SPEAKERS CONTENTS INSERTS
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THE IMPORTANCE OF THE NATIONAL
CREDIT REPORTING SYSTEM TO
CONSUMERS AND THE U.S. ECONOMY
Thursday, May 8, 2003
House of Representatives,
Subcommittee on Financial Institutions and Consumer Credit,
Committee on Financial Services,
The subcommittee met, pursuant to call, at 10:10 a.m., in Room 2128, Rayburn House Office Building, Hon. Spencer Bachus [Chairman of the subcommittee] presiding.
Present: Representatives Bachus, Castle, Royce, Kelly, Gillmor, Ryun, Biggert, Capito, Tiberi, Kennedy, Hensarling, Garrett, Brown-Waite, Oxley (ex officio), Sanders, Maloney, Watt, Sherman, Meeks, Gutierrez, Moore, Gonzalez, Kanjorski, Waters, Velazquez, Hooley, Ford, Hinojosa, Lucas of Kentucky, Crowley, Israel, McCarthy and Davis
Chairman BACHUS. [Presiding.] Good morning. The subcommittee will come to order.
Last week, Chairman Oxley and Ranking Member Frank announced their intention to hold a series of hearings with respect to the Fair Credit Reporting Act, because key provisions of FCRA, which are critical to consumers, will expire at the end of this year. They have agreed to work together to develop bipartisan legislation.
This first hearing will focus on the importance of a national credit reporting system to consumers and the U.S. economy. Additional hearings will take place over the next two months and will cover a full range of issues relating to the national credit reporting system and the security of consumers personal financial information. Issues such as identity theft, which is obviously important to all of us will be addressed.
Page 2 PREV PAGE TOP OF DOC I am pleased that the Chairman and the ranking member of made FCRA and consumers personal financial information and the security thereof a top priority, and look forward to working with them on this important issue. I expect that our efforts will culminate in legislation, since key provisions of the Fair Credit Reporting Act are set to expire at the end of this year.
The U.S. economy is being supported to a great degree by consumer spending. In fact, consumer spending is vital to the strength of the economy. A critical component of consumer spending is the availability of consumer credit. For example, many major purchases, such as homes, cars, appliances, even vacation plans are financed using credit. However, we tend to take for granted the national credit reporting system that enables this credit to be extended safely and efficiently.
In fact, it is our national credit reporting system that provides a great deal of fuel to the engine of consumer spending that is currently driving our economy. Although many strong market forces have helped shape our credit reporting system over the years, the contours of the system were fundamentally defined by the basic legal framework established under the Fair Credit Reporting Act or as we refer to, FCRA.
Congress adopted FCRA in 1970. The law was passed because the banking system and consumers depend on fair and accurate credit reporting. And Congress wanted to ensure that credit bureaus exercised their important responsibilities with respect to fairness, impartiality and respect for the consumers needs and security.
Congress made some significant amendments to FCRA in 1996 to improve consumer protections and update the FCRA to better accommodate the needs of lenders, consumers, and others.
At its core FCRA is a consumer protection statute, which regulates the credit reporting process. In order to protect the customer, FCRA imposes important and strict obligations on those who provide information to credit bureaus, the credit bureaus themselves and those who receive a consumer's credit report.
Page 3 PREV PAGE TOP OF DOC The FCRA also severely limits who may see a consumer's credit report, allows consumers their access to their credit reports, and provides a mechanism under which consumers can dispute the accuracy of anything in their credit file, such as when a consumer is a victim of identity theft.
In view of FCRA's core function of regulating the credit reporting process for the benefit of the consumer, we will hear in detail today how our uniform credit system under FCRA benefits consumers and the economy as a whole.
Among the consumer benefits afforded by national credit system are efficient and convenient access to credit and insurance, strong competition in the financial market place, and lower cost of credit.
Although I have just mentioned the benefits of our national credit reporting system, or the benefits the national credit system provides customersconsumers, and the financial services sector, the stuff of our national credit system is much broader than one industry.
For example, today we will hear from two private sector witnesses as they discuss how important FRCA is to consumers with respect to other sectors of the economy, such as retail and auto sales. Although we will hear the perspective given from a retailer and an auto dealer, the subcommittee could have just as easily asked a wireless telephone provider, a utility company, a daycare center, a university, or dozens of others to describe how FCRA is important to consumers with respect to their businesses.
