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CREDIT REPORTS: CONSUMERS’ ABILITY TO DISPUTE AND CHANGE INACCURATE INFORMATION HEARING BEFORE THE COMMITTEE ON FINANCIAL SERVICES U.S. HOUSE OF REPRESENTATIVES ONE HUNDRED TENTH CONGRESS FIRST SESSION JUNE 19, 2007 Printed for the use of the Committee on Financial Services Serial No. 110–41 ( U.S. GOVERNMENT PRINTING OFFICE WASHINGTON 37–557 PDF : 2007 For sale by the Superintendent of Documents, U.S. Government Printing Office Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800 Fax: (202) 512–2104 Mail: Stop IDCC, Washington, DC 20402–0001 VerDate 0ct 09 2002 17:03 Oct 11, 2007 Jkt 037557 PO 00000 Frm 00001 Fmt 5011 Sfmt 5011 K:\DOCS\37557.TXT HFIN PsN: TERRIE HOUSE COMMITTEE ON FINANCIAL SERVICES BARNEY FRANK, Massachusetts, Chairman PAUL E. KANJORSKI, Pennsylvania MAXINE WATERS, California CAROLYN B. MALONEY, New York LUIS V. GUTIERREZ, Illinois NYDIA M. VELÁZQUEZ, New York MELVIN L. WATT, North Carolina GARY L. ACKERMAN, New York JULIA CARSON, Indiana BRAD SHERMAN, California GREGORY W. MEEKS, New York DENNIS MOORE, Kansas MICHAEL E. CAPUANO, Massachusetts RUBÉN HINOJOSA, Texas WM. LACY CLAY, Missouri CAROLYN MCCARTHY, New York JOE BACA, California STEPHEN F. LYNCH, Massachusetts BRAD MILLER, North Carolina DAVID SCOTT, Georgia AL GREEN, Texas EMANUEL CLEAVER, Missouri MELISSA L. BEAN, Illinois GWEN MOORE, Wisconsin, LINCOLN DAVIS, Tennessee ALBIO SIRES, New Jersey PAUL W. HODES, New Hampshire KEITH ELLISON, Minnesota RON KLEIN, Florida TIM MAHONEY, Florida CHARLES WILSON, Ohio ED PERLMUTTER, Colorado CHRISTOPHER S. MURPHY, Connecticut JOE DONNELLY, Indiana ROBERT WEXLER, Florida JIM MARSHALL, Georgia DAN BOREN, Oklahoma SPENCER BACHUS, Alabama RICHARD H. BAKER, Louisiana DEBORAH PRYCE, Ohio MICHAEL N. CASTLE, Delaware PETER T. KING, New York EDWARD R. ROYCE, California FRANK D. LUCAS, Oklahoma RON PAUL, Texas PAUL E. GILLMOR, Ohio STEVEN C. LATOURETTE, Ohio DONALD A. MANZULLO, Illinois WALTER B. JONES, JR., North Carolina JUDY BIGGERT, Illinois CHRISTOPHER SHAYS, Connecticut GARY G. MILLER, California SHELLEY MOORE CAPITO, West Virginia TOM FEENEY, Florida JEB HENSARLING, Texas SCOTT GARRETT, New Jersey GINNY BROWN-WAITE, Florida J. GRESHAM BARRETT, South Carolina JIM GERLACH, Pennsylvania STEVAN PEARCE, New Mexico RANDY NEUGEBAUER, Texas TOM PRICE, Georgia GEOFF DAVIS, Kentucky PATRICK T. MCHENRY, North Carolina JOHN CAMPBELL, California ADAM PUTNAM, Florida MICHELE BACHMANN, Minnesota PETER J. ROSKAM, Illinois KENNY MARCHANT, Texas THADDEUS G. McCOTTER, Michigan JEANNE M. ROSLANOWICK, Staff Director and Chief Counsel (II) VerDate 0ct 09 2002 17:03 Oct 11, 2007 Jkt 037557 PO 00000 Frm 00002 Fmt 5904 Sfmt 5904 K:\DOCS\37557.TXT HFIN PsN: TERRIE CONTENTS Page Hearing held on: June 19, 2007 .................................................................................................... Appendix: June 19, 2007 .................................................................................................... 1 53 WITNESSES TUESDAY, JUNE 19, 2007 Bennett, Leonard A., Consumer Litigation Associates, P.C., on behalf of the National Association of Consumer Advocates .................................................... Braunstein, Sandra F., Director, Division of Consumer and Community Affairs, Board of Governors of the Federal Reserve System ................................ Fortney, Anne P., Partner, Hudson Cook, LLP ..................................................... Hendricks, Evan, Editor/Publisher, Privacy Times .............................................. Parnes, Lydia, Director, Bureau of Consumer Protection, Federal Trade Commission .................................................................................................................. Pratt, Stuart K., President and CEO, Consumer Data Industry Association .... Wu, Chi Chi, Staff Attorney, National Consumer Law Center ........................... 41 9 39 33 7 35 37 APPENDIX Prepared statements: Gillmor, Hon. Paul E. ....................................................................................... Bennett, Leonard A. ......................................................................................... Braunstein, Sandra F. ...................................................................................... Fortney, Anne P. ............................................................................................... Hendricks, Evan ............................................................................................... Parnes, Lydia .................................................................................................... Pratt, Stuart K. ................................................................................................ Wu, Chi Chi ...................................................................................................... ADDITIONAL MATERIAL SUBMITTED FOR THE 54 55 94 115 139 154 177 208 RECORD Frank, Hon. Barney: Articles from The Boston Globe ...................................................................... Letter from the National Association of Realtors .......................................... Statement of the National Credit Reporting Association, Inc. ..................... 253 258 260 (III) VerDate 0ct 09 2002 17:03 Oct 11, 2007 Jkt 037557 PO 00000 Frm 00003 Fmt 5904 Sfmt 5904 K:\DOCS\37557.TXT HFIN PsN: TERRIE VerDate 0ct 09 2002 17:03 Oct 11, 2007 Jkt 037557 PO 00000 Frm 00004 Fmt 5904 Sfmt 5904 K:\DOCS\37557.TXT HFIN PsN: TERRIE CREDIT REPORTS: CONSUMERS’ ABILITY TO DISPUTE AND CHANGE INACCURATE INFORMATION Tuesday, June 19, 2007 U.S. HOUSE OF REPRESENTATIVES, COMMITTEE ON FINANCIAL SERVICES, Washington, D.C. The committee met, pursuant to notice, at 10 a.m., in room 2128, Rayburn House Office Building, Hon. Barney Frank [chairman of the committee] presiding. Present: Representatives Frank, Maloney, Watt, Ackerman, Moore of Kansas, Clay, McCarthy, Baca, Green, Cleaver, Davis of Tennessee, Sires, Perlmutter; Bachus, Castle, Gillmor, Manzullo, Jones, Biggert, Shays, Feeney, Hensarling, Brown-Waite, Barrett, Price, Campbell, Bachmann, Roskam, and Marchant. The CHAIRMAN. The hearing will come to order. This is a hearing on the question of the extent to which consumers can successfully challenge inaccurate information in their credit reports. One of the great bipartisan accomplishments of this committee, under the chairmanship of Mr. Oxley, was the FACT Act, as it was called, which dealt with the ability of companies to deal with credit extensions. And one of the things we did in that was to expand the ability of consumers to get information about their credit reports. That was something of which we were very proud of, and it was an overwhelmingly bipartisan operation. Subsequently, and I want to give credit where credit is due, the Boston Globe in Massachusetts ran some articles in December which documented problems people were having in challenging what they believed to be inaccurate reports. I am going to ask unanimous consent to put those in the record. Currently, getting a free report is much less important than we had hoped it would be if it is inaccurate and you have problems in dealing with it. We did learn when we did that hearing that one of the problems was that people who challenged what they believed were inaccurate reports stemming from a dispute with a particular merchant or creditor were at a disadvantage. We were told that the practice of many of the merchants or creditors was simply to check their own paperwork, and if their paperwork showed that a charge was incurred, they insisted on it, with no opportunity, no forum in which someone could say, ‘‘That wasn’t me.’’ Our purpose here is to look into this and to make sure that consumers who can document an error have a chance to do so. (1) VerDate 0ct 09 2002 17:03 Oct 11, 2007 Jkt 037557 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 K:\DOCS\37557.TXT HFIN PsN: TERRIE 2 So that is the purpose of this hearing. We appreciate the representatives of the appropriate Federal agencies being here. It is the very strong view, I believe, of many of us on this committee, certainly myself, that consumer protection not only is not antithetical to the appropriate functioning of our financial system, but in fact needs to be an integral part of it. We want people, when they buy things, to have a sense of confidence. And if people do not feel confident in the fairness of the system, then that is an obstacle to their full participation. We want people to be able to shop online or use credit cards, do whatever they wish without any sense that they could be disadvantaged. That is an important part of protecting data privacy, which this committee will be dealing with later in the year, and it is an important part of today’s subject. So again I want to stress this is not, as some would pose it, a case of consumers versus the businesses. This is a seamless system in which we want consumers to be confident enough to fully participate in the economic system, and one of the ways to do this is to deal with that. So that is the purpose of this hearing. I would hope this is something that could be resolved without any legislative action. If people tell us that is necessary, we will do that; we will be dealing with legislation later in the year where this could be appended. But I am hoping we will be able to come out of this today with some agreement about how to resolve this. It doesn’t mean any consumer can automatically say, ‘‘I am not paying,’’ or ‘‘That was wrong,’’ without any documentation, but there needs to be some way that consumers in a reasonable way can document the error. I now recognize the gentleman from Alabama. Mr. BACHUS. I thank the chairman. As the chairman said, there have been recent articles in his hometown paper and in other papers highlighting the inability of consumers to dispute or correct their credit reports when there is erroneous information in those credit reports. And in many cases, they reported instances where they were denied credit or denied a good credit score or good credit rate. I was a sponsor of the Fair and Accurate Credit—the FACT Act or Fair and Accurate Transactions Act. And if the witnesses will recall, it passed with over 400 votes out of the House and only two negative votes in the Senate. The two negative votes in the Senate were Senators who said that it was not consumer friendly enough. But most of us agreed that the Act would empower consumers to have accurate credit reports and to be able to change their reports. I am very disappointed in the agencies. And let me say this to the witnesses. I am going to ask for your attention as I give my opening statement, because I want to tell you that I am very disappointed in the agencies and their inaction on fashioning regulations. The Act passed in 2000, yet the rules and regulations have yet to be finalized. They hadn’t even been put out for comment, and I can’t imagine why that is so. And I would ask the witnesses to maybe explain to us why that has happened. So today is a good opportunity for us to get some explanation for where we stand on implementing the Act. It governs the relationship between credit reporting agencies, credit information furnishers, and consumers. Currently, the Fair Credit Reporting Act VerDate 0ct 09 2002 17:03 Oct 11, 2007 Jkt 037557 PO 00000 Frm 00006 Fmt 6633 Sfmt 6633 K:\DOCS\37557.TXT HFIN PsN: TERRIE 3 requires consumer reporting agencies to investigate consumer disputes within 30 days of receiving a complaint from the consumer. The consumer reporting agencies must then inform the entity that furnished the disputed information, and the furnisher is in turn required to conduct its own concurrent investigation. If either the consumer reporting agency or the furnisher determines that the disputed information is inaccurate or cannot be verified, they must remove the information from the consumer’s credit file. The FACT Act enhanced the ability of consumers to correct their credit reports in a number of ways. First, it required the Federal banking agencies and the FTC to write regulations establishing better procedures governing companies that furnish information on their customers to the credit bureaus to ensure that their reports are accurate; that hasn’t been done. Also, the FACT Act directed the FTC and the Federal banking agencies to identify, through regulation, circumstances in which a consumer should be able to dispute the accuracy of information directly with the furnisher. That hasn’t been done, either. Prior to the FACT Act, consumers could only initiate such disputes through the credit bureaus. While the Federal banking agencies, the FTC, issued an announced notice of proposed rulemaking in March of 2006, they have yet to take any further action. It is my belief that implementation of these provisions would go a long way toward making it easier for customers to protect their credit reports. And as I said at the start of my statement, I want to continue to urge your agencies to move quickly and to finalize these long overdue regulations. I also want to throw in one other thing which is tremendously frustrating to me. I have a son, and I have said this in other hearings, who is a member of the U.S. Marines. And because he is, he has friends, and I know some members of this body have gotten situations where they were transferred from one location to another under the Soldiers and Sailors Act. That Act is pretty clear that when they receive orders to report to Iraq, Afghanistan, or even to Texas or California from a location, say on the East Coast, they are supposed to be able to get out of their lease. I have two case files in my office where soldiers informed their landlords that they had been transferred to Iraq, the reserve officer then wrote a letter to the landlords saying that they were leaving after the landlord sent a collection letter or a letter threatening a lawsuit. In each case, the landlord did not pursue the case because legally they could not recover. One case we handed to a U.S. Attorney, who aggressively pursued it. But in both cases the landlords, large real estate holding companies, reported derogatory information to the credit bureaus. And I don’t know if the FDIC is hearing these complaints, but to me it continues to disappoint me when we have soldiers who are in Iraq, we have an Act that says they will be excused from their leases, and people continue to put up obstacles in their faces. And I would like you all to sort of look and see if there is any rule that you all will develop that will treat that situation. I don’t know what the credit reporting agencies are doing about it, but thank you. The CHAIRMAN. The gentlewoman from New York, the chairwoman of the Subcommittee on Financial Institutions, who would VerDate 0ct 09 2002 17:03 Oct 11, 2007 Jkt 037557 PO 00000 Frm 00007 Fmt 6633 Sfmt 6633 K:\DOCS\37557.TXT HFIN PsN: TERRIE 4 have jurisdiction over this if any legislative action proves necessary, is recognized for 5 minutes. Mrs. MALONEY. I thank the chairman and ranking member, and I would like to welcome the witnesses, and thank you for holding this very important hearing on the important subject of credit reports. Just 4 years ago, with the enactment of the FACT Act, Congress updated credit reporting laws to address, among other things, the accuracy of credit reports and the rising epidemic of identity theft. While that law put in place good standards, the press reports suggest that they are not being followed or enforced adequately, so I look forward to hearing what you are doing about this. One study found that over three-quarters of credit reports contained errors, and that a quarter of them impaired the consumers’ ability to get credit. This is totally unacceptable. Victims of credit report errors suffer consequences similar to victims of identity theft. It is very difficult to clear your credit. And you may be unable to buy a car or a house or get a credit card for years. Being denied credit based on incorrect information impairs a consumer’s future chances of getting credit, and it makes it very difficult to overcome the error. So mistakes mushroom into very serious problems. Many States have responded to this threat by enacting laws that allow individuals to protect themselves by controlling access to their credit reports and the personal data it contains through a simple and low cost process. This concept, called file freeze, has been adopted by 27 States, including my home State of New York. And almost all of these State laws, including New York’s, give the right to freeze access to their credit reports to everyone, so that people can protect themselves from wrong data or identity theft, suffering the bad consequences of many times incorrect information in credit reports. In the last Congress, I introduced a bill that would make file freeze a Federal right without preempting State laws, and I am introducing that bill again this week. File freeze should be available to everyone, because it is the only tool available to prevent wrong information from continuing to ruin your credit, just as it is the best way to fight identity theft. A credit report freeze works because it actually stops the granting of new credit without the consumer’s express permission, and thus prevents continuing errors and identity theft. If a consumer freezes his or her report while working out errors, it provides credit rating agencies an incentive to get the problem solved. The file freeze bill does not affect the use of credit cards or existing credit lines. It only prevents the issuing of new credit unless the individual requests it. The credit reports will be sent to a particular lender. This gives individuals control over their credit report, and allows them to protect themselves from the effects of errors in their report and from criminals who may want to use this information. It is not a complete solution, because of course, the consumer then has to get the error corrected, but it does stop the problem from getting worse in the meantime. And that can be quite a long period, as the press has noted in recent reports. I look forward to the witnesses’ comments on this and other solutions to correct the problems of errors and misuse of credit card in- VerDate 0ct 09 2002 17:03 Oct 11, 2007 Jkt 037557 PO 00000 Frm 00008 Fmt 6633 Sfmt 6633 K:\DOCS\37557.TXT HFIN PsN: TERRIE 5 formation, and credit information in general. I thank the witnesses for being here, and my time has expired. Thank you. The CHAIRMAN. On the list the ranking member gave me, next the gentleman from Texas, Mr. Hensarling, is recognized for 3 minutes. Mr. HENSARLING. Thank you, Mr. Chairman, and thank you for holding this hearing. I want to thank the ranking member as well. As we enter this hearing, I hope my colleagues will once again very much keep in the forefront of their minds that any perceived or any proposed cure should not be worse than the perceived illness that we study today. From the evidence I have seen, with all of its shortcomings, with all of its limitations, I still believe we have the world’s premiere credit reporting system, and a system that has played a vital role in ensuring over the last couple of decades that underserved populations, millions and millions of people, now have access to credit to make a down payment on their first home, to launch a small business, to buy a used car to go to and from work. Twenty years ago that might have not been the case. And this system, even with its limitations, has played a vital role in that change in America. I am sure in the keeping and processing of hundreds of millions of records, no doubt mistakes are made, although some of the studies that have come across my desk are somewhat suspect on the methodology. I am looking forward to hearing more testimony to know exactly how many mistakes might be made. Certainly, we want to ensure that consumers have a right to know, and that they have a right to challenge inaccurate information in their records. That is one of the reasons I thought we passed the FACT Act in 2003, and I would like to associate myself with the comments of the ranking member. I am a little curious, given that Act was passed in 2003, why vital rulemaking is still left undone. One phenomenon, though, that I do believe we should all recognize, is that along with many consumers who want to correct inaccurate information, there are also, unfortunately, many consumers who are attempting to correct accurate information. We often talk about the whole phenomenon of predatory lending in this committee, but we must also recognize the phenomenon of predatory borrowing, and examine how people may abuse the process with phony requests to correct unflattering but accurate data, which could leave the bulk of people who pay their debts in good faith ultimately to have to foot the bill. So I look forward to hearing from the witnesses, and I think this is a very worthy use of the