Mr. GELLER. I think, however, that there is a screening device here: Presumably, if it's just routine information, they're not going to bother to go through this medical professional interface.

Senator TSONGAS. I see your point. But the argument against this bill is going to be redtape. And to the extent that you overregulate, you diminish the likelihood of its passage.

Mr. GELLER. That's a valid point.

Senator TSONGAS. You seem to have selected all kinds of things you want to protect.

Mr. GELLER. That's a valid point and I think in your hearings, you might explore that.

If there is a need for the credit bureau to do some preliminary screening itself, we could change the standard in the legislation.

INVESTIGATION REPORT

Mr. HOWARD. The kind of report in which this question arises is the investigative report, which is used primarily for insurance purposes. Normally, the creditor does not need medical information.

Investigative reports are normally done for insurance or for employment purposes.

And the industries that do those investigations want this provision allowing them to supply the information to a doctor rather than directly to the individual.

They prefer not to have any requirement of access at all. The present Fair Credit Reporting Act does not allow you to learn even the nature and substance of medical information maintained by a consumer reporting agency.

Senator TSONGAS. Because they want the screen doesn't make it sensible.

Would it have a chilling effect on their capacity to get information from the doctors?

Mr. GELLER. It's a doctor selected by the consumer. So this investigative agency or consumer reporting agency would say, we think the information we have is medical information of a nature that ought to be explained to you by a doctor. Would you please supply the name of the doctor that you deem appropriate. Then you would go to the doctor and get it.

Again, presumably, they won't do this unless they've made the judgment that it is psychiatric or terminal or something of that

nature.

Senator TSONGAS. You mean there are cases in which the doctor feels free to tell the insurance investigator, Mr. Jones has 3 months, and does not tell Mr. Jones?

Mr. GELLER. I think that you raise a point about medical ethics, and that's a different issue. What would a doctor tell an investigator?

All we're saying is that information is in the report. It ought to be made available. And the screening technique is simply to avoid the traumatic circumstance.

Senator TSONGAS. You've not made much of an argument as to what happens after the 3 months.

Mr. GELLER. The notion that an individual be afforded some expectation of confidentiality in his or her records is also basic to

fair information practices. The information maintained by credit bureaus and other consumer reporting agencies contains highly detailed, if often incomplete, accounts of financial status and dealings, and often other sensitive personal and lifestyle information. Yet the FCRA presently permits extremely wide, indeed almost unfettered access to consumer reports by persons far removed from the original credit transaction for which the consumer supplied information.

Title I would strengthen the consumer's expectation of confidentiality with respect to consumer reports. First, it would require that the consumer be notified when a consumer report is obtained for certain purposes that are routine to the consumer reporting agency but may not be expected by the consumer-employment purposes, for example.

Notification is likewise required by titles II and V when creditors and insurers, respectively, obtain consumer reports.

Second, title I would require the consumer's written authorization for most of the unspecified purposes now allowed by the FCRA under the heading "legitimate business need."

As to title II, the Fair Credit Information Practices Act, past efforts to insure the accuracy of credit information have focused primarily on consumer reporting agencies, because it is there that most credit-related information accumulates.

However, since credit grantors themselves are a vital link in the flow of credit information, title II would extend to credit grantors comprehensive fair information standards, similar to those which underlie title V, the Fair Insurance Information Practices Act. As I mentioned, creditors do not generally inform applicants of the nature and sources of additional information that will be collected or of the disclosures of information that will be made. Many such exchanges may not be readily apparent to the applicant. In order for market forces to operate, and indeed in the interest of basic fairness, the consumer must be notified of the creditor's information practices.

Title II would require such notification and would require creditors to limit their collection and disclosure practices to those specifed in the notice.

At present, there are practically no limits on how a creditor can disclose information it collects about consumers. Title II would establish for consumers an expectation of confidentiality with. regard to information about them in the credit information system by limiting the circumstances in which creditors may disclose personal information without obtaining the consumer's authorization. These specific circumstances cover most of the normal disclosures made by creditors within the industry. Disclosures that do not fall within these categories would require the consumer's authoriza

Existing law provides only limited access by consumers to information about them in the credit industry flow. As a practical matter, the consumer must search, often in several different places and often in person to obtain what little information may be availabe. The ECOA requires the creditor to give the reasons for an adverse decision, but it does not require the actual supporting information to be disclosed. The FCRA requires the creditor to

disclose directly to the consumer only the nature of the information obtained from a source other than a consumer reporting agency.

If the information was obtained by the creditor from a consumer reporting agency, the FCRA requires that the consumer be informed of the fact and given the address of the consumer reporting agency. While no law prohibits a creditor from voluntarily providing a consumer with the information underlying a decision, many consumer reporting agencies contractually prohibit users of their reports from showing a report to the consumer to whom it pertains and require the consumer to visit the consumer reporting agency to find out even its nature and substance.

As I indicated in my discussion of title I, access to only the nature and substance of information makes the discovery and correction of errors a matter of guesswork. Such limited access makes it virtually impossible even to discern on what information the adverse decision was based. The difficulties are multiplied when access is further limited to just the nature of the information, as is now the case when an adverse decision is based on information that the creditor collects from sources other than consumer reporting agencies. It is at the point of adverse decision that the inadequacy of the FCRA access provision is most serious, since it is at the point of adverse decision that inaccuracies have their most direct effect.

Title II would require the creditor to disclose the actual information about the consumer underlying an adverse decision, including any consumer report that was used. To avoid shunting the consumer from place to place, title II would give the consumer the right to have access to all the records used in making a decision directly from the creditor.

