[Senate Report 108-166]
[From the U.S. Government Publishing Office]
Calendar No. 312
108th Congress Report
SENATE
1st Session 108-166
======================================================================
AMENDING FAIR CREDIT REPORTING ACT
_______
October 17, 2003.--Ordered to be printed
_______
Mr. Shelby, from the Committee on Banking, Housing and Urban Affairs,
submitted the following
R E P O R T
[To accompany S. 1753]
The Committee on Banking, Housing, and Urban Affairs to
which was referred the bill (S. 1753) to amend the Fair Credit
Reporting Act in order to prevent identity theft, to improve
the use of and consumer access to consumer reports, to enhance
the accuracy of consumer reports, to limit the sharing of
certain consumer information, to improve financial education
and literacy, and for other purposes having considered the
same, reports favorably thereon without amendment and
recommends that the bill do pass.
On September 23, 2003 the Committee voted unanimously to
report the bill to the Senate for consideration as promptly as
circumstances permit.
HEARING RECORD AND WITNESSES
On May 20, 2003, Mr. Howard Beales, Director, Bureau of
Consumer Protection, Federal Trade Commission testified before
the Committee to provide ``An Overview of the Fair Credit
Reporting Act.''
On June 19, 2003, Mr. Howard Beales, Director, Bureau of
Consumer Protection, Federal Trade Commission; Mr. Timothy
Caddigan, Special Agent In-Charge, Criminal Investigation
Division, United States Secret Service; Michael Cunningham,
Senior Vice President, JP Morgan Chase Card Member Service;
Captain John Harrison, U.S. Army--Ret.; Mr. Stuart Pratt,
President and CEO, Consumer Data Industry Association; Ms.
Linda Foley, Executive Director, Identity Theft Resource
Center; Mr. William Hough, Vice President of Credit Services,
The Neiman Marcus Group and Mr. Michael Naylor, Director of
Advocacy, AARP appeared before the Committee to testify on
``The Growing Problem of Identity Theft and Its Relationship to
the Fair Credit Reporting Act.''
On June 26, 2003, Professor Joel Reidenberg, Professor of
Law and Director of the Graduate Program, Fordham University;
Mr. Ronald Prill, President, Target Financial Services; Mr.
Terry Baloun, Regional President and Group Head, Wells Fargo
Bank; Ms. Julie Brill, Assistant Attorney General, State of
Vermont; Mr. Martin Wong, General Counsel, Global Consumer
Group, Citigroup, Inc.; Mr. Edmund Mierzwinski, Consumer
Program Director, U.S. Public Interest Research Group and
Angela Maynard, Senior Vice President and Chief Privacy
Executive, Key Bank appeared before the Committee to testify on
``Affiliate Sharing Practices and Their Relationship to the
Fair Credit Reporting Act.''
On July 10, 2003, The Honorable Timothy Muris, Chairman,
Federal Trade Commission; Mr. Stuart Pratt, President and CEO,
Consumer Data Industry Association; Mr. Richard LeFebvre,
President and Chief Executive Officer, AAA American Credit
Bureau; Mr. Evan Hendricks, Editor, Privacy Times; Mr. Stephen
Brobeck, Executive Director, Consumer Federation of America and
Mr. David Jokinen, Consumer Witness, testified before the
Committee on ``The Accuracy of Credit Report Information and
the Fair Credit Reporting Act.''
On July 29, 2003, Ms. Delores Smith, Director, Division of
Consumer and Community Affairs, Federal Reserve Board; Ms.
Donna Gambrell, Deputy Director of Compliance & Consumer
Protection, Federal Deposit Insurance Corporation; Mr. Joel
Winston, Associate Director, Financial Practices Division,
Bureau of Consumer Protection, Federal Trade Commission; Ms.
Stacey Stewart, President and Chief Executive Officer, Fannie
Mae Foundation; Mr. Scott Hildebrandt, Vice President of Direct
Marketing Operations, Capital One Financial Corporation; Mr.
Travis Plunkett, Consumer Federation of America and Ms. Cheri
St. John, Vice President for Global Scoring Solutions, Fair
Isaac Corporation testified before the Committee on ``Consumer
Awareness and Understanding of the Credit Granting Process.''
On July 31, 2003, The Honorable John Snow, Secretary,
Department of the Treasury; Mr. Edmund Mierzwinski, Consumer
Program Director, U.S. Public Interest Research Group and Mr.
Michael McEneney, Partner, Sidley Austin Brown & Wood LLP
testified before the Committee on ``Addressing Measures to
Enhance the Operation of the Fair Credit Reporting Act.''
PURPOSE AND SUMMARY OF LEGISLATION
``The National Credit Reporting System Improvement Act of
2003'' was developed after careful consideration of the
operation of the credit markets, the credit reporting system
and the law that regulates them, the Fair Credit Reporting Act
(``FCRA'' or ``Act''). The legislation modifies the FCRA to
address the significant changes which have occurred in the
credit markets in the last seven years and contains measures
which add greater flexibility so that the regulatory regime can
evolve to adapt to further changes in the marketplace.
Ultimately, this legislation addresses the needs of credit
consumers while providing for the efficient operation of the
national credit markets.
The legislation enhances the ability of consumers to combat
identity theft, increases accuracy by providing consumers
greater notice about, and access to, their credit report
information, and allows consumers to exercise greater control
regarding the type and amount of marketing solicitations they
receive. Additionally, the bill restricts the use and transfer
of sensitive medical information. Lastly, the legislation
employs targeted measures to address the significant issue
regarding the level of financial literacy in the United States.
The bill contains numerous measures which protect consumers
from identity thieves. The legislation requires the truncation
of credit and debit card account numbers on electronically
printed receipts to prevent criminals from obtaining easy
access to such key information. The bill directs the banking
regulators, the National Credit Union Administration (NCUA) and
the Federal Trade Commission (FTC) to develop identity theft
``red flag'' guidelines for use by the entities within their
respective jurisdictions to help protect consumers. The
legislation requires additional address verification efforts
with respect to credit card account holders in certain
circumstances where there is a probability of fraud. The bill
requires the FTC to conduct a public campaign to increase
consumer awareness of the methods available to prevent identity
theft. Additionally, the legislation increases the punishment
for individuals convicted of identity theft crimes.
The bill also includes provisions which address the needs
of consumers who have been victims of identity theft. The
legislation requires the FTC to prepare a summary of rights of
identity theft victims that consumers can obtain from the
national consumer reporting agencies. The bill allows victims
who have obtained an identity theft report to block reporting
of the trade lines associated with the identity theft activity
and requires furnishers to takes steps to avoid re-reporting
certain information to the credit bureaus when they know that
it is identity theft-related. The legislation directs the
national credit reporting agencies to coordinate and share
consumer identity theft complaints with the other national
agencies when a consumer makes a report to any one such agency.
The legislation prohibits certain transfers of identity-theft
related debts and requires debt collectors to provide identity
theft victims with specific account information.
The legislation includes provisions that increase consumer
access to, and control of, their credit report information. The
bill provides consumers the right to make an annual request
through a centralized system and receive, free of charge,
copies of their credit reports from certain consumer reporting
agencies. The legislation provides consumers the ability to
request their credit scores or information about credit scores
in certain contexts. The bill directs the FTC to develop a
summary of consumer rights provided under the FCRA, including a
description of how consumers can obtain credit reports and
scores. The bill extends the effective period for a telephone
prescreening ``opt-out'' from 2 years to 7 years and directs
the FTC, the Federal Banking agencies and the NCUA to
promulgate rules for the opt-out disclosures contained in
solicitations involving the use of pre-screened lists. The
legislation requires affiliated entities that use certain
information to make certain solicitations for marketing
purposes to provide consumers notice of such uses and allow the
consumer an opportunity to prohibit the solicitations.
The legislation contains numerous provisions to increase
the accuracy of consumer reports by providing consumers greater
notice about the content of their reports or by requiring
regulators, credit bureaus and furnishers to place greater
emphasis on the accuracy of the consumer report information.
The legislation directs creditors to provide consumers notice
when, because of the contents of the consumer's credit report,
the creditor chooses to make a counter offer to the consumer on
material terms that are materially less favorable than the
terms generally available to the public. The bill directs the
Federal banking regulators, the NCUA, and the FTC to develop
guidelines for use by the entities under their respective
jurisdictions to ensure greater accuracy and completeness of
the information they furnish to the credit bureaus. The
legislation requires the Federal Trade Commission and the
Federal Reserve to conduct ongoing studies of the accuracy of
consumer reports and the resolution of consumer complaint
investigations. The bill requires credit bureaus and furnishers
to take additional steps to rid consumer credit reports of
inaccurate or incomplete information and to make sure consumer
address information is accurate.
The legislation contains important new protections which
significantly limit creditors' use of consumer medical
information and restrict the dissemination of medical
information in credit reports. These provisions also prohibit
the sharing of medical information among affiliated entities
and require the coding of medical information that is included
in credit reports.
The legislation establishes the Financial Literacy and
Education Commission (Commission). The Commission's primary
duties are to undertake a review of the federal government's
financial literacy programs, to coordinate promotion of federal
financial literacy efforts, and to develop a national strategy
on financial literacy and education. The Commission will be
chaired by the Secretary of the Treasury and will hold hearings
and receive testimony as necessary to fulfill the mandates of
the Title. In addition, the Commission shall establish a
website as a one-stop-shop connecting all of the federal
literacy programs and establish a toll-free number so that
those who do not have access to the internet may receive
financial literacy information.
