changes in the industry since the laws were passed regarding the handling of those flows. - provide inadequate protection INFORMATION FLOWS By way of background to my discussion of deficiencies in existing law, I would like now to provide an overview of the flows of information within and surrounding the credit industry. The credit applicant generally provides the initial information used to evaluate his or her credit worthiness. The creditor will then typically seek additional and/or verifying information, although the applicant is rarely notified of the extent of these additional inquiries. In the case of consumer finance companies, the LENDER's EXCHANGE may be consulted. This is a clearinghouse which operates as a pointer system, enabling lenders to identify individuals who already have existing obligations. However, the primary mechanism for the exchange of information among creditors is the CREDIT BUREAU. The bureaus' primary sources of information are creditors, and their primary subscribers are credit grantors as well. Many, perhaps most, consumers are nonetheless unaware of their existence. Indeed, most credit grantors do not inform applicants that information about them will be reported to a credit bureau or that information will be sought from a credit bureau. There are approximately 2,000 credit bureaus throughout the country. Although most of them operate only locally, the vast majority of all credit bureau reports are issued through five computerized, nationwide credit reporting systems. Credit grantors such as stores, banks, credit card companies, and finance companies, report to the bureaus the terms of their credit agreements with customers and the status of their accounts. Credit grantors whose files are automated usually send local credit bureaus a data tape each month, containing identifying information for each account holder, account information such as amount owing, and coded information indicating the "usual manner of payment." For smaller credit bureaus that do not have the facilities to handle computerized records, Associated Credit Bureaus, Inc., the industry trade association, provides a monthly service which makes available the records of major credit grantors on microfilm or microfiche. Credit bureaus also obtain information from debt collectors, employers, landlords, hospitals, and other persons having a financial relationship with individuals. They may also consult public records for information about arrests and convictions, bankruptcies, tax liens, divorces, lawsuits, and property disputes. Besides providing full credit reports on specific individuals, most credit bureaus develop mailing lists of consumers with specified characteristics. They match their files against a list of criteria supplied by a client, and sell the client the resulting list. A merchant moving to a new location, for example, may want a list of individuals in a certain zip code with income over a certain level and existing obligations under a certain level, in order to solicit new accounts from a relatively credit-worthy local group. Some of the more sophisticated credit bureaus will actually monitor the credit files of individuals and notify creditors when certain status changes occur that could require the creditor to reassess the account. Such changes might include bankruptcy, divorce, loss of employment, or overextension of other accounts. The larger credit bureaus may, at the request of a creditor, monitor their nationwide system for entries concerning an individual whom the creditor may want to locate, and will notify the creditor of the individual's whereabouts. In addition to credit grantors, a variety of other organizations also use credit bureau reports. Doctors and landlords, for example, regularly obtain such reports. Insurance companies use credit reports to assess an applicant's financial situation, to verify or supplement information on the application, and to provide leads for further investigation. Employers often use credit reports when considering whether to hire or promote an individual. Government agencies obtain credit reports for such purposes as credit, employment, licensing and locator purposes. In fact, the Fair Credit Reporting Act allows a credit bureau to give a report to anyone who has a "legitimate business need" for the report in connection with a transaction involving the consumer. Thus, through credit reports and other services provided by credit bureaus, information derived for one purpose may readily find its way into the hands of other users for purposes unforeseen by the consumer. Another source of information is the INVESTIGATIVE REPORTING AGENCY or inspection bureau. Investigative reporting agencies produce narrative reports about individuals that cover such subjective items as lifestyle, reputation, leisure pursuits, driving habits, and alcohol and drug use. Investigators may interview neighbors, employers and other persons acquainted with the subject. Investigators also use credit bureau reports for leads, and check public records for information that may have a bearing on the subject's lifestyle. Investigative reporting agencies may be used by creditors for locating delinquent account holders. Like credit bureaus, investigative reporting agencies are also used by other organizations, such as insurance companies and employers. A more specialized type of information source is the INDEPENDENT AUTHORIZATION SERVICE. Some of these services authorize credit cards, on the basis of information from banks and other card issuers concerning lost, stolen, or overextended cards. There are similar services that authorize or guarantee personal checks at the point of sale. The information that these services maintain may be as Larger authorization services, like larger consumer reporting agencies, will monitor their nationwide files on behalf of banks, for example, to locate individuals who have written bad checks. Authorization services provide a real convenience to merchants and consumers alike. But when an authorization service's action is based on inaccurate information, it can cause needless embarrassment and inconvenience to consumers, because they have no rights of access to find out if an error has been made and no means of correcting an error if they suspect one. EXISTING LAW I will turn now to some of the statutes that govern credit information practices today. The Fair Credit Reporting Act (FCRA) and the Equal Credit Oportunity Act (ECOA) provide some important protections for consumers. The FCRA deals with the information practices of "consumer reporting agencies," a term that includes credit bureaus, investigative reporting agencies, and other such organizations. The FCRA gives consumers the right to know when information from a consumer reporting agency is a basis for a denial of credit, insurance, and in some cases, employment; the right to get some idea of the information maintained on them by consumer reporting agencies; and the right to include an account of their side of a dispute in their files. The ECOA, in addition to prohibiting certain kinds of discrimination, gives consumers the right to learn the reasons for a denial of credit. Two other statutes, the Fair Credit Billing Act and the Fair Debt Collection Practices Act, govern specific operational aspects of credit activity; but both have information fairness components as well, in that they place limits on how certain information about those activities can be used or reported. However, key elements of fair information practices are missing from the protections these laws provide. TITLE I, "PRIVACY PROTECTION AMENDMENTS" It is a fundamental fair information principle, for example, that individuals be afforded rights of access and correction regarding information about them. Only in this way can consumers ensure the accuracy of the information. The access provisions of the FCRA require only that consumer reporting agencies reveal the "nature and substance" of the information in their files. Moreover, when medical information is in the file, no disclosure existence, let alone its nature and substance - - even of its is required. Such limited access rights granted by the FCRA make it difficult to identify inaccuracies and difficult therefore to correct them. Perhaps the most critical change the "Privacy Protection Amendments" would make in existing law is to afford consumers the right to see their consumer reporting agency files and in fact to obtain a copy of them. Medical information |