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the credit report, a notice of rights under the FCRA and the names of all three major credit reporting bureaus.

The current “legitimate business needs” criteria for requesting a credit report should be changed to language that allows it to be only used for transactions initiated by the consumer. This change will eliminate using credit records for prospective credit solicitations, marketing plans, mailing lists, or similar purposes.

There is more at stake here than just credit prescreens. If the subcommittee chooses to still allow credit prescreens, I hope you will prohibit the use of credit records for other marketing purposes. Credit records are not supposed to be used to sell clothes, cars or real estate.

Even in a credit prescreen, a large and clear notation should be required stating that an individual's credit records have been examined. In addition, an easy way to prevent future uses of this information should be provided, including at the least, a toll-free phone number and a central clearing house that will inform all three major credit bureaus of the consumer's wishes.

Accuracy of information. Any information contested by the consumer should be required to be reinvestigated within 30 days. Currently there is no requirement to ensure a timely correction. I know of cases concerning constituents of mine where it is dragged on for years. They couldn't contact the right person. Credit Bureaus refused to have their records corrected properly.

Correspondence went back and forth. People who answered the phone were not competent or not helpful. This has to be changed.

Inaccurate information should be corrected on both future reports and on reports issued within the past year. Currently, corrected reports are sent only at the request of the consumer.

The FTC should be granted civil enforcement authority over all parts of the FCRA. Currently the FTC only has the ability to seek criminal penalties or cease and desist orders against violators. This change would allow the FTC to impose civil penalties against violators. Civil penalties are more of a deterrent than cease and desist order, but do not clog up federal courts with relatively minor cases.

The FTC should be granted rulemaking authority to interpret the law. This would allow them to keep pace with a rapidly changing industry without requiring constant changes in the law.

Mr. Chairman, I want to thank you and the members of the subcommittee for your indulgence. I am prepared to answer any questions you may have.

[The prepared statement of Hon. Matthew Rinaldo can be found in the appendix.]

Chairman LEHMAN. Thank you for your testimony and its excellent suggestions.

Let me ask you this: Do you think the only time access should be permitted to a credit report is when the event to which it relates was triggered by an action on the part of the consumer?

Mr. RINALDO. That is correct. I feel in too many instances credit reports are used for marketing purposes and a whole variety of purposes. I cited some of those in my testimony. I think that practice should be stopped.

Chairman LEHMAN. You think that the credit report is there to, for a consumer to offer, in essence, to somebody they are seeking credit from?

Mr. RINALDO. Or it can be used by the person that the consumer is seeking credit from. The consumer applies for a mortgage, for example. The credit report then can be used by the lender to determine the past practices, paying practices of the person requesting the mortgage.

This would also apply to the person applying for a new car loan or any other type of transaction where credit reports are used.

Chairman LEHMAN. Also, do you think that the primary means of increasing accuracy in the reports would be to give the consumers more access to them?

Mr. RINALDO. Absolutely. I also think there has to be an expeditious method of correcting reports. I think it is unconscionable that some of these things are allowed to drag on for years. People's reputations are ruined. They are denied credit. They can't obtain higher credit limits.

They are put through a real bureaucratic mill that surpasses anything that, in some instances, people have seen in modern times. There seems to be, for some unknown reason, a reluctance on the part of the credit bureau to take the kind of quick, decisive action that is needed to correct these reports. And they should be doing that. If they can't do it, they shouldn't be in the business.

It is that simple.
Chairman LEHMAN. Thank you.

Mr. Hiler, I mentioned at the outset I would recognize you when you got here. I will let you ask questions and then I will recognize you.

Mr. HILER. I thank the Chair.

Congressman, I am sorry I missed the opening several minutes of your statement. I understand you talked about the incident that occurred with Vice President Quayle. Could you tell me how your legislation would prevent that?