Several witnesses today will also describe a critical component of FCRA and our national credit system's overall successNational uniformity with respect to several areas of the law. The national uniformity provided under FCRA ensures that consumers have access to affordable credit in all 50 states, minimizes red tape, and helps prevent identity theft and fraud.
Page 4 PREV PAGE TOP OF DOC I would also like to remind the subcommittee the testimony provided by the Federal Reserve Board Chairman Alan Greenspan to the full committee just last week. When asked about the importance of FCRA's national standards for our credit system, he responded and I quote, ''I have been favor of national standards here for reasons which are technically required. If you have very significant differences from state to state, it would be very hard to maintain as viable a system as we currently have.'' The provisions of FCRA that guarantee a single national standard with respect to many of FCRA's provisions are set to expire on January the 1st, 2004.
I share Chairman Greenspan's concern that if we have different FCRA requirements among the States, the consumer benefits and protections provided by our national systems could be destroyed.
I am extremely concerned as to how a patchwork of State laws may affect the cost and availability of credit and the security of individual consumer's financial records. I again thank Chairman Oxley and ranking member Frank for working together to move this issue forward. I encourage all members of the subcommittee, both Republican and Democrat, to follow their example as we address FCRA reform and consumers' financial security.
The Chair now recognizes the ranking member of the subcommittee, Mr. Sanders, for any opening statement he would like to make.
Mr. SANDERS. Thank you, Mr. Chairman. And thank you for holding what we all recognize is a very important hearing, and the beginning of a series of hearings on an issue which affects tens and tens of millions of Americans.
The Fair Credit Reporting Act of 1970 has made it easier for the people of our country to own their homes, automobiles, and credit cards. And that is the good news. The bad news is that errors in credit reports still exist today and have ruined the lives of millions of other Americans, by making it more expensive and difficult to purchase their own homes or their own cars.
Page 5 PREV PAGE TOP OF DOC And we all understand that this a huge problem that when people want to purchase something terribly important to them, they end up finding out that there were errors in the credit reporting system, which either jacks up the interest rates they have to pay or, in fact, in some cases, makes it impossible for them to purchase what they want.
For example, according to a report by the U.S. public interest research group, 70 percent of the credit reports they studied contained inaccuracies, 70 percent. With 29 percent containing errors serious enough to result in a denial of credit. So that is a hugely important issue that this committee must address.
In addition, the rapid increase in identity theft, as the Chairman has just indicated, caused in large part to the easy access of personal Social Security numbers and billions of unsolicited pre-approved credit applications sent through the mail each year, every year, needs to be addressed by the subcommittee. And I think we are in agreement, Mr. Chairman, about the importance of that issue.
In fact, the Federal Trade Commission reported that the number of persons filing complaints of identity theft nearly doubled from 86,000 in 2001 to 162,000 in 2002. And that the dollar losses reported by consumers skyrocketed by $160 million in 2001 to $343 million in 2002.
Bankrate.com estimates that the average identity theft victim must spend $1374 and 175 hours just to clean up their credit reports. This is a serious problem, and it is a growing problem. It is one that I hope this committee will address.
Just this morning, as it happens, on the front page of ''The Washington Post,'' we have apparently learned just how easy it is to steal the identities of Americans. ''The Post'' reported that Montgomery County Police and federal investigators found a ''veritable factory for counterfeit credit cards, 600 pages containing more than 40,000 allegedly stolen names and credit card numbers, more than 100 newly minted cards under 100 different names, featuring the trademark Visa logo, ''Washington Post,'' today.
Page 6 PREV PAGE TOP OF DOC This discovery was found not at a Visa credit card company. It was discovered in just one couple's home that highlights the need for the subcommittee to find solutions to the scourge of identity theft.
But one thing I would like to make clear, despite what you may be hearing from the financial services and consumer credit industry, and this is an important point, the Federal Credit Reporting Act, FCRA, does not need to reauthorized this year, does not need to be.
The Fair Credit Reporting Act does not expire on January 1st, 2004. The only provisions that expire on January 1st, 2004 are the preemption of State laws that prohibits States from enacting stronger consumer protection statutes. That is all. That is what expires.
