[House Hearing, 110 Congress] [From the U.S. Government Publishing Office] EXAMINING THE NEED FOR H.R. 2885, THE CREDIT MONITORING CLARIFICATION ACT ======================================================================= HEARING BEFORE THE COMMITTEE ON FINANCIAL SERVICES U.S. HOUSE OF REPRESENTATIVES ONE HUNDRED TENTH CONGRESS SECOND SESSION __________ MAY 20, 2008 __________ Printed for the use of the Committee on Financial Services Serial No. 110-112 U.S. GOVERNMENT PRINTING OFFICE 43-698 PDF WASHINGTON DC: 2008 --------------------------------------------------------------------- For sale by the Superintendent of Documents, U.S. Government Printing Office Internet: bookstore.gpo.gov Phone: toll free (866)512-1800 DC area (202)512-1800 Fax: (202) 512-2250 Mail Stop SSOP, Washington, DC 20402-0001 HOUSE COMMITTEE ON FINANCIAL SERVICES BARNEY FRANK, Massachusetts, Chairman PAUL E. KANJORSKI, Pennsylvania SPENCER BACHUS, Alabama MAXINE WATERS, California DEBORAH PRYCE, Ohio CAROLYN B. MALONEY, New York MICHAEL N. CASTLE, Delaware LUIS V. GUTIERREZ, Illinois PETER T. KING, New York NYDIA M. VELAZQUEZ, New York EDWARD R. ROYCE, California MELVIN L. WATT, North Carolina FRANK D. LUCAS, Oklahoma GARY L. ACKERMAN, New York RON PAUL, Texas BRAD SHERMAN, California STEVEN C. LaTOURETTE, Ohio GREGORY W. MEEKS, New York DONALD A. MANZULLO, Illinois DENNIS MOORE, Kansas WALTER B. JONES, Jr., North MICHAEL E. CAPUANO, Massachusetts Carolina RUBEN HINOJOSA, Texas JUDY BIGGERT, Illinois WM. LACY CLAY, Missouri CHRISTOPHER SHAYS, Connecticut CAROLYN McCARTHY, New York GARY G. MILLER, California JOE BACA, California SHELLEY MOORE CAPITO, West STEPHEN F. LYNCH, Massachusetts Virginia BRAD MILLER, North Carolina TOM FEENEY, Florida DAVID SCOTT, Georgia JEB HENSARLING, Texas AL GREEN, Texas SCOTT GARRETT, New Jersey EMANUEL CLEAVER, Missouri GINNY BROWN-WAITE, Florida MELISSA L. BEAN, Illinois J. GRESHAM BARRETT, South Carolina GWEN MOORE, Wisconsin, JIM GERLACH, Pennsylvania LINCOLN DAVIS, Tennessee 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 KEVIN McCARTHY, California BILL FOSTER, Illinois DEAN HELLER, Nevada ANDRE CARSON, Indiana Jeanne M. Roslanowick, Staff Director and Chief Counsel C O N T E N T S ---------- Page Hearing held on: May 20, 2008................................................. 1 Appendix: May 20, 2008................................................. 31 WITNESSES Tuesday, May 20, 2008 Beales, J. Howard III, Associate Professor of Strategic Management and Public Policy, School of Business, George Washington University.......................................... 12 Bennett, Leonard A., Consumer Litigation Associates, P.C......... 14 Fortney, Anne P., Partner, Hudson Cook, LLP...................... 10 Holland, Robin, Senior Vice President, Global Consumer Services, Equifax Inc.................................................... 9 APPENDIX Prepared statements: Brown-Waite, Hon. Ginny...................................... 32 Carson, Hon. Andre........................................... 33 Kanjorski, Hon. Paul E....................................... 34 Beales, J. Howard III........................................ 36 Bennett, Leonard A........................................... 45 Fortney, Anne P.............................................. 64 Holland, Robin............................................... 80 Additional Material Submitted for the Record Kanjorski, Hon. Paul E.: Letter to Chairman Barney Frank from the Federal Trade Commission, dated May 20, 2008............................. 88 EXAMINING THE NEED FOR H.R. 2885, THE CREDIT MONITORING CLARIFICATION ACT ---------- Tuesday, May 20, 2008 U.S. House of Representatives, Committee on Financial Services, Washington, D.C. The committee met, pursuant to notice, at 10:05 a.m., in room 2128, Rayburn House Office Building, Hon. Barney Frank [chairman of the committee] presiding. Members present: Representatives Frank, Kanjorski, Waters, Maloney, Watt, Moore of Kansas, Clay, McCarthy, Baca, Miller of North Carolina, Scott, Green, Cleaver, Perlmutter; Bachus, Royce, Jones, Biggert, Price, and Heller. The Chairman. This hearing of the Committee on Financial Services will come to order. We are here today to have a legislative hearing on H.R. 2885, the Credit Monitoring Clarification Act. The chairman of the Capital Markets Subcommittee, Mr. Kanjorski of Pennsylvania, is the sponsor and the lead person on this committee on this issue as on many others. So I will be convening the hearing, but I will be turning over the gavel to Mr. Kanjorski, who will be the prime sponsor and guide as we go forward on this legislation. I think we have a bill where there is conceptual agreement. There are some questions about the specifics, so this is a hearing in which I think it will be very important to focus on how to do this and make, I think, an important contribution to the good functioning of the financial community. So, with that, I am going to turn it over to the gentleman from Pennsylvania, who will be making the opening statement and conducting the hearing. Mr. Kanjorski. [presiding] Thank you, Mr. Chairman. The Committee on Financial Services will come to order. Without objection, all members' opening statements will be made a part of the record. I thank you, Mr. Chairman, for convening the full committee hearing on H.R. 2885, the Credit Monitoring Clarification Act. Congressman Royce and I have worked on this issue for several years, and our legislation enjoys the support of many members of the Financial Services Committee. If promoted and sold in a truthful manner, credit monitoring services can help consumers maintain an accurate credit file and provide them with valuable information for fighting identity theft. Credit monitoring is also often provided free-of-charge to victims of data security breaches, and as a result has gained wide acceptance in the marketplace. In 1996, we enacted the Credit Repair Organizations Act, otherwise known as CROA. This law protects consumers against the problematic and unethical credit practices of credit repair organizations. In enacting CROA, we put in place a broad definition of what constitutes a credit repair organization. In the decade following the enactment of CROA, products such as credit monitoring services have come into the market. In recent years, however, some parties have begun to interpret the CROA definition of a credit repair organization to include credit monitoring services, exposing the providers of credit monitoring services to legal ambiguity. These interpretations also result in the provision of confusing credit repair notices to credit monitoring consumers. Additionally, because CROA prohibits advance payments, the providers of legitimate credit monitoring products cannot offer annual subscriptions. The Federal Trade Commission has for several years indicated support for differentiating the treatment of credit monitoring services for the treatment of repair organizations under CROA. In testimony and correspondence, the Commission has regularly noted that it ``seized little basis on which to subject the sale of legitimate credit monitoring and similar educational products and services to grow specific prohibitions and requirements, which were intended to address deceptive and abusive credit repair business practices.'' To address the Commission's concerns, we have worked for a number of years on the legislation. In the 109th Congress, during the mark-up of the Accountability and Trust Act in the Financial Services Committee, we offered an amendment that passed in a voice vote to clarify the treatment of credit monitoring under CROA. Since then, we have worked to revise and include our legislative proposal to include new consumer protections and refine the credit monitoring exception. As introduced, H.R. 2885 would provide an activity-based exemption from CROA for credit monitoring services. The users of these services would get new consumer protections, too. Additionally, our bill updates the credit repair disclosures required under CROA to reflect changes made by the Fact Act in 2003 that provide consumers with access to free credit reports. Today's hearing will help us to determine how we can further improve H.R. 2885. In an effort to strike the right balance we have modified this legislation considerably over the years. We will continue to do so going forward, I suspect. The Commission has advised us that the exemption for legitimate credit monitoring services must be carefully considered and narrowly drawn. Consumer groups also want to ensure that the legislation does not ultimately undermine CROA's existing consumer protections against fraudulent credit repair organizations. I agree with both of them. To achieve the goal of workable credit monitoring exemption under CROA, that maintains strong consumer protections, the Commission has previously urged the Congress to continue to reach out to stakeholders. Today's hearing acts on that recommendation by bringing together a number of stakeholders who detail concerns and find common ground. In sum, I am pleased that we have the opportunity here to learn more about the benefits of credit monitoring and to learn more about the concerns with our legislation. We need to ensure that as we move forward with the consideration of H.R. 2885, we do not allow bad actors to use the proposed exemption to circumvent CROA's protections. It is therefore my hope that we can work with all interested parties going forward to perfect the language of the bill. Are there any other members with opening statements? Mr. Bachus. Mr. Bachus. Thank you, Chairman Kanjorski. I want to thank you and Congressman Royce for your leadership in bringing the Credit Monitoring Clarification Act before this committee. As you know, Ranking Member Biggert of the subcommittee and I are both co-sponsors of this legislation and we both commend you and Mr. Royce for all of your fine work on this legislation. I also thank Chairman Frank for agreeing to hold this hearing. In 1996 Congress, through the leadership of this committee, enacted the Credit Repair Organization's Act, or CROA, to help consumers by putting an end to unfair and deceptive practices of entities that promised that they could remove negative but accurate data from a consumer's credit report. In its effort to help consumers, Congress imposed a number of requirements on credit repair organizations. Perhaps most significantly we prohibited these businesses from charging customers fees before they had performed the services they promised, but industry practices have changed. CROA was enacted before certain monitoring products became popular, as consumers sought new ways to track their credit histories and to protect themselves against identity theft. As I said earlier, the gentleman from Pennsylvania, Subcommittee Chairman Kanjorski, and the gentleman from California, Mr. Royce, took leadership on this issue and worked closely with the Federal Trade Commission to ensure that their legislation will allow these legitimate credit monitoring products to be offered without running afoul of CROA. Under the legislation, firms offering credit monitoring services must provide consumers with certain disclosures and the opportunity to counsel without paying a penalty or fee. H.R. 2885 also updates the more general disclosures that must be provided to customers or consumers under CROA to conform the statute to changes made by