BACKGROUND AND NEED FOR LEGISLATION
The Fair Credit Reporting Act
Consumer credit markets in the United States have grown and
changed dramatically over the course of the last fifty years.
Where local banks and retailers once served as the primary
source of credit for consumers, today, consumers can obtain
credit from numerous entities located all over the country.
Moreover, whereas obtaining credit once was once a labor and
time-intensive process, today consumers can secure credit
almost instantaneously.
The development of the current system, which makes more
credit available, to a greater range of consumers, on a more
timely basis is the result of the confluence of numerous
factors. Innovations such as the securitization and sale of
debt certainly increased the amount of capital available for
consumer lending. Refinements to the system for evaluating and
pricing consumer credit significantly contributed to the
advancement of the speed and efficiency in which the credit
markets operate.
The FCRA, passed in 1970, spurred much of this development.
The FCRA contains the statutory framework governing
consumer credit reporting. The law applies to information
bearing on the qualifications and credit worthiness of
consumers compiled by consumer reporting agencies and reported
to third parties for use in evaluating consumer eligibility for
credit, insurance and employment, for example. This information
is transferred by way of what are commonly referred to as
consumer reports. Consumer reports typically include such
information as a consumer's name, address, social security
number, telephone number, employment information, payment
history, credit activity and other public record information
such as legal judgments, including bankruptcies and arrests.
For certain types of information, including bankruptcies and
negative credit repayment history, the statute designates the
length of time consumer reporting agencies can actively report
such information.
Beyond consumer reporting agencies, the Act also regulates
the activities of users of credit reports and furnishers of
information to the reporting agencies. The FCRA strikes a
balance between the privacy interests of consumers with respect
to the contents of their credit reports and the need of
businesses to access the information required to make accurate
real time assessments of consumer qualifications. The Act
states that credit reports may only be supplied to entities
that have a statutorily designated ``permissible purpose'' to
use the report. These permissible purposes include, among
others, use in determining the consumer's eligibility for
credit, insurance, and employment, or in connection with
business transactions initiated by the consumer, as well as to
determining consumer eligibility for ``pre-screened'' offers of
credit and insurance (i.e. targeted marketing offers made to
consumers who meet certain pre-established criteria). Consumer
reporting agencies must take steps to ensure they provide
reports solely to entities that have a permissible purpose for
using the report. Furthermore, the Act contains criminal
penalties for anyone who obtains a consumer report using false
pretenses. The Act also requires users of consumer reports to
notify consumers when, based on the contents of the report,
they take certain adverse actions against the consumer.
Any entity that has relevant information about certain
consumer activity may furnish that information to consumer
reporting agencies. Because furnishing consumer report
information is voluntary under the FCRA, entities that decide
to furnish may decide, at any time, to cease furnishing.
Furthermore, furnishers can select the particular consumer
reporting agencies to whom they supply information. When
entities do furnish information, however, the FCRA imposes
duties on them with respect to the accuracy of the information
they supply and to investigate consumer disputes.
The 1996 Amendments
In 1996, Congress significantly amended the FCRA. The
driving force behind the changes was the significant amount of
inaccurate information that was being reported by consumer
reporting agencies and the difficulties that consumers faced
getting such errors corrected. In fact, during the period
leading up to the amendments, the FTC consistently indicated
that it received more complaints about consumer report errors
than any other item. The accuracy related provisions included
in the 1996 amendments imposed standards on furnishers,
required completion of re-investigations within a specific time
frame, and restricted the re-insertion of previously deleted
materials.
Additionally, the authors of the 1996 Amendments sought to
establish uniform standards in key areas in an effort to
enhance the development of national credit markets. These
measures include national standards for: the form and content
of certain consumer disclosures, pre-screening activities; the
procedures for consumers to dispute the accuracy of consumer
reports; the duties of a person who take adverse action; the
contents of consumer reports; furnisher responsibilities; and
the sharing of information amongst affiliated entities. State
laws with respect to these issues were preempted.
Because of the experimental nature of these provisions,
however, the authors of the 1996 amendments specifically set
forth that the preemptions would expire on January 1, 2004. The
purpose of these sunsets was to prompt Congressional review of
the impact of the 1996 amendments after such time that the full
range of their effects on credit markets could be
comprehensively evaluated.
2003 Senate Banking Committee consideration
In advance of the expiration of the preemption provisions,
the Senate Committee on Banking, Housing and Urban Affairs
conducted 6 hearings on the FCRA. These hearings covered a
broad range of topics including: the overall accuracy of the
contents of credit reports; the emergence and impact of
identity theft on the credit granting and reporting systems;
the level of consumer awareness and understanding of credit
granting activity; and affiliate sharing practices. Beyond
these particular hearing topics, the Committee had the
opportunity to generally consider the effectiveness of the 1996
amendments as well as the overall state of the consumer credit
markets and the consumer credit reporting system.
Through the course of the hearings the Committee was made
aware of the vast size and scope of the consumer reporting
system: Each of the national consumer reporting agencies
maintain 200 million credit files. Approximately 30,000 data
furnishers provide data to the national agencies as well as to
the other regional agencies in the system. These furnishers
report two billion updates to credit files every month. Lastly,
over two billion credit files are purchased every year.
Considering the huge proportions of the system, Stephen
Brobeck, Executive Director of the Consumer Federation of
American, testified that, in light of
* * * the challenges it faces, our credit reporting
system functions relatively well. These challenges
include keeping track of billions of important changes
in the credit histories of nearly 200 million
Americans, in doing so when the furnishing of
information by lenders is voluntary.
The logistical difficulties associated with the vast size
and complexity of the consumer reporting system are necessarily
confronted because of the tremendous significance of the
purposes for which the information is used. This information
supports decision making with respect to trillions of dollars
of consumer credit and insurance and millions of jobs. To this
point, Mr. Brobeck further testified:
Yet these challenges must be met because of the
growing influence of this information and the related
credit scores. Increasingly, these scores determine
whether a consumer can purchase a mortgage loan, a
consumer loan, auto insurance, homeowners insurance, a
rental unit and utilities, and at what price; and
increasingly, these scores influence whether Americans
can obtain and retain a job.
These two critical factors informed the Committee's
consideration of the FCRA: the practical importance of the
system to the operation of the economy and the every day lives
of millions of American consumers; and, the significant
logistical issues associated with the sheer size and operation
of a complex and dynamic system.
Accuracy
Achieving the accuracy in consumer report information was a
main goal of the FCRA when it was enacted in 1970. Recognizing
that inaccuracy retains the potential to be particularly unfair
to any given consumer and to cause general inefficiencies in
the operation of the credit markets, the Committee paid close
attention to this issue in its deliberations. Indeed, witness
testimony regarding the evolution of the credit markets
provided indication that accuracy in credit report information
matters more now than ever before. Mr. Howard Beales, the
Director of the Bureau of Consumer Protection of the Federal
Trade Commission, observed that:
With growing frequency, the terms you are offered,
whether it's the interest rate or the credit limit or
some other aspect of the credit arrangement, depend on
the risk that the individual borrower presents. And the
higher the risk the worse the terms * * * Certainly in
1970, the information-processing technology and the
information sharing technology simply wasn't in place
to support that kind of system on any very large scale.
Now it is. Now it is done. It's much more
differentiated pricing of credit and insurance products
based on the risks that a particular customer may pose.
Mr. Beales testimony provides an indication of the changes
the use of ``risk-based'' pricing (i.e., pricing based on
quantitative analysis of data related to credit worthiness)
have brought to consumer reporting. Advancements in information
technology and underwriting have moved credit markets far
beyond the days where decisions with respect to eligibility
were made on essentially a ``pass-fail'' basis. Today, instead
of being told that he is qualified or not, a consumer's credit
risk is carefully calculated so that he is offered a particular
rate or terms that closely match the risks his report suggests
he poses.
Because of the precision it affords creditors, risk-based
pricing has made credit available to many more people. However,
because the rates and terms are tied to the contents of credit
reports, any negative inaccuracy can have an impact on the
price a consumer pays for credit.
Overall, the use of risk-based pricing provides numerous
benefits to the economy and consumers. However, its use, which
will only grow in the future, also underscores the need to
ensure that consumer reports, on which such decisions are
based, are as accurate as possible.
Identity theft
The Committee also paid considerable attention to major
shifts or changes in the credit markets and the credit
reporting landscape. Perhaps the most significant development
since the passage of the 1996 amendments was the emergence and
impact of identity theft. U.S. Secret Service Special Agent
Timothy Caddigan told the Committee:
The burgeoning use of the Internet and advanced
technology, coupled with increased investment and
expansion, has intensified competition within the
financial sector. Although this provides benefit to the
consumer through readily available credit and consumer-
oriented financial services, it also creates a target-
rich environment for today's sophisticated criminals,
many of whom are organized and operate across
international borders.
Millions of Americans have already been victimized by
identity theft. Many have already dealt with what Special Agent
Caddigan described as:
the difficult, time consuming and potentially expensive
task of repairing the damage that has been done to
their credit, their savings, and their reputation.