So if some of you have seen some of the misleading advertising from the industry, take it with a grain of salt. My own State, the State of Vermont, or the State ofmy own State, my own belief is, and I believe this strongly, and I sometimes find myself in the unusual position of being the conservative on this committee, but I have heard for a long, long time
Chairman BACHUS. Could you repeat that for the record?
Mr. SANDERS. Oh, yes.
In this discussion, there will be some people who want to play the oppressive hand of big bad federal government. Now some of us have heard that for years. We have heard that the best government is that government closest to the people. We have heard about, what is that word, devolution, giving power back to the people and back to the States.
Well, some of us champion that argument. We believe very strongly, not only on this issue, but I was yesterday meeting with women who are involved in the Breast Cancer Coalition, talking about some model programs being developed in various States in the country, that my State can learn from. And the reality is that we have 50 states.
Page 7 PREV PAGE TOP OF DOC You have extraordinary people in each of the 50 states. You have innovative ideas and legislatures in 50 of those states, Governors, Attorney Generals. And the idea, and I hate to quote Newt Gingrich, but the idea that the federal government always knows best may not be most appropriate in this issue.
And my own belief, and strong belief, is that if the State of Vermont or the State of Alabama, or any other states in this country wants to pass laws that are stronger and more pro-consumer than the federal governments, we must allow those states to do that.
That is what our government is about. We have 50 states and we have to respect those states.
According to some in the financial services and consumer credit industry, if we do not extend these states preemptions, the entire credit system will just collapse, fall apart. I think that that is patently inaccurate. And that is not true.
Let us not forget that we had a national credit system before the 1996 state preemptions, and that that system worked well. In addition, as we will hear from Professor Reidenberg this morning, the 1996 FCRA Amendment specifically, and this is important, exempted the stronger consumer protection statutes in California, in Massachusetts, and in Vermont from preemption.
What we have seen in those three states that have stronger consumer protection laws, what have we seen in those three states that are stronger consumer protection laws in regards to credit reporting?
What can we learn from that?
And what we have seen, among other things, is that in the State of Vermont, we now have the lowest rate of consumer bankruptcies in the country. Now I would be the first to admit that there are a dozen other reasons.
But it is significant to know that in the State of Vermont, which has stronger pro-consumer legislation, Vermont has the lowest rate of consumer bankruptcies in the country. The State of Massachusetts also preempted, also allowed to go forward with pro-consumer laws, has the second lowest consumer bankruptcies in the United States. And California comes in ahead of the median.
Page 8 PREV PAGE TOP OF DOC At a time when the United States as a whole is experiencing the highest rate of bankruptcy cases in our history, increasing 23 percent since 2000, I would say that these three examples give us proof that strong state consumer protection laws work.
What about mortgage rates? Well, the most recent data indicate that the State of California has the lowest effective rate for conventionala conventional mortgage in the nation. And Vermont and Massachusetts were well below the median. And that sounds pretty good to me.
Chairman BACHUS. Mr. Sanders, if you could wrap up?
Mr. SANDERS. Well, I am almost finished, Mr. Chairman.
In addition, let us not forget why the 1996 FCRA amendments were enacted. While new members may be aware that identity theft complaints have been the number one complaint to the FDC each year since 2000, and in fact doubled from 2001 to 2002, it was credit bureau mistakes, which were the number one complaint to the FDC 10 years ago.
And it was credit bureau mistakes and complaints about them that led Congress to the 1996 FCRA amendments. From 1990 to 1992, according to a study by U.S. PERG, mistakes in credit reports were the number one complaint to the FDC.
Let me conclude simply by saying this. The issue that we are addressing today is enormously important. My hope that what we will end up with is extremely strong, pro-consumer legislation. And I think one way, one waynot only will we need a strong national floor, but we also need to allow those states who have the courage to go beyond the federal government to be able to continue to do so.
Thank you, Mr. Chairman.
Chairman BACHUS. Thank you, Mr. Sanders.
Chairman Oxley, is recognized for an opening statement.
Mr. OXLEY. Thank you, Mr. Chairman.