the Fair and Accurate Transactions Act, or the Fact Act of 2003, which this committee fashioned in a bipartisan way, and I think has been one of the great successes of bipartisan cooperation in the past Congress. H.R. 2885 will build on this and is substantially similar to provisions that were included in data security legislation that passed the committee in the 109th Congress, but was never considered by the full House. So, once again, Mr. Kanjorski, I want to thank you; I want to thank Representative Royce and the other co-sponsors of this legislation; I want to Chairman Frank for holding the hearing; and finally, I thank the witnesses for being here today and for the testimony you will offer. Thank you very much. Mr. Kanjorski. Thank you, Mr. Bachus. I would like to recognize the Congressman from Kansas, Mr. Moore, who has been instrumental in support of this legislation. Mr. Moore of Kansas. Thank you, Mr. Chairman, and I thank you for holding this important hearing today on H.R. 2885, the Credit Monitoring Clarification Act. As we all know, identity theft and misuse of personal data are extremely serious problems in our society. The consequences of identity theft can become increasingly severe the longer it goes undiscovered, and it is very important that consumers have all the available tools to monitor their sensitive personal data and direct fraudulent activity early in the process. Credit monitoring services are important tools that empower consumers with information about changes to their credit report and explanations for these changes so consumers can take immediate action to protect themselves in the event of an error on their credit report. Additionally, these products help consumers make educated decisions that will improve their credit status. Unfortunately, the continuation of these services is endangered due to an unintended consequence of a 1996 law enacted by Congress, the Credit Repair Organizations Act, CROA, to protect consumers against the problematic and unethical practices of credit repair organizations. I don't believe that Congress enacted CROA with the intent of diminishing access to credit monitoring products which were not yet in existence at the time the law was enacted. For this reason, I am a co-sponsor of H.R. 2885, which would clarify that credit monitoring products are not subject to the same restrictions as credit repair products under CROA. As we move forward, Mr. Chairman, we should make every effort to ensure that H.R. 2885 is narrowly crafted so it will prevent unscrupulous persons from gaining access to this exemption. But, I hope this hearing is a precursor to passage of this legislation in committee and in the full House. Thank you, Mr. Chairman, I look forward to hearing the witnesses' testimony today. Thank you. Mr. Kanjorski. Thank you, Mr. Moore. And now, we will hear from the gentlelady from Illinois, Mrs. Biggert. Mrs. Biggert. Thank you, Mr. Chairman, and I would like to thank Chairman Frank for holding today's hearing on a bill to clarify congressional intent regarding a Credit Repair Organizations Act or CROA provision that defines credit repair organizations. I would also like to thank my colleagues, Congressman Kanjorski and Congressman Royce, for introducing H.R. 2885. I am honored to be a co-sponsor of this bill along with Ranking Member Bachus. Today is not the first time that we worked on a technical corrections bill. For example, last week, the House passed a bill, the Credit and Debit Card Receipt Clarification Act, to clarify a misinterpreted fair and accurate credit transactions act or Fact Act provision. The vague provision resulted in confusion, a loophole, and lawsuits regarding which credit card numbers a business must truncate on a consumer's credit card receipt. Similarly, the bill we will examine today, H.R. 2885, aims to clarify the intent of Congress regarding a provision in CROA that defines credit repair organizations. Everyone has heard or seen the ads about credit repair services: ``Bad credit; no credit; we can erase your bad credit, 100 percent guaranteed.'' But let's face it. Only time and prudent financial planning can repair a person's credit report, and that's why many credit repair ads are so misleading--to prevent consumers from paying for illegitimate credit repair services. Credit repair organizations are not allowed under current law to charge an up-front fee for their credit repair services. On the other hand, credit monitoring services, which are primarily provided by the three major credit bureaus, are legitimate services allowing a consumer to monitor activity on their credit report to detect and dispute, for example, incorrect data or fraudulent activity. Pre-credit monitoring services often will be provided to a consumer giving him a tool to detect fraudulent activity as a result of a data breach. Another use of credit monitoring services, and my favorite, is when for an up-front fee, a consumer uses a credit monitoring service to evaluate his or her credit scoring report. The consumer then works to improve his or her credit working by working to pay bills on time and lower his or her debt. That is financial literacy and personal responsibility at their best. The up-front fee for the credit monitoring service is legitimate. Unfortunately, once again, some trial lawyers filed lawsuits against credit bureaus claiming that credit monitoring service falls under CROA's definition of credit repair organization. As I mentioned earlier, credit repair organizations are not allowed to charge an up-front fee for their credit repair services. In short, certain trial lawyers want CROA interpreted to mean that a credit monitoring service is a credit repair service and therefore cannot charge an upfront fee. If a credit monitoring service charges an up-front fee, it is in violation of the law. I was recently told by Credit Bureau representatives that for fear that they will be sued again under CROA, credit bureaus are waiting to roll out new credit monitoring products and services that could help consumers today. It is important that legitimate credit monitoring services not be considered credit repair services. We should work to ensure that legitimate uses of credit monitoring are not hampered by a technical glitch in the law, and I think that H.R. 2885 does just that. With that, I look forward to hearing today's witnesses and their testimony on H.R. 2885. I yield back. Mr. Kanjorski. Thank you, Mrs. Biggert. I would now like to recognize the gentleman from Georgia, Mr. Scott, who also has been instrumental in supporting this bill and helping to draft it. Mr. Scott? Mr. Scott. Thank you so much, Mr. Chairman. And it is indeed a pleasure to work with you on this bill, H.R. 2885, which will strengthen existing consumer protections that are addressed in the Credit Repair Organizations Act and will help address the need for further consumer protections. But first, I would like to recognize one of our guests here, Ms. Robin Holland, a wonderful person from Equifax, in Atlanta, Georgia. Let me say just a few things about her because she is a very dynamic person. She is a senior vice president for global consumer services at Equifax, and her function is to oversee Equifax's consumer support operations, which includes credit reports and consumer fraud inquiries. She is a frequent guest on CNN and NBC Nightly News. She also teaches workshops on identify theft and she helps consumers control their credit. Welcome to the committee, Ms. Holland. It is a pleasure to have you here. Now, let me just say why H.R. 2885 is so important. Legitimate credit monitoring services strongly support H.R. 2885, because they know that this will help improve upon already successful initiatives that are implemented in CROA. Consumers who received notices from credit monitoring service organizations regarding activity on their credit reports can then access their credit reports in view of the action there. By accessing their reports, in many instances, consumers find they are potential victims of identity theft, or the report may reveal that an incorrect item was placed on the report, whichever way, this is very important for consumers to have. CROA was extremely important in combatting harmful credit repair activities; however, CROA's definition of credit repair organizations could apply to any organization that supplies credit monitoring services; and, as such, should be amended so these legitimate companies offering credit monitoring services are protected from lawsuits or the prospects of new litigation. This bill in no way weakens consumer protection initiatives. Instead, consumers will receive important new protections under this legislation. No existing law gives a consumer the right to cancel the credit monitoring subscription before the end of its term and receive a pro rata refund. This bill would give consumers this new right. This legislation would also assure that consumers are given clear and concise disclosures about their right to free, annual credit reports. In all, we will indeed benefit from the enactment of H.R. 2885 by serving business and consumers alike. I look forward to the testimony of the distinguished witnesses. Thank you, Mr. Chairman. Mr. Kanjorski. Thank you very much, Mr. Scott. Now, we will hear from our colleague, Mr. Royce of California, who has been instrumental in this. I daresay those people in the public, and particularly the media, say that the two sides of the aisle do not cooperate on matters. I can attest to the fact that they are dead wrong. Mr. Royce and myself are co-sponsors of so many pieces of legislation, and if anyone wants to check our philosophical differences, they are also extreme. Mr. Royce? Mr. Royce. I don't know if they are that extreme, Mr. Chairman, but I do thank you. I thank you for all of your work on this issue, and I thank you also for helping to arrange this hearing today. I think it was in the 109th Congress that you and I first introduced this legislation; and it was following the passage of the Credit Repair Organizations Act in 1996 that these credit monitoring services first began to emerge. Unfortunately, because of the expansive definition of CROA, credit reporting agencies found themselves subject to CROA when trying to provide legitimate credit monitoring services. So this broad definition has created a legal ambiguity. It has created uncertainty in the marketplace for these credit reporting agencies, and it has been the basis for several frivolous lawsuits, class-action type lawsuits that have cost the industry tens of millions of dollars. Now, the Federal Trade Commission has consistently expressed support for differentiating the treatment of credit monitoring services from the treatment of credit repair organizations under CROA. There was a hearing before the Senate in July of 2007, and Lydia Parnes, who is the Director of the Bureau of Consumer Protection at the FTC, said that as a matter of policy, the FTC sees little basis on which to subject the sale of legitimate credit monitoring and similar educational products and services to CROA's specific prohibitions and requirements, which were intended to address deceptive and abusive credit repair business practices. Now, those very arguments are reiterated in a letter that each of us received today from the FTC. Credit monitoring services offered customers several legitimate services related to tracking the