Mr. Beales further elaborated that,
in addition to harming consumers, ID theft also
threatens the fair and efficient functioning of
consumer credit markets. It undermines the accuracy and
the credibility of the information flows that support
those markets.
Due to the significant costs to consumers and to the
economy, and because of the constant efforts of criminals to
find new victims, it is vitally important to address measures
which will help prevent identity theft and to punish identity
thieves. Additionally, because so many will become victims
despite the best efforts of businesses and law enforcement, it
is also necessary to make it easier for identity theft victims
to clean-up their credit history.
Consumer financial literacy
Another issue that the Committee focused on is the level of
consumer awareness of the credit reporting and credit granting
processes. Consumer awareness of how the system operates is
very important because the FCRA assigns them significant
responsibilities with respect to the content and control of
their credit reports. Additionally, informed and knowledgeable
consumers are best able to take advantage of new credit related
products and services as well as to reduce the likelihood of
their falling prey to identity thieves or predatory lenders.
Unfortunately, the information provided to the Committee on
this issue was not very encouraging. Ms. Dolores Smith,
Director, Division of Consumer and Community Affairs, Federal
Reserve Board appeared before the Committee and commented:
As the financial services industry has grown larger,
financial products and services more complex, and the
U.S. population more mobile, it is no longer feasible
for institutions to evaluate the credit standing of
consumers based solely on their direct experiences with
consumers. Centralized consumer reporting agencies have
evolved to provide a repository of credit history
information that can be accessed by creditors to
evaluate prospective borrowers. * * * The national
credit reporting system has become invaluable to
creditors for assessing consumers' creditworthiness.
Thus, it is crucial that consumers understand how this
system operates and how it impacts access to credit.
Educated consumers who make informed decisions about
credit are essential to an efficient, effective
marketplace.
However, Mr. Joel Winston, Associate Director, Financial
Practices Division, Bureau of Consumer Protection Issues,
Federal Trade Commission indicated that:
The Commission has a great deal of experience through
its law enforcement and education activities in
assessing the level of consumer knowledge in this area.
Unfortunately, what we have observed is consistent with
the Consumer Federation study that came out yesterday;
that is many consumers have limited knowledge of how
our credit system works.
Due to the considerable importance of consumer financial
literacy and what appears to be a general lack of it, action is
necessary to address this issue.
Information use practices
The FCRA contains specific standards for the collection,
transfer and use of certain kinds of sensitive information
relating to consumers. These standards do not apply, or only
apply in limited fashion, however, in certain circumstances
where affiliated businesses engage in the collection, transfer
and use of consumer data within the affiliated structure. In
light of this fact and because of the considerable changes
which now allow financial services firms to operateusing larger
and much more complex corporate structures in more varied lines of
business, and greatly increased public concern about privacy and the
control of sensitive financial information, the Committee conducted the
only hearing it has ever held on this subject.
This hearing focused on the types of affiliate structures
in use today, the kinds of information being shared and the
purposes for which it is being shared. Additionally,
consideration was given to the level of consumer understanding
regarding these sharing practices, including their recognition
of the range of entities that share information, the nature of
their concerns about such sharing, and the existence of the
choices they have regarding controlling it.
The Committee learned of a broad range of purposes for
sharing consumer information. These included fraud detection
and deterrence, internal credit risk evaluation, product
development, and customer servicing. The Committee also learned
that information was shared for various marketing purposes.
Overall, the information furnished to the Committee
provided a general overview with respect to information sharing
practices. Professor Joel Reidenberg testified that more than a
cursory examination of information sharing was actually
necessary:
(What is needed) is to investigate the actual sharing
practices of credit report information among affiliated
companies, and the specific uses of that data by
affiliated recipients that escapes the protection. To
that end, I think Congress should instruct the
functional bank regulators and the Federal Trade
Commission to investigate, audit and report back
exactly how organizations are using it.
Furthermore, the Committee learned that consumers generally
have a vague understanding and only a limited appreciation of,
or erroneous expectations about, the manner in which their
information is used and the entities that are using it. On this
point, Vermont Assistant Attorney General Julie Brill
indicated:
It is quite simply the case that consumers do not
expect that their Citibank account number will be
shared with Travelers or a Citibank affiliate for
marketing purposes. We believe that consumers should be
notified with respect to this kind of affiliate sharing
of information when it is being used for marketing
purposes.
There are many information sharing activities that fall
outside the scope of the FCRA. These practices are conducted
for a broad range of purposes. Currently, there is not
significant consumer awareness or understanding with respect to
these activities. It is very important to obtain a greater
understanding of such activities and to provide consumers with
greater awareness of and control over certain uses of their
financial information.
National Standards
One of the stated purposes of the 1996 amendments was to
spur further development of the national credit markets. To
this end, the 1996 amendments contained various provisions
which set forth uniform, national standards. Numerous witnesses
commented on the seminal importance of these standards for
economic development, including Secretary of the Treasury Snow,
who noted:
It is important to understand that these uniform
national standards * * * operate in a very fundamental
way to expand the opportunity for consumers to get
access to credit and a broad range of financial
services. What they really do is allow you to take your
reputation with you as you travel around the country.
America is a mobile society. Something like one-sixth
of American families move in a given year. As you move,
you leave the place you are known, you move to another
State, another city. You can [still] get credit. You
can buy a house. You can buy an automobile. You can go
into a store and easily get credit because your
reputation follows you around and you do not have to
start from scratch, and that is critically important in
a mobile society like the one we have in the United
States.
One significant concern expressed about the national
standards contained in the FCRA is the fact that they preclude
states from adopting more robust consumer protections.
Furthermore, many witnesses expressed the perspective that
without state activity, the law would not appropriately evolve
to meet changes occurring in the marketplace.
National credit markets are necessary to meet business and
consumer demands and are very important to the efficient
operation of the United States economy. There is also a
significant need to provide consumer protections which can
evolve to meet changing circumstances.
SECTION-BY-SECTION ANALYSIS
Section 1. Short title
This section establishes the title of the bill, the
``National Consumer Credit Reporting System Improvement Act of
2003'' and provides a table of contents.
Section 111. Definitions
This section adds new terms to Section 603 of the FCRA
including, ``active duty military consumer,'' ``fraud alert,''
``active duty alert,'' ``creditor,'' ``credit card,'' ``debit
card,'' ``account and electronic fund transfer,'' ``Federal
banking agencies,'' ``financial institution,'' ``reseller,''
``credit scores,'' ``dwelling,'' and ``identity theft report.''
For the purpose of achieving uniformity and clarity, the
Committee sought to cross reference preexisting definitions
from other sources in the United States Code.
TITLE I--IDENTITY THEFT PREVENTION AND CREDIT HISTORY RESTORATION
Subtitle A--Identity Theft Prevention
Section 112. Fraud alerts and active duty alerts
This section adds a new Section 605A to the FCRA. This
provision designates 3 different circumstances where consumers
and/or military personnel can direct the national consumer
reporting agencies (as defined in section 603(p) of the FCRA)
to attach a fraud alert or an active duty alert to their
consumer reports. A fraud or active duty alert is a statement
that notifies users of the report that the particular consumer
could be a victim of fraud or is an active duty member of the
military and requires such users to take specific steps to
obtain authorization from the consumer before establishing new
credit or increasing a credit limit in the name of a consumer
that has placed an alert in his file. This provision is
specifically intended to limit the opportunity of criminals to
take advantage of consumers in situations involving the use of
credit reports. Thus, it applies only to situations where a
credit report is being pulled for the purpose of providing new
credit or increasing the amount of currently available credit.
In the first circumstance, upon the request of a consumer
who asserts in good faith that he or she has been or is about
to become a victim of fraud or related crime, a national
consumer reporting agency that maintains a file on the consumer
and has received appropriate proof of the identity of the
requester shall include a fraud alert in the consumer's file
for at least 90 days, unless the consumer otherwise requests
that the alert be removed before that period expires. It is the
Committee's view that the 90 day alert provides consumers a
ready means to protect themselves in situations where they have
concerns without overly burdening the credit reporting system.
In the second circumstance, upon request of a consumer who
submits an identity theft report to a national consumer
reporting agency that maintains a file on the consumer and has
received appropriate proof of the identity of the requester,
the consumer reporting agency shall include a fraud alert in
the file of that consumer during the 7 year period beginning on
the date of the request, unless the consumer otherwise requests
that the alert be removed before that period expires. An
identity theft report is a report alleging identity theft, that
has been filed with an appropriate law enforcement or local
government agency, that subjects the person filing the report
to criminal penalties if, in fact, the information in the
report is false. Additionally, consumer reporting agencies
shall also accept, in lieu of an identity theft report a copy
of a standardized identity theft affidavit as made available by
the Federal Trade Commission or any affidavit of fact that is
acceptable to the consumer reporting agency.
Consumers who have made requests under this section are
also removed from any lists used to make prescreened offers of
credit or insurance. Unless the consumer otherwise designates,
the consumer's exclusion from such lists is effective for seven
years. This section also requires the national consumer
reporting agencies to disclose to consumers making requests for
extended fraud alerts their right to request two free copies of
their credit report during the 12-month period beginning on the
date the extended fraud alert was inserted into the consumer's
file. The Committee provided extended, or 7 year alerts, to
deal with situations where consumers have firmly established
that they have been victimized and want to take measures to
reduce the likelihood that further damage can be done by an
identity thief.
