4. Over the past few years a number of Massachusetts residents have written The first problem would be addressed by an amendment to the FCRA (new Sec. 616) prohibiting consumer reporting agencies from using "pretext interviews." That is, an interviewer, on request, would have to identify himself, his employer, and the person the requesting the report; he would be prohibited from misrepresenting any of those facts directly or by implication. The second problem would be addressed by an amendment to FCRA Sec. 610, which would explicitly allow consumers to obtain copies of their credit reports by mail, if they made a written request. The report would have to be mailed to them within five days of the credit bureau's receipt of their request. 5. The notification provisions of Title II merely require the creditor to disclose in writing that the consumer has the right to prohibit information collected about them by the creditor from being disseminated for such marketing purposes as mailing lists. Since information about such a right can obviously be buried beneath considerable verbiage, would it not make sense to require that this information be conspicuously disclosed? Many companies have already adopted the practice of giving the consumer the opportunity to be removed from marketing lists. Apparently they realize that this practice makes for both good customer relations and increased value of their marketing lists (because they are purged of consumers who do not want to be solicited). In view of industry's initiatives in this area, we see no pressing need to require "conspicuous" disclosure. 6. Does the administration perceive any particular impact upon credit scoring systems as a result of the requirements in Section 7 of Title II relating to the disclosure of information in connection with adverse credit decisions? No, Title II would not affect current industry practices with regard to credit scoring. Title II would require disclosure of the information about the consumer that underlay the reasons for an adverse decision, so that the consumer could ensure that the information was correct. But it would not require disclosure of how the information is used by the scoring algorithm. 7. What effort has the administration made to lessen the likelihood of lawsuits based purely on technical violations under these two titles of the bill? We have structured the penalty provisions in such a way that minor technical violations, like those that have caused such concern about the Truth-In-Lending Act, would not be a basis for suit under these bills. Specifically, there are two categories of violation that would incur penalties. The first is a violation of the consumer's expectation of confidentiality, that is, a disclosure in violation of Section 3 of the Act, that causes actual damages. The second is an intentional violation of the provisions regarding consumer access, notification of adverse decision, and correction procedures. In addition, Title II includes a defense for good-faith reliance on model notices issued by the Federal Reserve Board. 8. Section 8 of Title II permits a creditor to decide whether an individual's request for reinvestigation is frivolous. If they decide the request is frivolous, they may refuse to reinvestigate. As a practical matter, there appears to be little protection for an individual where a creditor unjustly renders such a decision. Could this legislation be improved by inclusion of a rebuttable presumption that the creditor had intentionally violated the act if they had decided that an individual's request for reinvestigation was frivolous and a court subsequently rules that the individual had, in fact, raised a substantive issue? Such a provision would certainly provide an incentive for creditors not to exercise their refusal option lightly. 9. What is your response to suggestions that the various notification requirements in Title II may actually detract from the information provided consumers under existing law such as Truth-In-Lending, Equal Credit Opportunity Act, and Fair Credit Billing? Title II would allow creditors to provide a brief summary notice of their information handling practices, with a full notice available on request. We envision the summary as being only several sentences long, so it should not detract from the other notices that are now provided. 10. Your statement refers to a Federal Reserve Board study of ECOA. Would you care to expand on any benefits accruing to creditors from ECOA as documented by this study? The study, a copy of which is enclosed, did not specifically address the benefits to creditors of the ECOA. Rather, it focused primarily on the extent to which consumers exercise their rights under the ECOA and the Fair Credit Billing Act. Interestingly, however, the study found that when consumers do exercise their rights, the creditor often benefits. When rejected applicants were given the reason for a credit denial, and they subsequently provided additional information to the creditor, a high proportion were then granted credit. Credit grantors frequently point out that they are in the business of granting credit, and indeed, want to extend credit whenever it is feasible for them to do so. We believe that providing consumers with the information required by Title II would enable creditors to grant credit in many cases where they might otherwise have decided not to grant it. Exercise of Consumer Rights Under the Equal Credit Opportunity and Fair Credit Billing Acts In November 1977 the Board of Governors initiated a survey of selected large creditors to determine to what extent consumers were exercising their rights under the Equal Credit Opportunity Act and the Fair Credit Billing Act. The survey was also designed to determine the cost to creditors of complying with these laws. An inquiry requesting information in connection with credit-card and other types of revolving-credit operations was sent to a group of nine creditors. Areas covered in the inquiry were the right to a separate credit history for married persons, notification by creditors of specific reasons for denial of credit, and customers' use of their rights under the law regarding the resolution of billing disputes. The initial notices regarding the right to a separate credit history for married persons were enclosed with billing statements rather than mailed separately in order to hold down the cost. About 11 per cent of the customers requested that separate credit histories be maintained. The average cost to the creditors of printing and processing the notices was less than 1 cent per notice, and the average cost of processing the return requests and providing the necessary credit information was about 9 cents per request. The survey showed that a substantial proportion of the applicants who were rejected for revolving credit accounts requested the reasons for the denial if such reasons had not been stated at the time of rejection; many of these applicants then provided sufficient additional information to warrant the granting of credit. Although a large number of credit customers raised questions concerning their billing