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S. Hrg. 103-247 THE CONSUMER REPORTING REFORM ACT OF 1993-S. 783 Y 4. B 22/3: S. HRG. 103-247 The Consuner Reporting Reforn Act o...l\lINijr BEFORE TEIE COMMITTEE ON AND URBANAFFAIRS BANKING, HOUSING, UNITED STATES SENATE ONE HUNDRED THIRD CONGRESS FIRST SESSION ON S.783 TO CORRECT ABUSES INVOLVING CREDIT REPORTING SYSTEMS, DENY- ING CONSUMERS JOBS. CREDIT, HOUSING, AND THE RIGHT TO CASH A CHECK MAY 27, 1993 Printed for the use of the Committee on Banking, Housing, and Urban Affairs m OEC 2 3 --'i^^CilSilLuBh^Rv '•"^•^.rr^n U.S. GOVERNMENT PRINTING OFFICE 73-346CC WASHINGTON : 1993 ForsalebytheU.S.GovernmentPrintingOffice SuperintendentofDocuments,CongressionalSalesOffice,Washington,DC 20402 ISBN 0-16-041724-4 S. Hrg. 103-247 THE CONSUMER REPORTING REFORM ACT OF 1993-S. 783 Y 4. B 22/3; S, HRG. 103-247 The Consuner Reporting Reforn Act ©...rClINLT BEFORE THE COMMITTEE ON AND URBANAFFAIRS BANKING, HOUSING, UNITED STATES SENATE ONE HUNDRED THIRD CONGRESS FIRST SESSION ON S.783 TO CORRECT ABUSES INVOLVING CREDIT REPORTING SYSTEMS, DENY- ING CONSUMERS JOBS, CREDIT, HOUSING, AND THE RIGHT TO CASH A CHECK MAY 27, 1993 Printed for the use of the Committee on Banking, Housing, and Urban Affairs DEC 2 3 ^^3 U.S. GOVERNMENfT PRINTING OFFICE 73-346CC WASHINGTON : 1993 ForsalebytheU.S.GovernmentPrintingOffice SuperintendentofDocuments,CongressionalSalesOffice,Washington,DC 20402 ISBN 0-16-041724-4 COMMITTEE ON BANKBSIG, HOUSING, AND URBAN AFFAIRS DONALD W. RIEGLE, JR., Michigan, Chairman PAUL S. SARBANES, Maryland ALFONSE M. D'AMATO. New York CHRISTOPHERJ. DODD, Connecticut PHIL GRAMM, Texas JIM SASSER, Tennessee CHRISTOPHER S. BOND, Missouri RICHARD C. SHELBY, Alabama CONNIE MACK, Florida JOHN F. KERRY, Massachusetts LAUCH FAIRCLOTH, North Carolina RICHARD H. BRYAN, Nevada ROBERT F. BENNETT, Utah BARBARA BOXER, California WILLIAM V. ROTH, JR., Delaware BEN NIGHTHORSE CAMPBELL, Colorado PETE V. DOMENICI, New Mexico CAROL MOSELEY-BRAUN, Illinois PATTYMURRAY, Washington Steven B. Hakris, StaffDirectorand ChiefCounsel Howard A. Menell, Republican StaffDirector Kevin G. Chavers, Counsel Jeannine S. JaCOKES, Professional StaffMember Eileen Gallagher, Professional StaffMember Raymond Natter, Republican General Counsel Douglas Nappi, Republican Counsel Edward M. Malan, Editor (II) hj-'^>:i^£^' CONTENTS THURSDAY, MAY 27, 1993 Page Opening statementofChairmanRiegle 1 Openingstatements, comments, orprepared statements of: SenatorD'Amato 2 Preparedstatement 43 SenatorSarbanes 3 SenatorBryan 3 Senator Bond 5 SenatorFaircloth 6 WITNESSES David Medine, Associate Director, Credit Practices, Federal Trade Commis- sion Washington, DC 7 Prepared statement 43 I. Privacy 47 II. Accuracy 50 ni. Regulationofcreditrepairorganizations 54 Response to writtenquestionsofSenatorD'Amato MD 178 J.Josepn Curran,Jr., Attorney General, State ofMaryland, Baltimore, ... 10 Prepared statement 56 Response to writtenquestionsofSenatorD'Amato 181 Barry Connelly, executive vice president. Associated Credit Bureaus, Wash- DC 20 ington, Prepared statement 61 Response to writtenquestionsofSenatorRiegle 182 Michelle Meier, counsel. Government Affairs, Consumers Union, Washington, DC 22 Preparedstatement 64 Robert Hunter, executive vice president. The Chase Manhattan Bank, NA., NewYork, NY 23 Prepared statement 68 Briefsummaryoftestimony 69 The impactofrecentState andFederal regulatoryinitiatives 71 S.783 raises significantcostlyissues 72 The FCRA shouldbeestablished asthe NationalUniform Standard .. 82 Conclusion 83 Response to writtenquestionsofSenatorRiegle 185 Edmund Mierzwinski, consumer program director, U.S. Public Interest Re- search Group, Washington, DC 25 Prepared statement 83 Urgent need forlegislation continues 84 Summaryofcredit reportingproblems 84 Recommendations to improve S.783 85 Conclusion 88 RonaldPrill, vice presidentofcredit, Mervyn's, Hayward, CA 27 Preparedstatement 88 (III) IV Page Additional Material Supplied for the Record AlanT. Fell, CommissionerofConsumerCredit, StateofMaryland 59 NationalAssociation ofAttorneys General 59 IntroducedbillS.783 100 Independent BankersAssociationofAmerica 167 The ConsumerAffairs Lobby 196 DeanWitter, Discover& Co 192 Associated Credit Bureaus, Inc 207 National Credit Information Network 167 National Retail Federation, response to questions ofSenatorRiegle 187 THE CONSUMER REPORTING REFORM ACT OF 1993—S.783 THURSDAY, MAY 27, 1993 U.S. Senate, Committee on Banking, Housing, and Urban Affairs, Washington, DC. The committee met at 10:05 a.m., in room SD-538 ofthe Dirksen Senate Office Building, Senator Donald W. Riegle, Jr. (chairman of the committee) presiding. OPENING STATEMENT OF CHAHIMAN DONALD W. RIEGLE,JR. The Chairman. The committee will come to order. Before we begin our formal hearing this morning, I want to note for the record that the committee is voting on reporting the follow- ing legislation: S.422, the Government Securities Act Amendments; S.50, the Jefferson Commemorative Coin Act; S. 183, the Red Skelton Com- memorative Gold Medal Act; and S.216, the World University Games Commemorative Coin Act. If