In the third and final circumstance, upon the request of
active duty members of the military, national consumer
reporting agencies shall include an active duty alert in the
file of the active military consumer for at least a year.
Additionally, except as where otherwise provided by the active
duty military consumer, such consumers who place alerts in
their files under this section are excluded from eligibility
for prescreened offers of credit or insurance for a year.
Under each of the preceding circumstances, any national
consumer reporting agency that receives an alert request from a
consumer must pass along that alert request to the other
national consumer reporting agencies, who must then act to
include alerts in any files they may maintain on that consumer.
This section requires resellers of consumer reports to convey
alerts in any file or report they prepare. Additionally this
section requires consumer reporting agencies that do not fall
into the category of ``national'' consumer reporting agencies
to provide to consumers expressing a concern with respect to
fraud or other related crime the contact information of the
Federal Trade Commission and the national credit reporting
agencies.
Section 113. Truncation of credit card and debit card account numbers
This section amends Section 605 of the FCRA to require
businesses that accept credit or debit cards to truncate the
card account numbers or the expiration dates on any
electronically printed receipts. This section provides for a 3
year effective date for any cash registers in use on or before
January 1, 2005 and a 1 year effective date for any register
put into use after January 1, 2005. The Committee included this
provision to limit the number of opportunities for identity
thieves to ``pick off'' key card account information. The phase
in periods are designed to give merchants a reasonable
opportunity to come into compliance with this section.
Section 114. Establishment of procedures for the identification of
possible instances of identity theft
This section amends Section 615 of the FCRA by requiring
the Federal banking agencies, the National Credit Union
Administration and the Federal Trade Commission to develop
guidelines and prescribe regulations in coordination for use by
banks, credit unions, and other creditors for the purpose of
identifying and preventing identity theft related risks to
consumers.
The Committee intends for the guidelines to provide
flexibility to institutions given the changing nature of
identity theft and related crimes. The Committee expects that
the guidelines adopted under this provision will be risk-based
and will vary based on a number of factors, including the size
and sophistication of the institution. The Committee does not
believe that a ``one size fits all'' approach is appropriate--
the guidelines should be a general outline for use by financial
institutions, creditors, and other users of consumer reports.
The Federal banking agencies, the National Credit Union
Administration, and the Federal Trade Commission must prescribe
regulations requiring each financial institution and any other
person that is a creditor or other user of a consumer report to
establish reasonable policies and procedures for implementing
the guidelines described above to identify possible risks to
account holders or customers, or to the safety and soundness of
the institution. Although institutions and others must
establish reasonable policies and procedures to identify
possible risks to customer accounts, the Committee again notes
that such policies and procedures will vary from institution to
institution. The Committee believes that the Federal banking
agencies, the National Credit Union Administration, and the
Federal Trade Commission are equipped to establish broad
parameters for such guidelines, but that individual
institutions are in the best position to determine how best to
develop and implement the required policies and procedures. The
Committee also notes that many institutions already must have
such policies and procedures for purposes of consumers
establishing new accounts as a result of Section 326 of the USA
PATRIOT Act.
Section 114 also directs the Federal banking agencies, the
National Credit Union Administration, and the Federal Trade
Commission to prescribe regulations applicable to credit and
debit card issuers to ensure that each card issuer follows
reasonable policies and procedures that prohibit, as
appropriate, the card issuer from issuing an additional or
replacement card if the card issuer receives the request for
the additional or replacement card for an existing account
within 30 days after the card issuer has received notification
of a change of address for the same account. Because the nature
of identity theft and credit card fraud continues to evolve,
the Committee believes that identity theft prevention measures,
such as those required under Section 615(f) of the FCRA, must
be flexible so that they can be modified as the criminals alter
their schemes. The Committee does not believe that it would be
necessary for a card issuer to take additional steps as a
result of Section 114 if, despite receiving a request for an
address change, the issuer did not actually change the
cardholder's address for any reason (e.g. the card issuer had
previously determined that the request for an address change
was invalid).
Card issuers are provided flexibility in formulating the
policies and procedures required to comply with Section 114.
Specifically, Section 114 provides three alternative
formulations the card issuer could use in order to provide the
cardholder with the additional or replacement card if the
request for such a card comes within 30 days after a change of
address. Under the first alternative, the issuer could notify
the cardholder of the request for an additional or replacement
card at the cardholder's former address and provide the
cardholder a means of promptly reporting incorrect address
changes. Such a means of reporting an incorrect change could be
through the mail, by telephone, or electronically. Under the
second alternative, the card issuer could notify the cardholder
of the request for additional or replacement cards by other
means of communication to which the cardholder and the card
issuer previously agreed. Section 114 provides a third
alternative that allows a card issuer to assess the validity of
the change of address request in accordance with reasonable
policies and procedures established by the card issuer pursuant
to regulations prescribed by the Federal banking agencies, the
National Credit Union Administration, and the Federal Trade
Commission under Section 615(e) of the FCRA (as added by
Section 114). The Committee strongly believes that the
reasonableness of each issuer's policies and procedures will
depend on a number of factors, including the issuer's risk
assessment of the cardholder's request and the issuer's
resources and sophistication. The Committee does not expect for
there to be an ``industry standard'' with respect to such
policies and procedures. However, the Committee believes that
an issuer may rely on authentication procedures that do not
involve a separate communication with the cardholder so long as
the issuer has reasonably assessed the validity of the address
change.
Section 115. Enhancement of identity theft penalties and prohibitions
This section makes possession of a false identification a
punishable offense and increases the maximum penalty for an
identity theft offense from 3 to 5 years in prison. It is the
Committee'sview that identity theft is a serious crime that
should result in significant punishment for the perpetrator.
Subtitle B--Protection and Restoration of Identity Theft Victim Credit
History
Section 151. Summary of rights of identity theft victims
This section amends Section 609 of the FCRA to require the
Federal Trade Commission to develop, in consultation with the
Federal banking agencies and the National Credit Union
Administration, a model summary of rights for consumers with
respect to the procedures for remedying the effects of fraud or
identity theft involving credit, electronic fund transfers or
accounts or transactions at or with a financial institution.
This section requires consumer reporting agencies to provide
consumers a copy of the model summary prepared by the
Commission. Additionally, this section requires the Federal
Trade Commission to develop and implement a media campaign to
provide more information to the public on ways to prevent
identity theft. The Committee included these requirements in an
effort to provide the public with more information on measures
they can take to prevent identity theft. By requiring the
development of the summary of rights, it is the Committee's
intention to provide victims with easy access to reliable
information regarding the steps they should take to deal with
identity theft.
Section 152. Blocking of information relating to identity theft
This section adds a new Section 605B to the FCRA which
allows consumers who allege they have been victims of identity
theft to direct consumer reporting agencies to block the
reporting of information relating to accounts associated with
alleged identity theft activity. Consumers are required to
provide to the consumer reporting agency appropriate proof of
their identity, a copy of an identity theft report, and
information which identifies the particular information that is
to be blocked in the consumer's file. An identity theft report
is a report alleging identity theft, that has been filed with
an appropriate law enforcement or local government agency, that
subjects the person filing the report to criminal penalties if,
in fact, the information in the report is false. Additionally,
this section requires consumer reporting agencies to notify the
furnisher of the information that: the information may be a
result of identity theft, that the consumer has filed an
identity theft report, and that a block has been requested.
This section does allow consumer reporting agencies to choose
to decline or rescind the block if they determine that the
consumer made the request in error, misrepresented facts
relevant to the block or actually received the goods, services
or money as a result of the blocked transaction. If a block is
declined or rescinded, the consumer reporting agency must
quickly notify the consumer.
Certain exceptions are provided for consumer report
resellers and check servicing companies. Resellers not
otherwise furnishing or reselling consumer reports containing
information identified by the consumer need only inform the
consumer that he or she report the identity theft to the
Commission. Resellers with files containing the information
shall block such information where the consumer has otherwise
complied with the requirements of this section (i.e., the
consumer has provided appropriate proof of their identity, a
copy of an identity theft report, and information which
identifies the particular information that is to be blocked in
the consumer's file). Check servicing companies do not have to
comply with this section except that, beginning three business
days after receipt of the information consumers are required to
provide to obtain a block, such companies shall not furnish to
national consumer reporting agencies any information provided
in the identity theft report provided by the consumer.
This section should not be construed to require consumer
reporting agencies to withhold consumer file information from
law enforcement agencies when such agencies could otherwise
obtain such information.
Section 153. Coordination of identity theft complaint investigations
This section amends Section 621 of the FCRA by requiring
the national credit reporting agencies (as defined in Section
603(p) of the Act) to develop and maintain procedures for the
referral to each other national credit reporting agency of any
consumer complaint alleging identity theft or requesting a
fraud alert. This section also requires each of the consumer
reporting agencies to submit an annual summary to the Federal
Trade Commission with respect to the consumer complaints the
agency receives on identity theft or fraud alerts.
