Mr. WALPOLE. This is the first case I have handled dealing with this aspect of the Fair Credit Reporting Act, which is not investigating a consumer report. And, to my knowledge, it is the first case where the issue has really been focused on that one issue.

What is the responsibility of a TRW under the act when it is simply transcribing and reporting information it receives? They want no responsibility. Judge Cohen, in his opinion, says, "The whole act would be placed in jeopardy if you don't require the credit agency to use proper procedures.'

And I think his quote is to accept their interpretation of a consumer reporting agency's obligation to make the defendant simply a conduit and eliminate from the act its emphasis on the reasonableness of the procedures followed in putting together the consumer report. This is not what Congress intended. I think it is a very good opinion.

Senator TSONGAS. Let me, if I might, be arbitrary. I want to get to Mr. Steinberg because of the time constraints.

You were offered $3,500 to settle this before you went to the jury. Why didn't you accept that?

MS. COLLINS. Various reasons. No. 1, I was very upset with the information that was contained. I wanted the information destroyed because I knew that it wasn't true. I felt if I would have accepted that, what would have happened to the report; it still could have went to anybody. It wouldn't have gone through anything. I couldn't just go to them and say, "Hey, tear it up." I went to court. The court had them do that.

Senator TSONGAS. The judge reduced the judgment; did he not? Ms. COLLINS. Yes, he did.

Senator TSONGAS. What were the grounds given by him?

Mr. WALPOLE. He simply didn't feel that the $300,000, as he interpreted the facts, was justified. That was taken up on appeal and settled before an appellate court could review it.

Senator TSONGAS. $300,000 tends to get people's attention, I suspect.

Mr. WALPOLE. It did get attention.

Senator TSONGAS. Do you have contacts from other lawyers asking you for information?

Mr. WALPOLE. Yes. I probably receive half a dozen telephone calls and requests for copies of the brief and how did I do it. [An additional letter submitted in response to testimony of Barbara Collins and Forest Walpole was received just prior to publication. It may be found at page 1442.]

Senator TSONGAS. You may bring a new growth industry. Hopefully, if we pass this law, you won't have to do it, with all due apologies to your future endeavors.

Mr. Steinberg, why don't you start?

STATEMENT OF BRUCE STEINBERG, SAN FRANCISCO, CALIF.

Mr. STEINBERG. Thank you very much for your kind invitation to appear here today and take this opportunity to testify about my experience with prescreening. I would like to summarize the letter which I previously sent to you for the purpose of my speaking to you today.

If you have ever received a letter from a bank or other business offering you an unsolicited credit card "without further application," or from a store assuring you that "an account has already been opened in your name." do not assume that the company has

given in to a whim of altruism or is generously taking a chance on a stranger. You are no stranger; they already know quite a bit about you.

Senator TSONGAS. Let me interrupt you. You made the front page of the Wall Street Journal?

Mr. STEINBERG. Yes, sir.

Senator TSONGAS. I have never done that. My congratulations to

you.

Mr. STEINBERG. My thanks went to the Wall Street Journal for timing the release of that article, with the hearing today, because if you note on the back, there's a mention about this committee hearing, so they dovetailed that article with timing of this today. They were interested in what you're doing, too.

PRESCREENING

Very few people outside the credit industry have ever heard of prescreening, let alone understand its operation and implications. Yet millions of consumers a year are prescreened without their knowledge and consent as a result of cooperative and lucrative— agreements between credit grantors and credit bureaus. This all takes place with the tenuous approval of the Federal Trade Commission, whose initial proposed guidelines to the 1971 Fair Credit Reporting Act proscribing the practice as an invasion of privacy were smothered and reversed by an effectively unchallenged credit industry lobbying effort, which took place, interestingly, as Professor Linowes pointed out before, before both Watergate and the Privacy Act of 1974 made privacy a much more visible public policy issue.

The transcripts of the public hearing, available under the Freedom of Information Act, offer some interesting insights into the evolution of the guidelines; privacy was hardly a concern at that time, and the business needs of the credit industry predominated the testimony. And so the Commission guidelines, while not substantive law, became the official interpretation under which the Federal legislation is administered, at least until they are challenged and amended by due process.