credit report, including notifying consumers when there are significant changes to the credit report files. These services can protect consumers against identity theft. They limited the damage following security breaches. So, in closing, the Credit Monitoring Clarification Act is a small but critical piece of legislation which clarifies the definition of a credit repair organization and provides much- needed legal certainty in the marketplace. And, again, Mr. Chairman, I would like to thank you for all your work on this and we should thank the witnesses for coming today to testify. I yield back the balance of my time. Mr. Kanjorski. Thank you, Mr. Royce. And now, we will hear from the gentleman from Georgia, Mr. Price. Mr. Price. Thank you, Mr. Chairman. I, too, want to add my words of thanks to you and Mr. Royce for your leadership on this issue and for chairing this committee. I want to begin by associating myself with the remarks of the other gentleman from Georgia in welcoming Ms. Holland from Equifax, a wonderful corporate citizen in the State of Georgia. Mr. Chairman, as you well know, it often falls to us to revisit legislation that has been passed by a previous Congress due to the law of unintended consequences, where Congress does something and the falling dominoes affect something that is much further down the table or down the road. And I believe that H.R. 2885, the Credit Monitoring and Clarification Act, does that very important function. Again, I want to thank Subcommittee Chairman Kanjorski and Congressman Royce for their work for years, literally, on this issue and for their leadership. As has been stated, Congress in 1996 enacted the Credit Repair Organization Act or CROA at the urging of consumer report agencies to stop the unfair and deceptive practices of entities that promised consumers they could alter or remove negative but accurate and current data from a credit report. And while the goal is very worthwhile, the term ``credit repair organization'' was intended to apply solely to companies who charge money in order to improve a consumer's credit record, credit history, or credit rating. It wasn't intended, as numerous lawsuits alleged, to cover consumer reporting agencies or other entities that make available credit information for monitoring or informational or educational or credit literacy purposes. The issue that we must address is that CROA was written too broadly, or at the very least interpreted too broadly. As written, CROA covers any service which directly or indirectly intends to ``improve a credit report.'' As a result, the trial bar has predictably brought class action suits against all three of the national credit bureaus and many of their resellers. The trial bar has alleged that the selling of a credit monitoring product serves at least the implied purpose of ``improving'' a consumer's credit record. If legislative relief is not provided, the potentially catastrophic consequences of class action awards, I would suggest would drive credit monitoring products from the marketplace, or at the very least, adversely distort their pricing and their delivery. Mr. Chairman, as you know, these companies provide a needed and a wonderful service. They should not fall prey to liability due to inartful congressional action. It is important to remember that CROA was enacted before any of the recently developed positive and popular consumer education and credit file monitoring products were created. Credit file monitoring products have become a consumer's first line of defense against identity theft, and credit file monitoring products are routinely made available to victims of security breaches. Congress should not allow unintended consequences and an overly active trial bar to strip consumers of the most powerful tools to combat identity theft that they have at their disposal. I hope that the chairman of the full committee will work quickly with the sponsors of this legislation to ensure rapid adoption by the House. I look forward to working positively to that end, and I thank the chairman and yield back. Mr. Kanjorski. Thank you, Mr. Price. Are there any other members who desire to make an opening statement? There being none, we will now start with the introduction of the panel. First, let me thank the panel for appearing before the committee today, and without objection, your written statements will be made a part of the record. You will each be recognized for a 5-minute summary of your testimony. First, we have Ms. Robin Holland, the senior vice president of global operations at Equifax, which provides credit monitoring services. I must say, from listening to Mr. Scott, obviously, you are well-represented here on the committee, Ms. Holland, so you had better be very good in your testimony. Ms. Holland. Thank you. STATEMENT OF ROBIN HOLLAND, SENIOR VICE PRESIDENT, GLOBAL OPERATIONS, EQUIFAX INC. Ms. Holland. Thank you. Mr. Chairman and members of the committee, I want to thank you and thank your outstanding staff for the opportunity to testify today on behalf of Equifax in support of the reform of the Credit Repair Organization Act, or CROA, as it is commonly called. We have submitted written testimony for the record. And with your permission, I just want to take a few minutes to highlight that testimony. Let me first say a word about Equifax. Equifax is the oldest, the largest, and the only domestically publicly traded national credit bureau. Equifax is proud of its history, and proud of its services, and, most importantly, proud of its credit monitoring services. These services help consumers to understand their credit score, their credit report. They help consumers to better manage their use of credit and, most importantly, it helps them guard against identity theft. Let me emphasize right at the outset that Equifax very much supports CROA and its comprehensive and strict regulation of credit repair organizations. These organizations routinely promise consumers that they will help them improve their credit score or their credit report by removing adverse but, nonetheless, accurate and timely information from their reports. This is a deceptive, fraudulent, and ultimately, quite incorrect representation, and the victims include consumers whom I talk to every single day in my job, creditors, and the National Credit Bureaus, including Equifax. Ironically, however, CROA has been used wrongly and inappropriately to attempt to punish consumer reporting agencies for offering these great credit monitoring products. And, let's be very clear about the difference between credit monitoring products and so-called credit repair services. Credit monitoring products, including the products offered by Equifax, facilitate consumer access to credit reports and scores. They provide proactive notification of changes in their reports and scores. They provide explanations of scoring algorithms and provide consumers with numerous credit score-related tools, which include projects and forecasts. Simply stated, credit monitoring products are the very best strategy to promote consumer financial literacy, something that we all need to work together to increase in our country. And we are also the consumer's very best strategy to prevent and mitigate the cruel impact of identity fraud. CROA's definition of credit repair services is so broad that it can arguably but wrongly be interpreted as covering any of these vital credit monitoring services, because these services directly or indirectly can be used to approve a consumer's credit record, credit history, or credit score. CROA defines a credit repair organization as an entity which purports directly or indirectly to help consumers improve their credit report. For this reason, Equifax urges Congress to enact legislation to make it absolutely clear that credit monitoring is not credit repair. The FTC has expressed the same sentiment, that is, that there is no basis for applying CROA to credit monitoring services. If CROA were to be misapplied to credit monitoring services, it would mean that consumers would no longer be able to buy these services on a subscription basis, and that consumers would receive notices and warnings which are appropriate for consumers faced with sales pitches for credit repair services, but which are entirely inappropriate and indeed confusing and deceptive when applied to credit monitoring services. And it would mean that entities offering consumer monitoring services would potentially be faced with liability, including the discouragement of all moneys paid by all persons at least in a class action suit for the credit monitoring service. Quite frankly, this would virtually drive credit monitoring services out of the marketplace. It is for this reason that we very much appreciate this committee's interest in CROA reform. We also appreciate efforts in the Congress where bipartisan legislation has been introduced that makes clear that credit monitoring activities are not credit repair activities. The House bill also provides consumers with additional protections including a very detailed description of their free reports and I.D. for our protections under FACTA and the Fair Credit Reporting Act, and it gives them the ability to cancel this contract with the right to a pro rata refund. Thank you for the opportunity to testify, and of course I will be delighted to answer any questions. [The prepared statement of Ms. Holland can be found on page 80 of the appendix.] Mr. Kanjorski. Next, we will hear from Ms. Anne Fortney, a partner with Hudson Cook. Ms. Fortney. STATEMENT OF ANNE P. FORTNEY, PARTNER, HUDSON COOK, LLP Ms. Fortney. Thank you, Mr. Chairman, and members of the committee, for the 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, and we assist in compliance with a variety of consumer protection laws. I bring to this practice more than 30 years experience in the consumer financial services field, including service as Associate Director for Credit Practices at the Federal Trade Commission. In private practice, I have worked extensively with credit grantors and with the consumer reporting industry. I commend you for holding this hearing and I offer testimony in support of H.R. 2885, the Credit Monitoring Clarification Act. I believe that this bill enhances consumer protections and clarifies the scope of CROA. Some background may provide context for my views. While at the FTC, I first learned of problems caused by credit repair organizations. Consumers paid substantial fees in advance to companies that promised to clean up or repair poor credit histories by removing negative but accurate information from consumer reports. The consumer reporting and credit granting industries were burdened with frivolous accuracy disputes generated by credit repair organizations. Although these organizations could not deliver on their promises to remove all negative information from their credit report histories, in the process, they were sometimes successful in deleting some information. Their tactics undermined the integrity and the reliability of the consumer reporting system. In 1996, at the urging of the Federal Trade Commission and the consumer reporting industry, Congress enacted CROA to combat these unfair and deceptive acts and practices. CROA included a broad definition of a credit repair organization in order to ensure that these organizations could not easily evade coverage. When CROA was enacted, credit monitoring