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throughout the country. Many states have enacted legislation based on the current FCRA provisions. Some of these states are considering amendments to their statutes and others may be considering enacting new legislation. As a result, it is becoming more difficult for consumer reporting agencies and users of credit reports to conduct their activities in a manner which complies with these state statutes as well as the FCRA. This difficulty will be compounded if Congress determines to enact the amendments to the FCRA currently being considered by the Subcommittee since the enactment of such amendments would create a federal statute which is substantially inconsistent with the corresponding provisions at the state level.

Accordingly, CBA and ABA recommend that if Congress decides to

enact amendments to the FCRA, Congress should simultaneously

take the opportunity to establish the FCRA as the single

national consumer protection statute governing consumer

reporting agencies and the users of credit reports.


CBA and ABA believe that creditors currently

comply with the FCRA and have the ability to develop self


regulatory fair credit practices to enhance this compliance. this regard, we are working with our members to address such topics as credit reporting, direct marketing, cross-selling, consumer disclosure notices, error-correction procedures, fair

advertising and promotion practices and prescreening exclusion


Further, CBA and ABA are willing to work with the

FTC, other federal regulatory agencies, and other groups to

develop an informational booklet designed to inform consumers of

their rights under the FCRA, and to assist voluntarily in the

distribution of such a booklet.

CBA and ABA believe that more information about the

additional costs and operational effects of H.R. 4213, H.R. 4122 and H.R. 3740 is necessary before amendments to the FCRA are

considered further.

In addition, after more than a year and a

half of study, the FTC has just issued its Commentary on the


We believe that it is premature to amend the FCRA until

the impact of the FCRA Commentary on the rights and

responsibilities of consumers, creditors, and consumer reporting

agencies under the FCRA can be determined.

Nevertheless, CBA

and ABA would be pleased to work with the Subcommittee and its

staff to formulate an appropriate approach to the issues raised

in the FCRA legislation currently before the Subcommittee.

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Good morning Mr. Chairman and distinguished members of this panel. Consumers Union appreciates the opportunity to comment today on H.R. 4213, which makes important improvements that are long overdue to the Fair Credit Reporting Act (FCRA). We commend you, Mr. Chairman, and you, Mr. Schumer, for addressing the omissions and loopholes in the current law, and for introducing bills to make the law work better for consumers.


H.R. 4213 makes significant improvements in the current law. Among the

important improvements we would include the requirement that credit reporting agencies disclose to consumers their rights under the Act and make the entire credit file


Consumers Union is a nonprofit membership organization, chartered in 1936 under the laws of the State of New York to provide information, education, and counsel about consumer goods and services and the management of family income. Consumers Union's income is derived solely from the sale of Consumer Reports, its other publications and films. Expenses of occasional public service efforts may be met, in part, by nonrestrictive, noncommercial contributions, grants and fees. In addition to reports on Consumers Union's own product testing, Consumer Reports, with approximately 4.5 million paid circulation, regularly carries articles on health, product safety, marketplace economics and legislative, judicial and regulatory actions which affect consumer welfare. Consumers Union's publications carry no advertising and receive no commercial support.

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available to consumers upon request. The imposition of responsibilities under the Act on persons who provide information to credit reporting agencies, and the tightened re-investigation procedures, are also important improvements.

Despite these steps forward, the bill fails to address many of the problems posed by the existing law. And in some areas, particularly in the

of pre-screening, the proposed modifications to FCRA either undermine existing protections or fail to fully correct existing problems. Our specific concerns and recommendations regarding the amendment proposals in H.R. 4213 are set forth in this testimony in the order in which they are raised by the bill.

As you know, re-examination and reform of FCRA is not a common occurrence. Consequently, we would encourage the sponsors of the legislation, and this entire subcommittee, to seriously consider the additional improvements and corrections that we and others will recommend, and to incorporate them into the pending legislation.

We look forward to working with you and your staffs toward this goal, and toward the expeditious enactment of this important legislation this year.

Section 101 Definition of "Adverse Information"

This section clarifies that an adverse action is any action "adverse to the interest of the consumer. This broad definition is appropriate given the variety of permissible purposes for which third parties may access the credit report and the impossibility of describing each type of user response that could have an adverse impact on the consumer.

Section 102 Permissible Purposes and Pre-screening

We applaud this section of the bill for implicitly establishing the principle that, in general, no consumer credit report may be provided except in connection with any credit or business transaction initiated by the consumer. By definition, a



However, because of the "and" between paragraphs (1) and (2) of subsection (j), this broad definition could be interpreted very narrowly to only include adverse actions that fall within the definition of "adverse action" under the Equal Credit Opportunity Act (i.e., section 701(d) (6) of title VII of this Act.) consequently, new subsection (3) should be technically corrected to substitute an "or" for the "and" that currently exists between paragraphs (1) and (2).

consumer credit report contains extremely sensitive information about the consumer that should only be provided to third persons upon the consumer's initiative.

However, certain key changes are necessary to ensure that this principle is followed to its natural conclusion and not riddled with major loopholes. First, the release of the report should not only be conditioned on the consumer's initiation of business with the user. The release should also be conditioned on the consumer's authorization that the user may access the report. Second, any release in the context of pre-screening should be conditioned on the approval of the release by the consumer identified in the list.

Obtaining an express authorization to conduct a credit check is already a common practice in connection with some business transactions, such as the mortgage application process, where the loan officer asks the consumer to sign a statement authorizing the potential creditor to obtain a credit report on the consumer. Most consumers applying for credit probably realize that their application will trigger a credit check.

Many consumers probably do not realize, however, that their application for employment, insurance, housing, and a whole host of other products and services may also trigger access to their files. Such access is authorized by current law, and by H.R. 4213. new section 604 (a) (3) (E) of the Act, as amended by the bill, authorizes a credit reporting agency to release a credit report to "a person which it has reason to believe ... has a legitimate business need for the information in connection with a business transaction involving the consumer. (The FTC Commentary even authorizes dating services to access the credit file of a consumer who has applied for the service.)

We will accomplish three goals by requiring all persons deemed to have a legitimate business purpose for obtaining a credit report to obtain authorization from the consumer to access the report: First, we will heighten consumer awareness of the importance of a good credit history and the myriad circumstances in which their credit report will be used. Second, we will deter against unnecessary invasions of privacy: Businesses unnecessarily accessing credit reports will be deterred from continuing this practice if they believe their customers will complain about this unnecessary invasion of privacy. Thus, the consumer himself can be the first line of defense for the credit reporting agency against unauthorized or frivolous

Third, the written authorization from the consumer can be supplied to the credit reporting agency, or the enforcement agencies, to verify the user's permissible purpose.


3FTC Statement of General Policy or Interpretation: Commentary on the Fair Credit Reporting Act (1990) at 45.

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