there is no objection to proceeding in this manner, the period for voting will begin now and will extend until this hearing ends. If a quorum of Members arrives to cast their votes in that time, the bills will be reported in due course to the full Senate. I ask unanimous consent that the staff be allowed to make tech- nical and conforming amendments and that we waive the Cordon rule. Is there objection? [No response.] The Chair hears none and it is so ordered. I thank my colleagues. I also want to say that I appreciate the help yesterday, particularly from our Republican colleagues, with respect to the nominees for the Department of Housing and IJrban Development. Let me now make a brief opening statement. Then, I want to go to Senator D'Amato, and then Senator Sarbanes, who needs to speak and then go to another hearing. Then we'll go in order down the table. Today, the committee will hear the views of the Federal Trade Commission, the State Attorneys General, consumer advocates and representatives of the credit provider and credit reporting indus- tries on the Consumer Reporting Reform Act of 1993. I was pleased to join Senators Bryan and Bond as an original co- sponsor of this legislation, which is designed to correct abuses involving consumer credit reports. I want to commend both Senators (1) for their leadership in addressing the serious problems that face the current credit reporting system. The credit reporting industry is currently regulated by the Fair Credit Reporting Act, which was enacted back in 1970. However, the Act badly needs modernization and updating in light of chang- ing business practices. As a result of those practices, consumers have frequently been denied jobs, credit, housing and even the right to cash a check, because oferrors in their creit reports. Businesses can often look at consumers' credit reports without their permission and consumers do not have adequate access to their reports in order to correct errors that may be there. The Federal Trade Commission reported in 1991 that it received more complaints about credit-reporting companies than any other American industry. A study by Consumers Union revealed that 48 percent of credit reports reviewed, contained inaccurate information and almost one-fifth contained major errors. The legislation we consider todav differs from the bill offered by Senators Bryan and Bond in the last Congress in two notable re- spects. First, the bill would not pre-empt State laws that are more of consumers. Second, the bill would not require credit Eruorteeacutsiveto furnish customers with free reports every other year. Both these changes were made to respond to concerns that were raised in debate last Congress. Consumers would be able to buy homes and to borrow money based on a fair and accurate assessment of the credit histories. At the same time, their privacy should not be invaded by people who seek access to their credit reports for improper purposes. I think this bill will go a long way toward achieving those goals and we have important witnesses here today that I'll be introduc- ing a little later. Senator D'Amato. OPENING COMMENTS BY SENATORALFONSE M. D'AMATO Senator D'Amato. Mr. Chairman, I'd like to ask that my various statements be entered into the record as if read in their entirety. I'd also like to thank this committee for the speedy mark-ups that we have been able to undertake today. With respect to the Consumer Reporting Reform Act, which is being sponsored by my colleagues. Chairman Riegle, Senator Bond and Senator Brvan, I want to commend my colleagues for their hard work on tnis legislation. Certainly, I think there's need for some reform. I might also suggest, and Senator Bond and I have discussed this, that we look at the issue of a Federal pre-emption, and the need for uniformity. This is a somewhat controversial issue. How- ever, if we want to do the job, we have to do it the right way. We need to be fair. We must see that it is properly protected, and we should not impair the availability ofconsumer credit. This is a difficult issue. It is appropriate that we have a hearing to consider the issue ofFederal pre-emption in this legislation. Again, I commend my colleagues for undertaking a very thank- lessjob. Thank you, Mr. Chairman. The Chairman. Very good. Senator Sarbanes. OPENING COMMENTS OF SENATOR PAUL S. SARBANES Senator Sarbanes. Thank you very much, Mr. Chairman. Mr. Chairman, unfortunately, I'm not going to be able to stay through this hearing this morning because I have another commit- ment as, of course, is often the case here in the Senate. But I did want to just say a few words of welcome to the Attorney General of the State of Maryland, who will be testifying on the first panel, Joseph Curran, and speaking to the problems associated with consumer credit reports and to S. 783, the Consumer Reporting Re- form Act of 1993. Attorney General Curran is here testifying on behalf of the Na- tional Association of Attorneys General. The State of Maryland, under his leadership, and the Consumer Protection Division of the Attorney General's office, has taken a leadership role in the Nation in