services had not yet been developed. Even as these services were being developed, no one thought that CROA applied. These services are valuable tools to educate consumers about their credit practices and to protect them against identity theft and other problems that might negatively affect their credit. They are legitimate services offered by consumer reporting agencies, their affiliates, and retailers. Banks and other creditors also provide credit monitoring for their customers, and these services are often offered to consumers following a data security breach. The FTC has recognized the value of credit monitoring for consumers. There is no similarity between credit repair tactics and credit monitoring services. No matter what the form of credit repair, and there are many variations now on this form, the tactics are always the same. And the result is always the same: fraud on consumers and fraud on the consumer reporting and credit granting system. In addition, no credit repair organization can offer credit monitoring services, because no one can provide these services without a contractual relationship with a consumer reporting agency or reseller for access to the credit reporting data. And no consumer reporting agency would permit such a contractual relationship. Even though the valuable services offered by credit monitoring companies bear no resemblance to the deceptive tactics of credit repair organizations, some have interpreted CROA broadly to reach credit monitoring. The reason is that these services might be marketed as a tool that could assist consumers in improving their credit. Well, credit monitoring can, in fact, help consumers manage and thereby improve their credit. As a result of the interpretation that CROA may apply to credit monitoring, companies offering these services have been subject to costly litigation. Typically, the litigation does not involve claims of unfair or deceptive credit repair tactics, but simply an argument that CROA technically applies. Courts have not reached a consensus on whether or how CROA should apply to credit monitoring, and many cases have settled. Until Congress amends CROA, companies offering credit monitoring will continue to face the threat of new litigation. For these reasons, CROA must be amended. I believe that a narrowly tailored exemption is the best solution. H.R. 2885 would accomplish this. The bill would provide credit monitoring companies with an exemption from CROA, and at the same time create new disclosure and pro rata refund requirements specifically for credit monitoring. Those protections do not exist today. The bill, therefore, would benefit consumers as well as the industry. True credit repair organizations could not hide behind a claim that they were credit monitoring companies under this bill. Consumer reporting agencies would not allow credit repair organizations to access consumer credit file information and the FTC could still prosecute credit repair organizations under CROA and the FTC Act. In conclusion, I encourage Congress to enact H.R. 2885 to amend CROA. Thank you. I am happy to answer any questions the committee may have. [The prepared statement of Ms. Fortney can be found on page 64 of the appendix.] Mr. Kanjorski. Thank you very much, Ms. Fortney. Next we will hear from Mr. Howard Beales, an associate professor of strategic management at George Washington University. Mr. Beales? STATEMENT OF J. HOWARD BEALES III, ASSOCIATE PROFESSOR OF STRATEGIC MANAGEMENT AND PUBLIC POLICY, SCHOOL OF BUSINESS, GEORGE WASHINGTON UNIVERSITY Mr. Beales. Thank you, Mr. Chairman, and members of the committee, for inviting me to testify today. My name is Howard Beales, and I teach in the business school at George Washington University. I have a Ph.D. in economics from the University of Chicago and more than a decade of experience in addressing consumer protection issues at the Federal Trade Commission. Most recently, I was the Director of the Bureau of Consumer Protection there from 2001 through 2004. I am appearing today as a former official who had responsibility for enforcing CROA and an academic with a long-standing interest in consumer protection regulation. CROA is an unusual statute. Rather than prohibit credit repair outright, CROA imposes a business model that is simply not workable. No credit repair organization may charge for its service before the service is fully performed. In other markets, payment after the fact is confined to services where there is a face-to-face relationship between the buyer and the seller or a continuing relationship. Otherwise, it is not a feasible way to conduct most consumer transactions. In addition, there must be a written contract, a 3-day cooling-off period, and extensive disclosures. Imagine what it would be like to get your lawn mowed if sellers followed that business model. Give the difficulties of the CROA business model, it is not surprising that there are few cases that involve organizations that admit they are subject to CROA. Instead, they try to avoid the statute. Imposing an unworkable business model on a business that is almost always fraudulent, like credit repair, is not particularly problematic if the definition is tightly drawn. In CROA, however, the definition is extremely broad. It includes anyone who sells any service to improve any consumer's credit record, credit history, or credit rating, or provides advice about those subjects. Read literally, this language would cover some of the FTC's consumer education materials, such as ``Building a Better Credit Report,'' which will let you learn how to improve your credit score. They are available for free from the FTC, but they are also available for a charge of $1 from the Federal Citizen Information Center in Pueblo, Colorado. For $1 more, you can pick up a copy of your credit score, co-sponsored by the Consumer Federation of America, and learn how to raise your score, also payable before the advice is rendered. It is absurd to think that Congress meant to restrict such obviously valuable consumer education efforts. But to avoid that conclusion, you have to look beyond the statutory language. There is, after all, a wealth of advice about improving your credit rating. Valuable, real world businesses face exactly this problem. One example, this credit monitoring which alerts consumers about changes in their credit report. These services enable consumers to correct information that was only included in their credit report because of fraud. Again, there is no conceivable public purpose in restricting these services. Another example is services that evaluate what consumers might do to improve their credit scores. Consumers in the modern world need to understand what influences their score and how they can improve it. That is, consumers need advice about how to improve their credit rating. It can't be done by changing the past, but consumers can change their credit rating by changing their behavior. Some changes, like consistently paying on time, take time. Others, like paying down outstanding debt, can affect scores more quickly. But there are also urban myths about how to improve scores, like closing unused accounts, that will actually reduce scores if consumers follow that advice. Consumers in the language of CROA need accurate advice. It is possible to avoid the absurd results. Doing so, however, requires looking beyond the simple language of the statute. Some courts have been willing to do so. Others have not, depending in part on the facts of the case. Unfortunately, as is often true, bad facts make bad law, and some of the cases have involved some bad facts. Hillis v. Equifax involves some good facts. The case involves Score Power, a service that included access to a simulator, that allowed consumers to see how various actions would affect their credit score over time. The court looked beyond the statutory language of CROA and concluded that credit rating and credit record all refer to a consumer's historical, tangible, and displayable credit record. The critical question was whether the defendants had implied to the average consumer that they would perform a form of credit repair or were merely engaged in legitimate credit counseling. The line drawn in Hillis is a reasonable one, but other cases have not reached the same results. To avoid losing valuable services, a line must be drawn to distinguish legitimate credit monitoring from illegitimate credit repair. The Hillis line is reasonable, but it is a line, and it creates the need to prove that a credit repair fraud is, in fact, making claims to consumers that it can modify the historical credit record. Congress, rather than the courts, should draw the line. Courts have been attempting to discern what Congress meant and they have come to different conclusions. Whether drawn by Congress or the court, any line that distinguishes fraud and legitimate business will create new opportunities for fraud. That is inherent in distinguishing between fraud and legitimate conduct, and it is not without costs. But there are also obvious costs of prohibiting legitimate products that are useful to consumers. It is Congress, not the courts, that should seek to strike the best possible balance in drawing a line. Thank you, and I look forward to your questions. [The prepared statement of Mr. Beales can be found on page 36 of the appendix.] Mr. Kanjorski. Thank you very much, Mr. Beales. Now, we will hear from Mr. Bennett, an attorney with Consumer Litigation Associates. Mr. Bennett? STATEMENT OF LEONARD A. BENNETT, CONSUMER LITIGATION ASSOCIATES, P.C. Mr. Bennett. Good morning, and thank you for the opportunity to appear on behalf of the National Association of Consumer Advocates, the low income clients of the National Consumer Law Center and the U.S. PIRG. Let me begin with a couple of caveats. I try cases, but the folks that I represent, myself in particular, do not support the type of litigation that is suggested to have been such a detriment to the credit industry. The NACA members, for example, were not the folks who tried to pioneer into legitimate credit monitoring and tied to CROA. And the advantage today, not just in terms of the opportunity for bipartisan agreement on this bill, but you actually have an opportunity for agreement between consumer groups and the CRAs and legitimate entities that sell credit monitoring, there is no dispute amongst which you have heard here about the interests that this committee could further by separating legitimate credit monitoring, useful information. Information sold by Ms. Holland's company--and I know, Ms. Holland, your phrases are justified--versus those, for example, that are sold by the Lexington Law Group, who was one of our nemeses. The Credit Repair Organizations Act is an issue in CROA that apart from the committee, when we deal with the credit reporting agencies and we talk outside of this committee hearing, it is something we share. Ms. Holland and I spoke before the committee that credit repair is a detriment, is a scourge, to both the industry as well as to the consumers on whose behalf we advocate. And the question here is not whether or not legitimate, pure credit monitoring, should be subject to CROA, but rather, how do you separate that? I beg to differ with my colleague and the conclusion that was suggested that credit repair organizations cannot use credit monitoring. That is demonstrably incorrect, and I have included