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Question 15


One Marine Midland Center
Buffalo, New York 14203



Your Application for a 24 Karat MasterCard account has received our careful attention.
This letter is to advise you that your Application:

1. a.

cannot be approved at this time; perhaps we can be of service to you in the future:

1. b.

cannot be approved on the basis requested, however, you are approved for 24 Karat MasterCard account standard MasterCard/Visa account

with a credit line of $

1. c. cannot be approved on the basis requested; however, we can increase the credit line on your present credit card account with us to S

If the action in 1.b. or 1.c. above is not acceptable to you, please call the number below within 20 business days. If we do not hear from you within that period, we will assume that our decision is acceptable to you and will proceed accordingly.


has been approved; but not on the basis requested. We have approved a 24 Karat MasterCard account with a credit line of $

This includes the credit line from your present MasterCard/Visa account

and is conditioned upon the closing of that account and the transfer of any amount outstanding to your new 24 Karat MasterCard account.


Enclosed is a form on which you may indicate your approval of this proposal and transfer. Please sign the form and return it to us within 20 business days. If we do not hear from you within that period, we will assume you do not wish to make the transfer. Our decision was based on.

Your application was evaluated according to our general credit standards, taking into consideration:

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the consumer reporting agency contacted was unable to supply any information on you. That agency was



information obtained not from a consumer reporting agency but from other sources which we deem to be reliable. You have the right to request in writing disclosure of the nature of this information. Such request must be received by us within 60 days.

If either Box No. 4 or 5 is checked, you have the right to inspect and receive a copy of your report or the right To full disclosure of the nature and substance of all information except medical information) on you in the agency's files, at no charge to you. To obtain this information, write directly to the agency checked above.

If you have any questions in connection with this transaction, please feel free to call


(716) 843

Very truly vours



1616 H Street, N.W., Washington. D.C. 20006 (202) 783-7971 ● 1717 K Street, N.W., Washington, D.C. 20036 (202) 223-8250

July 5, 1990

Richard H. Lehman

Subcommittee on Consumer Affairs and Coinage
Committee on Banking, Finance

and Urban Affairs

U.S. House of Representatives
Room 604 House Annex One

Washington D.C. 20515

Dear Chairman Lehman:

This is in response to your letter of June 18, 1990, with which you enclosed a number of questions for my response on behalf of the National Retail Federation ("NRF"). I understand that these questions and answers will be made a part of the hearing record on legislation to amend the Fair Credit Reporting Act.

Each of your questions is set forth below,

followed by NRF's response.


What information do you send to the reporting agencies? Specifically, is transaction data typically furnished, or only information re: payments history? Would you supply the tape format for the record?

Large computerized retailers typically furnish to credit bureaus on a monthly basis what is essentially their billing tape. That is, a tape that contains much of the data which appears on each customer's monthly statement. This consists of the consumer's name, address, account number, type of account, the amount that is owed at the present time, and any amount past due. In addition, the manner of payment (e.g., an "R-1" means paid as agreed; an

New York Office: 100 West 31st Street, New York, NY 10001 (212) 244-8780

Richard H. Lehman
July 5, 1990
Page 2

"R-9" means bad debt written off) is also reported. Addresses that are changed are also reported monthly. The tape may also contain the date the account was opened, the historical high credit balance, and a summary of the consumer's prior account history, in the form of a grid showing payments over a given period (usually the past 1224 months). This data shows how many times during that period the customer was delinquent (the number of 60-day delinquencies, 90-day delinquencies, etc.). Sometimes the credit bureau builds the prior payment history grid itself, based upon the information from the credit grantor's transmission. Specific transaction data regarding purchases is not furnished. Thus, while the record of a consumer's timely or late payments will appear, and in some cases the amount of the scheduled minimum payment, the dollar amount of the actual payment does not appear. In addition, some creditors' data includes the maximum credit line.

It is important to note that this response applies to a typical large computerized creditor that is on-line with the credit bureau. Other smaller retailers do not report in this fashion. Rather, they furnish the customer's account history less frequently and they might do so by mailing the data to the credit bureau. In fact, some smaller creditors only report delinquencies to credit bureaus.