Mr. RINALDO. Well, the way I understand it, and I don't have the full report here. All I have is what I noticed in the paper. It said that a Business Week reporter examined the current files of Vice President Dan Quayle. I don't think anyone should be able to do-

Mr. HILER. Do you know how he was able to do that?
Mr. RINALDO. I don't have all the facts on that.
Mr. HILER. He lied.
Mr. RINALDO. Who lied?
Mr. HILER. The reporter lied.
Mr. RINALDO. I didn't know that.

Mr. HILER. He lied. He was then checked out. He lied-it was a, I think it was a supervisor then, or it was a second lie that was committed as well. I was wondering how your legislation would prevent cases where people consciously break the law in order to do something.

Mr. RINALDO. Well, first of all, I didn't know any reporters lied. I am shocked to hear that. But, I didn't know that-As I mentioned in my testimony, it was something that I read. I do know, however, of many cases that we have documented, cases on file in my office,

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cases where I personally, not a case worker, but I have picked up the phone and called credit bureaus and talked to them and have in most cases been very unsuccessful in getting them to correct consumers' records and offer consumers the kind of protection they need and deserve.

Mr. HILER. I am not really talking about that. You mentioned the specific incident of Vice President Dan Quayle. I was wondering if there was something in your legislation preventing that. That was my major question.

I have no further questions, Mr. Chairman.
Chairman LEHMAN. Thank you, Mr. Rinaldo.

Mr. RINALDO. Thank you. We look forward to continuing to working with you and your staff.

Chairman LEHMAN. Mr. Hiler, do you have remarks to make?

Mr. HILER. Yes. I apologize for being late, first of all. I had some office appointments. I want to tell you how interested I am in this second of a series of hearings on the Fair Credit Reporting Act.

I think, Mr. Chairman, that we have to be extraordinarily cautious in the way in which we approach making changes to FCRA. The providing of credit can oftentimes be a very delicate procedure.

In our haste to provide on the one hand the type of consumer protection that we all want to have in our laws, I think we also have to be concerned that we do not shut off the flow of credit to all but the most gold plated of credit risk.

So that any changes that we would consider in FCRA, I think, must be balanced against the needs of an economy in which credit is a very preeminent form of purchase of goods. I personally am reviewing the three pieces of legislation that we are looking at today. I feel that this legislation goes too far in many, many areas. But I am looking forward to the hearing today to be convinced otherwise.

I also believe that if we do get to the point here we are marking up legislation, that we have to include provisions relating to credit repair clinics, which I think are one of the real abuses in the system today. So that if we were to consider a bill and move a bill out of this subcommittee, I for one, would be extremely interested in making sure that credit repair clinic legislation was included as well.

While I know that is not the subject of the hearings, if any of the witnesses feel interested or compelled to comment in that area, I, for one, will be interested in those comments.

Mr. Chairman, I will yield back and look forward to the balance of the hearing

Chairman LEHMAN. Thank you very much. For the gentleman's information, the bill I have authored does include the Annunzio bill on credit repair clinics. It is on the table today if anybody wants to discuss it. It is included in my bill.

Mr. Schumer is still at the airport. We will move on to the next panel, which will be Dr. Guiton and Ms. Jean Noonan. I understand

you have some staff with you. You can introduce them if you like.

Dr. Guiton, we will start with you since you are from California, the highest ranking consumer advocate in the Bush administration, and the President's Special Adviser on Consumer Affairs. We are honored to have you here once again. Without objection we will put your entire statement in the record and allow you to proceed. STATEMENT OF BONNIE GUITON, SPECIAL ADVISER TO THE


Dr. GUITON. I have joining me today Patricia Faley, director of industry relations at the U.S. Office of Consumer Affairs.

I would like to thank you for this opportunity to offer the testimony of the U.S. Office of Consumer Affairs regarding amendments to the Fair Credit Reporting Act. In the nearly 20 years since this Act was passed, credit reporting practices have changed.

In many instances they have improved dramatically. Mortgages can be approved in a matter of weeks or days instead of months. Lenders can avoid riskier loans. As a result, the cost of borrowing overall is lower than it would otherwise be. This, thanks largely to modern computer technology.