in my written testimony from the Web site of the Lexington Law Group, one of the consumer nemesis, one of the first offenders in our view under CROA, the products that they sell as part of their credit repair package, they sell credit monitoring. They sell something called report watch and identity theft insurance. While legitimate companies such as Equifax may not sell to those credit repair organizations, the bill, H.R. 2885, as currently drafted, is so broad in the new exemptions it offers, and the definition or lack of credit monitoring as to open a floodgate, the last floodgate to render CROA ineffective. The people we represent, the advocates, the attorneys general, the JAGs, the consumer organizations who have to as private attorneys general enforce CROA, will have absolutely no means to do so. And it is an interest that I expect both the consumer reporting agencies and consumer groups share. The credit repair is a disaster if it is unfettered, unbounded, and unregulated. The bill as drafted needs changes, and, I know that certainly the committee has been receptive. We appreciate the time that staff and committee members have offered us. But the changes, just to outline a couple I have recognized in my written materials, the first is that the exemptions after credit monitoring that allow anything related to providing advice to identify theft victims, which is what Lexington Law Group already has, is so broad, the advantage that industry would advocate from this bill is by saying if there's credit monitoring then it won't be credit repair. That simplifies it, but as an attorney, our attorneys haven't read it. The affect of it is if this bill is enacted would conclude, if you have credit monitoring, they will not be with the services sold with it, the governance and CROA. And that's fine for legitimate companies who are moving in a direction with this advice, score, interpretation, and so forth. But moving the other direction, like the Lexington Law Group, you have companies who will begin to add credit monitoring. And it doesn't have to be a legitimate credit report such as the quality report from Atlanta's Equifax. It could be a small company out in California that doesn't maintain an extensive database, but could claim we are offering you a copy of the report that this side company now sells. To the extent that this committee is able to free legitimate companies from the governance of CROA, it will have the reciprocal effect in the other direction. We appreciate the time that you have given us. We appreciate the good work that both sides of the aisle and this committee have offered and we remain willing to work with anyone as we hope to with industry to improve this bill. [The prepared statement of Mr. Bennett can be found on page 45 of the appendix.] Mr. Kanjorski. Thank you very much, Mr. Bennett, and thank you to the whole panel for your testimony. It looks like we have some difference of opinion, but no difference of opinion that we want to get somewhere where we are not quite sure how we get there. I have some questions that I am sure the rest of the panel will have. Let us start with the proposition, Mr. Bennett. You said that probably all members of the panel want to accomplish the conceptual idea of what we have in mind, but exactly how do we do it? Is it possible for the various interest groups to come together and really define and accept? Have you tried to work that out, if I may ask the whole panel? Mr. Bennett. Well, Congressman, I was busy making trouble as a trial lawyer a week or two ago, and didn't have an opportunity to work with that professor. I do know Ms. Holland. I know Ms. Fortney. I know Mr. Pratt. We spoke CRAs. Pat and I spoke. Ms. Holland and I spoke last week. I have a very good, friendly relationship with the chief litigation attorneys for Equifax and I asked to set up a meeting so that we could try to come up with something. We have, Congressman, for years when we're off the record in CRA and consumer lawyers are talking. They are both just pounding their fists and pulling their hair out about credit repair, and so I really think that there is the possibility in the bill to accomplish that. Ms. Holland could offer a better side of that, but our side; we would work hard for that. Ms. Holland. We are always interested in working with anybody who wants to do what is right by consumers. At Equifax, we have a legislative affairs team, which I am not a part of, but certainly I contribute to that. And I echo Mr. Bennett's comments that certainly we would be willing to work together, because at Equifax we always want to do what is best for the consumer. Mr. Kanjorski. Thank you, Ms. Holland. I would really like to get working on this. Our problem is how we craft the credit monitoring exception; and, if we do not do it correctly, we fail in our attempt to solve what I consider to be a serious problem. I think all of the sponsors of the legislation recognize it, and obviously the panel recognizes it as a serious problem. Is there anybody who has an idea of what the test could be that would allow the FTC to quickly determine who is a legitimate credit monitoring provider? Is there some test out there that is a magic set of words such that if they do not hit this test, they just do not comply? And, on the other hand, if they do, they are in the box? Ms. Fortney, let us draw on your 30 years of experience. Ms. Fortney. And I have worked on this legislation as well. I think as everybody has discussed, it is difficult to come up with what would be essentially a bright-line test, because it should be something that is easily discernable. So, if there were litigation at the stage of a motion to dismiss, a court could recognize that a company is, or is not, within the definition of a credit repair organization. We recognize that there are concerns with the current, what is referred to as an activity-based exemption. We are very willing to work with everyone to see if there are ways that exception could be more precisely drawn. I do disagree with Mr. Bennett. I think that if the exception is drafted in such a way that it is clear that only companies that have access to credit monitoring services from consumer reporting agencies, as defined in the Fair Credit Reporting Act, or resellers that worked with those agencies; again, I have not looked at the materials of the Lexington Law Firm or similar companies, but I doubt very much if those types of companies have an ongoing contractual relationship with consumer reporting agencies or their resellers in order to provide a credit monitoring product. And we know that credit repair organizations and other companies that want to commit fraud will say just about anything, but the test really is what do they do. Mr. Kanjorski. Well, I assume, Mr. Bennett, that it would not be very hard to set up an organization that appears to be a credit monitoring organization, but is not using the information and the thoroughness that is usually associated with the likes of the highly credible monitoring organizations. Is that correct? Mr. Bennett. Absolutely, Congressman, and with due respect to Ms. Fortney, who has considerably more experience than me in the field, the bill as currently written doesn't make the exemption to limit it to--I hate to use the phrase ``legitimate consumer reporting agencies''--but legitimate consumer reporting agencies. It is so limited. And I understand just from secondhand accounts that the FTC has considered the possibility of a party-specific carve-out as opposed to an activity carve-out that there could be ways, if we worked through the legislation together, to use definitions that have not only a legislative definition, but significant, objective case law interpreting it, such as what is a consumer reporting agency or a national consumer reporting agency. Those types of changes, we think, can strengthen it. In the case of the consumer reporting agencies, it is a stretch, despite that we are often on the opposite side. It really would be a stretch to say that Equifax would engage in deceptive conduct. I don't think that is where the concern would come from, but there needs to be a protection that would be sort of a fall-back, that despite the efforts of the committee and the interests to craft the right language to draw that sort of backstop in the event that as Mr. Pratt calls the savvy CROs come up with ways around this to prohibit deceptive acts and practices in this regard. Mr. Kanjorski. Thank you. Mr. Beales, I know you are anxious to contribute something. I will give you a few minutes, because my time is running out. Mr. Beales. Thank you. I don't think there is a magic solution. I mean, we certainly looked hard for it in the time that I was at the Federal Trade Commission, because this was very much an issue and we didn't think that the statute should be applied, you know, to credit monitoring, and the FTC still doesn't. The difficulty is that any line creates factual questions about which side of the line are you on. I think, as I said in my testimony, the line in Hillis is reasonable. Are you making promises about changing your historic credit record? That's what credit repair is all about. But it does create a factual question that complicates litigation from sort of either side, because you have to be able to establish that was the claim that a real credit repair organization was actually making. And it creates a factual question the other way, too, because it's not immediately obvious that there was no such claim. And even in Hillis, that was exactly what happened. So I think it can be done. You can craft a line that will work pretty well, but you can't craft a line that is bullet-proof and incapable of being circumvented without one that looks at facts. Mr. Kanjorski. Well, I think you have hit on something that I would like to ask the whole panel. We want to move this legislation, and it is touchy and difficult, and we do not want to flub it, to tell you the truth. And I think as I recognize from the panel's testimony and discussion here today, and from everybody I am familiar with, we want to do by all sides the right thing and accomplish the end result. In order to do that, maybe I could ask the panel to cooperate in a strange way. Beyond this hearing date that you will make yourselves available for a roundtable discussion with the staff so that we can literally pin you down for several hours and put the pressure on you to come up with a legitimate standard or definition that we can use to accomplish our end. Could the panel agree to be available in that way with the staff to accomplish that end? Ms. Fortney. Yes, sir. Ms. Holland. Yes. Mr. Kanjorski. Without charging exorbitant fees? Well, I would appreciate it, and maybe we could prove that there are ways to accomplish good legislation in a speedy fashion. And that is what we want to attain here, so as I cut off my questioning period, I want to thank you in advance for your cooperation with the staff. We will get in contact with you in the next several days so that those meetings can be arranged, and we would like your wholehearted support and intellectual talents and capacities to be really lasered onto this problem to see if we can solve it within a reasonably short period of time. So thank you very much. And now, for 5 minutes of her insightful questioning, my good friend, Mrs. Biggert from Illinois. Mrs. Biggert. Thank you, Mr. Chairman. This