Page 9 PREV PAGE TOP OF DOC I am glad I came this morning to hear Bernie talk about his conservativism. And to quote Newt Gingrich
Mr. SANDERS. Well, I think it is important to remind you of your heritage.
Mr. OXLEY. I want to welcome our old friend, Wayne Abernathy to the committee. Good to see you again, and particularly in your new position at Treasury. And our second panel also will welcome particularly Peter Swire, Professor of law at Moritz College of Law at Ohio State University. National champion. I promise that is the end of that.
Mr. Chairman, one of the hallmarks of the modern U.S. economy is quick and convenient access to consumer and mortgage credit. And although it would have seemed unimaginable just a generation ago, consumers can now qualify for a mortgage over the telephone, walk into a showroom and finance the purchase of a car in less than an hour, and get department store credit within minutes.
Over the last 30 years, consumer mortgage credit has more than doubled, and the availability of non-mortgage credit to households in the lowest quintile of income, has increased by nearly 70 percent, including a nearly three fold increase in the number of low income households owning credit cards just in the last decade.
This miracle of instant credit is only possible because of our credit reporting system. However, Federal Reserve Chairman Alan Greenspan recently testified that the credit economy, ''cannot function without the credit histories of individual borrowers.''
The free flow of credit that consumers rely on depends on the free flow of information to lenders, who use that information to assess individual credit risks and extend more products accordingly.
How many times over the past two years have we heard that it is the American consumer who has almost singlehandedly kept our economy afloat? At a time in our history when consumer spending accounts for over two-thirds of gross domestic product, any disruption in the free flow of affordable credit would have serious consequences for job creation and economic growth.
Page 10 PREV PAGE TOP OF DOC Reducing the amount of information available to creditors would compromise the reliability of credit determinations, which could undermine the safety and soundness of U.S. financial institutions, and could increase the cost of credit to consumers, particularly those with less well established credit histories.
The Congressional Research Service notes that ''from an economic perspective, laws that limit the reporting of credit data could impose significant financial costs on consumers and the economy as a whole.''
Perhaps for this reason, our nation's top economic policymakers, including Chairman Greenspan and Secretary of Treasury John Snow have announced their strong support for extending the Fair Credit Reporting Act's uniform national standards.
In addition to maintaining the vitality of the world's most sophisticated and reliable system for the reporting of credit information, we must also ensure that when the system fails, for example, when a consumer is denied credit based upon inaccurate information, or becomes a victim of identity theft, there are procedures in place to facilitate prompt redress.
Americans are increasingly preoccupied with the security of their personal financial information, and for good reason, given the alarming rise in the reported instances of identity theft and other financial frauds.
Assistant Secretary Abernathy has previously highlighted the importance of FCRA's uniform national standards in both deterring identity theft and facilitating the repair of the victim's credit record.
One of the purposes of the series of hearings that the committee embarks upon today is to determine whether more needs to be done in this area to protect consumers. And I suspect the answer will be yes.
Ultimately, the most important protection we can provide for both consumers and for our economy is to address the renewal of FCRA's uniform consumer protections, ensuring that all consumers are treated equally under our laws and have continued access to affordable and available credit.
Page 11 PREV PAGE TOP OF DOC We are a very mobile society. We transact business across state lines virtually every minute of the day. The commerce clause was recognized by the Supreme Court as having a major effect on national economic activity. And we need to keep that in mind.
Since the uniform national standards of FCRA expire at the end of this year, over the coming months, we will be listening to a wide array of viewpoints as we gather information and opinions. The committee will take testimony and develop a comprehensive hearing record that can serve as the basis for legislative judgments on the whole range of FCRA issues.
In conclusion, I would like to thank Chairman Bachus for convening this hearing, for his continued leadership in protecting consumers and our national credit system. I would like to thank ranking minority member Mr. Frank for his support and cooperation in initiating the process in a bipartisan manner. And I hope that we can continue to work together closely as this process moves forward in the next few months.
Mr. Chairman, this legislation going forward is probably the mostcertainly the most important piece of legislation that this committee will deal with the rest of this year, this congressional session. And we have tackled some important issues over the last few months in this new Congress. And we have passed them successfully and moved them onto the Senate.