CONSUMER'S RIGHTS OF CORRECTION

Additionally, the adverse decision procedures would require automatic notification of the consumer's rights of correction. This fills a gap in existing law, which puts an unnecessary burden on the individual to find out what his or her rights in fact are.

The rights of correction afforded by title II would insure that inaccuracies can be corrected, and equally importantly, that the corrections are sent to other parties to whom the creditor has disclosed the inaccurate information. As information recorded in the credit information system increasingly becomes the overriding element in a determination of whether credit will be granted, it is imperative that consumers have the ability to insure that inaccurate information is purged from the entire system.

Senator TSONGAS. Let me ask you, assuming this thing gets passed and we have these provisions, will that change the process of information gathering that will be far more likely to go to basically data as opposed to subjective interviews, that kind of thing?

Mr. GELLER. No. It will not change that. As we said at the outset, the credit industry is already relying more and more on datacollecting it from the creditor, supplying it to credit bureaus, and credit bureaus in turn funneling it back into the credit system.

There will be the same use of the investigative reporting agency by insurance companies, employers, and others who want to use it. We are not changing the information flow.

The one thing we do not allow is pretext interviews- something that is false, deceptive, and absolutely unfair to the consumerthat we touched upon in our last testimony. But other than something egregious of that nature, we think that the information flows would continue as before.

Senator TSONGAS. If you know that you have to make the stuff available, the report indicates when you pay the particular bill and so forth, a bankruptcy proceeding, or whatever, that's factual. No one's going to be upset about that. But if it contains information about what a neighbor has said or lifestyle, drug use, things that you referred to earlier, that is far more likely to get the backs up of the consumers.

Wouldn't that be a shifting away from that subjective-

Mr. GELLER. As we have indicated, if someone wished to speak confidentially and says that he or she will only give the information if his or her confidentiality is maintained, that has not been ruled out. We do preserve confidentiality, so that that type of information can still be collected.

While the confidentiality of the source would be preserved, the information itself would become available to the consumer. He can dispute, and he can get a correction, or if there's still a dispute, he would at least get the notation that he disputes it sent throughout the system.

Mr. HOWARD. Subjective information such as lifestyle information is collected primarily by the investigative reporting agencies. Its used primarily in employment and insurance-two industries in which the decisions are traditionally much more subjective than they are in the credit field.

So, with respect to the credit field, we wouldn't expect that it would have much of an effect on the kinds of information that would be collected on credit decisions.

Mr. GELLER. On cost considerations, throughout the drafting process, as Mr. Hodges described in his testimony, we tried to minimize the cost and burden of compliance. We solicited comments from industry representatives-among others-at several stages in the bill's development and altered many of the original requirements in response to these comments.

Another source of information about the effects of the proposed legislation was a study of the projected costs to banks of implementing the Privacy Protection Study Commission's recommendations The study, commissioned by the American Bankers Associat.on-ABA-and conducted by Touche Ross & Co., found the most ently of any of the Privacy Commission recommendations to be the irit.al mass mailing of notices to existing bank customers. The ABA study estimated that if this mass mailing were eliminated, 'most of the estimated costs of implementing these recommendations would be eliminated." Accordingly, we deleted that requirement from the bills.

The study suggested one other way in which a major cost element might be minimized. This was to give banks a choice as to how they would provide the specific items of information on which

an adverse decision was based. They could either provide the information in the original denial letter or notify the individual in the denial letter of his or her right to request the information. We adopted this provision as well.

Senator TSONGAS. Obviously between the two options, I think we know which one you opt out for.

Mr. GELLER. Possibly-but I am told that very often the reason is sent in the same letter that denies it. The Federal Reserve Board's regulation says, "Here's how you may notify people very succinctly of the reason for denial." The form lists a number of reasons and they check the appropriate box.

And that form is frequently used.

Mr. HOWARD. Sears automatically gives the reasons for denial. The Equal Credit Opportunity Act requires today that a creditor who's made an adverse credit decision provide the reasons for that decision. Regulation B provides that either you can provide the reasons directly at the time that the adverse decision is announced, or you can tell the consumer that the application is denied, and that the consumer has the right to get the information.

In response to that alternative, which is the kind of alternative that we have in our legislation, Sears decided to go ahead and automatically provide the reasons for their adverse decision.

Mr. GELLER. I think they're trying to cut down on the costs of two transactions by using these standardized forms and checking boxes. It's my understanding that quite frequently now a number of creditors automatically tell them the reasons.

Senator TSONGAS. So it would be a general indication of why they were turned down?

Mr. GELLER. It tells them succinctly why they were turned down, according to the Federal Reserve regulations that carry out the ECOA, the Equal Credit Opportunity Act.

Senator TSONGAS. What do the boxes refer to-what categories of rejection?

Mr. GELLER. It might be that you have insufficient funds, no bank account-

Mr. HOWARD. Insufficient income, too short a period of residence. There's a series of them, and again we'd be happy to provide those regulations for the record.

Mr. GELLER. They simply have to give the ones that have been worked out in a standardized form that suits a great number of companies.

But I'd be happy to supply for the record the Sears form, for example.

Senator TSONGAS. But Sears would not say you are denied credit because you're 8 months late in your Woodie's charge account. Mr. HOWARD. NO.

Senator TSONGAS. That's the kind of information that they would have.

Mr. GELLER. That would be the information you would be entitled to get under these bills. ECOA only gives you the reasons why you were denied. These bills would give you the basic information. If some information weren't true, you'd have a way to get at that. Senator TSONGAS. I guess what I was trying to say was that that basic information you described would not be in the initial letter.