committee’s time. And with that, I yield back the balance of my time. The CHAIRMAN. The gentleman from Texas, Mr. Green, is recognized for 4 minutes. Mr. GREEN. Thank you, Mr. Chairman, and I thank the ranking member also. This is indeed an important hearing that we are having today, and I thank the witnesses for appearing. It is important because with 79 percent of those surveyed finding that their reports contained mistakes, and then 25 percent of these mistakes impairing the ability of persons to acquire auto insurance, possible medical coverage, bank accounts, apartment rentals, and being de- VerDate 0ct 09 2002 17:03 Oct 11, 2007 Jkt 037557 PO 00000 Frm 00009 Fmt 6633 Sfmt 6633 K:\DOCS\37557.TXT HFIN PsN: TERRIE 6 nied credit, and even sometimes the opportunity to have a job, this is an important hearing. Many persons are being impacted by their credit scores. Many of them are not aware that they are being impacted by their credit scores. Given that we live in a cashless society, or we are moving toward a cashless society, or maybe appropriately I should say I have moved toward a cashless society—not always by design, I might add; sometimes it is just not available to me. And because the credit card and the credit report has become so important, it is important that this information be accurate. It really is. And I have had accounts of persons coming to tears because they were having difficulties trying to get their credit report corrected. So this is an important hearing, and I am really concerned about the credit score itself, how is it calculated? I actually had a case in my office where a person had a negative removed and the score went down. The score went down after the negative was removed from the report. So I am interested in knowing how it is calculated, and I am also interested in knowing what is it that we can do to encourage greater expediency in the process of correction, the correction process itself. Because it seems that it can take a little longer than it should, based on the cases that I personally have been involved with, to make these corrections. So I am honored that the chairperson and the ranking member have assembled us for this hearing, and I look forward to hearing from the witnesses. I yield back the balance of my time. The CHAIRMAN. The gentleman from Georgia, Mr. Price, on the list given to me, is now recognized for 3 minutes. Mr. PRICE. Thank you, Mr. Chairman. I wish to thank you and the ranking member, Congressman Bachus, for holding what I believe to be a remarkably timely hearing on the accuracy of credit reports and the consumer dispute process. Under the Fair Credit Reporting Act, I think it is clear to all of us that in an economy that is increasingly reliant on credit, the accuracy of these reports is of the utmost importance. False or inaccurate information can certainly cause a consumer to pay a higher rate of credit. It can affect everything from home loans to home mortgages, credit cards, etc., not just now but for many years to come, as my colleagues have said. The Fair Credit Reporting Act was amended in 2003 by the FACT Act. The Fair and Accurate Credit Transactions Act comprehensively regulates both accuracy and reinvestigation of consumer reports, including credit reports by consumer reporting agencies, including the three national credit reporting bureaus. As a result, I think consumers have an increasing number of ways in which to ensure the accuracy of their credit reports. They are entitled to receive a free report annually, plus a free report any time that the report is used to make an adverse decision about the consumer. And consumers can pay a nominal charge to obtain their report at any other time. Consumers’ ability to inspect their reports has never been higher from my perspective, a fact that I think further promotes the accuracy in these reports. There is also a dispute resolution system, which consumers may use to challenge information in their report at any time free of charge, and consumer reporting agencies must investigate and re- VerDate 0ct 09 2002 17:03 Oct 11, 2007 Jkt 037557 PO 00000 Frm 00010 Fmt 6633 Sfmt 6633 K:\DOCS\37557.TXT HFIN PsN: TERRIE 7 spond within 30 days. If an item in a consumer report is inaccurate, or even if the item, regardless of its accuracy, cannot be verified by the furnisher within 30 days, then the item must be deleted. It appears that we have dramatically increased consumer protections and ensured the accuracy of consumer credit. So I would be interested in both panel members’ opinion as to why they believe that has indeed occurred. I share Congressman Bachus’s concerns about the lack of rule promulgation, although I understand that some of that is because of certain time limits put in the original bill by Congress that may have made it so that the priority of the agency was placed in different areas for a period of time. As Congress and the regulators continue to add tools to the consumers’ toolbox increasing their ability to monitor their credit reports and dispute erroneous charges, there is an aspect of personal responsibility that has been seemingly lacking from the discussion. Consumers must perform their own due diligence. We have heard stories before this committee that lament debt taken on without any mention of personal responsibility, and we must never forget the importance of that. I am struck or bemused by some here who have been angered by the debt taken on by certain folks, while at the same time crying out about the difficulty of obtaining credit. That being said, financial literacy is increasingly important, and consumers must take responsibility for not only knowing the terms and conditions of their credit accounts, but also knowing the information that goes on the credit report that determines the costs that they end up paying for their credit. Let me just close by thanking the members of both panels for coming today and testifying before us this morning. I look forward to hearing your statements and asking a few questions, and I share the chairman’s desire, and I am hopeful that we will all conclude that no additional legislation is needed at this time. I yield back. The CHAIRMAN. The witnesses will now be able to talk, and we look forward to what they have to say. This is a follow-up in many ways to the FACT Act, of which I said this committee was I think justifiably proud in taking on a difficult subject and putting together a bill that had in the end strong support from the financial service industry, from others in the economic field, as well as from consumers. And we will begin with Lydia Parnes, who is the Director of the Bureau of Consumer Protection at the Federal Trade Commission. Ms. Parnes, please go ahead. And without objection, all of the statements and any supporting material from these witnesses and those on the second panel will be printed in the record. Please. STATEMENT OF LYDIA PARNES, DIRECTOR, BUREAU OF CONSUMER PROTECTION, FEDERAL TRADE COMMISSION Ms. PARNES. Thank you, Chairman Frank, Ranking Member Bachus, and members of the committee. I am Lydia Parnes, Director of the Bureau of Consumer Protection at the Federal Trade Commission. I appreciate the opportunity to testify today about the important issues of credit report accuracy and the process by which consumers can dispute inaccurate information. The 2003 FACT Act VerDate 0ct 09 2002 17:03 Oct 11, 2007 Jkt 037557 PO 00000 Frm 00011 Fmt 6633 Sfmt 6633 K:\DOCS\37557.TXT HFIN PsN: TERRIE 8 included several new accuracy-related provisions. Congress assigned the Commission, either alone or with other Federal agencies, the task of issuing about 30 rules, forms, notices, studies, and reports. To date, the Commission and its sister agencies have completed seven rulemakings, seven studies, five model forms and notices, and one national identity theft education campaign. We have also issued six notices of proposed rulemaking, and have made substantial progress on a complaint sharing program. We are close to completing two additional studies. I note that the Commission has completed 17 of the 20 tasks assigned to it alone. We have made FACTA implementation a high priority, but we can do more and we will. This week I am personally reaching out to my counterparts at the FACTA-implementing agencies to establish a timetable for completion of all FACTA requirements. We are committed to acting quickly. I know this is true for the FTC, and I am certain that it is true for my colleagues at the other agencies as well. Our work to implement FACTA has been robust. One example is the Commission’s 2004 rule effectuating consumers’ rights to free annual credit reports. As of December 2006, the nationwide consumer reporting agencies have provided over 52 million free reports to consumers. That is the good news. The not so good news is that some companies selling various services try to exploit this new right. We sued ConsumerInfo.com, doing business as Experian Consumer Direct, for deceptively marketing free credit reports. In the settlement of those charges, ConsumerInfo.com agreed to pay redress to deceived consumers, refrain from deceptive and misleading claims about free offers, disclose terms and conditions of any purportedly free offers, and give up $950,000 in ill-gotten gains. In short, we have sought to protect consumers’ right to receive a free credit report so that they can have a greater and more meaningful opportunity to spot and correct errors in their credit reports. Two highly significant FACTA tasks are still in progress. These require joint interagency agreement, which we are seeking to achieve. The tasks include two rulemakings relating to data furnishers: the accuracy rule, which will set guidelines for furnishers to follow to improve the accuracy and integrity of the information they transmit to consumer reporting agencies; and the dispute rule, which will establish the circumstances under which consumers can dispute inaccurate credit report information directly with the furnisher. These rules must be made either jointly or in coordination with five other Federal agencies. The agencies issued an advanced notice of proposed rulemaking for both rules in March of 2006. The comments we received raised a number of difficult issues. Our major challenge is to devise standards that are appropriate for the vast array of entities that will be covered by the rules, ranging from large multinational financial institutions to local landlords. The agencies are analyzing these issues and discussing them in depth. Law enforcement also plays a critical role here. The Commission has brought numerous cases against the key participants in the credit reporting system, the CRAs, the furnishers, and the users of consumer reports. These cases have addressed, among other things, VerDate 0ct 09 2002 17:03 Oct 11, 2007 Jkt 037557 PO 00000 Frm 00012 Fmt 6633 Sfmt 6633 K:\DOCS\37557.TXT HFIN PsN: TERRIE 9 the failures of the CRAs to comply with their accuracy and dispute obligations, the provision by furnishers of inaccurate information to CRAs, and users’ violation of adverse action notice requirements. The Commission will continue to vigorously enforce the FCRA. In tandem with its enforcement efforts, the Commission’s consumer and business education programs are designed to foster greater compliance with the law, and to help consumers help themselves. The Agency maintains and disseminates an extensive library on FCRA rights and responsibilities, including comprehensive guidance to ID theft victims whose credit files often are corrupted by thieves. Too many consumer reports contain inaccuracies, and too many consumers encounter unnecessary obstacles in getting these errors corrected. Such system failures can take a heavy toll on consumers not only monetarily, but in time and frustration. We are committed to doing everything possible to minimize these problems. We look forward to continuing our work with this committee on these issues, and I would be happy to answer any questions you might have about these activities. [The prepared statement of Ms. Parnes can be found on page 154 of the appendix.] The CHAIRMAN. Thank you, Ms. Parnes. Next, Ms. Sandra Braunstein, who is the Director of the Division of Consumer and Community Affairs at the Board of Governors of the Federal Reserve System. STATEMENT OF SANDRA F. BRAUNSTEIN, DIRECTOR, DIVISION OF CONSUMER AND COMMUNITY AFFAIRS, BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM Ms. BRAUNSTEIN. Thank you. Chairman Frank, Ranking Member Bachus, and members of the committee, I appreciate the opportunity to testify before you on the accuracy of credit reports and the furnisher rules required under the FACT Act. The accuracy of credit reports is vital because inaccuracies in credit reports can result in a consumer being denied credit or paying higher rates for credit. Inaccurate information can be introduced into credit reports in a variety of ways, such as the reporting of fraudulent accounts opened as the result of identity theft, the mixing or commingling of the files of consumers who have similar names or Social Security numbers, mistakes in public record data used by consumer reporting agencies, and data processing errors made by furnishers in connection with the information they provide. Furnishers and consumer reporting agencies share responsibility for ensuring the accuracy of credit reports. The Fair Credit Reporting Act, or FCRA, currently imposes duties on both consumer reporting agencies and furnishers with regard to the accuracy of information in credit reports. Similarly, the FCRA’s existing dispute process allows consumers to dispute the accuracy of credit report information with the consumer reporting agency, although furnishers must assist in the investigation of the dispute, and must correct any errors in the information they furnished. Despite these existing consumer protections, Congress concluded that more needed to be done to enhance the accuracy of consumer reports and improve the dispute process. The FACT Act amended the FCRA to give consumers the right to request a free annual copy VerDate 0ct 09 2002 17:03 Oct 11, 2007 Jkt 037557 PO 00000 Frm 00013 Fmt 6633 Sfmt 6633 K:\DOCS\37557.TXT HFIN PsN: TERRIE 10 of their credit reports from each of the credit bureaus. This change allows consumers to play a more active role in monitoring the accuracy of their credit reports. Other FACT Act provisions supplement the duties of furnishers to ensure the accuracy of the information they furnish to consumer reporting agencies. Under the FACT Act, the Federal banking agencies, the National Credit Union Administration, and the Federal Trade Commission must establish guidelines for use by furnishers to ensure the accuracy and integrity of the consumer information they furnish to a consumer reporting agency, as well as regulations requiring furnishers to adopt reasonable procedures to implement the guidelines. The statute also requires the agencies to identify the circumstances under which a furnisher must investigate a consumer’s dispute about the accuracy of credit report information based on a direct complaint from a consumer. The FACT Act required the Board and the FTC to study the current dispute process and jointly submit a report to Congress, which was completed in August 2006. The two interagency rulemakings regarding the duties of furnishers have not yet been completed. An advanced notice of proposed rulemaking for these interagency rules was published in March 2006. The agencies are currently working to develop a proposal. There are two reasons why it has taken so long to complete the furnisher rules. One reason has to do with setting priorities. Given the complexity of many sections of this statute and the large number of rulemakings that Congress has assigned to the agencies, it was necessary for the agencies to set priorities in terms of which rules to address first. The agencies gave priority to rulemakings for which Congress set a statutory deadline for completion, and the agencies also gave priority to rulemakings where they saw the biggest gaps in existing consumer protection law. A second reason has to do with the interagency process itself. Interagency rulemakings ensure that different perspectives are taken into account in developing a rule and that all agencies have a say in the outcome. On the other hand, the interagency rulemaking process is not the most efficient way to develop new regulations. It can be challenging to achieve a consensus among the different agencies. In summary, the Board is committed to enforcing the FCRA furnisher rules against State member banks, investigating consumer complaints against State member banks relating to their furnishing activities, and working with the other agencies to complete the interagency furnisher rulemakings as expeditiously as possible. Thank you. [The prepared statement of Ms. Braunstein can be found on page 94 of the appendix.] The CHAIRMAN. Thank you. I appreciate this recognition about the need to move on section 312 rules, which are really the heart of this. And I do want to acknowledge, and this became clear to us at the time, that the credit bureaus are not the source of all of the difficulty. And I was disappointed as we had the hearings, and as I had discussions with people as we dealt with the FACT Act, by the attitude of some of the creditors, which was that errors are going to happen, there is not much you can do about it, and you VerDate 0ct 09 2002 17:03 Oct 11, 2007 Jkt 037557 PO 00000 Frm 00014 Fmt 6633 Sfmt 6633 K:\DOCS\37557.TXT HFIN PsN: TERRIE 11 had better learn to live with them. The accuracy of the data that is presented to the credit bureaus is really a big part of the problem, and that is one we need to focus on. I just want to understand—and I realize we gave you a job that is perhaps compounded by the fact that all of the banking agencies, the Credit Union Administration and the FTC have to jointly do the rulemaking. But this is a very high priority. And you have said, and I appreciate it, that you try to affect the priorities. The fact that we singled this one out for hearing, I hope, will be an indication that there is a great sense of a priority here. Do we have any timetable for when this could be done, Ms. Braunstein? Ms. BRAUNSTEIN. We don’t have an exact timetable. As I said, we did put out an ANPR. We are going through that information. We hope to have a proposal as soon as we can, but I can’t really make a time commitment. It is hard to do that when there are so many other agencies involved over which I have no control. The CHAIRMAN. I appreciate that, and that is one of the things I want to get to. Maybe we have to designate a lead agency. That may have been our problem. I understand trying get all the agencies to work together can be difficult, and one of the things I think we will think about is designating a lead agency to deal with this. Because what do we have? Is it seven agencies or six? It is the Fed, the FDIC, the OCC, the OTS, the NCUA, and the FTC, so we have six agencies. Well, I think that is one of the things that I will consult with my colleagues about, because there is a need to do this. Let me ask what is then going to be the tough, substantive question, and I think for one thing—well, there are two aspects. One of the things that was frustrating to me when I read the Boston Globe articles and then looked into this some more was—and the gentleman from Georgia, who is not here now, said, well, people need to take responsibility for their own debt. But part of the problem here, as documented in those articles, was people being hit with debt that they never incurred, identity theft debt. Now one representation was, well, they would correct it as of ‘‘X’’ date of complaints. But as inaccurate data kept coming in, it was automatically registered. Now I assume that is one of the things that you are going to deal with, the credit report. The credit bureau said, ‘‘Oh, well, yes, we straightened that out.’’ But if the identity theft was ongoing, as the new information came in, it was automatically registered. I will be asking the credit bureaus about that. But I hope that when the rule comes in, it is going to have some substantive procedures by which we can adjudicate these disputes. And I do want to be clear with you, I guess there are several things: there is identity theft; there is just plain error; and then, there are also the disputes in which people say they bought something, it didn’t work, etc. What do you have in mind for mechanisms by which we can do that? Because I guess the hardest thing for all of us is the, ‘‘he said, she said’’ kind of disputes. Will you be reaching out, Ms. Parnes, in the rules? Ms. PARNES. Chairman Frank, a couple of things. VerDate 0ct 09 2002 17:03 Oct 11, 2007 Jkt 037557 PO 00000 Frm 00015 Fmt 6633 Sfmt 6633 K:\DOCS\37557.TXT HFIN PsN: TERRIE 12 First of all, as you know, there are special rights that are set in FACTA for victims of identity theft. And you mentioned victims of identity theft can, for example, block that kind of information that keeps on appearing again and again, as you mentioned. The CHAIRMAN. Is that effective? Do we know? Part of the reports were that it had not been effective in some cases. Ms. PARNES. Well, you know, I have looked at the Boston Globe article myself. I am not sure that the two individuals whose problems were discussed in those articles believed that they were victims of identity theft or filed identity theft victims reports, got police reports. I just wasn’t sure from reading the articles. One of the things that we found is that FACTA sets up a pretty comprehensive set of rights and remedies for identity theft victims, but the victims themselves have difficulty pursuing them. And as part of the President’s Identity Theft Task Force, which the chairman of the Commission, the FTC co-chaired, we have come up with some proposals for providing specific assistance to identity theft victims. We have reached out, for example, to the American Bar Association to set up a special ID theft victims pro bono program so that victims of identity theft have attorneys that they can go to and get this kind of assistance on a pro bono basis. We also plan to do outreach to other organizations. The CHAIRMAN. You don’t need any action by us. Those are things you can implement. Ms. PARNES. Exactly. We can implement those. The CHAIRMAN. I appreciate it. I notice my time has expired, but I think we have to be careful. We can set up the rights, but then figuring out how they are in fact accessible to the people in practice is important. We can’t put too many obstacles in the way, and that is one of the things we will continue to look at. The gentleman from Alabama. Mr. BACHUS. I will ask both Director—is it Parnes? Ms. PARNES. Yes. Mr. BACHUS. —and Braunstein? Ms. BRAUNSTEIN. Braunstein. Mr. BACHUS. —Braunstein, since the Act has passed, consumers are requesting—they are getting more credit reports. Has this— what is your sense? As they are getting these credit reports, are their credit reports becoming more accurate as they report inaccuracies? Ms. PARNES. That is one of the things that we are trying to determine. Certainly the free credit report is an important right for consumers to have to access this credit report, to see if there are inaccuracies and to make changes to their report. But, as you know, Congress also gave us the responsibility to conduct an accuracy study. That is a long-term project that the FTC is engaged in. Under the statute, we have 11 years to complete the study, and so that is an issue that we are working on. Mr. BACHUS. Do you think that you will have rules out before that, though? You are not waiting on that study to have— Ms. BRAUNSTEIN. I would certainly hope so. VerDate 0ct 09 2002 17:03 Oct 11, 2007 Jkt 037557 PO 00000 Frm 00016 Fmt 6633 Sfmt 6633 K:\DOCS\37557.TXT HFIN PsN: TERRIE 13 Ms. PARNES. I can say that I am certain we will have rules out before then. Mr. BACHUS. My sense is that the one thing that the Act has done is it has allowed people to raise their credit scores, and I think that is a primary result of them paying off debts, some of which they really had forgotten they had, or didn’t know it. But there was a debate in this committee, although we reached a consensus and everybody yielding some of their opinions, I was concerned about retailers having to continually do reinvestigations and that that might be a burden for them. They certainly expressed that concern. What is your opinion on whether retailers are overburdened? Of course, if they report accurate information to start with, it lessens maybe the need for reinvestigations. But there are always going to be people who are going to claim things are inaccurate when they are not. What is your sense there? Ms. PARNES. I think that is exactly the issue that we are addressing, to ensure that the rules that we set for investigations can apply to both the large financial institutions as well as small retailers, and can apply fairly to both. Ms. BRAUNSTEIN. Can I just comment on that? Mr. BACHUS. Yes. Ms. BRAUNSTEIN. I think that is correct, that is one of the issues that we are facing. And the danger in that is if a system is set up that is too prescriptive or too burdensome, then some of the smaller retailers will stop being furnishers, since we have a voluntary system. And a lot of times, in particular for low- and moderate-income people, the majority of their credit information may be held in these nontraditional furnishers. That could adversely affect their ability to get credit, so that is something that we are very cognizant of in writing these rules. Mr. BACHUS. In fact, I think Chairman Oxley at that time and the ranking member, when I raised my concerns about retailers maybe having their burdens of doing reinvestigations, they did point out that they didn’t have to supply that information. And, also, I think it will encourage retailers to keep records. Once they report a record, particularly something derogatory, they do need to establish a way to go back and easily find that. And the big retailers can. I have noticed that they can very quickly do that. The chairman mentioned maybe establishing a lead agency. Would that be helpful? And, number two, are there certain provisions in the law that you think are problematic or should be amended? Ms. PARNES. At least from my perspective, I think that the agencies—we are meeting on a very regular basis, and I think we have divided up the work so that each agency is taking lead responsibility for different tasks assigned in FACTA. Ms. BRAUNSTEIN. Yes, I think it would depend how it was structured with a lead agency. You still would not—the problem is—and this is both a benefit and a problem, it is both sides—is that the agencies do have different perspectives a lot of times based on who it is that they supervise and regulate. Because different organizations obviously operate differently. And I don’t think those differences would go away, even with a lead agency, unless that lead VerDate 0ct 09 2002 17:03 Oct 11, 2007 Jkt 037557 PO 00000 Frm 00017 Fmt 6633 Sfmt 6633 K:\DOCS\37557.TXT HFIN PsN: TERRIE 14 agency had the ability to actually overrule everybody else and make a decision on moving forward on the rulemaking. Mr. BACHUS. Let me just close by making a statement. Mr. Chairman, I think one of the greatest benefits I have seen— and I want to commend the credit reporting agencies. Prior to us passing the FACT Act, one of the frustrations people had is that they would correct their report with one agency, and they had to do that with all three agencies. And sometimes, all of a sudden, that information showed back up years later. I have not heard that has happened; I think there is greater coordination between the credit reporting agencies. You have a comment on that, or if you do— Ms. PARNES. I think we would agree that is a benefit for consumers. Mr. BACHUS. Okay. Thank you. The CHAIRMAN. Before I turn—I would ask unanimous consent to insert into the record a letter from the National Association of Realtors signed by Pat Combs, the 2007 president. Briefly quoting: ‘‘NAR took an active role in helping to enact the Fair and Accurate Credit Transactions Act. We are particularly concerned that the system created to investigate and correct inaccurate information in a timely fashion is not working.’’ I ask unanimous consent that this letter be inserted into the record. There being no objection, it will be. The gentlewoman from New York is recognized for 5 minutes. Mrs. MALONEY. I thank the chairman for yielding. This committee and my subcommittee have held a number of hearings at which one of the problems identified seems to be that the Fed has not used its mandate to protect consumers, or if they do use it, they do it very late. And whether the issue is subprime lending or credit card practices, bank fees or, today, credit reports, the problem of Fed inaction seems to be a consistent theme, and I would say that you have done some very important things. The Fed’s leadership on subprime, coming forward with the guidance that you don’t give loans unless people can pay it for the full term of the loan, was very important. And Reg Z was very important, although we need to go further in that area. I think you have done a great job there. But I am very concerned that the mandate is very important. It is outlined in congressional law in a number of areas, and it is embodied in many, many places, and it is clearly part of the Fed’s mission. And today I would like to ask the Fed’s representative, Ms. Braunstein, can you identify concrete steps that the Fed is taking in this area, credit card reports, to carry out that mandate through regulation, guidance, or other action? And I would like to follow up on the chairman and ranking member’s comments that one of the reasons that you are lacking the progress in this area is that we haven’t set a deadline. So should we do so? Should we set a deadline? Three years is just too much. And since you can’t give us a timeline, which was one of the chairman’s questions, should we set a deadline so we can actually get this to take place? Also, I would like to ask the Fed for your response on assigning a lead agency, as the chairman suggested, in order that we could VerDate 0ct 09 2002 17:03 Oct 11, 2007 Jkt 037557 PO 00000 Frm 00018 Fmt 6633 Sfmt 6633 K:\DOCS\37557.TXT HFIN PsN: TERRIE 15 get this done. I mean, I think we all agree that so many years to accomplish a congressional task is really ridiculous and unacceptable. Ms. Braunstein. Ms. BRAUNSTEIN. Yes. First, I would like to assure you that this is very important to us. This is a priority for us, and we have been working on these rulemakings. There are a lot of rulemakings that were assigned through the FACT Act. This is one of them. We have been working with the other agencies, and we will continue to do so. In addition, we supervise State member banks who are furnishers, and in that supervision process, we do look at their furnishing responsibilities. In fact, we have cited violations when we find them in State member banks. So we are actively engaged in making sure the information that is furnished is accurate. Mrs. MALONEY. But, again, when can this be completed? How long have you been working on it? Three years now? Ms. BRAUNSTEIN. Well, we issued the ANPR in 2006. Mrs. MALONEY. So when do you think this could be completed? A year, 2 years, 10 years? When do you think this should be completed? Ms. BRAUNSTEIN. I could not give you a timeframe, as I say, because we are not the only agency involved. Mrs. MALONEY. Do you think Congress should give you a timeframe? Could this be completed in a year? Ms. BRAUNSTEIN. I think that is a matter left up to Congress to decide. Mrs. MALONEY. And again the question of a lead agency. If there was one agency in charge, would that coordinate and make things happen in a quicker way? Ms. BRAUNSTEIN. Well, as I said, I think we are working on this, and I think that might take care of some of the issues but not all of them. It is not going to take away the differences of opinions between the agencies even to have a lead agency, unless that lead agency was invested with the authority to overrule everybody else and move forward regardless if there was agreement or not. So that is— The CHAIRMAN. Will the gentlelady yield? Mrs. MALONEY. Absolutely. The CHAIRMAN. That could happen. Mrs. MALONEY. And I would like to ask Ms. Parnes, you mentioned that victims of identity theft have protections and that these protections are already in place. But why not allow everyone to have the protections so that you can protect them before identity theft takes place, such as the file freeze concept that I mentioned earlier? Your comments on that. Ms. PARNES. Well, actually, a file freeze is something that the Federal Trade Commission and the other identity theft task force agencies are looking at to assess whether—how all of the State file freeze laws are working and to come up with some thoughts about whether—what would work best in a Federal law. So you know, I think it may be very reasonable to apply this to all consumers. We just don’t have the sense yet—the State laws, as you mentioned, are different. Some apply only to ID theft victims, others VerDate 0ct 09 2002 17:03 Oct 11, 2007 Jkt 037557 PO 00000 Frm 00019 Fmt 6633 Sfmt 6633 K:\DOCS\37557.TXT HFIN PsN: TERRIE 16 apply to all consumers; some impose fees for unfreezing the credit reports, and others don’t. And we would just like to have a better sense of what we think should apply more broadly. Mrs. MALONEY. My time has expired. Thank you very much. The CHAIRMAN. The gentleman from Texas is recognized for 5 minutes. Mr. HENSARLING. Thank you, Mr. Chairman. I had to step out during some of the testimony, so forgive me if part of this is redundant. But the first question I have really goes to what is the scope of the problem? We heard in some of the opening comments some members reference some studies that would tend to indicate that there are upwards of 70 percent of errors contained in credit records from the credit reporting agencies. To the extent I have seen some of these studies, the methodology has been questioned. But I am interested in what the FTC and what the Fed has determined of what is the scope of the problem, and to the extent there are errors in records, to what extent are they material and having an adverse impact on the availability and cost of credit? Ms. Parnes? Ms. PARNES. I think, from the perspective of the FTC, we are not yet in the position to really respond to that question with numbers. One of the tasks we were given was to conduct this accuracy study. We have already conducted a pilot project. We have submitted two reports to Congress on the study. The idea here is for the Commission to conduct a national study to assess the accuracy of credit reports, and at least on the basis of our pilot study, there really is no nationally projectable information that we can supply. Mr. HENSARLING. Ms. Braunstein? Ms. BRAUNSTEIN. I don’t have data either, but I can say that we did do some research, Federal Reserve economists did, into accuracy of credit reports. And I think what is important here—I mean, the numbers you hear are all over the place, and some of them are very high. But it is important to recognize that there are different types of errors in credit reports, and some of them may affect someone’s ability to get credit, but some of them do not. So, you know, some of them are just errors that are made in the report that really don’t affect the evaluation of credit. So I think somehow that needs to be sorted out further. Mr. HENSARLING. Ms. Braunstein, I think I heard in an answer to an earlier question by a colleague I think you said something along the lines that, in our voluntary reporting system, that if we were to increase costs unduly upon the smaller furnishers of credit they may just choose to no longer participate in the system. Could you elaborate on that phenomenon, please? Ms. BRAUNSTEIN. Yes. Well, there are a number of furnishers. You know, there are certainly the large banks and credit card operators. And they, you know, have systems, good systems set up. But there are also a number of furnishers who are small retailers and even utility companies and landlords and people like that where they don’t have necessarily sophisticated systems set up. And if the system becomes too burdensome, since it is voluntary, they may choose not to furnish information. VerDate 0ct 09 2002 17:03 Oct 11, 2007 Jkt 037557 PO 00000 Frm 00020 Fmt 6633 Sfmt 6633 K:\DOCS\37557.TXT HFIN PsN: TERRIE 17 In particular, this could be harmful going forward to low- and moderate-income people, who have been shown to have thinner credit files. They may not have only sources of credit that are in the more traditional, mainstream sources but may be using some of these smaller operations to support their credit records. If they stop furnishing, that could be harmful in particular to them. So we just want to be cognizant of that in terms of moving forward on these rules. Mr. HENSARLING. I have peeked ahead. There is some of testimony of the second panel, and I think that there will be at least one, perhaps two panelists who seem to assert that the credit reporting agencies either, one, do not have an incentive to keep their records accurate, or I believe one witness may actually posit that the credit reporting agencies have incentive to make them inaccurate so they can generate fee revenue off dispute resolutions. To the extent you all have observed the market, do the credit reporting agencies have incentives to keep accurate records in your opinion? Ms. Parnes? Do I take that as, I don’t know? Ms. PARNES. I would certainly hope we have a system that creates incentives for accuracy. And I—I think that at least the system does create those incentives CRAs can compete on accuracy, if there are systems that are fundamentally flawed the FTC has, and will bring enforcement actions. Mr. HENSARLING. Ms. Braunstein? Ms. BRAUNSTEIN. We don’t supervise agencies—we can’t really speak to that other than in a general way. I think it is in their best interest to function well and to maintain their credibility, so I would think, just in terms of that, they would have an incentive to make sure their systems are as accurate and complete as possible. Mrs. MALONEY. [presiding] Thank you. The Chair recognizes the gentleman from New York, Mr. Ackerman, for 5 minutes. Mr. ACKERMAN. Thank you, Madam Chairwoman. Are all file supplier furnishers— Ms. PARNES. No. Suppliers furnishers provide information. But files can be accessed by lenders, for example, if a consumer is applying for a loan, that lender can access the consumer’s file. Mr. ACKERMAN. Can those lenders share the files with others. Ms. PARNES. They may in certain circumstances. If there are— Mr. ACKERMAN. Somebody who is a lender who doesn’t participate in the system can get a copy of everybody who has borrowed $10,000 on a home equity and do solicitations? Ms. PARNES. I think not. Mr. ACKERMAN. How would you know they are not doing that? Is there a prohibition against them doing that? Ms. PARNES. I believe that a lender who obtains that information can only use it for certain specified purposes. Mr. ACKERMAN. How many requests are there on an annual basis on the part of Federal agencies for access to files? How many files would that be, FBI, CIA, Homeland Security, any other Federal agencies? Ms. PARNES. I don’t know. VerDate 0ct 09 2002 17:03 Oct 11, 2007 Jkt 037557 PO 00000 Frm 00021 Fmt 6633 Sfmt 6633 K:\DOCS\37557.TXT HFIN PsN: TERRIE 18 Mr. ACKERMAN. Do you know why there would be a correlation between somebody’s score and whether or not they are a terrorist risk or should be looked at a little bit more carefully by airlines, and whether or not they should be allowed to fly? Ms. PARNES. I don’t. Mr. ACKERMAN. Insurance companies—should there be some Federal guidelines as to that? Ms. BRAUNSTEIN. As to terrorists? Mr. ACKERMAN. The different agencies have different requirements, evidently with different guidelines or no guidelines as to compliance with requests on the part of Federal agencies for access to people’s files. Should there be some guidance to them as to how loosely they comply or standards of compliance such as warrants or just complying with any request from any agency? Ms. PARNES. Congressman, as far as I know, there is no permissible purpose under FCRA for law enforcement. Mr. ACKERMAN. There is under the PATRIOT Act. Under the PATRIOT Act they can access your— Ms. PARNES. Credit report. Mr. ACKERMAN. —credit report and your scores. Presumably this is a connection they make between your scores and whether you are a risk of some kind. Perhaps we should be looking at that and perhaps there should be some guidelines. The same with libraries. There are some libraries that will give any agency that asks, and there are some libraries that have adopted policies. At the end of the year, they burn everybody’s borrowing records so that they don’t have to comply. But that’s different, a different level of concern about people’s privacy rights than the financial community seems to have. What is the correlation between somebody’s credit score and whether or not they are an insurance risk? Insurance companies obviously use people’s credit score to determine whether or not they are going to put in an insurance claim, people who have low scores are presumed to be presumptively more apt to put in an insurance claim. Ms. PARNES. Right, that’s the subject of a study that the Commission is finalizing right now. Mr. ACKERMAN. Are poor people poorer drivers, more careless homeowners? Ms. PARNES. One of the things the study is looking at is whether there is any connection. Mr. ACKERMAN. When is that study due and who is doing it? Ms. PARNES. The Federal Trade Commission, Bureau of