Table Of ContentS. 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
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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 in-
volving 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, be-
cause 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 informa-
tion 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 econ-
omy, 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 ac-
curate 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 informa-
tion 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 legisla-
tion 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 con-
sent 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 ac-
curacy 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 informa-
tion 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