is a general question, but it seems like credit monitoring services seem to be like other subscription services. You pay a fee, and then you receive the service in monthly installments, like cable television or magazines, I guess. Does CROA prohibit these kinds of arrangements in which providers can charge subscription fees for services? Mr. Bennett and Ms. Fortney? Mr. Bennett. I don't believe it does. Absolutely not unless it's something other than credit monitoring. Certainly no one in our organization would accept or have accepted the cases that have been criticized in the testimony today. My office, certainly--and we extensively litigate credit reporting generally--wouldn't go near such a case. I don't believe that the law would so restrict credit monitoring. It's really the ancillary services and not so much those that are at issue with a company like Equifax that really cross the line. Mrs. Biggert. Well, the company offers the credit monitoring and additional credit repair services. Wouldn't those services then fall outside the exemption that H.R. 2885 allows? Ms. Fortney. I believe they would. And also to answer the question about the subscription, your analogy to cable television is a very good analogy, because people do pay for that, I believe, in advance. There are many types of subscriptions that are paid in advance. Credit monitoring is paid in advance on a monthly subscription basis, and the problem with CROA is that CROA prohibits the receipt of any fees in advance before the services are rendered. And that is really the heart of the difficulty. The companies that are offering credit monitoring are not engaging in the deceptive practices that led to the enactment of CROA. And the lawsuits don't allege that; they're focusing on just a very technical definition. So if the bill is able to make clear in the definition who is included and who is excluded, then the credit repair organizations will remain as they should under CROA, and the credit monitoring companies will be able to be exempted. But we have also discussed the fact that the exemption would bring with it certain additional consumer protections, pro-rata refunds. If the subscription is paid, for instance, on something other than a monthly basis, if it is paid on an annual basis, the consumer who cancels would be able to get a pro-rata refund. Also disclosures explaining more to consumers about what is involved in credit monitoring. Mrs. Biggert. Thank you. So I guess the question is, how do you draw the line in the sand? Ms. Fortney. That is the question. Mr. Bennett. Congresswoman? Mrs. Biggert. Mr. Bennett? Mr. Bennett. The problem is in terms of the drafting, the CROA definition is expansive. And the reason it's an issue for credit monitoring is because it includes essentially any service offering advice about improving your credit record, and that can include an identity theft victim, who needs help getting identity theft accounts off their trade line; it doesn't just mean illegitimate. But the H.R. 2885 language only puts someone back into the CROA definition if it's representations that they're going to modify or remove adverse information that is accurate, which is Mr. Beales' concern, which is our concern. Because credit repair organizations don't say that; they're a lot more savvy now. They don't come out and say, ``We will help your remove inaccurate information.'' They say, ``We will help you remove adverse information.'' They don't really tie themselves down like that. And so the CROA definition is different than the exclusion. Mrs. Biggert. Okay. Thank you. And I just had one more question for Mr. Beales, quickly. How has the Internet changed the credit monitoring business? Mr. Beales. Well, I'm not sure that I can answer that. But it seems like it has really made it possible in a way that it probably wasn't before. I mean, if you had to rely on snail mail to get your notification that something had changed in your credit report, it's a little hard to imagine how a credit monitoring business-- Mrs. Biggert. I just wondered if you knew that there was more, because of the pop-ups and all the things, the advertising on the Internet. Mr. Beales. I'm sure--I mean that's the way the product is most often delivered is over the Internet. So in that sense, I'm sure there is more of it than there was with less Internet use. Mrs. Biggert. Okay. Thank you. I yield back. Mr. Kanjorski. Thank you, Ms. Biggert. And now, the gentlelady from California, Ms. Waters. Ms. Waters. Thank you very much, Mr. Chairman. For the panel, I have become very concerned about the use of credit scores in areas that seem to have little relation to a customer's ability to make timely payments, such as the use of credit scores to set up car insurance premiums. Last week, I introduced H.R. 6062, the Personal Lines of Insurance Fairness Act of 2008, with Representative Gutierrez, and tomorrow the Oversight and Investigations Subcommittee will hold a hearing on this practice. But I'm interested in the role, if any, credit monitoring services play in the practice of using credit scores to set insurance premiums. Specifically, can any of you tell me if there has been any research on whether or not use of these services has a positive or negative impact on a consumer's credit score for those consumers who choose to use them? In short, is it worth the subscription fee? And on average, how much do consumers pay for these services? Many consumers subscribe to these services because they are offered for the first 30 days free of charge. Do you know anything about this? Ms. Holland. Ms. Waters, let me just first say that the credit monitoring service is a very, very valuable tool. And while I can't speak to the insurance fees, but what I can say to you is that these tools, what I strongly believe--I speak to consumers every day, and what I find is that there is a need for consumers to have a better understanding of their credit, their credit score, and what are the right types of decisions you make related to that? That's not a black/white, poor/rich issue. That is an issue that everyone needs to understand. And so these credit monitoring services really help consumers and educate them about: Here's a change in your credit file; here's how that change has impacted your credit file. They can see this information, they can act on the information almost instantly. And so to me, I think not having these tools and resources, these credit monitoring services actually would do a great disservice to consumers who have-- those-- Ms. Waters. Okay. Before you go any further, what does this bill do to the so-called important services you are describing? How does this bill help or hurt, and what impact does this have in dealing with the agencies that repair credit? Ms. Holland. Well, number one, how it helps the consumers is that if they subscribe to these services, they don't need these credit repair organizations. They don't need these bad actors with bad scripts, who promise them things that they cannot deliver. What this does is put them in control; it gives them the knowledge and the power to make sure that they are making good decisions and that they are able to have good credit scores that allow them to get the best offerings, whether it is to buy a refrigerator or to buy a car, or anything. Ms. Waters. Let me just ask, if I may, I think it was Mr. Bennett? Mr. Bennett. Yes? Ms. Waters. Mr. Bennett, would you describe again why you think this bill does not help, and that this bill empowers, perhaps, the repair agencies to do the kind of work that many of us are concerned about. Mr. Bennett. Yes, certainly. We began with an assumption which I have not raised here, that there is no threat to credit monitoring. These cases, or the few of them that were discussed, the credit monitoring services prevailed on all important issues. When they settled, they settled for free credit monitoring. That was what was paid to the people who these other non-NACA lawyers represented. That trade-off versus the trade-off of the unfettered ability to use credit repair so long as you sell credit monitoring or something that could be a credit monitoring product, we think is a trade-off, and we're surprised that industry supports it in that fashion. It would eliminate the last ability that we have against credit repair organizations; which to be candid, we represent consumers, NCLC represents low-income consumers. These are amongst the most vulnerable of individuals out there who are targeted by credit repair. If you do a Google search for, ``How do I fix my credit report?'' or ``Identity theft,'' credit repair organizations pop up first. And so the balance--you're using a hammer to swat a fly with respect with credit monitoring. The trade-off, as currently crafted, opens up the people we represent, we think, to far more villainous trade-off. And I think with respect to the credit repair, if you were to do a search--and we have heard a lot about these cases against credit monitoring, and there are a couple of them. But as long as the statute of CROA has been around, try finding cases where our side can get around the exclusions that are already used, the nonprofit exclusion, the ability to break things down into services to require payment before credit repair is done. We aren't necessarily winning the battle; otherwise, we wouldn't have the credit repair problem in general. And to carve out an exclusion as opposed to with bipartisan support correct CROA in a way to help the industry, to help consumers, this committee has an opportunity. It can help credit monitoring legitimate services, and it could help protect the people who we represent, who you all represent, against the real bad apples. Ms. Waters. Thank you. I yield back. Mr. Kanjorski. Thank you very much, Ms. Waters. And now, we will have the gentleman from California, Mr. Royce. Mr. Royce. Thank you, Mr. Chairman. Maybe we could go to Ms. Holland. Ms. Holland, could you explain for us, maybe, the effects that this previous wave of lawsuits had on your company and the products and services that you offer, as well maybe as what we might expect going forward if Congress fails to enact a legislative fix here? Could you get into some of those details for us, Ms. Holland? Ms. Holland. Mr. Royce, at a minimum, the lawsuits have had an effect in terms of ongoing innovation and development of credit monitoring services and products. You know, at Equifax we introduced the first product in 2000, and because of consumer feedback, we have continued to refine those products and make offerings that consumers tell us that they want. So when you talk about lawsuits that are going on related to CROA, what ends up happening is, is that those developments and innovations are stalled, because companies such as Equifax are concerned about CROA, and therefore they're not going to be able to build and make these services for consumers. What we believe with this amendment is that consumers get a more robust notice. They get their rights as it relates to a free report. They get a pro-rata refund. They're able to cancel any of these services if they don't want them at any time, with no penalty of any fee. And so we strongly believe that CROA as it exists right now will do a disservice to these companies that offer these monitoring products, and quite candidly with the clause of disgorgement of all revenues, very well could drive these