Economics, is conducting that study. We hope to have the report completed this summer. Mr. ACKERMAN. These things are very serious and affect people’s lives in very, very important ways. It seems that any supplier of information can get the information into somebody’s credit report, any crappy piece of information, erroneous or otherwise, and it automatically gets recorded as part of a person’s financial life. If that person is adversely affected, she or he has a tremendously difficult time in getting that information removed as wrong and inaccurate as it is. And some of us believe that a person has, or VerDate 0ct 09 2002 17:03 Oct 11, 2007 Jkt 037557 PO 00000 Frm 00022 Fmt 6633 Sfmt 6633 K:\DOCS\37557.TXT HFIN PsN: TERRIE 19 should have, control at least over the facts of their life, not necessarily interpretation, but the facts, and it is so difficult. And I don’t know if either of you have had the experience of having erroneous information removed. I tell some of my friends, when I try to call them, who own small businesses, call yourself, you will get caught in voice mail hell, or whatever, and your system is all screwed up. Some of them are shocked to find out. Have you ever tried to get something removed from your credit report? Ms. BRAUNSTEIN. No, I have not. Mr. ACKERMAN. It is exceptionally frustrating and difficult, even if you are a Member of Congress. The CHAIRMAN. Did you get a response? Mr. ACKERMAN. If there is a response. Ms. BRAUNSTEIN. I said, no, I have not. Mr. ACKERMAN. I would strongly suggest you do that and find out what the frustrations are, of the public. It is next to impossible to clear something up. Has my time expired? The CHAIRMAN. Yes. Mr. ACKERMAN. Thank you very much. The CHAIRMAN. Next, has the gentleman from Georgia been recognized yet? The gentleman from Georgia is recognized for 5 minutes. Mr. PRICE. Thank you, Mr. Chairman. I want to thank the members of the panel for coming today. I think, Ms. Parnes, you said that there were 52 million credit reports requested. That is since the FACT Act; is that correct? Ms. PARNES. That is correct, 52 million free credit reports have been distributed. Mr. PRICE. And that is a significant increase over before, I assume? Ms. PARNES. Right, the free credit reports were very limited before this amendment. Mr. PRICE. Have you noticed or has it been noticed that there are greater reports or concerns about inaccuracies, unfairness on behalf of the reporting agencies? Ms. PARNES. We don’t have a basis for comparing those issues before this amendment, and the accuracy study, as I mentioned, is something that we will be looking at over the next several years. Mr. PRICE. I would be interested in the thoughts of each of you about the definition of an error in a credit report and the difference between an error and a dispute over a credit report and how you reach a conclusion as to whether something is an error or a disputed report. Would you care to respond? Ms. BRAUNSTEIN. Well, I think in the sense of what is disputable or what a furnisher could be held accountable for, what would be a violation of the rule, a violation in terms of—well, first of all, let me back up. Furnishers do make errors from time to time, but not all of them are violations. In order for an error to be a violation, the furnisher would have to have known, or you could reasonably assume that they knew, the information was inaccurate when they furnished it. VerDate 0ct 09 2002 17:03 Oct 11, 2007 Jkt 037557 PO 00000 Frm 00023 Fmt 6633 Sfmt 6633 K:\DOCS\37557.TXT HFIN PsN: TERRIE 20 Sometimes mistakes happen, and they are corrected, and they were not intentional, and there was—they did not know that it was bad information when they furnished it. In that case, there is no violation of the law at this point. Mr. PRICE. Ms. Parnes, do you have any comment? Ms. PARNES. Nothing further to add. Mr. PRICE. So if there is a dispute and it is corrected, then that is not considered an error; is that correct? Ms. BRAUNSTEIN. Well, no, if it is found that the furnisher knew that the information was wrong when they furnished it, then it would be a violation. I know in terms of our supervision we would cite that. And also we investigate consumer complaints against furnishers. And again, in investigating those complaints, if we find there are violations where they knowingly furnished bad information, we cite violations, and we have done so. Mr. PRICE. There has been a lot of talk about the rules not being promulgated to this point. I wonder if either of you has anything you would like to add or say to us about whether—if we change our rules to you in the middle of the game, how does that affect what you are able to do in response to the current requests that are already on the table. Ms. BRAUNSTEIN. Well, I think that we are making progress, and like I said, we did put out an ANPR along the lines of what the statute currently says. We are going through that information and trying to fashion a proposal. So I don’t know—I wouldn’t have any recommendations for you at this point in terms of changing anything in the statute. Ms. PARNES. I would agree that we have made significant progress in terms of all of the FACT Act tasks that the agencies have. The one thing that I would add is, I think that we meet—the agencies meet on a regular basis. As I mentioned in my statement, I plan—I talk to my colleagues at the Fed and we will talk to our colleagues at the other agencies, and I think that we can come up with a timetable for completing the remaining tasks. Mr. PRICE. So the light is at the end of the tunnel? Ms. PARNES. I hope so. Mr. PRICE. Allowing file freeze by the consumer, do you have any thoughts about the consequences or are there any consequences of that on commerce and the general individual consumer activity that might be adversely affected by that. Ms. PARNES. It is something that we are looking at right now. We understand that in some States file freezes have to be unfrozen within a very short period of time; in other States there is no time limit, and it may take longer. So, for example, if a consumer wants to purchase a car and they have a file freeze, they may have to take steps to unfreeze their file several days before they purchase the car or else they wouldn’t get credit immediately. But I think all of those—and those can have implications; it can burden consumers. We think that consumers just need to understand what they are getting into if they opt for a file freeze. Mr. PRICE. Thank you, Mr. Chairman. My time has expired. The CHAIRMAN. Thank you. VerDate 0ct 09 2002 17:03 Oct 11, 2007 Jkt 037557 PO 00000 Frm 00024 Fmt 6633 Sfmt 6633 K:\DOCS\37557.TXT HFIN PsN: TERRIE 21 The gentleman from Kansas. Mr. MOORE. Thank you, Mr. Chairman. Ms. Braunstein, if a consumer disputes the information that has been furnished and the other side has tried to correct it, but not made very much effort to correct it, what happens in that situation? Ms. BRAUNSTEIN. Well, first of all, I should say we supervise the furnishers, some of the furnishers, the ones that are State member banks; we don’t supervise the credit reporting agency, so it depends on who is correcting it. Certainly if there was a dispute of information that was given or furnished by one of our supervised entities, we would take steps with that entity to make sure that that was corrected. We don’t have any authority over the reporting agencies. Mr. MOORE. Who has responsibility over the credit reporting agency? Ms. PARNES. We have responsibility over the credit reporting agencies and over many of the furnishers as well. So, for example, the FTC has taken actions against furnishers for failing to provide accurate information to the CRAs. Mr. MOORE. Failing to provide accurate information. What if the credit reporting agency believes the information is accurate, but in fact it is not, and they keep furnishing the same information? Ms. BRAUNSTEIN. Well, if that information is disputed, that, even if the furnisher still thinks it is accurate, they must note it on the files. Mr. MOORE. That is provided to the requestor? Ms. PARNES. Yes, the consumer has a right to include on their credit report their statement of what they think is accurate. Mr. MOORE. And no further responsibility than by the provider of the information, except to note that the consumer has disputed this? Ms. BRAUNSTEIN. No. There are investigations that are undertaken, depending where the consumer goes. If the consumer goes directly to the furnisher, then what we have heard is that many of the furnishers—right now there is no obligation for the furnishers to undertake investigations from direct complaints, but most of them do. If the con— Mr. MOORE. Should there be an obligation for those who don’t? Ms. BRAUNSTEIN. That is part of what the rules will do. If the consumer complains to the credit reporting agency, the credit reporting agency does go back to the furnisher. The furnisher is obligated to investigate that dispute; they have 30 days to do so and to either provide information as to why that information is correct, or if it is inaccurate, then they have to remove that and they are prohibited from furnishing that to anyone else. Mr. MOORE. But there are investigations and there are investigations. Some are good and some kind of just go through the motions. How do we deal with the furnishers who just kind of go through the motions and really don’t have any incentive, or appear to have no incentive, to correct the situation if in fact the consumer has been wronged? How do we deal with that situation? Ms. BRAUNSTEIN. Well, I can again only speak to State member banks. If—we usually find out about these things through consumer complaints; we would certainly investigate that matter with VerDate 0ct 09 2002 17:03 Oct 11, 2007 Jkt 037557 PO 00000 Frm 00025 Fmt 6633 Sfmt 6633 K:\DOCS\37557.TXT HFIN PsN: TERRIE 22 the furnisher and make sure that a Federal investigation was done of that. And if it seems that there was some—that it was knowingly furnished, and they knew it was inaccurate, we would cite a violation. The CHAIRMAN. The gentleman has done a very good job at getting to the heart of the matter. I sort of fumbled around with it. If he would just allow me— As you do the regulations under section 312—it seems to me, the gentleman hit the key—and to some extent the credit bureaus have taken a hit for the furnishers and for others. The key has to be a procedure whereby a consumer who learns of something he or she believes is inaccurate can contest that with the furnisher. And I hope that that will be a central part of the rule. The gentleman has, I think, correctly talked about it. It can’t just be all procedure; there has to be a dispute resolution method for the consumer, who finds an inaccuracy, to talk to the furnisher. I thank you. Mr. MOORE. I thank the chairman and the witnesses. I am finished. Thank you, Mr. Chairman. The CHAIRMAN. The next gentleman from Connecticut. Mr. SHAYS. I wrestle with this issue. First, there is the issue of being unfairly reported. There is also an issue of being fairly reported but not having the knowledge to know how the credit rating impacts you. I have a staff member who was literally on welfare and ended up being able to buy a home with her sister, and she missed a payment, she missed three payments, because her sister left and they were spread thin. But from that point on, for 3 years, she never missed a payment. But she was 3 months behind with each payment, so each payment was viewed as delinquent and she never realized it. She thought for now 3 years, she had gotten her situation in order. I have constituents—I will say this, during the campaign a few years ago, I had 3 months where I just didn’t pay bills, and then I paid them all back with interest, and I had a terrible credit rating. I have two graduate degrees. I just didn’t get it. People can smile and say, that is pretty dumb, and it was dumb, but the fact is, I have a pretty good education. Even I didn’t know. I think one of our obligations is to inform people how to get good credit. The other thing I wrestle with is, there is also a perverseness to this, if you have bad credit, but you are not bad at paying back the debt, you still pay a really high interest rate. Just quickly going back to that individual who, on my staff—I could continue to refinance my credit getting low interest rates, and she had huge interest; she could never take advantage of all the times when it dropped. What are the obligations that you have to inform people about credit, to inform people of the impact that it has? Ms. PARNES. Consumer education is one of the highest priorities at the Federal Trade Commission. We are a member of the Financial Literacy Commission that was set up by Congress and was chaired by the Treasury Department. Staff members at the FTC, VerDate 0ct 09 2002 17:03 Oct 11, 2007 Jkt 037557 PO 00000 Frm 00026 Fmt 6633 Sfmt 6633 K:\DOCS\37557.TXT HFIN PsN: TERRIE 23 in addition to all of the general financial literacy information that we push out as much as we can through our Web site, through our staff going out and giving speeches and participating in town hall meetings that Members of Congress have, our staff members also go, for example, to high schools and speak to high school students about financial literacy. We want to reach consumers at the most teachable point, because we share your concern that this is a very important issue. Mr. SHAYS. When there is a dispute, there is not anyone in this room who hasn’t had a dispute over a bill and the challenge is that they basically say, fine, sir, you don’t want to pay your bill, you are going to get a bad credit rating. They have us over a barrel. In spite of what I’ve been hearing, it seems to me it is stacked against the consumer. And give me your best idea, both of you, as to how a consumer can fight back. Ms. PARNES. I think one way, one avenue for consumers, has already been set up by Congress in the FACT Act, and that is, if you are in this cycle that has been described, where you filed a dispute, the information is either it isn’t coming off your credit report— Mr. SHAYS. Can you file a dispute before it went on? I mean, once it is on, you are screwed. If someone says—let’s take cell phones. You are getting terrible service, you go to the store. They basically say, you know what, we solved it online, it is not our problem; we are just a store. And you say, well, where can I speak to a real live person. And you speak to somebody who knows where. And then you say, you know, I am fed up, I am going to leave, I’m getting another cell phone. And they say, fine, sir, but you will owe us for 4 months, you are going to owe us. Fine. You will owe us for 4 months, and that is it; take it or leave it. It seems to me you should have a way to say, no, you are not, lady or man, you are not going to do that; or simply, I am going to file a report and you are going to have to dispute it out with me. It seems to me it should happen before rather than after. Ms. PARNES. I think that the issue that you raise specifically with cell phones is one that consumers have a lot of complaints about. Unfortunately, it is an area that—one of the few areas that falls outside of the jurisdiction of the Federal Trade Commission. Mr. SHAYS. Why is that? Ms. PARNES. We don’t have jurisdiction over common carriers. Mr. SHAYS. You do once they file a statement saying that I am delinquent on my bill. Ms. PARNES. Well, we do in the context of the FCRA; we don’t in the context of simply the bill that the carrier gives to the consumer. Mr. SHAYS. I have the red light. Thank you. The CHAIRMAN. I was going to say, gentlemen, again, focus on the key issue. In fairness to some of the credit bureaus and others, it is at the furnisher level, at the transaction level, I think we have to do a better job. I do think we will resist the temptation to add the FCC VerDate 0ct 09 2002 17:03 Oct 11, 2007 Jkt 037557 PO 00000 Frm 00027 Fmt 6633 Sfmt 6633 K:\DOCS\37557.TXT HFIN PsN: TERRIE 24 to the already dysfunctional mix of agencies that is keeping us from getting anywhere. That is apparently part of the problem. The gentleman from Missouri. Mr. CLAY. Thank you. Ms. Parnes, let me ask you, the Fair Credit Reporting Act does not establish an absolute standard of accuracy and does not require CRAs to guarantee that reports are error free. This is from your statement and it is also fact. Does this not put consumers who live day to day on credit and who do pay their bills on time in quite a difficult position? How do you suggest we go about tightening up the standard, or do you think we are doing as much as can be done? Ms. PARNES. The system, as it has been established, is really a procedure-based system, it requires reasonable procedures and not 100 percent accuracy. I am simply not confident that, given the millions of transactions that go on, that the system could function with an absolute every transaction that is reported must be accurate. It is something that—I mean, this was obviously a determination that Congress made in setting up the reasonable procedure standard, and it is something that we would have to consider. Mr. CLAY. Isn’t it pretty plain that either you have bad credit or you don’t, or you have paid this bill or you haven’t? Isn’t that pretty obvious? Ms. PARNES. Absolutely, from the perspective of the consumer. The problem, I think, that has been identified is going through the dispute process. Mr. CLAY. The FTC consistently receives more complaints about the credit bureaus, either directly or in connection with identity theft, than any other industry. What steps have been implemented to alleviate these types of complaints? Ms. PARNES. Well, the identity theft, the complaints that we have received, are not all driven by accuracy issues. Certainly, on the identity theft front, the Commission has taken a large number of steps to work with victims of identity theft. We were part of the task force that issued a strategic plan on identity theft; we have 60 recommendations that we are working on to implement right now. Mr. CLAY. Sixty? Thank you for your response. Ms. Braunstein, what future role do you see mortgage credit reporting agencies serving in the resolution of credit disputes? Ms. BRAUNSTEIN. When you say mortgage credit reporting agencies— Mr. CLAY. Yes, mortgage companies. Ms. BRAUNSTEIN. The companies that people get their mortgages from? Mr. CLAY. Sure. Ms. BRAUNSTEIN. I don’t know. That is hard to answer. Certainly we—unless they were State member banks, we would not supervise them as furnishers, so I don’t know what their volume of complaints is at this time, and I don’t know how that might be affected in the future. Mr. CLAY. Tell me this. Why is it that after consumer complaints are submitted to the credit reporting agencies that the credit bu- VerDate 0ct 09 2002 17:03 Oct 11, 2007 Jkt 037557 PO 00000 Frm 00028 Fmt 6633 Sfmt 6633 K:\DOCS\37557.TXT HFIN PsN: TERRIE 25 reaus rarely follow the consumer’s documentation of errors to the furnishers? Why is that? Ms. BRAUNSTEIN. The way the process is currently set up, that is not always a necessary part of the process. They are supposed to send the furnishers information about what the dispute is on, as complete as possible, but that does not always have to include the backup information, and there are a couple of reasons. One of them is the burden associated with that. It is a voluntary system, and we don’t want to discourage people on being furnishers. The second part of that is, sometimes there are privacy considerations. Sometimes a consumer complaint may not be just against one furnisher, and the documentation involved may include information, proprietary information, that exists about other furnishers, too. So you want to be careful with the consumer’s information in terms of privacy considerations. Mr. CLAY. I see my time is up. Thank you very much for both of your responses. Thank you, Mr. Chairman. The CHAIRMAN. The gentleman from Delaware. Mr. CASTLE. Thank you, Mr. Chairman. This has been a very active committee this year, as you know, and we have had a number of hearings on the subjects dealing with credit of individuals. And it is very confusing to me because I think it was a hearing last week at which we heard about the number of credit cards out there. Are there too many? I think there were 650 million, if my recollection is correct. Now we are told by some here that credit histories are full of mistakes and people can’t get credit. We have had other hearings dealing with foreclosure and other nonpayment or failure-to-pay type problems. It becomes confusing what is happening out there in the commercial market. My question is a little beyond what you have been talking about, or perhaps what you do, but do you evaluate credit score ratings that are used by financial institutions, merchants, credit card issuers, also financial institutions? Do you look at how they do