Credit grantors and credit bureaus take advantage of semantic ambiguities in the FCRA to bypass intended safeguards of that law. For example, they stretch the definition of "permissible purposes' for a credit check by claiming that the prerequisite "credit transactions involving the consumer" already exists-even before the prescreened consumer knows about it-just because they "certify" their intention to offer credit to anyone who meets their criteria after they have been checked out.

They use computers to audit giant lists of unknowing consumers in an effort to find a greatly reduced number of persons who match a certain low-risk profile established by the credit grantors, and would therefore be preferred marketing targets.

Using the guidelines in virtual contradiction of specific sections of the FCRA: One, credit checks are run and consumer reports are generated without the knowledge and prior authorization of the affected consumer; and two, no record of this search and report appears on the consumer's file at the credit bureau. In addition, the actual prescreening criteria used are considered proprietary

and are never revealed, even upon specific request of an admittedly prescreened consumer. Finally, the consumer has no means of exercising an option of not being prescreened in the first place. I am sure you will agree that the potential for abuse of such a freewheeling system is enormous.

I was introduced to this situation several years ago, when I received an unsolicited form invitation to become a BankAmericard holder from Bank of America, with whom I had no affiliation whatsoever.

Almost instinctively, I was offended by their assumption that I would be flattered enough by their offer to overlook the fact that they were admitting having investigated me sufficiently behind my back to assure themselves-and me-of my so-called "excellent credit reputation." Starting out with only this one letter and the conviction that something is very wrong with a system that so casually tries to reinforce in our minds an attitude that such invasions of privacy are to be considered normal-or even desirable-I proceeded to personally investigate just what exactly was going on.

I checked with the bank and both of the local credit bureaus, and they all denied having given any information on me to Bank of America. I therefore contacted Bank of America and asked them just exactly where they had heard about me. They responded with what was to be my first explanation of prescreening and, in addition, identified TRW Credit Data as a source of their information. I got back in touch with TRW and asked them if this were true. They admitted that it was. When I asked them why they had denied it in the first place, they said they didn't have to tell me anything about prescreening-it was exempt from the FCRA.

Within 2 years of having received the original letter from Bank of America, I had entered into a $20,000 settlement with TRW Credit Data, one of the largest credit reporting agencies in the country, and had dictated the terms of an agreement with them radically altering their prescreening activities.

It turned out that my suit had, among other things, forced TRW to admit that the potential abuses of prescreening practice were already more real than I had ever imagined, and that literally thousands of complete consumer credit files in my prescreening group alone had been transmitted between TRW and Bank of America like so many interoffice memos.

The grounds for class action against TRW were staggering. But I felt the optimum course of action was still to settle with them personally and then carry the case back to the FTC for reinterpretation of the FCRA.

My lawsuit was dismissed, and TRW insisted that no indication of the terms of the settlement be included in the court record. I agreed to that, but I also told them that there were to be no limitations on my revealing the terms to either the FTC or the media. As a result, I filed a formal FTC petition as an interested party, requesting that the terms of the settlement with TRW be considered as the basis of an amended guideline concerning prescreening and binding upon the entire credit industry, not just TRW.

The major procedural covenants of TRW in our settlement were that: One, TRW would no longer provide any credit grantor with a prescreened list without previous authorization by affected consumers; and that two, TRW would enter on its file and disclose to any consumer who has appeared on a prescreened list generated by TRW that the prescreening had occurred.

You may notice that the latter covenant foreshadowed one of the points now proposed in S. 1928. TRW alone is now reticently bound to it, but I feel that such disclosures should be required to be practiced by all consumer reporting agencies.