Section 154. Prevention of repollution of consumer reports
This section amends Section 623 of the FCRA to require
furnishers to have reasonable procedures in place to prevent
refurnishing information when they have been notified by a
consumer reporting agency that such information had been
identified as being associated with identity theft and was
being blocked by the agency from being reported. This section
also amends Section 623 of the FCRA to require furnishers to
conduct investigations of identity theft-related disputes
raised directly with them by consumers. These obligations are
only triggered in instances where consumers provide them with
an identity theft report or a copy of a standardized identity
theft affidavit. Lastly, subject to certain exceptions, this
section amends Section 615 of the FCRA to prohibit entities
that have received notice that a particular debt may be
identity theft-related from selling or transferring such debt.
The prohibtions of this section apply to all persons collecting
a debt after the date of notification. The exceptions include
transfers or sales involving: the repurchase of debt in
situations where the assignee of the debt requires such
repurchase because the debt resulted from identity theft; the
securitization of a debt; or the transfer of a debt as a result
of a merger, acquisition, purchase and assumption transaction,
or transfer of substantially all of the assets of an entity.
The Committee included these provisions tohelp consumers who
have been victimized by identity theft to more easily ``clean-up'' the
damage they have sustained.
Section 155. Notice by debt collectors with respect to fraudulent
information
This section adds to Section 615 of the FCRA the
requirement that debt collectors, when acting on behalf of a
third party and when notified that the debt they are attempting
to collect may be the result of fraud or identity theft, must
notify the third party of the possible fraud or identity theft.
This section also requires the debt collector to provide
information relating to the debt to the consumer alleging the
identity theft.
Section 156. Statute of limitations
This section amends Section 618 of the FCRA to extend the
statute of limitations for violations of the Act. This section
requires claims to be brought within 2 years of the discovery
of the violation and with an outside restriction that all
claims must be brought within 7 years of when the violation
occurred.
TITLE II--IMPROVEMENTS IN USE OF CONSUMER ACCESS TO CREDIT INFORMATION
Section 211. Free credit reports
This section amends Sections 612 of the FCRA to allow
consumers to receive a free consumer report annually from the
national credit reporting agencies through a centralized system
established by Federal Trade Commission rule making. The
centralized system shall allow consumers to obtain free reports
from all three agencies using a single request. In light of the
logistics and cost associated with providing the reports, the
Committee provided that requests for such reports could be made
only by mail or the Internet in such fashion that the consumer
requests would be staggered so that they all would not occur at
once. The Committee provided rule making authority to stagger
consumer requests for free reports. Additionally, the Committee
extended the time the national consumer reporting agencies have
to provide reports requested under this section to 15 days and
extended the period for reinvestigation of any disputes raised
by consumers receiving free reports to 45 days. Requests for
free reports may still be made by telephone as provided under
current law if the consumer: has received an adverse action
notice; believes his or her file is inaccurate due to fraud; is
unemployed and seeking employment; or is a public welfare
recipient.
This section also amends Section 609(c) of the FCRA to
require the Federal Trade Commission to prepare a summary of
the rights of consumers as provided by the FCRA. This summary
shall include a description of: the right of a consumer to
obtain a free credit report and the method to obtain it; the
right of a consumer to dispute information contained in his
file; and the right of a consumer to obtain a credit score and
a description of how to obtain a credit score. Additionally,
this section requires the Federal Trade Commission to actively
publicize the summary of rights made available by this section
and the consumer's right to a free report and a credit score
and the manner in which such free report and score may be
obtained.
Section 212. Credit scores
This section amends Section 609 of the FCRA to require
consumer reporting agencies to disclose, upon consumer request
and, in connection with an application for an extension of
consumer credit secured by a dwelling, specific consumer credit
scoring information including a credit score: (1) Derived from
a model widely distributed to users of credit scores; or (2)
that assists the consumer in understanding the credit scoring
assessment of the consumer's credit behavior and predictions
about future credit behavior.
This section also amends Section 615 of the FCRA to require
any person that makes or arranges extensions of consumer credit
that are to be secured by a dwelling, and that uses credit
scores for that purpose, to provide the consumer with a copy
of: (1) The information obtained from a consumer reporting
agency or that was developed and used by that user of the
credit score information; or (2) a copy of the information
provided to the user by a third party that developed the credit
score, plus a general description of credit scores, their use,
and the sources and kinds of data used to generate credit
scores. This section also declares void any contract provision
that prohibits such mandated disclosures and exempts from
contractual liability any user of a credit score for making
such a disclosure.
Section 213. Enhanced disclosure of the means available to opt out of
prescreened lists
This section amends Sections 615(d)(2) and 604(e) of the
FCRA and directs the Federal Trade Commission, in consultation
with the federal banking agencies and the NCUA to promulgate
rules with respect to the contents of solicitations generated
from the use of ``pre-screened'' lists. Currently, the FCRA
imposes certain pre-screening disclosure obligations. This
section directs the Commission to modify the format of these
disclosures. The Committee intends for the Federal Trade
Commission to establish reasonable format and type size
requirements so that the disclosure is presented in a manner
and location that will make consumers aware of the opportunity
and method to opt-out. This section extends the effective
period of a telephone opt-out from 2 to 7 years. This section
also requires the Federal Trade Commission to actively
publicize the availability of the pre-screening opt-out and the
manner in which a consumer canexecute an opt-out selection,
including requiring the Commission to post such information on its
website.
Section 214. Affiliate sharing
This section creates a new Section 624 and requires the
Federal banking agencies, the National Credit Union
Administration and the Federal Trade Commission to prescribe
regulations to establish special rules for solicitation for
purposes of marketing. The Committee expects the Federal
banking agencies, the National Credit Union Administration, and
the Federal Trade Commission to prescribe regulations under
Section 624 of the FCRA applicable to entities within each such
agency's respective jurisdiction. The Committee expects such
agencies to coordinate their regulations to ensure consistency,
as appropriate. The regulations must ensure that the notices
provided include a simple means to opt out under Section 624 of
the FCRA. The Committee intends for notice and opt out required
under Section 624 of the FCRA to be consistent with the current
notice and opt out provided under Section 603(d)(2)(A)(iii).
Therefore, the Committee specifically directs the agencies to
consider the affiliate sharing notification practices employed
on the date of enactment of this Act by persons that will be
subject to Section 624 of the FCRA.
This section sets forth that any person that receives from
another person related to it by common ownership or affiliated
by corporate control a communication of information that would
be a consumer report, except for clauses (i) through (iii) of
section 603(d)(2)(A), may not use the information to make a
solicitation for marketing purposes without complying with the
section's notice and opt-out requirements. The notice
requirements mandate that it must be clearly and conspicuously
disclosed so the information may be communicated among such
persons for the purposes of making solicitations to the
consumer. The opt-out provision requires that the consumer be
provided an opportunity and simple method to prohibit the
making of such solicitations by such person. If a consumer
makes an election to prohibit the sending of solicitations,
such election shall be effective for five years. At such time
the election is no longer effective, a person using the kinds
of information in the manner covered by this section must
provide notice and opportunity to opt-out again in order to use
the information to make solicitations for marketing purposes.
Four particular situations are excluded from the scope of
this provision: (1) A person using information to make a
solicitation for marketing purposes to a consumer with whom the
person has a pre-existing business relationship; (2) a person
using information to perform services on behalf of another
person related by common ownership or affiliated by corporate
control, except that such a person can not send solicitations
on behalf of another person who would not otherwise be
permitted to send solicitations; (3) a person using information
in direct response to a communication initiated by the consumer
in which the consumer has requested information about a product
or service; or (4) a person using information to directly
respond to solicitations authorized or requested by the
consumer.
The Committee has declined to specify how the notice
required under Section 624 of the FCRA is provided to the
consumer. However, the required notice may be provided to a
consumer together with disclosures required by any other
provision of law.
This section is intended to provide consumers notice and
choices with respect to instances where entities they do not
have relationships with gather information from the entities
they do have relationships with and use such information to
send solicitations for marketing purposes. This section is not
intended to limit the solicitations for marketing purposes of
persons or entities with whom consumers have pre-existing
business relationships, nor is it intended to restrict contact
with consumers in situations where the consumers themselves are
requesting information or service.
This section also requires the Federal banking agencies,
the National Credit Union Administration and the FTC to study
the information sharing practices of affiliated creditors to
determine: the specific purposes of information sharing; the
specific types of information being shared; the availability of
consumer choices with respect to control of such sharing; and
the impact sharing has on the rights consumers are provided
under the FCRA. The agencies are required to make an initial
report of their findings to Congress and then follow-up such
report every three years with further studies which identify
and examine the effects of any changes in information sharing
practices.
Section 215. Study of the effects of credit scores and credit-based
insurance scores on availability and affordability of financial
products
This section requires the Federal Trade Commission to study
the use of credit scores and credit-based insurance scores on
the availability and affordability of financial products; the
degree of correlation between the factors considered by credit
score systems and the quantifiable risks and actual losses
experienced by businesses; the extent to which the use of
scoring models, credit scores, and credit-based insurance
scores benefit or negatively impact persons based on geography,
income, ethnicity, race, color, religion, age, marital status
or creed; and the extent to which scoring systems are used by
businesses, the factors considered by such systems and the
effects of variables which are not considered by such systems.