that? And, if so, is a willingness to accept too low a credit rating part of the mortgage foreclosure and credit card failure issues that we are dealing with now, or is that beyond the scope of what you all do? Ms. PARNES. That is beyond the scope of what we do at the Federal Trade Commission. Ms. BRAUNSTEIN. That could come into play in terms of looking at financial institutions that we supervise in terms of underwriting criteria for different kinds of credit, what credit scores, what levels of credit cards they are accepting, and what they are offering in turn. Sometimes that could come into play in terms of safety and soundness considerations. Mr. CASTLE. Does it, or has it, to your knowledge? Ms. BRAUNSTEIN. I can’t speak definitively on that. I could get back to you on that. Mr. CASTLE. You always hear about college kids who are getting innumerable requests, solicitations for credit cards. How does that VerDate 0ct 09 2002 17:03 Oct 11, 2007 Jkt 037557 PO 00000 Frm 00029 Fmt 6633 Sfmt 6633 K:\DOCS\37557.TXT HFIN PsN: TERRIE 26 happen? Do they all have good credit because they don’t have bad credit or because they haven’t had credit? How does that happen? The young person who probably has not established much credit at all is getting multiple solicitations per month for credit cards, apparently. Ms. PARNES. Well, I think the credit card companies are looking for new customers. It is that simple. I would add that the FTC works with universities to get educational material out to college students, so they understand what is means to have a credit card, and the responsibilities that they are assuming. Mr. CASTLE. So in that situation, the credit rating itself is of no value or importance, or it is overlooked by the credit card companies because they are in college, and therefore they feel that that is enough of a boost that they will be okay in terms of credit? Ms. BRAUNSTEIN. I can’t say definitively, but I know we have had some discussions with credit card companies from time to time on this. And I think sometimes it is a marketing effort to get more customers. It is an effort to cultivate people who will be—once they get degrees, will be customers in the future. But I think you would have to ask the credit card companies about how they make these determinations. Mr. CASTLE. Mr. Hensarling, I think, mentioned when he was asking questions about trying to understand the scope of the problem. I have trouble with that as well. We hear about these errors, maybe you testified to this, or maybe you don’t know it, but is there any way of determining the percentage of errors in terms of the total number of credit ratings that the credit agencies have on hand? Ms. PARNES. That is actually one of the responsibilities that was given to the Federal Trade Commission, to conduct an accuracy study and determine exactly what the extent of the problem is. It is a long-term study. I think our last report is due in 2014. We have already issued two reports to Congress on the pilot project. Mr. CASTLE. Roughly, what did we learn in the two reports? Ms. PARNES. In the pilot project that we have conducted, we have learned that this is going to be a difficult study to do. We worked with 30 consumers and went through—we had experts who sat with them and looked at their credit reports and identified what might be inaccuracies, and we were only able to get seven consumers who had problems to pursue those inaccuracies with the CRAs; other consumers didn’t. So we are trying to revise our pilot and get a better method for pursuing this. Mr. CASTLE. It will be interesting to see the final results. Thank you, Mr. Chairman. I yield back. The CHAIRMAN. The gentlewoman from New York, who is one of the main authors of section 312 that we have been discussing. Mrs. MCCARTHY. Thank you, Mr. Chairman, I appreciate it. It has been an interesting year. As Mr. Shays said, and certainly, my colleague, Mr. Moore, we all have constituents, and we as Members have probably been hit one way or the other which we would consider being unfair. VerDate 0ct 09 2002 17:03 Oct 11, 2007 Jkt 037557 PO 00000 Frm 00030 Fmt 6633 Sfmt 6633 K:\DOCS\37557.TXT HFIN PsN: TERRIE 27 But going back in section 312, I notice in March of 2006 you put out an ANPR. I apologize; I wasn’t here earlier when you spoke, but there hasn’t been further action since then, so I was wondering, when do you plan on going further? Ms. PARNES. Well, the agencies have been meeting very regularly since the comments were received, after that ANPR was issued. We do not have a timetable for proceeding, but it is something that I think we can reach out to our colleagues in the other agencies and set a timetable for this. Mrs. MCCARTHY. I guess this goes back to Carolyn Maloney on the timetables. So you can’t say whether it would be a year? How long does it usually take to set up a timetable? Ms. PARNES. Setting a timetable shouldn’t take a very long time. I think that, as my colleague indicated, when we engage in rulemaking on our own, we act quickly. You can complete a very complex rulemaking in a year. The FTC has done it in under a year. Working on a joint rulemaking really is a much more difficult process because the agencies are coming at some of these pretty complex issues from very different perspectives, and we need to reach agreement. Mrs. MCCARTHY. Because it was done in 2003, we are in 2007, it was done in 2003 mainly because of all the complaints that we, as Members of Congress, were hearing from our constituents. 2007 is here and we are still not getting anywhere there, so hopefully the next time we have you in front of us, we will actually have some results on that. This case just opened up in my office last week, a young woman, single mother now, she was divorced, been divorced for quite a long time, always paid her debts on time, she went to get a student loan for her son, her son was going off to college. They had been divorced for a long time, and she found out she was denied because there was apparently—while they were married, there was a debt. She got divorced, but the debt stayed on because the credit cards didn’t change. When they come to us, it is a last resort, to be honest with you. Yet she has not been able to clear it up, even though she has a whole record from the time of divorce that she has paid her bills on time. How do you solve a problem like this? Ms. PARNES. From a process perspective, one of the things that Congress did set up in the FACT Act was this complaint referral between the FTC and the CRAs. If the consumers were in this loop where they are trying to correct something and they are unable to do so, we would encourage them to file complaints with the FTC. We refer those complaints back to the CRAs and that—consumers may get their complaints resolved that way. It also will help us understand exactly what is going on when consumers are saying one thing and the CRAs and furnishers are saying another. Mrs. MCCARTHY. When you talked earlier about the literacy—everyone keeps coming to our office saying that they are working on literacy and how to teach people to go into schools and everything. I guess, mainly because I am on this committee, I am always looking to see what is coming in on Long Island, what is on TV to show consumers. VerDate 0ct 09 2002 17:03 Oct 11, 2007 Jkt 037557 PO 00000 Frm 00031 Fmt 6633 Sfmt 6633 K:\DOCS\37557.TXT HFIN PsN: TERRIE 28 In the beginning, to be honest with you, I don’t see much. That is why we keep saying, where is the educational part? I do pay attention to anything that comes through, especially on the government level, to educate consumers on a whole host of subjects, and I don’t see that much. Is it—I mean, being that so many people don’t know about it, obviously we are not reaching the people we need to reach. Ms. PARNES. Credit financial issues, it is an area where the FTC has really been very active in terms of pushing out financial educational material. And we would be happy to share that information with you. Mrs. MCCARTHY. Thank you. My time is up. Thank you, Mr. Chairman. The CHAIRMAN. The gentleman from Texas, Mr. Marchant. Mr. MARCHANT. Thank you very much. I would like to move into a little bit of a different subject matter. How many new people a year generally enter the credit system, and are their names put on the first time on the rolls? Ms. BRAUNSTEIN. I have no idea. Ms. PARNES. We don’t have information on that either. Mr. MARCHANT. Have you planned or thought about—legislation is pending in the Senate now and very possibly will head to the House, and be voted on by the House, that would add potentially millions of people to credit rolls and how would your agency deal with that. Ms. BRAUNSTEIN. I am not sure which legislation you are referring to. Mr. MARCHANT. That would be the immigration bill. Ms. BRAUNSTEIN. We don’t have a position on that. Mr. MARCHANT. I am not asking you to take a position on it. I am asking you, have you had discussions about how you might handle the number of new people in the system and the people that you govern and the way that these people will be added to the rolls? Are there any on the rolls? Ms. BRAUNSTEIN. We supervise financial institutions, so that wouldn’t be in our purview. Ms. PARNES. In terms of immigrants entering into the credit system, that is not specifically something that the FTC would be dealing with. And yet I think this is a community that we have reach out to, at any rate in terms of—much of our consumer information that we put out in the financial area, we put out in different languages, particularly in Spanish, and we attempt to reach underserved communities. Mr. MARCHANT. What I am mainly talking about is the credit reporting agencies that you supervise and the amount of additional credit information and additional requests that are somewhat inhibited by noncitizens that might become citizens and immediately enter in the country legally, that are somewhat inhibited in their credit situation simply because of their immigration status. Whether they are legally or not, they are. How are your credit agencies are going to process that? And in your case, you are saying you don’t know how they are going to process it. It could become a real problem. VerDate 0ct 09 2002 17:03 Oct 11, 2007 Jkt 037557 PO 00000 Frm 00032 Fmt 6633 Sfmt 6633 K:\DOCS\37557.TXT HFIN PsN: TERRIE 29 Ms. PARNES. We don’t supervise the CRAs in the same way that the financial supervisors supervise the banks. I think, from our perspective, that would probably be a question that is better answered by the CRAs themselves. Mr. MARCHANT. Okay, thank you. I yield back. Mr. GREEN. [presiding] I recognize myself for 5 minutes. What is the penalty for knowingly giving false information. Ms. Parnes, are you aware? Ms. PARNES. For a furnisher? Mr. GREEN. Yes. Ms. PARNES. Well, it would certainly violate the FCRA, and we do—the Federal Trade Commission can obtain civil penalties for violations. Mr. GREEN. What specifically would the penalties be? I am interested in knowing, what is the price one pays for providing false information knowingly? Ms. PARNES. We have sued individual companies. We can— Mr. GREEN. When was a company last sued? Ms. PARNES. I believe that the last announced action was in 2006. Mr. GREEN. How many have been sued in the last decade? Ms. PARNES. Under the FCRA, we have brought over 20 cases. Mr. GREEN. Twenty in the last decade? Ms. PARNES. Yes, and we have obtained almost $20,000,000 in civil penalties. Mr. GREEN. How many complaints have you had in this area in the last decade? Ms. PARNES. I don’t know. Mr. GREEN. Would you conclude thousands? Ms. PARNES. We certainly— Mr. GREEN. Tens of thousands? Ms. PARNES. We have certainly had tens of thousands of complaints. I do not know how many contained accuracy specifically. Mr. GREEN. Who is required to provide notice before reporting negative information? What furnisher is required to provide notice before submitting negative information? Ms. BRAUNSTEIN. All furnishers. Ms. PARNES. Is that— Mr. GREEN. All, notice to the consumer before providing negative information— Ms. PARNES. Right. I believe there is no requirement that furnishers provide notice to consumers before negative information is provided. They can provide the notice either before or after. They must provide, at a minimum, adverse action. Mr. GREEN. Would providing notice before filing, before presenting your negative information, help to avoid—I’ll wait until you get your—believe me, I understand. Ms. PARNES. We are going to consult on this. Ms. BRAUNSTEIN. I have been told that most furnishers do provide notice before furnishing, but they are not required to. VerDate 0ct 09 2002 17:03 Oct 11, 2007 Jkt 037557 PO 00000 Frm 00033 Fmt 6633 Sfmt 6633 K:\DOCS\37557.TXT HFIN PsN: TERRIE 30 Mr. GREEN. While I appreciate what people may do, the question really goes to what is required. Is there a response because my time is slipping away? Ms. PARNES. Yes, I am told there is a rule that requires it. Mr. GREEN. Is that rule enforced? Ms. BRAUNSTEIN. We enforce it with the institutions that we supervise. Mr. GREEN. How is it enforced? Ms. BRAUNSTEIN. It is enforced through both through our examinations of State member banks and it is enforced through our investigation of consumer— Mr. GREEN. Is the consumer in a position to ascertain whether or not the negative information that has been reported is a consumer in a position to complain and say that I did not get notice, and is there some repercussion for not giving that notice? Ms. BRAUNSTEIN. Yes. If they have not given notice, they will be cited for a violation. Mr. GREEN. What is the penalty for this violation? Ms. BRAUNSTEIN. Well, the violations we have cited we have not enacted civil penalties, not our agency. Mr. GREEN. So much to know, so little time. Let me go to another area. Some people do not bank at First National, many people in fact are now banking at ‘‘first mattress.’’ Many people don’t have bad credit or good credit; they just don’t have credit. They do pay light, gas, and water bills; they pay the bills they have, but they are in a nontraditional credit world, if you will. What are we doing to help these persons acquire a credit score such that they too can benefit from credit in the traditional credit market? Ms. BRAUNSTEIN. That goes to the point I was making earlier about one of the things we are looking at in the furnisher rules is that we, to encourage some of these nontraditional entities to be furnishers, it is important that we keep that in mind when we are rating these rules and not make them so prescriptive as to discourage organizations from becoming furnishers. Mr. GREEN. Well, my time is up, and if the chairman were here, he would tell me this, so I will not abuse the privilege. We now recognize Ms. Brown-Waite for 5 minutes. Ms. BROWN-WAITE. When someone is disputing something on their credit report, and they write a letter of dispute, and they then, let’s say, go to buy a car or something, and their credit report is pulled, does the letter of dispute also go with the FICO score? Ms. PARNES. I believe there is a notation on the report that there is a dispute, but the underlying information is not forwarded. Ms. BROWN-WAITE. So there is a note that there is a dispute? Ms. PARNES. Yes. Ms. BROWN-WAITE. It could be a valid dispute or a dispute that totally is not valid and the person who would be extending the credit would never know. How would the person seeking the credit get that information to the lender if it truly was a valid dispute? Ms. PARNES. I think what the lender knows is that it is a pending dispute and so, because the overwhelming majority of disputes VerDate 0ct 09 2002 17:03 Oct 11, 2007 Jkt 037557 PO 00000 Frm 00034 Fmt 6633 Sfmt 6633 K:\DOCS\37557.TXT HFIN PsN: TERRIE 31 are processed within 30 days, I think in that notation the lender would understand that this is a current dispute that is being considered by the CRAs and the furnishers. Ms. BROWN-WAITE. Okay. We are in the process of going to hold in the district some sort of public forum for people so that they understand this, and also identity theft, which is very prevalent, but one of the most frequent complaints that my district offices get from constituents is, there are no real-live people at the credit reporting agency. All they get is caught in the ‘‘Press 1 if you want to be connected with another machine,’’ ‘‘Press 2 if you want to totally be ignored,’’ and they are very, very frustrated. Is there not a mandate that there be a real person there who can answer a question? Ms. PARNES. Yes, there is, and that the phones need to be answered in a timely fashion, and that is an issue that we pursued with the CRAs in 2000. We brought an action against all three CRAs for the failure to have those phone systems set up. Ms. BROWN-WAITE. What was the penalty? Ms. PARNES. We imposed a collective penalty. I believe it was $2.5 million. But if you have complaints from consumers that they are—from your constituents that they are getting caught up in some phone tree loop, it is something we would look to follow up with you. Ms. BROWN-WAITE. They are very frustrated. My office will ask the credit company to call the constituent, we don’t want to get in the middle, we certainly don’t want to know of the consumer’s problem, they need to solve that with the credit agency. That is an ongoing complaint that we hear from constituents. Let me ask you another question. If someone listed, whenever you apply for credit you have to list your nearest relative not living with you. If in the meantime that nearest relative not living with you racks up a lot of credit card debt and becomes a deadbeat, does that impact your credit rating? Would the sins of the father fall to the son? Ms. PARNES. I don’t think it should affect your credit rating unless they are actually on the account. Ms. BROWN-WAITE. Okay. So if they are the nearest relative that someone puts down, and the, quote, nearest relative becomes a deadbeat, that does not affect the person? Ms. PARNES. I think that it would only affect that consumer’s rating if that relative was actually on the account. Ms. BROWN-WAITE. On the account. Ms. PARNES. Not if they are just listed as nearest kin. Ms. BROWN-WAITE. Okay. One last question. Someone asked me to get involved in an issue involving a mortgage company, and I said to them that, you know, they need to solve their problem with the mortgage company. But I pulled up that particular mortgage company online this morning, and I found a rash of lawsuits, of class action suits, against that company. Do you also—I mean, is it up to the consumer to let you know— right—to let you all know that there is a problem? I mean, when I saw comments on the Web site like this mortgage agency totally ruined my credit, and it was from like all over the United States, VerDate 0ct 09 2002 17:03 Oct 11, 2007 Jkt 037557 PO 00000 Frm 00035 Fmt 6633 Sfmt 6633 K:\DOCS\37557.TXT HFIN PsN: TERRIE 32 do you all also look at those kinds of things, or do you have to wait for an actual consumer complaint? Ms. PARNES. We do look at those things. We certainly get consumer complaints. We encourage them to contact the FTC when they are experiencing a consumer problem. But we absolutely go out and do our own look online with, you know, consumer organizations. We try and find out what is going on out there ourselves. Ms. BROWN-WAITE. Okay. I appreciate the information. And thank you, Mr. Chairman, and I yield back. The CHAIRMAN. The gentleman from Missouri. Mr. CLEAVER. Thank you, Mr. Chairman. It appears as if we no longer have a debtors prison. We do have a debtors hell, and it unfortunately appears, by the evidence, to most negatively impact the poor. There was a study done in my State of Missouri by the Missouri Department of Insurance, which revealed that poor Missourians were very likely to have credit scores 12.8 percent lower than their wealthier counterparts. Do you have any reason to believe that people who are either poor or minority would have worse test scores because the test— the report also suggests or states that these lower test scores occurred even in minority areas where the residents had higher incomes than some of the predominantly white areas. So it is either you are poor and get a low test score or you are minority with high income and still get a low test score. Do you have any reason to believe that based on a person’s race or based on their income level that they are automatically headed toward low test scores? Ms. PARNES. No. And one of the things in the credit scoring area that we are looking at is whether there is any relationship between credit scores and, you know, kind of minority status. And that is the report I mentioned earlier that we should be issuing this summer. Mr. CLEAVER. You know, one of the strange things about this— my colleague from St. Louis is gone, Mr. Clay. He and I represent the two largest urban centers, but the poorest