In response to your request, enclosed is a copy of a tape format known as Metro Format. Credit bureaus and a number of credit grantors have worked together for the sake of accuracy to agree on a common format. The Metro Format assures consistency of credit grantors' monthly reporting. All affiliated credit bureaus stress the importance of reporting in this standard format. My own company, Saks Fifth Avenue, reports in this format.


How specific are you when you certify the purpose for which you intend to use consumer information? Could you give us some examples? Do you certify more than one purpose? Is it your understanding that you are not to use the consumer information more than once (assuming that only one purpose was certified)?

As a rule, retailers sign a standard contract with each credit bureau. This contract expressly states that the subscriber will request consumer reports only for one of the enumerated "permissible purposes" in section 604 of the Fair

Richard H. Lehman
July 5, 1990

Page 3

Credit Reporting Act ("FCRA").

This blanket certification

is used by the retailer as the basis for obtaining consumer reports for credit granting purposes and, less frequently, for employment purposes. As a rule, retailers do not "recertify" the purpose for which they intend to use consumer reports each time a consumer report is requested. It is my understanding that retailers do not use the credit report information for a purpose other than the purpose for which the report was originally obtained.

3. Are there problems with the graduated periods for reporting information on overdue payments in section 103 (b)? What?

Section 103 of H.R. 4213 would amend section 605 of the FCRA to impose graduated time periods for reporting information to users. Since the obligation to report a consumer's overdue payments in graduated time periods would fall upon the credit bureau, this would not present any procedural problems for users of the information, such as retailers. The proposed amendment to section 605, would, however, reduce the amount of useful information that is available to retailers and other creditors to evaluate a potential customer's creditworthiness. For this reason, NRF does not support legislation which delegates to the government rather than to creditors the decision regarding what information about a consumer's payment history can be considered. Other than the obsolescence rules which currently appear in the FCRA, which we have accepted as reasonable, NRF believes that the decision about the age of information to be considered is best left to the businesses that must accept the risk of loss when account balances are not paid as agreed.

4. How important are credit reports for credit scoring purposes -- are they the single most important item?

Credit reports are an important component of the credit scoring process in many creditors' system of evaluating creditworthiness, although it is difficult to generalize on this point. Some creditors score only the information that is provided by the applicant on the application. For example, the creditor might score age, income, presence or absence of a home telephone, time at present residence, time at previous residence, time at present employer, time at previous employer, number and type of bank references, number and type of credit references,

Richard H. Lehman
July 5, 1990
Page 4

and so on. Some creditors score both the information supplied on the application and the information obtained in a credit report. Other creditors score the credit report, but only if the score derived from the information on the application is not sufficiently high to reach a prescribed cut-off score for granting an account. Thus, it is difficult to give a typical answer to this question because each creditor considers its creditworthiness evaluation system to be highly proprietary.

This answer is based upon my general familiarity with retail industry practices, rather than information about any specific creditor's practices. I can say, however, that a significant number of creditors consider credit reports to be very important in the credit scoring process. As to whether the credit report is the single most important item, the wide variation in creditors' credit scoring systems militates against identifying any one criteria as the most influential. As you know, when credit scoring is used to decide whether or not an applicant's request for an account should be granted or denied, those criteria that have been determined to statistically predict creditworthiness in that creditor's account base are assigned point values. If the total number of points achieved on all criteria scored is not sufficient to reach the cut-off point, the only way to determine which were the most influential criteria is to identify the three or four criteria on which the applicant's score fell furthest below the average score. That benchmark might be the average score for each of those criteria achieved by applicants whose total score was at or slightly above the minimum passing score, or it might be the average score for each of those criteria achieved by all applicants. While no one characteristic in a credit scoring system is the single most important, if the credit bureau report is scored it will be identified on the notice of adverse action as one of the reasons if its selection is dictated by the above-described methodology.


What internal auditing procedures are currently in place to make certain that the information you send to credit bureaus is accurate?

Speaking for the retailing industry generally, credit bureau information is a by-product of the billing information that retailers send to their customers. The amounts billed comprise the accounts receivable asset, which

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