In conducting this study, the Commission is directed to obtain
public input. The Commission is required to submit the detailed
report to Congress containing its findings, conclusions, and
recommendations.
TITLE III--ENHANCING THE ACCURACY OF CONSUMER REPORT INFORMATION
Section 311. Notice with respect to counteroffers
This section amends Section 603(k) of the FCRA to require
the Secretary of the Treasury, the Federal Reserve, and the
Federal Trade Commission to promulgate rules requiring that a
consumer who receives a grant of credit, based on a counter
offer by the creditor on material terms, including interest,
that are materially less favorable than the terms generally
made available to consumers, receives a notice that indicates
such terms were based on the contents of the consumer's credit
report. It is the view of the Committee that ``material term''
may include, but is not limited to: interest rate, advanced
deposit or prepayment requirements, points, fees, and
prepayment penalties.
This section is intended to address the frequently
occurring situation where creditors review consumers' credit
reports and make risk-based adjustments to the credit terms
they offer the consumer. Under current law, a consumer is only
provided an adverse action notice when the consumer does not
qualify for credit or rejects a counteroffer made by a
creditor. The Committee record indicates that despite the many
benefits of risk-based pricing, it has made the current adverse
action notification construct obsolete in certain
circumstances. This is problematic in as much as the adverse
action notice is the primary tool the FCRA contains to ensure
that mistakes in credit reports are discovered. This section
requires that consumers be given notice in situations where
they have accepted terms made by way of a counter offer but
such terms are materially less favorable then terms generally
available and their credit report was used to make the decision
to provide them such terms. The Committee believes that
consumers should receive these notices when information in a
credit report leads to a change in terms that significantly
impacts the cost of the credit offer. It is not the Committee's
intent that every consumer receive a notice for every term
change that occurs.
Section 312. Procedures to enhance the accuracy and completeness of
information furnished to consumer reporting agencies
This section amends Section 623 of the FCRA to require the
Federal banking agencies, the National Credit Union
Administration and the Federal Trade Commission to develop
guidelines and promulgate regulations with respect to the
accuracy and completeness of the information furnished to
credit reporting agencies. The Committee believes that the
reporting system benefits creditors and consumers to the
maximum extent possible when furnishers do not withhold
information, such as credit limits, to block their client base
from receiving competitive offers from other creditors.
These guidelines are to be updated as necessary to keep the
best standards in place for the credit reporting system. It is
the intention of the Committee that enforcement of the
provisions required under this section shall be conducted
solely by the Federal regulators. Enforcement jurisdiction for
the various different types of furnishing entities shall comply
with the jurisdiction provision set forth under Section 621 of
the Act. The Committee intends these guidelines to be flexible,
as they will apply to entities of all sizes and levels of
sophistication. The Committee also recognizes that the
information furnished voluntarily to consumer reporting
agencies is essential and therefore these guidelines should
reflect the need to have accurate and complete information
reported without creating meaningful disincentives for
furnishing information to consumer reporting agencies.
The Committee recognizes that there are both legal and
practical reasons for not requiring the reporting of
information in specific situations. For example, the Fair
Credit Billing Act currently prohibits disclosure of
information during the pendancy of a dispute. There are also
other situations where the institution would choose not to
report negative information about a consumer as a courtesy to
the consumer, such as where the information may not bear
directly on the creditworthiness of the consumer but where such
reporting would trigger consumer concern. The Committee
recognizes that these and other specific situations may warrant
being excluded from any regulatory approach taken pursuant to
this section.
This section also amends Section 623(a)(5) of the Act to
provide that a person that notifies a consumer reporting agency
with respect to information pertaining to a delinquent account
may rely on the date provided by the entity to whom the account
was owed at the time that the delinquency occurred, provided a
consumer has not disputed such information.
Section 313. Federal Trade Commission and consumer reporting agency
action concerning complaints
This section amends Section 611 of the FCRA by requiring
the Federal Trade Commission to compile all complaints
regarding incomplete or inaccurate credit report information
and to transmit all such complaints to each consumer reporting
agency involved. The national consumer reporting agencies (as
defined by Section 603(p) of the Act) are required to keep
track of the complaint referrals received from the Commission
and regularly report to the Commission the determinations taken
with respect to the disposition of such consumer complaint
cases.
Section 314. Ongoing audits of the accuracy of consumer reports
This section requires the Federal Reserve to study the
contents of the credit reports produced by the national credit
reporting agencies and to determine the accuracy and
completeness of such reports and the relationship the contents
of such reports have on the credit eligibility of consumers.
Section 315. Improved disclosure of the results of reinvestigation
This section amends Sections 611 and 623 of the FCRA. It
requires consumer reporting agencies, upon completion of a
reinvestigation where information was determined to be
inaccurate, incomplete, or unverified, to notify the furnisher
of that information that such information was deleted. This
section also requires furnishers, upon completion of a
reinvestigation, to modify the records furnished to the
consumer reporting agencies as is necessary and appropriate to
reflect the findings of the investigation.
Section 316. Reconciling addresses
This section amends Section 605 of the FCRA to require
consumer reporting agencies to provide users of consumer
reports notice when the consumer address contained in the
report differs substantially from the address provided by the
user when it requested the report. This section further
requires the Federal banking agencies, the NCUA and the FTC to
promulgate regulations to require users of consumer reports to
take measures to ensure the accuracy of the consumer addresses
they are using.
Section 317. FTC study of issues relating to the Fair Credit Reporting
Act
This section requires the Federal Trade Commission to study
and provide a report regarding the effects that the use of
partial matching information by credit reporting agencies has
on the accuracy of credit reports and to consider the costs and
benefits to consumers associated with the use of additional
points of identifying information. The section requires the
Commission to study and provide a report regarding the impact
of providing independent notification to consumers when
negative information is included in their credit reports and to
consider the effects of requiring that consumers who experience
adverse actions receive a copy of the same credit report used
by the lender in taking the adverse action. This section also
requires the Commission to consider common financial
transactions that are not currently reported to consumer
reporting agencies that might bear on creditworthiness, and
possible actions to encourage the reporting of such
transactions within a voluntary system.
TITLE IV--LIMITS ON SHARING OF MEDICAL INFORMATION
Section 411. Protection of Medical Information in the Financial System
This section amends Section 604(g) of the Act to prohibit a
consumer reporting agency from furnishing a consumer report
that contains medical information in connection with an
insurance transaction unless the consumer affirmatively
consents (opts-in) to the furnishing of the report. A report
containing medical information may only be furnished for
employment purposes or in connection with a credit transaction
if the information to be furnished is relevant to, or affects,
the employment or credit transaction, and the consumer provides
specific written consent for the furnishing of the report that
describes in clear and conspicuous language the use for which
the information will be furnished. Alternatively, such
information can be reported if it is restricted or reported
using codes that do not identify, or provide information
sufficient to infer, the specific provider or nature of such
services, products or devices to a person other than to the
consumer, unless the information is being provided for a
purpose relating to the business of insurance other than
property or casualty insurance. This section also prohibits
creditors from obtaining or using medical information
pertaining to a consumer in connection with any determination
of the consumer's eligibility or continued eligibility for
credit.
This section also restricts any person who receives medical
information by way of the exceptions from disclosing such
information to any other person except as necessary to carry
out the purpose for which it was originally disclosed.
This section also prohibits the sharing of medical
information among affiliates, including the sharing of an
individualized list or description based on a consumer's
payment transactions for medical products or services, or an
aggregate list of consumers based on payment transactions for
medical products or services.
412. Confidentiality of medical contact information in consumer reports
This section amends Section 623 (a) of the FCRA to require
furnishers whose primary business is providing medical
services, products, or devices to notify the consumer reporting
agencies of their status as a medical information furnisher for
purposes of compliance with the medical information coding
requirements.
TITLE V--FINANCIAL LITERACY AND EDUCATION IMPROVEMENT ACT
Section 511. Short title
This section establishes the short title of ``Financial
Literacy and Education Improvement Act.''
Section 512. Definitions
This section establishes two definitions in the Title for
``Chairperson'' and ``Commission.''
Section 513. Establishment of Financial Literacy and Education
Commission
This section establishes the Financial Literacy and
Education Commission with the Secretary of the Treasury as the
Chairperson. The section sets forth the membership of the
Commission to include federal agencies with significant
financial literacy programs and authorizes the President to
designate five additional members. The Commission shall meet at
least once every four months. The initial meeting shall be not
later than 60 days after enactment.
Section 514. Duties of the Commission
In general, this section sets forth the duties of the
Commission to review financial literacy and education efforts
throughout the federal government; to identify and eliminate
duplicative federal financial literacy efforts; to coordinate
the promotion of federal financial literacy efforts including
outreach between federal, state and local governments, non-
profit organizations and private enterprises; to develop within
eighteen months a national strategy to promote financial
literacy and education among all Americans; to implement the
strategy; and to submit an annual report, and provide testimony
on the report if requested. The Commission also shall establish
a website and a toll-free number as a one-stop-shop for all
federal financial literacy programs.