areas of Missouri are not the two urban centers. They are represented by our colleague and friend, Jo Ann Emerson. And because of some lynchings in the 1920’s, most of the African Americans left southern Missouri. But southern Missouri is the poorest area of the State, predominantly white, and they receive a 12.8 percent lower credit rating. And so it seems to me that—you know, that if you are poor, you are in trouble in terms of your credit scores, and if you are African American, it doesn’t matter whether you are poor or not. And it is troublesome, because if you pile that on with other problems that occur—let me also find out about how these credit scores are handed down, because right now, particularly in the urban areas, there are debt buyers. And these debt buyers go out and they buy the debt from a larger company that was unable to collect the debt, and then in many instances they sell it to a smaller company and a smaller company, and pretty soon somebody gets a good deal. And these—but by then it is a stale debt, what is called a ‘‘stale debt,’’ and this may be 3 years after someone got into trouble or VerDate 0ct 09 2002 17:03 Oct 11, 2007 Jkt 037557 PO 00000 Frm 00036 Fmt 6633 Sfmt 6633 K:\DOCS\37557.TXT HFIN PsN: TERRIE 33 3 years after they filed bankruptcy and their debts were cleared. In some instances, we have found that these debt buyers put in place all kinds of means to collect debts, and the most effective has been to take people’s cars and hold those cars until the debt is paid. In some instances, poor people, who don’t know what to do, just turn over the keys because they don’t know any better, even though they filed bankruptcy. Don’t you think that there is a need now for some kind of massive reorganization, not tweaking what is going on, but massive reorganization in terms of the way debt is reported, and something needs to be done about the debt buyers? Do you agree? Ms. PARNES. Well, one of the things, the Commission has responsibility for enforcing the Debt Collection Practices Act. And some of the practices that you are describing may violate the FDCPA. The Debt Collection Practices Act was enacted 30 years ago, and the industry has changed dramatically in that period of time. The Commission is holding a workshop on this issue later in the year to look at all of the changes that have taken place. Mr. CLEAVER. Do you need any help from this committee? Ms. PARNES. Well, you know, it is certainly something that we will think about, and we will reach out to you, because you obviously have information on this with your constituents. Mr. CLEAVER. I was talking more in terms of legislation. Ms. PARNES. We will—it is one of the things that we will be looking at during the course of our workshop. Do we need to— Mr. CLEAVER. When is it? Ms. PARNES. I believe it is in October. But one of the issues that we will be looking at is whether we think there should be legislative changes, and if we do, we will certainly report back. Mr. CLEAVER. Thank you, Mr. Chairman. The CHAIRMAN. I will say to the gentleman from Missouri that I know when he is interested in a subject, that it is of serious interest. And I will be asking him if he will kind of be our liaison to the FTC and pursue this. And we will have a better fix on it later on in the year. I thank the witnesses for a very reasonable morning. You have been very direct in answering the questions. We will have more to say, but you have advanced the process, and we appreciate it. And I will now call forward the second panel: Mr. Evan Hendricks, Mr. Stuart Pratt, Ms. Chi Chi Wu, Ms. Anne Fortney, and Mr. Leonard Bennett. And if people can move quickly, we would appreciate it. We will move promptly. I thank the panel for your sitting through it, but I do think it is helpful for you to have heard what we have heard and to hear our concerns. And we will begin with Evan Hendricks, who is the editor and the publisher of Privacy Times, and someone who is very familiar with the issue and the committee’s work. Mr. Hendricks. STATEMENT OF EVAN HENDRICKS, EDITOR/PUBLISHER, PRIVACY TIMES Mr. HENDRICKS. Thank you, Chairman Frank. And I have to start by agreeing that the FACT Act was a legislative success, both for the long and hard work, and the bipartisan- VerDate 0ct 09 2002 17:03 Oct 11, 2007 Jkt 037557 PO 00000 Frm 00037 Fmt 6633 Sfmt 6633 K:\DOCS\37557.TXT HFIN PsN: TERRIE 34 ship. If I thanked every member who worked on it here, my 5 minutes would be gone, so I will save that for later. I think the credit reporting system is indeed the best in the world, or the worst except for all the rest. But you have me here to describe the chronic problems that we continue to have with it. And I think I will break them down into three categories for the committee’s purposes. First, too often there is systematic disregard for the goals and spirit of the Fair Credit Reporting Act, especially when it comes to disputes and correcting inaccuracies. Too often CRAs, credit reporting agencies, furnishers, don’t carefully consider consumers’ disputes and they don’t investigate them. Second, I think it became clear from the earlier panel, there is not systematic enforcement of the Fair Credit Reporting Act. Not only is there stalled rulemaking, but there has not been the kind of enforcement—vigorous enforcement from the early 1990’s that we had, which went to the heart of the inaccuracy problems and the nonresponsiveness issues. And I share Ranking Member Bachus’ disappointment, who as chairman of the subcommittee back then, spent all the time going through the hearings that led to passage of the FACT Act. I think, most importantly, you must recognize that—it is readily apparent to me—that industry has made a calculation that it is better to continue the current process of inadequate reinvestigations and nonresponsiveness, the system that is bringing increasing numbers of complaints to your offices, rather than make the changes that would be necessary to avoid these same old problems that we have had going back easily to the early 1990’s. Industry’s goal is to reduce the costs of compliance, and they pretty much are succeeding at that, sometimes at the expense of those unlucky consumers who become victims of chronic inaccuracy. One leading problem that we have is a very old problem. That is the mixed file; it is a central cause of inaccuracy. The modern version of it is identity theft. In both cases, inaccurate data on one consumer is dumped onto the credit report of another. Mixed files goes to the problem of partial matching. That means that credit reporting agencies don’t require an exact match of Social Security numbers to conclude that two people are the same, and that is why they mix two people together. Part of this stems from their goal. And though the Act has the goal of maximum possible accuracy, the credit reporting agencies have the goal of maximum possible information that they can sell to their creditors to make sure they don’t miss out on anything. Now, these problems were not new. They were identified in consent agreements going back to 1990 to 1992 with all three of the major credit reporting agencies. One of the things emphasized in that was the importance of using full identifying information, something the credit reporting agencies agreed to, yet they have continued partial matching, not only in general, but also after consumers notify them that the partial matching is what is causing their inaccuracy. And, quickly, the other corollary of partial matching is that if you have an exact match of a Social Security number, the credit reporting agencies will disregard a different name, a different ad- VerDate 0ct 09 2002 17:03 Oct 11, 2007 Jkt 037557 PO 00000 Frm 00038 Fmt 6633 Sfmt 6633 K:\DOCS\37557.TXT HFIN PsN: TERRIE 35 dress, a different city and State. And this has been a tremendous benefit to identity thieves, who know if they can just steal a Social Security number and apply for credit in your name, they can unlock the disclosure of your credit report. The other central problem, which my colleague Len Bennett will go into in more detail, is of inadequate reinvestigations. Industry wants to reduce costs through automation. They have set up a system that was required of them by Congress called e-OSCAR, what I call the ACDV Exchange, because it is an exchange of messages. But what this boils down to is, instead of truly investigating consumers’ disputes, electronic messages are swapped between the credit reporting agency and the furnisher, and they compare identifiers, they compare what they reported before, and then conclude that what they reported before is what is still being disputed, so they call that ‘‘verified as reported.’’ This has led to many a maddening moment for consumers that know that false information is being verified. Again, this issue was identified back in the consent agreements of the early 1990’s and figured into the 1996 amendments of the FCRA, directing the credit reporting agencies to refer special cases to experienced investigators. But, to date, instead of doing that, credit reporting agencies are outsourcing their dispute investigations to low-wage countries, and pretty much don’t try to have triage systems that identify complex disputes. I think in terms of—just one word, in closing, one word on enforcement and the problems with enforcement is, this new issue of the triggers is showing—credit reporting agencies are selling leads to people who have applied for mortgages. So you apply for a mortgage, and all of a sudden your name is sold to lots of other mortgage lenders. The FTC has concluded that this is okay. And I don’t understand, how this can be a firm offer of credit in that context. And there are also a lot of anecdotes trickling in already that this is leading to bait-and-switch offers. Thank you. [The prepared statement of Mr. Hendricks can be found on page 139 of the appendix.] The CHAIRMAN. The trigger issue that I mentioned has come to the committee’s attention from a number of sources, and we are going to address it as a separate issue. So I don’t want to cut you off, but we will be back on that issue. And we are talking about some kind of legislation. A number of people have expressed concern. Next we have Stuart Pratt, who is the president and CEO of the Consumer Data Industry Association. Please, Mr. Pratt. STATEMENT OF STUART K. PRATT, PRESIDENT AND CEO, CONSUMER DATA INDUSTRY ASSOCIATION Mr. PRATT. Mr. Chairman, and members of the committee, thank you for this opportunity to testify before you today. Let me just make some key points, and then we look forward to the Q&A process following, as he disappears below the dais. First, there is a careful balance which has to be maintained in a voluntary system of data-furnishing, and this point has been made very well by the first panel. There are 18,000 institutions VerDate 0ct 09 2002 17:03 Oct 11, 2007 Jkt 037557 PO 00000 Frm 00039 Fmt 6633 Sfmt 6633 K:\DOCS\37557.TXT HFIN PsN: TERRIE 36 that furnish data to the consumer reporting system. They are updating 200 million credit reporting files. There are 3 billion updates a month, so there is a tremendous exchange of information that is going on. Regulatory overreach could have an effect on decisions by many of the smaller institutions when it comes to whether or not they choose to continue reporting. We do have a new and different context today for thinking about the credit reporting system in this country, and that is the free annual credit report. And as the first panel testified, 52 million file disclosures over a 2-year period were made. That is, bar none, the largest number of file disclosures ever in the history of the credit reporting industry that have been viewed by consumers. We will add to that, however, that 89 percent, or 46.3 million, of those file disclosures did not result in a dispute, did not result in a question, did not result in a communication. That is really an extraordinary success rate. Whereas we used to have 25 or 30 percent dispute rates in the late 1980’s, we now have dispute rates as low as 11 percent, and perhaps lower than that. There is some good news. Congress did believe that there needed to be more information about accuracy. They have asked the FTC to study it. I think this is really due to the fact that the GAO did conclude that many of the consumer group studies were not statistically representative, or had flaws in their methodologies, and we really had to get to the root question. I think, in part, these 52 million disclosures, the fact we have consumers looking at their reports is probably the best way for us to get to the root question of how consumers feel about and interact with their reports. Our members haven’t waited for the law or the FACT Act to become effective in order to proactively manage the quality of information. Standardizing how data is reported to our members is a key to how we improve data quality. Use of the Metro 2 data standard is climbing steadily following the enactment of the FACT Act. In 2005, 50 percent of data reported to us was reported in the Metro 2 standard; today, we see 81.3 percent of data reported in the Metro 2 standard. This is great progress. This is good news, and it is a result, in part, of the FACT Act’s enactment. There are a number of rules that have already been testified that are not complete. We think they must be completed in order to fully evaluate the net effects of the FACT Act. One of those involves direct disputes. The GAO found that 64 percent of consumers did want to dispute directly with lenders, at least in certain cases. We have voluntarily set up a system to allow any lender to process a consumer’s direct dispute in order to update the file at the credit reporting system. I can tell you that right now we are processing 35 million updates a year coming from this voluntary system of allowing furnishers to update outside of the regular cycle of reporting, outside of the dispute process. So we think this is a good, proactive step in the right direction. VerDate 0ct 09 2002 17:03 Oct 11, 2007 Jkt 037557 PO 00000 Frm 00040 Fmt 6633 Sfmt 6633 K:\DOCS\37557.TXT HFIN PsN: TERRIE 37 Ultimately, we can’t assess the FACT Act with regard to accuracy without the rules and regulations. I think there is more that will be done on that. The reinvestigation process: In addition to accuracy, the FACT Act directly addressed reinvestigations. In fact, there was a study conducted with regard to reinvestigations. The FTC and the FRB concluded that the FACT Act should be given time to work, that no new legislative proposals were required at this time, and we agree with this conclusion. We have been proactive, however. In the absence of legislative recommendations, we know that consumers want responses that are both correct and timely when they submit a dispute. Our members’ automated dispute system, called e-OSCAR, accomplishes this goal. In 72 percent of cases where disputes were submitted using this system, the response is received in 1 to 14 days; that is less than half of the 30 days that the Fair Credit Reporting Act gives us. Consumer groups often state that the consumer reporting agencies are supplied with other information along with the dispute, including account applications, billing statements, and letters. We have looked into this further, and while our data is preliminary, we find that nearly 55 percent of all disputes are submitted telephonically or by the Web, so we are seeing a shift towards telephonic and Web-based communications. Of the 44 percent of consumers who submit, we found only 2 to 3 percent of the samples we looked at submitted anything other than a simple form, a standardized form, or submitted a simple letter. So, in fact, there are not often cases where lots of other information has been submitted where that information is not being conveyed. Let me just close with this key point. We would love to get rid of credit repair; 30 percent of our resources are dealing with credit repair. One of the problems we have with credit repair is that it affects our processing of paper, which includes consumer-submitted information. So if we have to—I have even seen a sample of a letter from Bank of America ostensibly clearing a consumer’s credit, except for the problem that the Bank of America letterhead was misspelled. So the key here is, if we could dial down on credit repair, we know that we could do an even more effective job of processing every consumer’s dispute. I thank you, and I see my time has expired. [The prepared statement of Mr. Pratt can be found on page 177 of the appendix.] The CHAIRMAN. Thank you. And next is Chi Chi Wu, a staff attorney with the National Consumer Law Center. STATEMENT OF CHI CHI WU, STAFF ATTORNEY, NATIONAL CONSUMER LAW CENTER Ms. WU. Mr. Chairman, and members of the committee, thank you for inviting me here today. I am testifying on behalf of the low income clients of the National Consumer Law Center. And thank you for holding this hearing on the state of the American credit reporting system. VerDate 0ct 09 2002 17:03 Oct 11, 2007 Jkt 037557 PO 00000 Frm 00041 Fmt 6633 Sfmt 6633 K:\DOCS\37557.TXT HFIN PsN: TERRIE 38 Unfortunately, we are sorry to say, this is a system that is rife with errors, and that the dispute process, the safety net designed to correct those errors, is full of gaping holes. You have heard from Evan Hendricks about some of the types of seriously harmful errors in credit reporting, and how the credit bureaus could, but choose not to, fix them. There are other errors caused by, for example, debt buyers, that Representative Cleaver raised, such as reaging, freshening up the date on trade lines so that they don’t drop off the credit report within the statutory 7 years. Now there appears to be some debate or discussion about the magnitude of the problems, about how many credit reports are inaccurate. At one point the industry had claimed that about 3 percent of credit reports contained errors. Studies by consumer groups have shown as much as 25 percent contained serious errors. The FTC is studying the matter. We know that 10 million consumers are the victims of identity theft every year. And we have heard—we have had previous statistics that 22 percent of consumers who get their own credit reports file a dispute. Mr. Pratt had said today it is 11 percent. But whether it is 3 percent, 11 percent, 22 percent, or 25 percent, the scale of the number of errors in credit record reporting is enormous anyway. When you have 200 million consumers with their personal information on file with the credit bureaus, even a 3 percent error means 6 million consumers, 6 million consumers whose lives are sabotaged by inaccurate credit reporting. And it could be 10 million from identity theft. Or if it is 25 percent, you are talking 50 million consumers. Any way you slice it, we are talking about millions of consumers victimized by errors from faceless computer-generated reports. Now, we don’t expect perfection. What the FCRA requires are reasonable procedures to assure maximum possible accuracy. And as Mr. Hendricks has shown, a lot of these errors are the result of unreasonable procedures. There is a second level of protection for accuracy, as well, the FCRA dispute process, which is the safety net. Unfortunately, as Mr. Len Bennett will speak to, the system—that system is fundamentally flawed with its perfunctory investigations and its formalistic reduction of serious controversies into two or three digit codes. Now, Mr. Bennett is going to talk about what the flaws are in the reinvestigation process, and I am going to give you the ‘‘why.’’ The first ‘‘why’’ is semantics, a disagreement over the meaning of the word ‘‘accuracy.’’ The bureaus and the furnishers apparently believe that accuracy means conformity to data records, not conformity to truth or conformity to reality. For example, the Mortgage Bankers Association has urged regulators to define accuracy as accurate reporting of the status of the account as reflected in the furnisher’s records. In other words, it is accurate if it is in our records. If that becomes the standard under the section 312 guidance, whatever the furnishers’s records show, that standard is not going to improve anything for consumers. Now, the second reason for these flaws is the age-old adage that money talks. It is critical to understand that the clients of the cred- VerDate 0ct 09 2002 17:03 Oct 11, 2007 Jkt 037557 PO 00000 Frm 00042 Fmt 6633 Sfmt 6633 K:\DOCS\37557.TXT HFIN PsN: TERRIE 39 it bureaus are not consumers; it is the creditors. So there is little economic incentive to conduct accurate reinvestigations, good, thorough reinvestigations, because that would cost the industry real money, money spent primarily to benefit consumers, people who aren’t their real customers. The only thing that will force the bureaus to fix their system is vigorous enforcement of the FCRA. And what consumers need is very simple, something taken for granted in many other areas of the law, the right to ask a judge to issue an order saying, ‘‘Fix that credit report.’’ Fix that credit report, with one minor exception, the FCRA does not provide consumers the right to ask for that. The FCRA is an anomaly in that respect. In most other areas of law, there is a Supreme Court decision that provides the basis for injunctive relief. Providing the courts with explicit authority to provide injunctive relief will not only improve accuracy, it will improve judicial efficiency. Consumers won’t be compelled to file lawsuit after lawsuit when the bureaus repeatedly include inaccuracies or fail to comply with the FCRA. The alternative to seeking injunctive relief is to ask for more monetary relief. The last issue I wanted to talk about is a scrivener’s error. FACTA inadvertently created some ambiguity about whether consumers can enforce the FCRA’s adverse action notice requirements, the notice given when credit or insurance is denied on the basis of an unfavorable credit report. FACTA was intended to limit the remedies for another notice, the risk-based pricing notice. However, due to some ambiguous drafting, several courts have interpreted this limitation to apply to the prior adverse action notice. This was a scrivener’s error. There had been no discussion among any of the stakeholders of reducing any private rights by FACTA, and based on notions of fair play, it should be fixed. We look forward to working with you, Chairman Frank and other members of the committee, on further examination of the credit reporting industry. Thank you for this opportunity. [The prepared statement of Ms. Wu can be found on page 208 of the appendix.] The CHAIRMAN. Thank you. Next, Anne Fortney, a partner at the law firm of Hudson Cook. STATEMENT OF ANNE P. FORTNEY, PARTNER, HUDSON COOK, LLP Ms. FORTNEY. Chairman Frank, and members of the committee, thank you for this opportunity to appear before you. I am Anne Fortney, a partner in the Washington, D.C., office of the Hudson Cook law firm. Our firm specializes in consumer financial services. We represent a broad spectrum of creditors and other furnishers. My practice focuses primarily on issues arising under the Fair Credit Reporting Act and similar consumer protection statutes. Some of my clients are consumer reporting agencies; most are creditors and similar data furnishers. I bring to this practice more than 30 years’ experience in the consumer financial services field, including service as the Associate Di- VerDate 0ct 09 2002 17:03 Oct 11, 2007 Jkt 037557 PO 00000 Frm 00043 Fmt 6633 Sfmt 6633 K:\DOCS\37557.TXT HFIN PsN: TERRIE 40 rector for Credit Practices at the Federal Trade Commission. In that capacity, I was responsible for enforcing the Fair Credit Reporting Act. I have also worked as in-house counsel at a consumer credit card issuer. Currently, in addition to counseling clients, from time to time I serve as a consultant and expert witness in Fair Credit Reporting Act litigation. I commend you for holding this hearing on the important issues of accuracy of credit report data and the effectiveness of the consumer dispute process. My testimony today discusses the obligations of creditors and other furnishers of credit report information, how furnishers are responding to concerns about the accuracy of information furnished, and the resolution of consumer disputes. I believe my experience provides a unique perspective on FCRA compliance challenges facing furnishers. From this experience, I observe that although questions about credit report accuracy and the dispute process continue to generate legitimate concerns, furnishers take their FCRA compliance obligations very seriously, and they devote substantial resources to the fulfillment of their responsibilities. Their reasons for doing so include the following: First, in my experience, most creditors want to comply with the law. They also want to satisfy their customers and preserve their reputation. Accurate account information also benefits creditors in evaluating credit risks, monitoring default, and pursuing collections. In addition, creditors want to detect and prevent identity theft and other fraud, and take expedient measures to minimize their losses. Finally, if furnishers fail to provide accurate information or investigate disputes in compliance with the law, they will incur additional costs that are involved in handling escalated disputes. Their failure can also lead to enforcement actions and litigation. The furnishers with whom I work have implemented policies and procedures for dealing with consumer disputes, whether they receive disputes from a consumer reporting agency or directly from a consumer. It is my experience that furnishers do train employees about policies and practices so they can investigate disputes in a timely manner and accurately respond to them. The appropriate level of investigation depends on the nature of the dispute. Most disputes can be resolved by reference to the furnisher’s own records, and these are disputes that are resolved to the customer’s satisfaction. That is how most disputes can be handled. Escalated disputes, including those involving identity theft claims, merit the attention of specialized fraud investigation departments, and the creditors with whom I have worked have established such departments. The reasonableness of a furnisher’s investigation should be measured by the nature of the dispute and the procedures that were followed in light of the information reasonably available to the furnisher at the time of the dispute. The fact that a dispute ends in litigation does not mean that the furnisher’s investigation was unreasonable. VerDate 0ct 09 2002 17:03 Oct 11, 2007 Jkt 037557 PO 00000 Frm 00044 Fmt 6633 Sfmt 6633 K:\DOCS\37557.TXT HFIN PsN: TERRIE 41 In my experience, very few cases result in escalated or unresolved disputes, or ultimately in litigation. When disputes do end in litigation, some courts have agreed with consumers. Other courts have found a furnisher’s investigation to have been reasonable as a matter of law. In other instances, and I think in most instances, the courts have held that the reasonableness of a furnisher’s investigation is a factual question for the jury. It will depend on the circumstances. As a result, I do not believe the cases revealed any systemic problems that would warrant congressional action. I note in this regard the written statements of two witnesses at this hearing; Mr. Bennett and Mr. Hendricks have mischaracterized my expert witness testimony as a basis for personal attacks on my qualifications. I will not waste the committee’s time in responding, other than to observe that such attacks are entirely inappropriate and are irrelevant to the important concerns of this committee. In conclusion, I observe that through the leadership of this committee, the FACT Act amendments were enacted to improve, in pertinent part, the accuracy and integrity of consumer report information and the resolution of consumer disputes regarding this data. I believe that when the FACT Act provisions are fully implemented, they will enhance credit report accuracy and dispute resolution. I believe that additional requirements should not be created until the overall effectiveness of these provisions can be determined. I am happy to answer any questions the committee may have. Thank you. [The prepared statement of Ms. Fortney can be found on page 115 of the appendix.] The CHAIRMAN. Thank you, Ms. Fortney. And next Mr. Leonard Bennett, with Consumer Litigation Associates, who is testifying on behalf of the National Association of Consumer Advocates. STATEMENT OF LEONARD A BENNETT, CONSUMER LITIGATION ASSOCIATES, P.C., ON BEHALF OF THE NATIONAL ASSOCIATION OF CONSUMER ADVOCATES Mr. BENNETT. Good afternoon, Mr. Chairman. I am not a customary witness. This is my second time in Congress. I am a lawyer. Let me thank, first, the committee in general—both under its current chairmanship as well as that of Ranking Member Bachus when he chaired the subcommittee to which I spoke in 2000—has been responsible and responsive to consumer interests. That is the position that my organization holds. That, I believe, is a fair statement of the position of the numerous other individuals with whom I regularly associate in Fair Credit Reporting Act work. This committee historically, as well as currently, has provided the appropriate level of attention, both sides of the aisle, and we certainly— we at the Advocates and we, the consumers we represent—appreciate that. I would suggest a couple points of agreement with the testimony. Since you have our written testimony already, I would state that NACA, and generally the consumers that we represent, agree with a few things. We do agree that there is currently sufficient legisla- VerDate 0ct 09 2002 17:03 Oct 11, 2007 Jkt 037557 PO 00000 Frm 00045 Fmt 6633 Sfmt 6633 K:\DOCS\37557.TXT HFIN PsN: TERRIE 42 tion to prohibit certain types of conduct that are regular and that are common and that frequently are litigated. For example, Equifax in a recent case turned over—had to turn over under court order its history of lawsuits. And we note that it has been sued under the Fair Credit Reporting Act for failed investigations over 2,000 times since 2002. That number is fairly consistent with the other bureaus. There are remedies that are available. However, I spoke in 2003, as with my conservative roots, and I made a statement in my testimony that we do not need an army of regulators, that we need to be able to have a private remedy to go out and to do something about this ourselves. We were concerned that you not take away States’ rights at that point, and I now change my testimony. I think you need an army of regulators. The Fair Credit Reporting Act provides mandates to the Federal Trade Commission to do and to act and to enforce provisions this Congress has enacted. These include requirements already on the books that furnishers conduct reinvestigations. Ms. Fortney, I would publicly apologize to Ms. Fortney, to the extent she is offended by our testimony. But, for example, the case that is described, Ms. Fortney, was offered, by MBNA, a company that we litigated against and she represented. The CHAIRMAN. Ms. Fortney is not the subject of this hearing, so why don’t we please confine ourselves to things we can legislate on. Mr. BENNETT. Absolutely. On the question of what type of reinvestigation duty there is for a furnisher, the case at issue was Johnson v. MBNA, that held that the reinvestigation has to be reasonable. And to that extent, having read Ms. Fortney’s testimony, we agree that testimony, that the position of our organization is that the reinvestigation obligation exists. It just has not been enforced. The other issue that we address in our testimony is the failure of the CRA, the bureaus’ e-OSCAR reinvestigation system. There is no doubt, there cannot be doubt if you read the procedures, if you read the deposition testimony we have offered from the credit bureaus, that there is no discretion exercised. Equifax outsources all of its reinvestigations to a company in the Philippines that is paid 57 cents per dispute, regardless of how substantive. TransUnion does the same to India. All that is done by the CRAs is to code the disputes into one of three to four codes. I included the codes that the CDIA was discussing off the record. And the comments of the CDIA and the general counsel of TransUnion, behind the scenes, in deciding what to tell the Federal Trade Commission in the recent reinvestigation report are telling. It says, regardless, the fact that large numbers of disputes are coded using three to four top codes will be evident and may contribute to the ongoing perception that dispute codes are very generic and less effective. Our concern is that without a requirement that all relevant information be provided, a system already set up by the credit bureaus exists since 2005 to forward those scanned documents, that whatever is done to strengthen the furnisher reinvestigation provisions, there will not be a means to convey the disputes from the bureaus to the furnishers. VerDate 0ct 09 2002 17:03 Oct 11, 2007 Jkt 037557 PO 00000 Frm 00046 Fmt 6633 Sfmt 6633 K:\DOCS\37557.TXT HFIN PsN: TERRIE 43 The National Consumer Law Center has highlighted two other concerns we have addressed in our testimony as well. We are concerned that a provision 615, section 615 of the FCRA, may have inadvertently repealed the private cause of action for a provision to require an adverse action notice in the event of a credit denial. Currently, Mr. Chairman, Virginia is the only State in which a judge has ruled that a creditor has to provide a notice of adverse action now. Everyone else has held it has been repealed. I appreciate the honor of this testimony, and I am ready to answer any questions. [The prepared statement of Mr. Bennett can be found on page 55 of the appendix.] The CHAIRMAN. Thank you. Virginia being the one exception, whether or not that survives the Fourth Circuit would be an interesting question. I thank the panelists for calling our attention to that statutory issue, and the staff will be looking into it and will be back. There are obviously two questions, one substantively, whether or not it is a good idea, but also whether or not it was intended. And we will bring that before us. Also, we will repeat to Mr. Hendricks, the question of triggers, frankly a number of privacy groups have complained, Realtors have complained, mortgage bankers. There is a serious set of complaints, and we do intend to address that. Let me ask, Mr. Pratt, one semantic, minor, but you were talking about information supplied by the lender and then you meant furnisher. I assume you meant them somewhat the same? Talking to Mr. Pratt, you talked about information furnished. You said several times about the lender, then you said furnisher. You are talking about the merchant, the point of sale? Mr. PRATT. In fact, there is a much larger community of data furnishers than just a lender, but the preponderance of the evidence of data is lenders. And so, yes, sometimes we do use the terms interchangeably. The CHAIRMAN. At the point of sale. The people where the transaction actually took place or the credit card company? Mr. PRATT. Any time referring to data furnisher in our testimony or today we are talking about a lender or other data source that is supplying data to one of the national consumer reporting services. The CHAIRMAN. Not the merchant where the sale took place? Mr. PRATT. Well, ultimately if the merchant opens up a line of credit, then that retailer becomes a data furnisher. The CHAIRMAN. Right. But if they have gone through, it is the credit card company? Mr. PRATT. Certainly. Yes, sir. The CHAIRMAN. I have one question for everybody. It seems to me that despite the differences, there is a lot of agreement that it would be a good idea if we had section 312 spelled out and we had the procedures, and you would all have some input as to what they would be, so I have this question for each of you. If you don’t have an answer right now, get back to me. It may well be—and I don’t think all the blame here is on the regulators—we have asked six very busy regulators to come to- VerDate 0ct 09 2002 17:03 Oct 11, 2007 Jkt 037557 PO 00000 Frm 00047 Fmt 6633 Sfmt 6633 K:\DOCS\37557.TXT HFIN PsN: TERRIE 44 gether. You know, it is almost like we independently recreated the United States Senate in terms of inability to come to a conclusion. And if we were to decide, after further conversations and lack of action, to give one agency the lead responsibility, not simply as convener, but as ultimate decider, certainly to get input from the others—I think that is the thing we are going to have to consider to take with section 312, the six agencies, and put one of them and say, you formulate this rule, you check with everybody else. Which one, if we were to do that, who would you recommend it would be? Let me start with Mr. Hendricks. Mr. HENDRICKS. Thank you, Mr. Chairman. Clearly, it has to be the Federal Trade Commission. They have the most history on this. Obviously, there are reservations about each one, but the FTC has the most history, going back to the 1970’s. The CHAIRMAN. Mr. Pratt? Mr. PRATT. It is a tough decision for us to either pick our regulator or not. The CHAIRMAN. You can say, ‘‘none of the above,’’ if you want. Mr. PRATT. I think the easy answer is—the FTC has great experience with the FTC, but the Federal Reserve and other bank agencies have great experience with what it takes to be a data furnisher. So I think that when the FACT Act was woven together, I think they were right to make those agencies work together, because you have to bring forward all that— The CHAIRMAN. Is there any way we could do it? In fairness to them, when you take six very busy agencies, and we have given them a lot to do, you really multiply the differences—it is not additive—to get all six of them together. Ms. Wu? Ms. WU. It would absolutely have to be the FTC. The FTC is the only agency that has taken public enforcement action and levied penalties under the Fair Credit Reporting Act. We are unaware of any public enforcement actions by the banking regulators against any furnishers. Chairman Frank, of course you have heard the consumers groups’ complaints about the banking regulators and their failure to be sufficiently oriented toward consumer protection when their own budgets are paid by the very banks that they regulate. The CHAIRMAN. All right. Let me just say here that I think there is a problem. I don’t think it is the case because of how the budget is paid for; I think it is an institutional role that they have. And I do not think that people aspire to be a member of the Federal Reserve Board of Governors so they can arbitrate disputes about bank checks. I think they are thinking about making world economic policy. I wouldn’t attribute it to budget, but I do agree with the problem. Ms. Fortney. Ms. FORTNEY. The Federal Trade Commission, of course, has the greatest experience dealing with the Fair Credit Reporting Act. However, the FTC’s jurisdiction is limited with respect to financial institutions, and so if I could suggest another alternative, I think if you had just the Federal Trade Commission and the Federal Reserve Board, because the Federal Reserve Board does have a lot VerDate 0ct 09 2002 17:03 Oct 11, 2007 Jkt 037557 PO 00000 Frm 00048 Fmt 6633 Sfmt 6633 K:\DOCS\37557.TXT HFIN PsN: TERRIE 45 more experience with banks. And as you know, section 312 of the rules that need to be promulgated would have a direct impact on furnishers. Therefore, I think both agencies should be involved. The CHAIRMAN. That is a good point, although—and I realize you argue here or advocate as lawyers, given the law. If we were to change this, it would have to be changed statutorily; and that the same statute could, of course, give the FTC, for those limited purposes, whatever powers over the banks they need. Or if we have this problem, I should say, because the FTC and the Fed have a joint jurisdiction over that part of the Federal Trade Act about unfair and deceptive practices, and the Federal Reserve needs to issue rules. As far as rulemaking, in fact the OCC and the FDIC as recently as our last hearing objected to the fact that the Fed hasn’t issued the rules. But I appreciate that. Mr. Bennett? Mr. BENNETT. Certainly, Mr. Chairman, it would have to be the Federal Trade Commission. And a number of the documents that we have turned over and will continue to turn over, the behind-thescenes interactions between the Federal Trade Commission and the CDIA evidence that the substantive knowledge was coming from the Federal Trade Commission, not the FRB. The CHAIRMAN. I am inclined to agree, partly because I do think the nature of the problem here is more an unfairness consumer dispute. It is kind of hard to get the bank regulators to be concerned with more than safety and soundness, and I do think this kind of consumer protection is more in the nature of the FTC. But we will be considering it. And I do take Ms. Fortney’s point that if we were to do that, we would have to give them commensurate authority. The gentleman from Georgia. Mr. PRICE. Thank you, Mr. Chairman. I appreciate the panel’s testimony. And I think it is important to point out a couple points before I ask a question of the entire group. I think there has been a blurring of the line between identity theft and credit reporting errors, and I think it is important that we keep that in mind. Every time that a credit report is in error, there is an inaccuracy there. It doesn’t necessarily mean that trips to an identity theft, and I think that we inadvertently alarm folks when we seem to blur that line. So I would caution all of us about that. I am interested in this issue of accuracy. And I think it was Ms. Wu, you stated that the accuracy, the definition of accuracy by the CRAs is conformity to