But this reauthorization of FCRA is project number one for the Financial Services Committee for the foreseeable future. And certainly, the members are asked to get up to speed on these issues. And we appreciate the attendance today at this important hearing. Again, congratulations for starting this process.
This will be a deliberative process. At the end of the day, make no mistake, this committee will act. This committee will pass legislation reauthorizing the Fair Credit Reporting Act. And that is our job number one. And we will continue to pursue that effort.
Again, thank you, Mr. Chairman. I yield back.
Page 12 PREV PAGE TOP OF DOC Chairman BACHUS. I thank the Chairman. The gentle lady from New York?
Mrs. MALONEY. Thank you, Mr. Chairman. Today, this subcommittee begins consideration on the reauthorization of the Fair Credit and Reporting Act, portions of which expire at the end of the year.
This is one of the most significant topics that this subcommittee will consider possibly for many years. The FCRA has a major impact on the lives of all of our constituents. When families sit around the dinner table and make their monthly budgets, it is often the cost of credit that is the greatest variable in figuring family expenses.
All consumers should know that credit reports affect the cost of mortgages, car loans, and credit cards. What consumers may not know is that credit reports reach even deeper into their lives, impacting their employment prospects and their attractiveness as insurance risks.
The sweeping impact of the FCRA is further reinforced by a study released yesterday by the Financial Services Roundtable and reported in ''The American Banker,'' which found that failing to reauthorize could cost the economy nearly $90 billion in GDP, $20 billion in additional incremental interest for consumers, and over 19,000 fewer single family homes.
These are incredibly large numbers, especially in a struggling economy. While the costs of failing to extend FCRA may be significant, I believe that the cost of not improving the law, while we have a chance to do so, is just as important. This subcommittee must address the tragedy that is identity theft while we have a chance.
Too often, victims of ID theft are left to fend for themselves. I have personally worked with the constituents, who must struggle to repair their credit through a process that can take several years and cost thousands of dollars.
Representative Hooley has an excellent bill on this issue, and I am proud to be a co-sponsor. I hope this bill would be considered as part of FCRA reauthorization. I also believe this debate gives us a significant opportunity to empower consumers to take more control of their credit ratings. We must take additional steps to improve credit report accuracy and increase consumer education efforts.
Page 13 PREV PAGE TOP OF DOC This is especially important for populations that have traditionally been consumers of predatory or high cost lending. Given the importance of the task before the subcommittee, I am very pleased that Assistant Secretary Abernathy is here to share the views of the Treasury Department with us. This topic is so important that the position of the Administration will have to be well defined if Congress is to act in an expeditious manner.
In this regard, I am somewhat concerned that with the exception of declaring strong opposition to identity theft, the Treasury testimony submitted to the committee this morning seems to ask more questions than it answers.
The FCRA has incredibly serious consequences for the economy and for individual consumers. I hope we can have a bipartisan agreement that strengthens this market for the benefit of consumers before the end of the year. And I yield back the balance of my time.
[The prepared statement of Hon. Carolyn B. Maloney can be found on page 78 in the appendix.]
Chairman BACHUS. Thank you. The gentleman from California?
Mr. ROYCE. Thank you, Mr. Chairman. Thanks for holding this hearing.
I think the Articles of Confederation expired in 1787, when we begin the process of drafting a national commercial system under the Constitution. I think Murray Rothbard was the last enthusiast for that patchwork quilt. I am not sure if he ever convinced Newt Gingrich, but he was a purist on the issue.
But today, consumer credit plays a major role in the U.S. economy. And today, the Federal Reserve estimates that consumers owe about $7.7 trillion in mortgage and auto and other types of loans. And I think it is fair to say that a national credit reporting system here in the United States has been crucial to the development of consumer access to credit.
And I think it is evidenced by the fact that an individual can go to any state in this country, and he can get approval or she can get approval for a car loan in a matter of minutes.
Page 14 PREV PAGE TOP OF DOC Additionally, since the national system allows providers of credit to conduct cost effective due diligence, consumers receive access to credit at one of the lowest costs in the world, a much lower cost than they would receive if we did not have this national system.
So what we want to focus on today is how do minimize errors in that system, how do we ensure that there are true disincentives that we are going to prosecute those who are involved in identity theft, what we do to make this system work more effectively.
