chairman LEHMAN. Thank you very much. I appreciate your testimony. I have several more questions and will be giving them to you in writing for the record.

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

Chairman LEHMAN. The final panel will be led by Mr. Walter Kurth, president of the Associated Credit Bureaus, to be accompa

nied by Mr. John Baker, Mr. Edward Barbieri, and Mr. Oscar Marquis.


Chairman LEHMAN. I understand Mr. Kurth is going to make a statement and that everybody else will be available for questions and comments.

I want to thank you for being here today, for your testimony in the past and for the cooperation you have given the subcommittee over the past few months in this regard. You have been very open and you are—it has been much appreciated.

Mr. KURTH. Thank you, Mr. Chairman. We too want to express our thanks to you and your staff as we have worked on these issues during the past several months.

I am Walter Kurth, president of Associated Credit Bureaus, the trade association representing the consumer reporting and mortgage reporting industries. Our testimony on the three bills under consideration represents the consensus of our board of directors.

Joining me today are representatives from the three largest credit reporting systems: John Baker, Equifax; Oscar Marquis, Trans Union, and Edward Barbieri of TRW Credit Data. Last September we appeared in the oversight hearing on the Fair Credit Reporting Act.

Our assessment of that hearing and the need for change differs greatly from the solutions that have been proposed. We believe the legislation as proposed is unnecessary. Our industry has had a history of implementing changes which are responsive to needs of the


We don't believe it it prudent to alter radically a law and a system that has served both consumers and the credit granting community on the basis of a few horror stories, some of which were deliberate violations of the act.

Mr. Chairman, we believe the record is clear. Congress in its wisdom developed the Fair Credit Reporting Act 20 years ago and it is working extremely well, as best illustrated by the fact that consumer installment credit has increased sevenfold since 1970. The number of credit cards that are out have more than doubled, to 908 million.

Our objectives are the same. We agree that we must assist in broadening consumers understanding of credit and marketing practices and of the opportunities for disclosure for reinvestigation and consumer patterns in business transactions. That is why we are pleased to have this opportunity to tell you and the subcommittee about a number of measures that we as an industry have instituted or that we will institute in the very near future to achieve these worthwhile goals.

Let me enumerate several measures. First, noninitiated marketing transactions. Contrary to the statements that have been made

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