the area offair credit reporting. I'm very pleased that Joe Curran, who is an old and dear friend and an outstanding public servant, is here this morning to testify before the committee. I know his testimony will be very much to the point. The issue offair credit reporting is an importand one and I want to compliment the sponsors of the legislation. Senators Bryan and Bond, and the Chairman, for the work they've done in framing this legislation. I look forward to working with them on this very important issue. There have been a number of abuses, in effect, violations of people's privacy, which need to be addressed by this committee. And I commend the sponsors and again, I welcome Attorney Gen- eral Curran. We're very pleased to have him before the committee this morning. Thank you very much, Mr. Chairman. The Chairman. Thank you very much. Senator Sarbanes. This will proceed a little bit out ofthe normal order, but I'm now going to call on Senator Bryan, who is the chief sponsor, and then Senator Bond, who is working with him in partnership, so that they can make their opening comments. I just want to say to both of them, and particularly to you, Sen- ator Bryan, how much I appreciate the time, leadership and the extra effort that you have made on this issue. I think it's important to the country and very much appreciated by the committee and by me. OPENING STATEMENT OF SENATOR RICHARD H. BRYAN Senator Bryan. Mr. Chairman, let me express my appreciation to you for your cosponsorship, as well as this timely hearing, and also, to say to my colleague, Senator Bond, that his efforts and that of his staff have been instrumental in getting us to where we are at this stage ofthe proceeding. Credit financing has become such an integral part of our economy, that it's hard to imagine our lives without it. So much of our economy is driven by credit purchases, that we may see the day in our lifetime when businesses actually discourage cash transactions. Given this growing importance of credit financing, we must do ev- erything that we can to ensure the credit reporting system is as accurate as possible. The United States has the finest credit reporting system in the world. The credit reporting industry in this country maintains 450 billion credit files and sells over 1.5 million credit reports each and every day. The credit reporting industry estimates that errors occur in only five-tenths of 1 percent of all the Nation's credit reports, while consumer groups estimate error rates are as high as 48 percent. In any event, millions ofAmericans are affected by erroneous information contained in their credit reports. This Senator has had a per- sonal example ofthat situation. This legislation takes a number of important steps that should greatly reduce the fi*equency of inaccurate credit reports, thereby saving millions ofAmericans the anguish and frustration resulting from erroneous credit reports. This morning, we will hear two main arguments advanced against this legislation. First, we will be told that the provisions in this bill are already being implemented. Second, that this legislation will have a chilling effect on the supply ofinformation to credit bureaus. For reasons that I will outline briefly, both ofthose asser- tions are incorrect. It is true, many ofthe provisions ofthis legislation are being car- ried out by the credit reporting industry today as part of their consent agreements with the Federal Trade Commission and 20 ofour Nation's Attorneys General. But those that argue that we do not need to do more because of the consent decrees currently in place ignore a vital part of the process. Those institutions that supply information, that furnish credit information, play an important part of the process and yet, are not subject to the provisions ofany consent decree. Including furnishers of information like banks and retailers in the Fair Credit Reporting Act is a crucial part ofimproving the accuracy of the credit reporting system. No matter how careful and diligent the credit bureaus are, ifthe information provided to them is faulty, individuals will suffer the consequen—ces. In our computer age, we all understand garbage in, garbage out. This legislation has been carefully crafted so that it should not, in my judgment, inhibit the flow of information to credit bureaus. It recognizes that ifinformation is cut off", the consumer ultimately will be the loser. That is why Senator Bond and I have provided for a delicate bal- ance between providing incentives for providers to provide accurate information, while not discouraging them from providing information because ofthe threat ofpotential liability. We will also hear today that the legislation is a litigator's dream come true that could have the effect of closing down the free flow of consumer credit information which allows our credit economy to flourish. To the contrary, the legislation goes to great lengths to see that this does not happen. The furnisher of information would be ex- posed to liability for failure to correct an error after reasonable no- tice. Furnishers for information would not be liable for the routine