And I think as we begin to re-engage in this debate about fair credit reporting, I look forward to hearing our witnesses' views on the issue of federal government preemption of State law in the context of the Fair Credit Reporting Act. And I think the Chairman is to be thanked for his leadership in bringing this issue now before this subcommittee.
And I would also like to take this opportunity to thank our witness Assistant Secretary Abernathy and our witnesses that are going to appear today, as we discuss with our colleagues the best solution for the consumers in this country and for our U.S. economy. And I yield back the balance of my time.
Chairman BACHUS. Thank you.
Is there another member in the minority? Mrs.Mr. Moore, Ms. Hooley, I am not sure. Ms. Hooley?
Ms. HOOLEY. Mr. Chairman? Are you ready? Okay.
Thank you, Mr. Chairman and ranking member Sanders. I look forward to the first of these hearings on whether or not to reauthorize the seven expiring provisions of FCRA. As I have said to everyone I have met on this subject, I am convinced the credit system in place in the United States is the best credit system in the world.
The supremacy of the credit system is no doubt a result of the strength of our financial industry, the watchfulness of our consumer groups, and the thoughtfulness of past congresses.
Page 15 PREV PAGE TOP OF DOC I am very hopeful that we in the 108th Congress follow the example of past congresses and debate and consider reauthorization of FCRA with the same amount of diligence. While I mentioned that I believe we have the best credit system in the world, I also see room for improvement, both in industry practices, and in government regulation.
But foremost on my mind is the rising problem of identity theft. The problem is receiving more and more public and media attention. Representative Sanders mentioned the article in ''The Post,'' the front page. Well, this article and these kinds of articles appear every single day in every newspaper across the United States.
We need to do whatever we can to stop this criminal activity. A 2003 survey I recently saw found that 92 percent of Americans think it is important that government take action on the issue of identity theft. I know many of us think it is inappropriate to govern by polls, but we cannot and must not ignore the fact that Americans throughout the country are begging for us to act and help them.
Today, with Mr. LaTourette, I am introducing the Identity Theft Bill. We have about 40 co-sponsors, many of them sitting in this room. But this bill is just one of many being considered by this committee, dealing with identity theft. Many of my colleagues also have great ideas and have built up.
But identity theft is going to take all of us working together to solve this problem. Assistant Secretary Abernathy, you have made comments publicly stating your support for legislation to help fight identity theft. And each time I read those comments, I welcome them for I think this must be a central part of the debate.
We have sent a copy of our legislation over to you. I hope you will look at and again comment on it, criticize it, and give us your ideas. I thank each of the witnesses that are with us today for taking your time to help this committee. I look forward to the continued debate. And, again, trying to keep an eye on helping our fellow Americans with identity theft and with our credit reporting system, and with our financial systems.
Page 16 PREV PAGE TOP OF DOC Thank you. I yield back the restthe remainder of my time.
[The prepared statement of Hon. Darlene Hooley can be found on page 76 in the appendix.]
Chairman BACHUS. Thank you. The gentleman from Texas?
Mr. HINOJOSA. Thank you, Chairman Bachus. I have a statement, but rather than read it, I think I would like to just ask for your permission to enter it in its entirety into the record, together with a memorandum that I have as an attachment to thisto these remarks.
Chairman BACHUS. Without objection. And Mr. Hensarling?
Mr. HENSARLING. Thank you, Mr. Chairman. I would just like to state for the record that it has been my honor and privilege to know this witness I believe for over 15 years now. I know him to be a man of keen intellect, a man of great integrity. Obviously, he is one of the undisputed experts in the area in which we are hearing testimony today, but if my memory serves me right, I must admit that his softball playing expertise must be called into question.
The nation's benefited from his public service. And I look forward to hearing his testimony today, Mr. Chairman.
Chairman BACHUS. I thank the gentleman. I think that is an appropriate introduction for our first witness. And so we will go from there.
I do want to say this, I think the Statements on both sides have illustrated quite accurately that we are talking about one subject, but it has many facets. We are talking about the National Credit Reporting System. We are also talking about the need for consumers to have their consumertheir financial information, security for that information, and also that their information be accurate, and that they be able to correct mistakes in their credit report.