data records. And so I would ask each of you to give your opinion about what you believe the responsibility of the CRAs is, if any, in verifying the information that they receive from the furnishers. Ms. WU. Should I start? Mr. PRICE. Please. Ms. WU. The CRAs should have—they have a responsibility to independently review the results of the investigation and to evaluate them. They should not merely parrot what the furnishers say, but actually look over the results and look—and what the furnisher VerDate 0ct 09 2002 17:03 Oct 11, 2007 Jkt 037557 PO 00000 Frm 00049 Fmt 6633 Sfmt 6633 K:\DOCS\37557.TXT HFIN PsN: TERRIE 46 should be required is not only to just say ‘‘verified,’’ but to respond with—if the question is whether the consumer really was a joint cardholder on a credit card account or merely an authorized user, they should be required to come up with the account application with the consumer’s signature on it, showing that they actually applied for the card, as merely opposed to being added on as an authorized user. And that documentation should go to the CRAs, and the CRAs should independently evaluate that. Mr. PRICE. Mr. Pratt? Mr. PRATT. I don’t think we agree with that. We do agree that the consumer reporting industry should fully and completely take a consumer’s dispute and that we should convey it to the furnisher who supplied the data. And that is, of course, what the law does. And the law contemplates a role for us and it contemplates a role for the data furnisher. I think data furnishers want accurate data. I think consumer reporting agencies want accurate data. I say that for the record because I am a little concerned that there has been, in this blurring of lines, this sense that somehow we are claiming victory because we don’t really care whether the data is particularly good or not. Our members are evaluated every day by the lending community, and the data has to be good in order to make good lending decisions. But we do. And, in fact, we don’t convey just a code on its own when we believe more information should be carried forward. You know, we are all, by the way, pulling lawsuits out of a hat in order to try to show that something is right or something is wrong. And so, you know, for example here is a case from the Southern District of Texas where the e-OSCAR system was complimented by the judge as being a very effective system for conveying the dispute. And the reason we are not going to get into a tit-for-tat is, I think, it is pretty counterproductive. Mr. PRICE. Sure. Mr. PRATT. Our goal is to try to make sure that the e-OSCAR system works well, that it effectively conveys a dispute. In about 30 percent of the disputes, we include additional information along with the code to ensure that the data furnisher has all that it needs to investigate. But to put the CRAs in a position of being a small claims court, to try to adjudicate and be the oracle of truth is the wrong place for it to be. The lender will know the decision. I will say one other thing, and that is direct disputes in certain cases will allow consumers to interact directly with the data furnisher, which may help ameliorate communication issues where there is a particularly complex dispute. It may be an identity theftrelated dispute. That is one of the reasons why we have a system in place that facilitates a lender being able to update a file as a result of a direct communication between a consumer. Mr. PRICE. I appreciate that. Maybe I can elevate the question, or go to the 30,000-foot level, because my time is going to run out quickly. The CHAIRMAN. The gentleman can take another minute or two. Mr. PRICE. The consumers’ desire to increase their purchasing power. Businesses desire to sell products. Businesses want to make certain that they provide appropriate credit, and that the credit VerDate 0ct 09 2002 17:03 Oct 11, 2007 Jkt 037557 PO 00000 Frm 00050 Fmt 6633 Sfmt 6633 K:\DOCS\37557.TXT HFIN PsN: TERRIE 47 that they provide isn’t—creditors want to provide appropriate credit, and they don’t want to take significantly greater risk than they ought. And CRAs assist creditors in determining risk. So in all of that cycle it is unclear to me what the motive would be, or the incentive would be, for the CRAs or the furnishers to provide inaccurate information. Because the whole cycle, in order for it to work and have the consumer get the product that they desire, is contingent upon everybody providing appropriate information. Is that not accurate? Ms. FORTNEY. I think that is a very accurate statement, and I think one to keep in mind is that generally when furnishers respond to a dispute, they also—if the dispute is—indicates that information in the file that has been reported is inaccurate or needs to be updated, then the furnisher will not only give that information back to the consumer reporting agency, they will also update their internal files. And that is very important for furnishers, because they rely on their internal records for things like account review and, you know, collection activities, and basically they need accurate information in order to handle this aspect of their customers’ business. Ms. WU. May I respond? Mr. PRICE. Sure. I hope. Ms. WU. Furnishers do—some furnishers do have motives for inaccurate information. For example, Representative Cleaver talked about debt buyers. As I have mentioned, there is a lot of inaccuracy when it comes to debt collectors and debt buyers. They deliberately change the date on the debt to keep it alive, to keep it fresh. The FCRA says, come off after 7 years, so there is motive. The other thing is, the system doesn’t have to be perfectly accurate for the credit system to work. It can be 75 percent accurate or 89 percent accurate, but woe be unto you if you are part of the 25 percent or 11 percent or even 3 percent for which it is inaccurate. Mr. PRATT. Actually, I don’t think that is right. I am sorry. Mr. PRICE. Mr. Pratt, go ahead. Mr. PRATT. Three things, real quickly. We agree that we focused on debt collectors and debt buyers, because we do think that we need to make sure the system is working well in that case. And, in fact, in our letter to the ANPR, to the Federal Reserve, we included communications that we sent out to every data furnisher who is a debt collector in the system, saying you must supply the original date of delinquency—which, by the way, goes all the way back to 1996 amendments to the FCRA— so that we always calculate the 7-year period from the original date of delinquency. So this renewal process is a concern for us as well, and we want that original date of delinquency. So that is point number one. So there is some symmetry there, I think, between concerns at the table. We don’t think there is a woe be to you, though, when a dispute is processed. For example, the FTC interviewed all of our members who—and one of our members indicated that they have a 5 percent VerDate 0ct 09 2002 17:03 Oct 11, 2007 Jkt 037557 PO 00000 Frm 00051 Fmt 6633 Sfmt 6633 K:\DOCS\37557.TXT HFIN PsN: TERRIE 48 redispute rate. In other words, 95 percent of the time, a dispute was successfully processed the first time through. Now, again, statistics are statistics. I am sure we will all start arm-wrestling over those just a little bit. But I just want you all to know that it is not a woe unto all of you that once you get into a dispute process, you inevitably fail. That is just not correct. Many disputes are simple, clean, and easy. And I will stop there. The CHAIRMAN. Mr. Hendricks, and then we will finish. Mr. HENDRICKS. Thank you, and let me try and tie some of this together. The system breaks down and accuracy breaks down for instance when, like, the furnisher wants to collect a debt, a very effective way to do that is park the unpaid debt on the credit report. Now that is entirely appropriate if the consumer owes the debt. But it is always divorce situations, when there is a clear notification that only one spouse—we see a lot of cases where the spouse, who is not responsible but still has good credit, they end up going after that. And then the issue of accuracy, the problem is that the credit reporting agencies see their role as faithfully putting on the credit report what the furnishers provide to them. And so I have seen testimony from the outsource credit report personnel that says when they see the consumer’s dispute and they see the credit granter’s response, the instructions are to put on what the credit granter says because they are faithfully carrying out that role. And that is when accuracy breaks down. The law says that the credit reporting agencies are not supposed to be small claims courts, but they are supposed to carry out their grave responsibilities with a sense of impartiality and a respect for fairness and privacy. And that is when it breaks down. Mr. PRICE. Thank you. I appreciate the indulgence of the Chair. The CHAIRMAN. Thank you. And I thank the witnesses. This has been useful; even the contention is useful for us. The gentleman from Missouri. Mr. CLEAVER. Thank you, Mr. Chairman. Would any of you agree that small claims courts have become almost an extension of collection agencies? If you look at the statistics, the person brought to a small claims court rarely ever wins. Mr. BENNETT. In fact, so. A jurisdiction in our State, Virginia Beach, my part of Virginia, the process is to turn over all of the warrants to the collection attorneys and the debt collectors an hour before court and let them fill out the papers. So that is very common. Congressman, we have also talked in our testimony about how the new method of small claims court collection, as well, is to slam your credit, to put a medical bill in the credit, or put a cell phone or a disputed item as the alternative. So both of those tools are still readily used, particularly against, we will say, everyday consumers. Mr. CLEAVER. That probably can only be handled by State legislators or legislatures, but it is a problem. In fact, I don’t even know of anybody who was taken to small claims court who won. I am sure there is somebody, you know, somewhere out here. I have two other quick questions. These debt buyers that I spoke of earlier generally buy uncollected debts, and they buy them in VerDate 0ct 09 2002 17:03 Oct 11, 2007 Jkt 037557 PO 00000 Frm 00052 Fmt 6633 Sfmt 6633 K:\DOCS\37557.TXT HFIN PsN: TERRIE 49 bulk. And I have been calling them ‘‘stale debts,’’ because something could have happened 2 or 3 years earlier that would remove that particular debt from a person who is being pursued, the most notable of which would, of course, be bankruptcy. Who regulates debt buyers? Who investigates debt buyers? Ms. Fortney? Ms. FORTNEY. They are under the jurisdiction of the Federal Trade Commission. Mr. CLEAVER. That is exactly what I thought. Mr. HENDRICKS. And one of the tricks that the debt buyers use is that if something is 7 years old and about to fall off your credit report, it hardly hurts your credit score, but if it is reaged and made to like it is just this year, it slams your credit score. Mr. CLEAVER. Yes. Ms. WU. Another source of problems is that debt buyers often buy the debts that are the result of identity theft. And in my testimony, there is a cite to a case from Georgia, where a man’s exgirlfriend signed him up for a credit card, and it was sold to Asset Acceptance. Asset Acceptance, by the way, is a furnisher, and the bureaus have accepted them. At one point, they may have booted them out of the system, but they are back. Mr. CLEAVER. You answered my third question. I know that there are people who always fight regulations. I mean, any time you talk about regulations, it is wrong, and their belief is that, you know, everything will work itself out. You know, people who commit murder will eventually stop, and people, you know, no matter what they are doing, it will work out. The problems that we have discussed today, do you think they will just work out? If I can go just quickly through all of you, then I am finished. Mr. HENDRICKS. No. I think there is a real tension building that is going to be played out in private enforcement. Mr. PRATT. Our view is, some of these issues, such as the debt buyers issues, are likely to be addressed somewhere within the regulatory process that is not complete, but I think we are looking for a timeline to get to, to bring to completion. Ms. WU. No, I don’t they are going to work out, not without vigorous enforcement and not without greater rights of consumers to defend their rights in court. Ms. FORTNEY. I think that problems to a certain extent will always continue. I think that the regulations that are being promulgated should address a lot of those problems. And I think the issue that we will continue to deal with is the extent to which the problems are isolated instances, as opposed to systemic problems. Mr. BENNETT. With all due respect, I don’t think they will go away. The Federal Trade Commission 312 rules, for example, won’t have a private cause of action. There are numerous provisions—almost all the provisions currently governing furnishers do not have a private cause of action. So unless the Federal Trade Commission not only accomplishes the rulemaking, but actively enforces it, you are left with—the only enforcement entities out there are private lawyers, and there are not enough of us. There are maybe 20 in the country that can survive a summary judgment battle against VerDate 0ct 09 2002 17:03 Oct 11, 2007 Jkt 037557 PO 00000 Frm 00053 Fmt 6633 Sfmt 6633 K:\DOCS\37557.TXT HFIN PsN: TERRIE 50 the credit bureau lawyers, who represent their clients coast to coast. Mr. CLEAVER. Thank you. The CHAIRMAN. Let me just ask a couple follow-up questions based on that. Mr. Hendricks—I suppose I should know; I don’t—how does one reage a debt when it is about to expire? Mr. HENDRICKS. Mr. Pratt referred to the date of first delinquency. That is when you measure the beginning, when 7 years after that it is supposed to fall off. And so it is either date of first delinquency, or sometimes the field is called date of last activity. It is when you buy the debt, you are buying a 4-year-old debt, and then you manipulate that debt, so instead of showing it as 4 years old— The CHAIRMAN. Let me ask a question now, when you say, ‘‘manipulate it,’’ I hope it isn’t the case that the simple fact of my buying a debt that is of a certain age starts the clock over again. That isn’t the case, is it? Mr. HENDRICKS. No, but it is the way they report it to the credit agencies. The CHAIRMAN. That would be an inaccurate report then. Mr. HENDRICKS. That would be unfair, too. The CHAIRMAN. Yes. Mr. PRATT. Our view would be, the seller should make sure it conveys the date of delinquency to the buyer. That is really the solution. The CHAIRMAN. That is an enforcement thing. Mr. PRATT. And that the law requires today that be reported— The CHAIRMAN. We will look into that. Let me just ask, the other question is to Ms. Fortney and Mr. Pratt, because both Ms. Wu and Mr. Bennett talked about the interpretation that we had sub silentio repeal of the private right of action. Do you agree that was something that was not done intentionally? And what would your view be to our restoring it? Mr. Pratt? Mr. PRATT. We didn’t work on that section of the FACT Act. It relates to the date of furnishers and the date of— The CHAIRMAN. Okay. Ms. Fortney? Ms. FORTNEY. I think the statute is clear, and that is why the vast majority— The CHAIRMAN. That wasn’t the question. Ms. FORTNEY. Okay. I know. The CHAIRMAN. Then why don’t you answer it? Ms. FORTNEY. The answer is, I don’t know that whoever drafted that— The CHAIRMAN. Fair point. But would you like to leave it the way it is? Ms. FORTNEY. I am sorry? The CHAIRMAN. Would you object if we restored the right of action that is in the bill? Ms. FORTNEY. I don’t have an opinion on that, sir. The CHAIRMAN. Oh, okay. Then it is two to nothing, two abstentions. VerDate 0ct 09 2002 17:03 Oct 11, 2007 Jkt 037557 PO 00000 Frm 00054 Fmt 6633 Sfmt 6633 K:\DOCS\37557.TXT HFIN PsN: TERRIE 51 I thank all of the witnesses. This has been useful. Several things you have mentioned have brought some things to our attention that we are going to act on, and I appreciate your testimony. Before the hearing is—do you want to ask anything? If you don’t mind, the gentleman from Texas has been very diligent. Before we get to him, I want to ask unanimous consent to put into the record a statement regarding credit reports from Terry Clemans, who is the Executive Director of the National Credit Reporting Association, Inc. Without objection. And Mr. Green will be recognized. Mr. GREEN. I will be brief, Mr. Wu. You have given comments with reference to the right to sue, the right to require injunctive relief; is that correct? Ms. Wu, excuse me, someone in my office just got demoted, they had ‘‘Mr.’’ Mr. HENDRICKS. You just got promoted. Mr. GREEN. I will solemnly gavel after this next question. Ms. Wu, you spoke of mandatory injunctive relief and you indicate that this is not available currently. Can you please just comment on this? Ms. WU. Certainly. I would be happy to. The majority of the case law from the district courts has found that there is no right to seek injunctive relief, in other words, the right to ask a court to issue an order saying fix that credit report, fix that error. A couple of courts, I think, in California have held the other way, but the case law is not looking good on it. Most other areas, there is a Supreme Court decision that says the Federal courts have an inherent right to issue injunctive orders, but for some reason the courts interpreted the FCRA to say that there is no injunctive relief for consumers. The FTC can get injunctive relief, but not private consumers. Mr. GREEN. Well, quickly, do you have a recommendation? Ms. WU. A recommendation would be to add an explicit right to seek injunctive relief in the FCRA. Mr. GREEN. Does anyone want to share in that opinion? Ms. FORTNEY. I think it would be ill-advised for Congress to give consumers the right to seek injunctions in these situations. Most of the lawsuits, as the testimony has indicated, involve individual disputes involving various special circumstances, and I think it would be inappropriate to have injunctive relief available that could have much farther reaching consequences. I think it is important to leave the injunctive relief in the hands of the Federal Trade Commission. Mr. BENNETT. I am in court all the time. This is all I do. I have the largest volume of FCRA cases and Federal cases in Virginia, and we are regularly getting questions from our Federal district judges, can I enjoy in that because we see the same behavior again and again. It is, I expect in Virginia, where they prosecute criminal violations, inundating the docket. Somebody has to go to Federal Court and litigate a full monetary damage claim in order to obtain relief, instead of simply an initial injunction to obtain the correction of the problem or, alternately, to allow a U.S. District court VerDate 0ct 09 2002 17:03 Oct 11, 2007 Jkt 037557 PO 00000 Frm 00055 Fmt 6633 Sfmt 6633 K:\DOCS\37557.TXT HFIN PsN: TERRIE 52 judge, confined by the law, to order changes to violations that are recurring. Mr. GREEN. Let me quickly poll the panel. My assumption, Mr. Bennett, your response is ‘‘yes,’’ you would want to accord injunctive relief; is that right? Mr. BENNETT. Yes, sir. Mr. GREEN. Ma’am? Ms. FORTNEY. No. Mr. GREEN. Ms. Wu? Ms. WU. Yes. Mr. GREEN. Mr. Pratt? Mr. PRATT. I would have to consult with our counsel. Mr. GREEN. Mr. Hendricks? Mr. HENDRICKS. Yes, because when people have errors on their credit report they are not thinking about money, but their reputation, and what they really want is to get it fixed. And as Ms. Wu pointed out, this is the solution, so I strongly support that. Mr. GREEN. Are there any words of art I am to utilize before? No. The meeting is now adjourned. [Whereupon, at 1:05 p.m., the hearing was adjourned.] VerDate 0ct 09 2002 17:03 Oct 11, 2007 Jkt 037557 PO 00000 Frm 00056 Fmt 6633 Sfmt 6633 K:\DOCS\37557.TXT HFIN PsN: TERRIE APPENDIX June 19, 2007 (53) VerDate 0ct 09 2002 17:03 Oct 11, 2007 Jkt 037557 PO 00000 Frm 00057 Fmt 6601 Sfmt 6601 K:\DOCS\37557.TXT HFIN PsN: TERRIE VerDate 0ct 09 2002 17:03 Oct 11, 2007 Jkt 037557 PO 00000 Frm 00058 Fmt 6601 Sfmt 6601 K:\DOCS\37557.TXT HFIN PsN: TERRIE 37557.001 54 VerDate 0ct 09 2002 17:03 Oct 11, 2007 Jkt 037557 PO 00000 Frm 00059 Fmt 6601 Sfmt 6601 K:\DOCS\37557.TXT HFIN PsN: TERRIE 37557.002 55 VerDate 0ct 09 2002 17:03 Oct 11, 2007 Jkt 037557 PO 00000 Frm 00060 Fmt 6601 Sfmt 6601 K:\DOCS\37557.TXT HFIN PsN: TERRIE 37557.003 56 VerDate 0ct 09 2002 17:03 Oct 11, 2007 Jkt 037557 PO 00000 Frm 00061 Fmt 6601 Sfmt 6601 K:\DOCS\37557.TXT HFIN PsN: TERRIE 37557.004 57 VerDate 0ct 09 2002 17:03 Oct 11, 2007 Jkt 037557 PO 00000 Frm 00062 Fmt 6601 Sfmt 6601 K:\DOCS\37557.TXT HFIN PsN: TERRIE 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