It is recognized that the federal government has many
different financial literacy programs and partnerships spanning
a broad array of topics which are targeted at different types
of consumers. Many of these programs are extremely beneficial
to consumers, however, many consumers are unaware that the
programs or educational information exist. The purpose of this
Title is not to require the Commission to rebuild all existing
federal financial literacy and education programs. The
Commission ought to use existing materials, programs and
partnerships as appropriate and create new materials, programs,
and partnerships as needed. This Title is also intended to
provide consumers with one access point for all of the programs
and partnerships. The Commission is modeled on the Trade
Promotion Coordinating Committee and it is intended that the
Commission operate and be administered generally in a similar
manner.
The toll-free number shall be operated in a similar manner
to the toll-free number operated by the Small Business
Administration for small businesses in that consumers will be
sent relevant pamphlets or other such information on their
financial literacy requests or be directed to the appropriate
federal agency with overall expertise in their area of
interest. The toll-free number will not provide any financial
planning advice regarding a consumer's specific personal
financial situation nor make any specific recommendation
regarding private sector financial products or services.
Section 515. Powers of the Commission
This section authorizes the Commission to hold hearings and
receive testimony as necessary to carry out the Title, to
receive information directly from any Federal department or
agency, and to undertake periodic studies regarding the state
of financial literacy.
Section 516. Commission personnel matters
This section states that members of the Commission shall
serve without compensation in addition to that received for
their primary duties, however, the Commission may pay for
travel expenses of members for official duties of the
Commission. In addition, the Director of the Office of
Financial Education of the Treasury Department shall provide
assistance to the Commission. The section also permits federal
employees to be detailed to the Commission.
Section 517. Study by the Comptroller General
This section mandates that the Comptroller General of GAO
shall submit a report to Congress not less than three years
after enactment on the effectiveness of the Commission.
Section 518. Authorization of appropriations
This section authorizes appropriations to the Commission as
may be necessary to carry out the mission of the Title,
including administrative expenses.
TITLE VI--RELATION TO STATE LAW
This section amends Sections 625(d) and eliminates the
January 1, 2004 sunset provision contained in current law.
TITLE VII--MISCELLANEOUS
Section 711. Clerical amendments
REGULATORY IMPACT STATEMENT
In accordance with paragraph 11(b), rule XXVI, of the
Standing Rules of the Senate, the Committee makes the following
statement concerning the regulatory impact of the bill.
``The National Credit Reporting System Improvement Act of
2003'' modifies the FCRA to address changes which have occurred
in the credit markets in the last seven years. This legislation
enhances the ability of consumers to combat identity theft,
increases accuracy by providing consumers greater notice about,
and access to, their credit report information, and allows
consumers to exercise greater control regarding the type and
amount of marketing solicitations they receive. Additionally,
the bill restricts the use and transfer of sensitive medical
information. Lastly, it employs targeted measures to address
the significant issue regarding the level of financial literacy
in the United States.
By affording consumers greater access and control of their
credit report information and by providing them with greater
opportunities to control how such information can be used, this
legislation should have significant positive impact on the
privacy of individuals.
Currently, there are about 600 consumer reporting agencies,
30,000 furnishers, and an unlimited number of potential
consumer report users whose activities are governed by the
FCRA. The changes made by this legislation do not expand the
FCRA to cover new or different types of entities.
The legislation establishes permanent, uniform, national
standards. The legislation also requires the Federal banking
regulators and the Federal Trade Commission to develop and
prescribe regulations with respect to identity theft prevention
and to develop and prescribe regulations to ensure the accuracy
and completeness of information furnished to the credit
reporting system. Because the legislation provides uniform
national standards, allowing for the further development of
national credit markets and reduces the opportunities for
identity theft, inaccuracy, and increases consumer awareness
and understanding of the financial markets, the legislation
will achieve greater efficiencies in the credit markets. The
combination of national standards and greater efficiency will
lead to greater availability of credit that is more cheaply and
quickly accessible. Ultimately, the new legal and regulatory
framework established by this legislation will provide
significant benefits to millions of American consumers and the
national economy.
COST OF THE LEGISLATION
U.S. Congress,
Congressional Budget Office,
Washington, DC, September 29, 2003.
Hon. Richard C. Shelby,
Chairman, Committee on Banking, Housing, and Urban Affairs,
U.S. Senate, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for the National Consumer
Credit Reporting System Improvement Act of 2003.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Susanne S.
Mehlman.
Sincerely,
Elizabeth M. Robinson
(For Douglas Holtz-Eakin, Director).
Enclosure.
National Consumer Credit Reporting System Improvement Act of 2003
Summary: CBO estimates that implementing this legislation
would cost about $13 million over the next five years, assuming
appropriation of the necessary amounts. We also estimate that
enacting this legislation would reduce revenues by $4 million
over the next five years. The bill also could affect direct
spending, but CBO estimates that any such impact would not be
significant.
This legislation would provide new consumer protections
against identity theft (that is, fraud committed using another
person's identifying information) and would permanently extend
the provisions in the Fair Credit Reporting Act (FCRA) that
prevent states from imposing new restrictions on how financial
institutions share consumer information. In 1996, FCRA was
amended to create a uniform national standard for consumer
protections governing credit transactions, but that standard is
scheduled to expire on January 1, 2004. The bill also would
give consumers access to certain financial records, help ensure
the accuracy of credit reports, enable consumers to ``opt-out''
of receiving certain commercial solicitations, and provide
protection of consumers' medical information.
The National Consumer Credit Systems Improvement Act
contains an intergovernmental mandate as defined in the
Unfunded Mandates Reform Act (UMRA), but CBO estimates that the
costs would not exceed the threshold established in UMRA ($59
million in 2003 adjusted annually for inflation).
The bill would impose several private-sector mandates, as
defined in UMRA, on consumer reporting agencies, individuals
and businesses that print electronic credit card receipts,
mortgage lenders, credit and debit card issuers, debt
collection agencies, and certaincompanies affiliated by
corporate control. CBO expects that the direct costs of those mandates
would exceed the annual threshold for private-sector mandates ($117
million in 2003, adjusted annually for inflation) in at least one of
the first five years the mandates are in effect.
Estimated cost to the Federal Government: The estimated
budgetary impact of this bill is shown in the following table.
The costs of this legislation fall within budget functions 370
(commerce and housing credit) and 800 (general government). For
this estimate, CBO assumes that bill will be enacted in the
fall of 2003 and that spending will follow historical rates for
similar activities.
------------------------------------------------------------------------
By fiscal year, in millions of
dollars--
----------------------------------
2004 2005 2006 2007 2008
------------------------------------------------------------------------
CHANGES IN SPENDING SUBJECT TO APPROPRIATION
FTC activities:
Estimated authorization level.... 5 3 * * *
Estimated outlays................ 4 3 1 * *
Financial Literacy and Education
Commission:
Estimated authorization level.... 1 2 2 0 0
Estimated outlays................ 1 2 2 0 0
Total proposed changes:
Estimated authorization level.... 6 5 2 * *
Estimated outlays................ 6 5 2 * *
CHANGES IN REVENUES
Estimated revenues................... -2 0 -1 0 -1
------------------------------------------------------------------------
Notes.--FTC=Federal Trade Commission; *=less than $500,000.
Basis of estimate: CBO estimates that implementing this
legislation would cost about $13 million over the next five
years, assuming appropriation of the necessary amounts. We also
estimate that enactingthis legislation would reduce revenues by
$4 million over the next five years. The bill could affect direct
spending, but CBO estimates that any such impact would not be
significant.
The bill would require the Federal Trade Commission (FTC)
to prepare a model summary of rights for consumers who believe
that they may be the victims of fraud or identity theft and for
consumers who want to obtain or dispute information contained
in consumer reports. The FTC also would be responsible for
developing procedures and forms for consumers to use when
reporting identity theft to creditors and credit-reporting
agencies, for implementing a public education campaign on the
prevention of identity theft, for conducting various studies on
consumer credit and how to improve the operation of FCRA, and
developing guidelines and regulations regarding identity theft
and credit reporting. Finally, the legislation would require
the FTC to compile consumer complaints about incomplete or
inaccurate information in their credit file and submit those
complaints to each reporting agency involved with the file.
The bill would require the federal banking agencies--which
includes the Office of the Comptroller of the Currency (OGC),
the Federal Deposit Insurance Corporation (FDIC), the Office of
Thrift Supervision (OTS), and the Board of Governors of the
Federal Reserve System (the Federal Reserve)--and the National
Credit Union Administration (NCUA) to issue various guidelines
and regulations concerning identity theft, credit reporting,
and use of consumers' medical information by financial
institutions and to produce studies on information sharing
practices by financial institutions. Finally, this legislation
would require the Federal Reserve to conduct ongoing audits of
information contained in consumer reports prepared or
maintained by consumer reporting agencies to ensure that such
information is accurate and complete. In addition, every two
years the Federal Reserve would be required to submit a report
of their findings to the Congress.
The bill also would establish the Financial Literacy and
Education Commission to improve public awareness of financial
matters, including the availability and significance of credit
reports and credit scores. The Secretary of the Treasury would
serve as the Chairperson of this commission, which would be
composed of the respective heads of each federal banking agency
and the NCUA as well as representatives from various other
agencies.
Spending subject to appropriation
Based on information from the FTC, CBO estimates that the
studies, public education campaigns, guidelines, and
regulations required under this legislation would cost that
agency $4 million in 2004 and $8 million over the 2004-2008
period, assuming appropriation of the necessary amounts.