Although the credit reporting industry has changed, the definition of what is fair in credit reporting has not. Consumers still believe fair to be equitable, impartial, ethical and even humane. The question is, is it possible to maintain that definition in light of all this new technology? We believe it is, but it is more easier said than done.

We sometimes get so wrapped up in all of technology's advantages, and the new uses for information it engenders, we neglect to consider its impact on basic fairness. We can manage technology and the changes it brings so as to maintain that basic fairness, and we must.

So today in summarizing my testimony on the Fair Credit Reporting Act, I will focus on fairness as it relates to four areas: consumer privacy, credit record accuracy, operational fairness, and the need for widespread consumer education about the credit industry.

First, consumer privacy. Clearly, controlling access to confidential credit reports is the most important protection that FCRA offers. We believe dividing and limiting those instances when reports can be accessed into two categories, transactions initiated by the consumers and transactions that don't require consumer's initiation, is a valuable addition to the Act. It is one of several steps to help clarify the consumer's ability to restrict unauthorized access to their credit reports.

We also support the specific listing of housing rental applications as among those business transactions covered by FCRA. We believe most consumers don't know that tenant screening services exist. This clarification will help consumers exercise their right to learn about and if necessary, correct the contents of any file kept on them by this type of service.

Finally, under privacy, we agree wholeheartedly consumers must have the right to opt-out of prescreening and other marketing uses for their credit records. This is critical to consumers who are increasingly frustrated about the volume of direct marketing solicitations and the depth of knowledge about them that these offers frequently reflect. Although many consumers don't know this, some in the industry already provide this option. The three major credit bureaus already subscribe to the Direct_Marketing Association's telephones and mail preference service. These services help them remove the names of consumers who do not wish to receive direct marketing solicitations.

Conceptually, the proposal is worthwhile. While I have concerns about how the proposal will be implemented, I am confident an opt-out mechanism can be developed which protects consumers and is not overly burdensome.

The accuracy of consumer records is also essential to basic fairness. It is the second area that I will address. Without a doubt, the maximum possible accuracy required by FCRA serves both consumers and industry. Yet many argue that the accuracy of credit reports is inadequate.

Time magazine covered a series of studies by James Williams of Consolidated Information Services, a New Jersey mortgage reporting company, who showed a margin of error significant enough to warrant looking into ways of improving accuracy.

Rather than requiring industry to provide a large volume of detailed reports, which wouldn't be particularly useful to consumers, we recommended a results-oriented approach to this problem. We have in mind a program much like the U.S. Department of Transportation system of publicizing the on-time arrival and complaint records of airlines each month. We believe a similar program would work in the credit industry whereby the accuracy of a random sampling of credit bureau files could be published on an annual basis.

An objective comparison could be useful to bureau subscribers directly and consumers indirectly. The theory behind this is government shouldn't micromanage the affairs of industry by requiring disclosures of complex procedures which in many cases are akin to trade secrets. The government should provide incentives to improve performance to benefit consumers.

There is a need to improve communications among the credit bureaus. The industry is trying to address the sharing of reinvestigation results among all three major credit bureaus. They may be closer to sharing information about those consumers who wish to opt-out of marketing lists generated by the bureaus. I commend the industry on these initiatives and would urge them to put these systems in place expeditiously.

The third area I would like to address is operational fairness. One of the most common complaints we have from consumers regarding FCRA concerns the length of time miscellaneous adverse information stays in their files. We are pleased to see that our suggestion to stagger the length of time of reporting overdue payment information has been included in the legislation.

We support limiting to 30 days the time credit bureaus are given to complete reinvestigation of disputed information, while at the same time allowing leniency for difficult cases. We would also support language to insure that credit grantors assist the credit bureaus in meeting the deadline by reverifying disputed items as quickly as possible.

These amendments would cut down on situations where consumers are left in limbo waiting for their dispute to be resolved while

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