products out of the marketplace, which in turn to me is harmful to consumers. Mr. Royce. And why would that be harmful to the consumers? Ms. Holland. Well, because-- Mr. Royce. Maybe Mr. Bennett feels we would be better off without these industries to begin with. Explain the benefit to the consumer, then. Ms. Holland. Well, the benefit of the credit monitoring services is that consumers literally have at their fingertips tools and resources to make better decisions and to manage their credit. And so when you have these tools and services go away, they're going to be subject to bad actors and these fly- by-night companies, who could care less about them, who could absolutely care less. Not a week goes by that I don't talk to a consumer who says, ``Hey, I paid `X' amount of money.'' They said they were going to delete all of his negative information, and they didn't do it. Well, then our company explains to them, ``You know, no one can do that for you.'' Mr. Royce. But you are a lot easier target. I mean, for lawsuits of tens of millions of dollars, you're an easy target. The fly-by-night operators, whom we were originally trying to get in CROA, they're hard to find. Ms. Holland. Right. Mr. Royce. They're not easy to locate, because they just strike and move on, or change their name, or-- Ms. Holland. Right. They change their name. They come up and start a different company under a different name. But you know, Equifax is always going to be there, right there on Peachtree Street in Atlanta. And so we're an easy target. Mr. Royce. Yes. Well, I'll follow up with Ms. Fortney, because she has a background in this, too. And on the argument you just made, Ms. Fortney, are you aware of instances in which CROA is impeding the introduction of new consumer services into the marketplace? Ms. Fortney. Yes. In addition to the problems that companies offering credit monitoring services currently have-- and the litigation is ongoing, the litigation and the threat is always there--and the reason why there have been relatively few lawsuits is because relatively few companies offer credit monitoring services. But the threat of the litigation has been an impediment to companies coming out with tools that can help consumers better manage their credit. References to tools such as credit score simulators, things of that kind, have not been put on the market in some instances, because those tools can, in fact, help consumers improve their credit. And as we have seen today, the difficulty with CROA is that the definition of a credit repair organization includes anyone who represents directly or indirectly that they can help consumers improve their credit, even if they can do so. So very much so, the law as currently drafted, is impeding the introduction of new tools that can help consumers better manage their credit. Mr. Royce. I yield back. Mr. Kanjorski. I assure you, we did not cut off the microphone. I am sorry. Mr. Moore from Kansas? Mr. Moore of Kansas. Thank you, Mr. Chairman. A question for Ms. Fortney and Mr. Beales. It appears that the FTC generally is in agreement that CROA should not be applied to legitimate credit monitoring services. Do you believe that's an accurate characterization of the FTC's position on the issue? Ms. Fortney. That is my understanding of their position, yes. Mr. Beales. And mine as well. Mr. Moore of Kansas. Very good. It's also my understanding that the industry worked with the FTC in getting CROA enacted into law. Why didn't, in your opinion, the FTC issue an opinion letter explaining why it was not the intent of CROA to have credit monitoring services fall into the definition of credit repair organizations? Ms. Fortney. The FTC no longer issues staff opinion letters under the Fair Credit Reporting Act. And the reason they don't is that the courts were not required to follow them or even defer to them, and in some instances the courts refused to do so. So although the Commission, as I understand it, does support the industry's concerns here, drafting or writing a staff opinion letter would probably not put an end to the litigation or solve the problem. Mr. Moore of Kansas. Do you agree, Mr. Beales? Mr. Beales. Well, I think some of the difficulty is the same one that you're having here, is how do you draw the line? An opinion letter would have to craft a line based on the language of the statute or the intent; but it would have to draw a line. And that has been the difficulty is finding a reasonable way to draw the line without creating too many of the kinds of problems Mr. Bennett is worried about. Ms. Fortney. The other problem is the Commission does not have rulemaking authority under CROA. So whatever line the Commission were to draw in a letter would not necessarily solve the problem. Mr. Moore of Kansas. Thank you very much. Thank you, Mr. Chairman. Mr. Kanjorski. Thank you, Mr. Moore. Now, we will hear from the gentleman from Georgia, Mr. Price. Mr. Price. Thank you, Mr. Chairman. And I want to thank the panelists. I think this has been helpful, although I think that we continue to struggle with the differences between--you all have been very polite to each other, and I appreciate that, but I think there are some differences here that I would like to try to explore. Mr. Bennett, would you agree that there are indeed individuals who have taken advantage, for lack of a better term, of CROA for frivolous or unnecessary, or lawsuits that the vast majority of the American people would say, ``Well, that just ought not apply.'' Mr. Bennett. Yes. And in fact, the vast majority, if not the entirety of our organization would similarly agree. Mr. Price. How do you reconcile that then with your testimony that you gave just a moment ago, and your printed testimony where you state that credit monitoring isn't governed by CROA under current law? Mr. Bennett. Because in those cases, lawyers filed--non- consumer lawyers, without backgrounds in the area filed those cases. And from a practical standpoint--I pay mortgages, I run my law firm, we have to win our cases to prevail--those individuals made a foolhardy decision to pursue a case that did not have significant merit. And on the important dispositive motions, in Hillis, for example, they lost. Mr. Price. But as we have heard from Ms. Holland, there are consequences of those suits, correct? Mr. Bennett. There are, and we agree, Congressman, we absolutely agree with a couple of things. We agree that credit monitoring can provide services that are advantageous. And similarly we agree that CROA could be better crafted to more narrowly exclude legitimate non-deceptive credit monitoring from the bill. It's just a matter of how do we-- Mr. Price. Identify that line. I appreciate that, and I would echo the sentiments and the comments of the chairman, that hopefully we will be able to get together and come up with that bright line. Ms. Holland, I would like to explore a little bit further. I know that you said that the effects of these lawsuits would significantly, and may have significantly decreased the amount of innovation and development and also the potential for driving products out of the marketplace. I am interested in the issue of identity theft and the benefit to consumers for gaining this credit monitoring information to them; and if H.R. 2885 isn't passed, what the consequences are to consumers who are trying to protect themselves from identify theft. Ms. Holland. I think that if you no longer have credit monitoring services such as we offer, that you are taking away one of the number one tools that consumers use to protect themselves from identify theft. If we take a look, the FTC had a survey, and they basically stated that 11 percent of the consumers found out about identify theft using a credit monitoring service. When you hear about these data breeches that occur at these companies, the first thing they do is offer the consumers who are impacted a credit monitoring service. So you are taking away a tool that has been the number one tool that people go to; it is the go-to tool for preventing and mitigating identify theft. And so I think despite the fact that it increases financial literacy, what I said earlier is a great thing that you lose is the whole protection against identify theft. Mr. Price. Mr. Bennett, would you agree with that? Mr. Bennett. I do agree. I think that one of the advantages to what I'll call non-deceptive pure credit monitoring is that you can see what's coming. And I think it fits in best with a number of protections that you and this committee have supported under FACTA and other FCRA protections. The Alert systems, for example. Credit monitoring is a sort of diversion of a paid alert system. Mr. Price. I'm running out of time, and I want to get to another point of your written testimony, and that is where you state that H.R. 2885 would expose every ID theft victim to unregulated credit repair. Seeing as how you agree with Ms. Holland about the importance of credit monitoring companies for individuals to protect themselves from identify theft, but then state that this would in essence, I guess, harm consumers who are concerned about identify theft, what is the specific language--if you're aware of, and if not maybe you can get back to us--what is the specific language in H.R. 2885 that you believe results in exposing every identify theft victim, to unregulated credit repair? Mr. Bennett. It is Section 2(b)(1)(c), that it excludes governance under CROA if the product is sold in conjunction with the provision of materials or services to assist the consumer who is a victim of identify theft. I cite the Lexington Law Group, which is sort of the poster child. Mr. Price. Right. Mr. Bennett. And the Lexington Law Group says, ``Lexington Law Group can assist you in identify theft restoration. They will work to clean up your credit report, increase your credit score by challenging all the negative credit report items occurred. We also,'' and so forth. Mr. Price. Okay. I understand. I am out of time, but I thank you, Mr. Chairman. I hope we can work on that specific language to make it so that it's amenable to responsible individuals in the consumer efficacy industry. But I just want to reiterate once again that I think these companies are providing a remarkable and valuable service to all Americans, and I hope that we will be able to prevent the problems that we have from CROA. Mr. Kanjorski. Thank you very much, Mr. Price. And now, Mr. Scott, you are recognized for 5 minutes. Mr. Scott. Thank you, Mr. Chairman. What is it about the current definition of credit repair organization that brings about a difficulty or a gray area here, where we need to amend it for clarification because of the opening up of possibilities of lawsuits? Ms. Fortney. The definition includes--there are a number of activities that make an entity a credit repair organization under the statute. And the definition includes representations directly or indirectly that the entity can help consumers improve their credit. And the reason is that when credit repair organizations were first coming on the scene, that is exactly what they said, ``We can help you improve your credit. We can repair your credit. We can remove negative information.'' In fact, they still say that. So the definition includes, as part of the activities that would make an entity a credit repair organization, the fact that the entity is representing directly or even