The former covenant of TRW is actually significantly more than anything in S. 1928 now proposes: Prior consumer authorization for the transmittal of a prescreened name to a credit grantor. I feel that this is a completely reasonable requirement, in keeping with the legislative intent of the FCRA, and also with the stated objectives of the report of the Privacy Protection Study Commission. The fact that TRW agreed to it, and presently is bound to operate under it, indicates that it does not automatically deal a death blow to prescreening operations. My fundamental intention in demanding the requirement was to create a mechanism within the existing procedures which would guarantee that a consumer's name and credit information-in any form-would never coexist in the hands of a third party-outside the credit reporting agencywithout the affected consumer's knowledge and consent.

That's not so much to ask.

The Fair Credit Reporting Act interpretation says: "The practice of prescreening results in no significant harm to consumers." I would seriously propose, Senator, that the results of continual public conditioning through such supposedly harmless precedents as prescreening to accept routine invasions of privacy, is a far greater significant harm to consumers in the long run than being left off the prescreening list in the first place. These companies and their policies are virtually invisible to the public, so public opinion concerning their attitudes and behavior is not yet a major influence in implementing change, although their fallibility is a matter of record.

Late last year, for example, the FTC sent out a letter to the presidents of all the major credit reporting agencies, soliciting their comments concerning the suggested amendments to the current guidelines and the bureaus' willingness to voluntarily comply with them. Recent conversations with the FTC legal staff indicate that the industry comments have been very slow in coming in, from which one may infer that they are reluctant to hasten the inevitable changes in their current procedures.

ENLIGHTENING THE CONSUMER

I sincerely believe it is time for the Congress, the credit industry and the media to take affirmative action in enlightening the public in the operation of credit bureaus, and particularly in the potential for abuse which exists in the daily invasions of privacy such as I have described, which we all too easily take for granted.

I am in wholehearted support of the proposals offered in S. 1928, which definitively include prescreening within the controls and safeguards covering all consumer reports. Despite industry argu

ments to the contrary, a prescreened list is obviously a consumer report as defined in the FCRA. That is: any written, oral, or other communication of any information by a consumer reporting agency bearing on a consumer's creditworthiness, credit standing, credit capacity, et cetera.

If it did not fit that description, of what possible interest or use would it be to subscribing credit grantors?

Under the FCRA, a consumer has the right to know: One, who has been given information on oneself, and two, what that information is. In the latter regard, therefore, it is essential that the criteria necessary to be met in order to be included on the list be made known to all consumers, for such inclusion in itself implicitly constitutes communication of the fact that the consumer has the particular qualities sought.

That these criteria are so jealously guarded and considered confidential, while they are used to prescreen and release the consumer's confidential information without prior consent, indicates the gross contempt with which consumers' privacy is actually viewed by the credit industry.

To this day, in spite of repeated demands and in spite of my settlement, I still do not know the criteria which qualified me for the prescreened list, not that it matters much since everything in my file went to Bank of America, anyway.

Senator TSONGAS. I didn't hear your last statement.

Mr. STEINBERG. I said it doesn't matter much since everything in my file went out to Bank of America anyway, which was disclosed to me during the course of my settlement, in clear contradiction of the Fair Credit Reporting Act way above and beyond the issue of prescreening.

Furthermore, there is no statutory restriction on the nature of prescreening criteria, or, for that matter, on any information which may be collected in one's file and disseminated for any consumer report, even though the Equal Credit Opportunity Act proscribes the use of certain items of that information.

This reflects a congressional concern with fairness rather than intrusiveness.

Although I can understand the need for this balance between fairness and intrusiveness, I feel it is wishful thinking to trust the ability of the investigative mentality to resist the temptation to use any and all information available, eventually.

To simply collect and store it is just begging to see it used, or perhaps from the economic point of view of the credit reporting agencies-just begging to see the system which holds the information used, and fully subscribed to.

Credit bureaus run the biggest information show in town, and prescreening is a most profitable sideshow.

I feel that one of my primary obligations here is to emphasize the contention that a prescreened list is a bona fide consumer report. In view of the fact that the criteria are secret, prescreening is especially vulnerable to abuses which would be more obvious in other types of consumer reports.

Because of prescreening's nebulous history as some sort of FCRAexempt activity in the collective mind of the credit industry, it is doubly important to take steps to insure that the proscriptions on