statements each month, relatively few followed the formal procedures provided by Regulation Z. Most of the companies, however, indicated that they had treated the informal questions the same as the formal ones. In order to obtain information from a national cross-section of consumers with a minimum burden on the consumer credit industry, the Board selected nine large creditors that were believed to have readily available records. This group included four major retailers (Alden's, Inc.; Federated Department Stores, Inc.; J. C. Penney and Co., Inc.; and Sears, Roebuck and Co.); three banks (Bank of America, First National Bank of Chicago, and Maryland National Bank); one travel and entertainment card issuer (American Express Co.); and one oil company (Shell Oil Co.). Information was gathered from all companies except Alden's; the data reported by Federated Department Stores represent the combined answers of 13 of its 16 department and specialty store divisions. SEPARATE CREDIT HISTORY Under Regulation B married persons have the right to a separate credit history. All creditors with open-end credit contracts were required to send a notice advising their married customers of this right by June 1, 1977, unless the company already had arranged to maintain access to the account records for each person entitled to use the account. American Express had such an arrangement for each person who had been issued a card on an account. The other seven reporting creditors, however, sent notices to each of their married customers informing them of their right to separate credit histories. The total initial mailing of somewhat less than 48.5 million notices by the seven companies yielded more than 5 million returns (about 11 REPRINTED FROM FEDERAL RESERVE BULLETIN 1American Express provides separate access to its credit records for each credit-card holder and, therefore, was not required to send a special notice. *Excludes two divisions that maintain manual operations and report to credit-reporting agencies only on demand. *Represents estimates from only five divisions. *Reported an additional cost, estimated at $900,000, of annotating history record cards to reflect the requested changes per cent) from customers who requested the maintenance of separate credit histories. The difference in the rate of return among the reporting companies was relatively small, ranging from about 7.3 per cent for Maryland National Bank to 13 per cent for Sears (Table 1). Direct cost estimates for the nearly 50 million notices sent totaled $360,168; however, since some companies were unable to identify and include all administrative costs, this figure accounted for only a portion of the total cost. Furthermore, Penney's noted that the inclusion of the required notice with the billing statement displaced advertising inserts, which resulted in a loss of sales estimated at $665.000. Federated Department Stores also noted a loss of revenue due to the displacement of advertising inserts but did not estimate the amount. Although all of the reporting companies enclosed the required notice with the monthly billing statement, Bank of America noted that it had spent $68,000 to mail the notice separately to inactive BankAmericard accounts. The identifiable costs of printing, processing, and mailing each notice averaged slightly less than 1 cent. There was considerable variation among the companies, however, with the average identifiable cost per notice ranging from a low of 0.3 cent to a high of 2.8 cents. Processing the more than 5 million returns and initially reporting the new information to the credit-reporting agencies cost a little more than $450,000 for the seven companies, or an average of about 9 cents per request. Again the costs reported by the different companies varied sharply-from about 5 cents per request to 36 cents per request (Table 1). Once the reporting of credit records on a dual basis for existing accounts had been completed, the cost of reporting new accounts on that basis ranged from "negligible" or "nominal" to about 14 cents per account. Federated Department Stores reported a range from "negligible"* to $1.50 for its divisions. The cost of maintaining dual reporting varied widely, from "negligible" to nearly $89,000 a year. If the 3 million requests received by Sears had resulted in about the same number of dual-reporting accounts, the annual total cost would have amounted to 3 cents per account. The same calculation for the other companies suggests an average annual maintenance cost per account of about 1 cent for Bank of America and Shell, 9 cents for Federated Department Stores, 18 cents for Maryland National Bank, and 29 cents for First National Bank of Chicago. Each of the last two companies had less than 100,000 dual-reporting accounts, which suggests that maintaining any dual reporting system may involve a significant element of fixed cost or that the wide variation in reporting maintenance costs may be the result of the different approaches used in estimating costs. ADVERSE ACTION NOTICES The revisions in Regulation B that became effective June 1, 1977, required creditors to inform rejected credit applicants of the reasons for the denial either initially or upon request. Sears, First National Bank of Chicago, Bank of America, and 1 of the 13 divisional respondents of Federated Department Stores furnished all rejected credit applicants with the reasons for the adverse action at the time of the denial. The other companies provided reasons for denial only upon request. Maryland National Bank received such requests from 12 per cent of rejected applicants; Federated Department Stores, from 20 per cent; and American Express, from 23 per cent. Shell stated that each month about 4,600 rejected applicants requested the specific reasons for the denial. Many of the rejected credit applicants who were initially given reasons for credit denial supplied additional information, and a high proportion of these were then granted credit. Sears, which initially sent reasons for the credit denial to all rejected applicants, received additional credit information from 4 per cent of these, and in half of the cases the information was sufficient to warrant the granting of credit. These proportions were even larger for Bank of America, which received additional information from 8 per cent of its rejected applicants and which was then able to grant credit to three-fourths of them. First National Bank of Chicago, the third company that provided reasons initially to all rejected applicants, received requests for reconsideration from about 35 per cent of such applicants, and of those who provided additional information one-third were granted credit. reasons. 'All rejected credit applicants were given the reasons initially "Approximately 4,600 rejected applicants per month requested specific reasons for denial. Approximately 13.3 per cent wrote to J.C. Penney regarding their rejection, but it is not known how many asked for specific *Approximately 3,000 of the 8,600 rejected applicants per month requested reconsideration, and some provided additional information. n.a. Not available. |