indirectly that it can improve the consumer's credit. Well, in fact, credit monitoring services and related tools do help consumers improve their credit; but the definition doesn't depend on whether the representation that the entity can help improve the credit is accurate or inaccurate; it's just if the entity directly or indirectly makes that representation. Mr. Scott. And that is what opens up this window of possible liability that brings about the need to correct that to prevent that liability, that brings on the lawsuits, that then in effect affects the innovation of products that Ms. Holland talked about. Is that a correct assessment? Ms. Fortney. That is correct. Mr. Scott. All right. Now, Mr. Bennett, why would you object to that? That seems to be perhaps a technical adjustment we need to make. Where am I losing something? Why are you objecting to that? Mr. Bennett. Well, again in principle--and I think that Congressman, you have said it best--a technical adjustment would be necessary. But in principle, we don't disagree. I think that having non-deceptive, having the legitimate credit monitoring that Equifax sells available and not governed by CROA is an objective we share and we will support. The problem is the deceptive services sold by other companies, they do fit that definition. What is happening is with H.R. 2885, you are taking credit monitoring and you are providing the use or the inclusion of credit monitoring as a free pass. And the bill does it legitimately in the case of Equifax. But that free pass is not limited just to legitimate companies that use credit monitoring, but in the cases of credit repair organizations that will now add credit monitoring products to their illegitimate credit repair services, and now those illegitimate services benefit from the ambition of this community, this committee, and our interests at having legitimate and pure credit monitoring. It is where that line is drawn, Congressman, and I think that we probably agree that credit repair is a really horrific problem for the industry and for consumers. Mr. Scott. Do you agree with that, Ms. Fortney? Where do you differ from what he just said? Ms. Fortney. Where I differ is that I agree that credit repair organizations will attempt to--if this bill is enacted in its present form, they will attempt to characterize their activities such that they would then come within the exception. The issue, though, is if that is all they did--if all they did was offer credit monitoring through a consumer reporting agency as defined--or reseller as defined in the Fair Credit Reporting Act--if all they did was provide legitimate identify theft help after somebody has been a victim, they wouldn't be a credit repair organization. That's not what makes them a credit repair organization. What makes them a credit repair organization is all the other activities that are also included in the definition of a credit repair organization that brings them under the scope of CROA. Mr. Scott. All right. Well, thank you for that. And I agree with you, Mr. Chairman, that this is a great committee, and it's going to be very helpful to us in crafting this bill. And both of your points of view certain illuminate this situation. Now Ms. Holland, let me ask you to explain for us exactly how subscribing to a credit monitoring product will help a consumer guard against identify theft or to mitigate identify theft? Ms. Holland. When a consumer subscribes to a credit monitoring service, they are given a-- Mr. Scott. You might want to get a little closer to the microphone. Ms. Holland. When consumers subscribe to a credit monitoring service, they are sent an alert, and that alert tells them if there has been a change to their credit file, such as a line of credit has been opened or a balance has changed. When they receive that alert, they are able to go online, access their credit repair, and evaluate what that change was. If that change was not initiated by them, they have no knowledge of it, they could be an indication of fraud, and they can immediately begin the fraud process. So almost instantly they know about changes in their file, and they can act upon it. Secondly, after you have become a victim, as we have seen with all the data breeches, they now, if their information has been sold or it's on the black market, they now have a credit monitoring service, so they're going to continue to get those alerts. They can act upon it, they can protect their file with anything from a fraud alert. And so there are so many tools. It puts the power in the consumer's hand. And they now can be proactive, using this service to protect themselves against the horrible effects of identify theft. Mr. Scott. Well, thank you very much, and I think you're right on it, because the weakness in our system is that the consumer is laissez-faire. Ms. Holland. Yes. Mr. Scott. I mean this will help engage that consumer in his own financial affairs to take control. Thank you, Ms. Holland. Thank you, committee. Mr. Kanjorski. Thank you, Mr. Scott. And now, Mr. Clay from Missouri. Mr. Clay. Thank you very much, Mr. Chairman. Ms. Holland, I am a co-sponsor of H.R. 2885, the Credit Monitoring Clarification Act. We are in agreement that this legislation is necessary as CROA was established before credit monitoring services. The intent was never to equate these services with credit repair organizations. You oversee the consumer reports operations of Equifax, Inc., a major credit reporting agency that also offers a credit monitoring service. How has regulation under CROA restricted the service that your organization offers consumers as a credit monitoring organization, and how will this change under H.R. 2885? How does this benefit the consumer, since that is who we are primarily concerned with? Ms. Holland. Absolutely. At Equifax, we certainly believe in empowering consumers, because knowledge is power. CROA as it currently exists really hinders our ability to continue to develop products that meet the consumer marketplace's needs. So, for example, we conduct quite a lot of focus groups, and we have ideas that will enhance these credit monitoring products. But because of how CROA exists right now, without this amendment that we're proposing, we really have, you know, taken kind of back seat and stalled on some of those products in introducing them and continuing the research and what we can continually do to enhance those products. What we believe the amendment does--because remember, it is all about the consumer here--we are all about wanting to protect and empower consumers--the first thing that is very important is a consumer can get this credit monitoring service under our amendment. They can cancel it at any time. They're not going to be penalized; they're not going to have to pay a fee. And they're entitled to a pro-rata refund. Secondly, they are going to get clear--and what I always call when I deal with consumers--``user-friendly'' notices about what their rights are. Not notices that are in little- bitty font type. You know, we have all seen them. The notices that clearly say, ``Here is what your rights are under a free credit report.'' And I think most importantly that taking away--financial literacy to me is so important when I talk the consumers every day, and when I go out and do seminars, is that it also will allow them to increase their knowledge of financial literacy. And they in turn can make better choices and have a better life. Mr. Clay. Thank you for that response. Anyone else on the panel, can you elaborate on how you think this bill will benefit consumers? Ms. Fortney. Well, I agree with Ms. Holland that the bill will assure the continuation of credit monitoring services and will also enable companies offering other valuable tools for consumers to bring them onto the marketplace and to offer those products to consumers. The other thing is that defending a class action lawsuit based on even technical definitions of CROA is an enormously expensive, burdensome undertaking for a company, and does interfere with the ability of a company to devote its resources to doing the things that it is in business to do. And so I think that even though a lot of these lawsuits have settled, as long as the definition of credit repair organization and CROA remains the way it is, companies are going to be faced with the threat of new litigation, are going to have to defend new lawsuits, and that also impedes their ability to offer products and services to consumers. Mr. Clay. Thank you for that response. Mr. Bennett? Mr. Bennett. Since I am the official who has criticized the bill, let me switch to the other side. This bill does a number of good things, and certainly aspires to do others. In terms of strengthening CROA itself, this is an opportunity where all of us at this table, I'm sure, would like to see a bill that makes the illegitimate non-credit monitoring credit repair, the savvy folks who have been circumventing CROA allows this committee to put some teeth back in as to the illegitimate; at the same time when it plugs those holes to make sure that the legitimate credit monitoring companies don't get caught up in it. And we support that, we would be enthusiastically in support of it if CROA could serve that function as well as it's considered. We have discussed some of the necessary improvements. We think absolutely, drawing the line about deceptive conduct has to be in the bill. It has to be such that deceiving and manipulating--whether you call it credit monitoring like Lexington Law Group does or not--is different than what Equifax is doing, and what Tru Credit or TransUnion is doing. And so this bill offers a great opportunity not only from industry's standpoint to make sure that credit monitoring services don't get caught up, but to refortify the original commitment against the illegitimate companies. Mr. Clay. And do you find credit monitoring services to be pretty effective as far as notifying the consumer? The red flag goes up in their credit report? Mr. Bennett. I do think--I mean there is a question as to cost, trade-offs, but those are business decisions. In terms of whether it is good to have more information for consumers, absolutely. The more information consumers have, honest information, non-deceptive information, the better our clients are empowered. Mr. Clay. Thank you. Thank you, Mr. Chairman. I yield back. Mr. Kanjorski. Thank you very much, Mr. Clay. The Chair notes that some members may have additional questions for this panel, which they may wish to submit in writing. Without objection, the hearing record will remain open for 30 days for members to submit written questions to these witnesses, and to place their responses in the record. Before we adjourn, without objection, a letter from the Federal Trade Commission, dated May 20, 2008, will be made a part of the record. I want to thank the panel, and take special time to thank you, because I think you have really made a contribution in your testimony today, and more than that, your willingness to serve as an advisory panel over the next several weeks to see if we can, in fact, get some standard that will allow us to move forward with this legislation. So individually and collectively I want to thank you on behalf of the committee for that most generous offer. Thank you. And now this panel is dismissed, and the hearing is adjourned. 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