Page 17 PREV PAGE TOP OF DOC It is important, I think, for our economy, for availability of consumer credit across state lines, for us to address all these issues. But they are not mutually exclusive. It is not an either/or situation. In fact, the issues are synonymous when we talk about the need for a viable National Credit Reporting System or sustaining one. We alsothe need is there for an accurate system. The need is there for a secure system. So they are one in the same when we discuss these problems.
And I think that when we address national credit reporting system, it is only natural for us to talk about identity theft, because it is all a part of the same issue.
And we certainly do not want a system where we have widespread identity theft. Nor do we want a system where consumers cannot respond and correct it. I recognize Ms. Waters and then we will go to the first panel.
Ms. WATERS. Thank you very much, Mr. Chairman. I really had not intended to do an opening statement. But as I listen to you, I am reminded why many of us decided to be elected officials. There is no greater service that we can perform, than protecting consumers. Our consumers are at the mercy of very complicated systems, applying for credit, you know, paying bills, trying to protect their privacy, and trying to understand the systems that determine the quality of life they are going to have.
In this committee, we get the opportunity to serve, perhaps, in the best way possible, by putting aside any alliances we may have with special interest groups, and focusing on what we can do, number one, to protect the consumers in everything from credit reporting to the operation of the Fair Credit Reporting Act, in any and all ways that we can.
And we must remember that we want the best possible opportunities for protection for protection for our consumers. And if states can do this, we must not get in the way of States who will have stronger laws for protecting consumers by somehow preempting them. That is a very serious issue that we have to look at.
Page 18 PREV PAGE TOP OF DOC This business of the credit scoring, I hear so many complaints about mistakes that are made. And people are denied the opportunity to realize the American dream of a home because the credit reporting is inaccurate. And we must correct that. And we must now have consumers at the mercy of agencies that are either careless in their work, or for some reason, they are not interested in doing the absolute best job that they can do.
And, finally, this business of identity theft must be dealt with. And when it happens, we cannot have consumers taking a year or so out of their lives to correct it. I know people who are working almost into two years to correct the identity theft. We can do better than that. And Mr. Chairman, let me just say if we cannot get it right here in this committee, with subject matter, than none of us need to be here.
Thank you very much. And I yield back the balance of my time.
Chairman BACHUS. I thank the lady for her remarks.
At this time, our first witness, and you heard from Mr. Hensarling about our first witness, but Assistant Secretary Abernathy was sworn in as Treasury Assistant Secretary for Financial Institutions in December of 2002, after being nominated by the President on August 1st of last year.
But I think more importantly to this committee, he brings 20 years of financial policy expertise to that position, having most recently served as Staff Director of the U.S. Senate Committee on Banking, Housing and Urban Affairs.
So Mr. Abernathy or Secretary Abernathy, most of us are well aware of your expertise and your knowledge in this area. And we very much welcome your comments this morning.
STATEMENT OF HON. WAYNE ABERNATHY, ASSISTANT SECRETARY FOR FINANCIAL INSTITUTIONS, DEPARTMENT OF TREASURY
Mr. ABERNATHY. Thank you, Mr. Chairman, Representative Sanders, members of the subcommittee. It is an honor to be here before you today in this capacity. I agree with the comments that I have heard here. I think there could hardly be
Page 19 PREV PAGE TOP OF DOC Chairman BACHUS. Sort of come to order. And thank you, Mr. Abernathy.
Mr. ABERNATHY. Thank you, Mr. Chairman. And I would also ask if my full statement would be placed in the record. And I will summarize for the benefit of the committee.
There could hardly be a more important subject to consider than the information infrastructure of our financial system. So much of the economy and the welfare of every participant in that economy is dependent on getting right the legal structure of our financial system, particularly of the financial information infrastructure.
In 1996, the Congress undertook an experiment with uniform national standards for financial information sharing. It is appropriate now that Congress evaluate what the results of thosethat experiment are. And we are eager to participate in that evaluation, as we develop Administration policy.
We should keep in mind that all Americans have two very important interests with respect to this matter. First of all, they have an interest in the widest availability of financial services at the lowest cost to as many people as possible.