Based on information from the Treasury, CBO estimates that
the Financial Literacy and Education Commission would cost
about $5 million over the next three years, subject to the
availability of appropriated funds. Such funding would cover
personnel and administrative costs and costs associated with
establishing and maintaining a Web site and a toll-free number.
In addition, this legislation would require the General
Accounting Office (GAO) to assess the effectiveness of the
Financial Literacy and Education Commission no later than three
years after the enactment of this legislation. CBO estimates
that the GAO study required under the bill would cost less than
$500,000.
Direct spending and revenues
The NCUA, the OTS, and the OCC charge fees to cover all
their administrative costs; therefore, any additional spending
by those agencies to implement the bill would have no net
budgetary effect. That is not the case with FDIC, however,
which uses deposit insurance premiums paid by banks to cover
the expenses it incurs to supervise state-chartered
institutions. (Under current law, CBO estimates that the vast
majority of thrift institutions insured by the FDIC would not
pay any premiums for most of the 2004-2013 period.) The bill
would cause a small increase in FDIC spending but would not
affect its premium income. Based on information from the FDIC,
implementing the bill would have a minor impact on the agency's
workload.
CBO estimates that the Federal Reserve's costs associated
with the rulemaking and studies required under the bill would
be minimal. However, the audits and related reports specified
under the bill would require the Federal Reserve to purchase
additional data from credit bureaus to develop new software and
models, and conduct in-person interviews with consumers. Based
on information from the Board of Governors, CBO estimates that
complying with the requirements of the bill would increase the
Federal Reserve's expenses by $2 million in 2004, by $4 million
over the 2004-2008 period, and by $8 million over the 2004-2013
period. The Federal Reserve remits its net income to the
Treasury, and those payments are classified as governmental
receipts, or revenues, in the federal budget. Therefore,
increasing the Federal Reserve's costs by the aforementioned
amounts would result in an equal reduction in federal revenues.
Estimated impact on state, local, and tribal governments:
The bill would permanently prohibit state and local governments
from enacting laws that are different from the Fair Credit
Reporting Act in certain specified cases. Such a preemption of
state law is an intergovernmental mandate as defined in UMRA,
but CBO estimates thatwould not impose significant costs on
state and local governments. Therefore, the cost of the preemption
would not exceed the threshold established in UMRA ($59 million in
2003, adjusted annually for inflation).
Estimated impact on the private sector: The bill would
impose several private-sector manadates as defined in UMRA on
consumer reporting agencies, individuals and businesses that
print electronic credit card receipts, mortgage lenders, credit
and debit card issuers, debt collection agencies, and certain
companies affiliated by corporate control by:
Requiring free credit reports upon the
request of an individual;
Requiring truncation of credit card account
numbers on receipts printed electronically;
Requiring disclosure of credit scores when
approving certain loans;
Requiring certain fraud alerts and blocks in
consumer credit files; and
Requiring additional notifications and
disclosures to consumers.
CBO expects the aggregate direct costs of the private-
sector manadates in the bill would exceed the annual threshold
established by UMRA ($117 million in 2003, adjusted annually
for inflation) in at least one of the first five years the
mandates are in effect.
Consumer access to credit reports
Section 211 would require consumer reporting agegncies to
provide an annual free credit report within 15 days from the
date of a request from an individual by mail or through an
Internet Web site. Based on information from industry and
government sources, CBO assumes a threefold increase in the
number of individuals requesting a free credit report each
year. CBO estimates that the additional direct cost to consumer
reporting agencies for providing mandatory free credit reports
would be $1.00 to $2.00 per report with a total cost ranging
from $30 million to $60 million per year.
Truncation of credit card account numbers
Section 113 would impose a private-sector mandate by
requiring individuals and businesses that accept credit cards
or debit cards to truncate the card account numbers by
including no more than the last five numbers on an
electronically printed cardholder receipt. The mandate would
take effect three years from the date of enactment for machines
currently in use and beginning in 2006 for machines first put
into service after January 1, 2005. According to the credit
card processing industry, some systems are currently in
compliance because they are capable of electronically printing
truncated account numbers on customer receipts. To comply with
this mandate, some merchants would have to make modifications
to their systems, including software reprogramming, formatting
changes to dial-up terminals, and purchase of new printing
devices. Costs to replace machines would range from $300 to
$1,000 per unit. Assuming merchants would have to replace 25
percent of the currently used machines in 2007, the cost to
replace such machines, including programming modifications,
would amount to at least $85 million in that year.
Disclosure of consumer credit score
Section 212 would require mortgage lenders or anyone that
extends credit for consumer purposes secured by a dwelling and
uses a consumer credit score for approval of such credit to
provide a copy of the credit score and associated information
received from a consumer reporting agency or third party to an
applicant as soon as reasonably practicable. Based on
approximately 13 million annual mortgage loan applications
affected by this provision, and handling and mailing costs
provided by the industry, CBO expects that the direct cost to
provide such information would range from $35 million to $55
million per year.
Fraud alert in credit file
Section 112 would require consumer reporting agencies to
include a fraud alert in the file of a consumer and disclose to
the consumer that they may request a free copy of the file when
the agency receives a direct request that a consumer has been
or is about to become a victim of fraud, including identity
theft. A consumer reporting agency would also be required to
include an active-duty alert in the file of an active-duty
military consumer upon their request. In addition, section 152
would require consumer reporting agencies to block any
information in the file of a consumer that the consumer
identifies as resulting from an alleged identity theft and
confirms with a police report. An agency also would be required
to notify the furnisher of the information identified by the
consumer of certain information regarding such a block.
According to the consumer reporting industry and government
sources, the nationalconsumer reporting agencies generally
provide such alerts and blocks voluntarily. Therefore, CBO estimates
that the direct cost to comply with those mandates would not be
significant.
Other provisions of the bill addressing fraud alert
coverage would impose private-sector mandates as follows:
Require credit reporting agencies to
coordinate consumer complaint investigations by
developing and maintaining procedures for the referral
to other credit reporting agencies any consumer
complaint alleging identity theft or requesting a fraud
alert or block; and
Require a debt collection agency that learns
information in a consumer report is the result of
identity theft or otherwise is fraudulent to notify the
furnisher of the information or the relevant consumer
reporting agency that the information is fraudulent.
Based on information from various industry and government
sources, CBO expects the direct cost to comply with those
mandates would be small compared with the costs of the three
most costly mandates in the bill.
Other notification and disclosure requirements
In addition, the bill would impose other private-sector
mandates as follows:
Require a consumer reporting agency that
receives a request for a consumer report using an
address substantially different from the addresses in
the consumer's file to notify the requester of the
existence of the discrepancy;
Require credit reporting agencies to provide
certain information, including a summary of rights to
be prepared by the Federal Trade Commission, with each
written disclosure sent to a consumer;
Require credit and debit card issuers that
receive a request for additional or replacement cards
on an existing account within a short period of time
after receiving a change of address form to notify the
cardholder at the former address or use other means to
confirm the address change; and
Prohibit a consumer reporting agency from
providing credit reports that contain medical
information with some exceptions and would require
medical companies to identify themselves as such when
reporting credit information.
According to industry sources, many entities currently
comply with such requirements voluntarily; and therefore, the
direct cost to comply with those mandates would not be
significant.
The bill also would require companies affiliated by
corporate control that share information with affiliates for
the purpose of making certain solicitations for marketing
purposes to give consumers notice of such sharing and provide
consumers the opportunity to prohibit or modify such
solicitations. Based on information from various industry and
government sources, CBO expects the direct cost to the private
sector would be small compared with the costs of the three
major mandates in the bill.
Previous CBO estimate: On September 3, 2003, CBO
transmitted a cost estimate for H.R. 2622, the Fair and
Accurate Credit Transactions Act of 2003, as ordered reported
by the House Committee on Financial Services on July 24, 2003.
CBO estimates that enacting H.R. 2622 would cost about $7
million over the next five years and any impact on direct
spending and revenues would be insignificant. The National
Consumer Credit Systems Improvement Act would preempt state law
in the same way as H.R. 2622, and CBO estimates that the two
bills would have an identical impact on state and local
governments. H.R. 2622 contains most of the same private-sector
mandates as this Senate bill, including mandates requiring
consumer access to credit reports, truncation of credit card
numbers, disclosure of credit scores and fraud alerts in
consumer credit files. CBO estimates that the direct costs of
those mandates would exceed the annual threshold for private-
sector mandates in at least one of the first five years the
mandates are in effect.
Estimate prepared by: Federal Costs: Susanne Mehlman and
Melissa Zimmerman. Federal Revenues: Annabelle Bartsch. Impact
on State, Local, and Tribal Governments: Sarah Puro. Impact on
the Private Sector: Paige Piper/Bach.
Estimate approved by: Peter H. Fontaine, Deputy Assistant
Director for Budget Analysis; and G. Thomas Woodward, Assistant
Director for Tax Analysis.
CHANGES IN EXISTING LAW (CORDON RULE)
On September 23, 2003, the Committee unanimously approved a
motion by Senator Shelby to waive the Cordon rule. Thus, in the
opinion of the Committee, it is necessary to dispense with the
requirement of section 12 of rule XXVI of the Standing Rules of
the Senate in order to expedite the business of the Senate.