[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]
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
37-557 WASHINGTON : 2007
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HOUSE COMMITTEE ON FINANCIAL SERVICES
BARNEY FRANK, Massachusetts, Chairman
PAUL E. KANJORSKI, Pennsylvania SPENCER BACHUS, Alabama
MAXINE WATERS, California RICHARD H. BAKER, Louisiana
CAROLYN B. MALONEY, New York DEBORAH PRYCE, Ohio
LUIS V. GUTIERREZ, Illinois MICHAEL N. CASTLE, Delaware
NYDIA M. VELAZQUEZ, New York PETER T. KING, New York
MELVIN L. WATT, North Carolina EDWARD R. ROYCE, California
GARY L. ACKERMAN, New York FRANK D. LUCAS, Oklahoma
JULIA CARSON, Indiana RON PAUL, Texas
BRAD SHERMAN, California PAUL E. GILLMOR, Ohio
GREGORY W. MEEKS, New York STEVEN C. LaTOURETTE, Ohio
DENNIS MOORE, Kansas DONALD A. MANZULLO, Illinois
MICHAEL E. CAPUANO, Massachusetts WALTER B. JONES, Jr., North
RUBEN HINOJOSA, Texas Carolina
WM. LACY CLAY, Missouri JUDY BIGGERT, Illinois
CAROLYN McCARTHY, New York CHRISTOPHER SHAYS, Connecticut
JOE BACA, California GARY G. MILLER, California
STEPHEN F. LYNCH, Massachusetts SHELLEY MOORE CAPITO, West
BRAD MILLER, North Carolina Virginia
DAVID SCOTT, Georgia TOM FEENEY, Florida
AL GREEN, Texas JEB HENSARLING, Texas
EMANUEL CLEAVER, Missouri SCOTT GARRETT, New Jersey
MELISSA L. BEAN, Illinois GINNY BROWN-WAITE, Florida
GWEN MOORE, Wisconsin, J. GRESHAM BARRETT, South Carolina
LINCOLN DAVIS, Tennessee JIM GERLACH, Pennsylvania
ALBIO SIRES, New Jersey STEVAN PEARCE, New Mexico
PAUL W. HODES, New Hampshire RANDY NEUGEBAUER, Texas
KEITH ELLISON, Minnesota TOM PRICE, Georgia
RON KLEIN, Florida GEOFF DAVIS, Kentucky
TIM MAHONEY, Florida PATRICK T. McHENRY, North Carolina
CHARLES WILSON, Ohio JOHN CAMPBELL, California
ED PERLMUTTER, Colorado ADAM PUTNAM, Florida
CHRISTOPHER S. MURPHY, Connecticut MICHELE BACHMANN, Minnesota
JOE DONNELLY, Indiana PETER J. ROSKAM, Illinois
ROBERT WEXLER, Florida KENNY MARCHANT, Texas
JIM MARSHALL, Georgia THADDEUS G. McCOTTER, Michigan
DAN BOREN, Oklahoma
Jeanne M. Roslanowick, Staff Director and Chief Counsel
C O N T E N T S
----------
Page
Hearing held on:
June 19, 2007................................................ 1
Appendix:
June 19, 2007................................................ 53
WITNESSES
Tuesday, June 19, 2007
Bennett, Leonard A., Consumer Litigation Associates, P.C., on
behalf of the National Association of Consumer Advocates....... 41
Braunstein, Sandra F., Director, Division of Consumer and
Community Affairs, Board of Governors of the Federal Reserve
System......................................................... 9
Fortney, Anne P., Partner, Hudson Cook, LLP...................... 39
Hendricks, Evan, Editor/Publisher, Privacy Times................. 33
Parnes, Lydia, Director, Bureau of Consumer Protection, Federal
Trade Commission............................................... 7
Pratt, Stuart K., President and CEO, Consumer Data Industry
Association.................................................... 35
Wu, Chi Chi, Staff Attorney, National Consumer Law Center........ 37
APPENDIX
Prepared statements:
Gillmor, Hon. Paul E......................................... 54
Bennett, Leonard A........................................... 55
Braunstein, Sandra F......................................... 94
Fortney, Anne P.............................................. 115
Hendricks, Evan.............................................. 139
Parnes, Lydia................................................ 154
Pratt, Stuart K.............................................. 177
Wu, Chi Chi.................................................. 208
Additional Material Submitted for the Record
Frank, Hon. Barney:
Articles from The Boston Globe............................... 253
Letter from the National Association of Realtors............. 258
Statement of the National Credit Reporting Association, Inc.. 260
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.
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 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 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 information, 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 denied 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 respond 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 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, 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 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 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.
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.
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 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 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 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.
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.
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 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.
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.
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 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, 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 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 bureaus 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 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.
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.
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.
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.
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 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, 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 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
bipartisanship. 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 address, 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 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.
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.
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 credit 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 Director 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.
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 legislation 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.
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
together. 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 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-the-scenes 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 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 theft-related 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 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 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 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 ex-girlfriend 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 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.
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 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.]
A P P E N D I X
June 19, 2007
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