Second, they have a strong interest in the security of the personal financial information that is related to the availability of those financial services. These two interests together need to be weighed, and taken together, and accommodated together. And I believe that they can be. We would suggest considering the following questions, as we begin this process.
Do uniform national standards facilitate or harm the fight against identity theft?
Do uniform national standards reduce or increase the cost to the consumer of financial services?
Page 20 PREV PAGE TOP OF DOC Do uniform national standards bring more or fewer people into the mainstream of financial services?
To what extent do uniform national standards help or hinder job creation?
Is small business development helped or harmed by uniform national standards?
In short, what costs and benefits to the economy as a whole can be attributed to uniform national standards?
And what would be the economic impact, if they were allowed to expire?
One area that we have been particularly concerned with is the role that the FCRA uniform national standards play in the fight against identity theft. The importance of this concern can be understood by a brief review of the nature of the crime.
Identity theft is one of the fastest growing crimes in America today. By some estimates, there will be as many as one million new casualties, new victims to identity theft this year, with many times that number already in the ranks of sufferers.
In a recent national survey of homeowners, 12 percent reported having been victims of identity theft. Few other crimes have touched such a large portion of Americans. In that same survey, 90 percent said they were concerned that they might be a target of identity theft. A separate survey recently found that Americans are more concerned about being a victim of identity theft than they are about losing their jobs.
The crime of identity theft occurs in great variety. As I speak, somewhere someone is using someone else's good name to engage in fraud, to steal from a furniture store, to rob a bank account, engage in stock swindles, write bad checks, run up huge phone bills, escape gambling debts, shield illegal drug deals, create false resumes, impersonate doctors, or other professionals, destroy reputations.
And do not look for patriotism among identity thieves. When our soldiers, sailors and airmen moved to the front to engage the enemy, the identity thieves are ready to take advantage of their absence, to steal their identities, to engage in fraud.
Page 21 PREV PAGE TOP OF DOC I would guess that the soldier in the 3rd Infantry Division in Baghdad was not giving much thought today to his bank account, or worrying about his credit cards. He is certainly not looking at his financial statements, but the fraudster's paying attention. For he knows that the fraud could go undetected for a long period of time unless friends and family are vigilant, on the watch here at home over the financial affairs of this serviceman or woman overseas.
Arguably, the most virulent form of identity theft occurs when the crook takes your good name and uses it to open new accounts, that you know nothing of, with statements going to places that you have never been, so that weeks and months pass without your knowledge of the fraud.
The crook may even keep up minimum payments for a period of time, until they max out on the credit limits. Then he disappears. The payments stop and the creditors come looking. But they do not come looking for the crook. They do not find the crook. They look for you. And then you will see perhaps the most painful of all the many faces associated with the crime of identity theft, the face of the victim.
Where do you go? How do you begin to clear your name? How do you convince creditors all around the country that you never made those transactions, that there must be some mistake? Remember, crooks have long sought to exploit state lines to avoid punishment.
The General Accounting Office reports that it can take victims as many as 175 hours, man hours, to clear their name and their records. Now what role have the uniform national standards under the FCRA to play? And what role have they played in the fight against identity theft?
What role might they play in the future? Are they more likely to cause the crime? Or can they be enlisted in the fight against it? Certainly, the crook uses information to craft a mask, as much in the likeness of the victim as he can make it. What steps can we take to deny the thief the information tools he needs to maketo take away the mask?
Page 22 PREV PAGE TOP OF DOC In what way might we be able to put information to work, to fight the crime? If the merchant or banker knows more about his customer than the identity thief does, can we unmask the crook and prevent a loss from occurring? If information about the thief can cross state lines faster than he can, might we enable the sheriff to meet the thief at his next stop?
And what role does information play in restoring the records of victims? Can it be harnessed in the effort to eradicate the false information? As we consider the uniform standards for information sharing under the FCRA, we anticipate working together with you, to consider how this review can help in this crucial fight against identity theft.
And so as I said in the beginning, whether considered from the impact on each family in America or on the economy as a whole, there could hardly be a more important inquiry than the one you begin today. Thank you and I will now be pleased to answer questions.
[The prepared statement of Hon. Wayne Abernathy can be found on page 80 in the appendix.]
Chairman BACHUS. I thank the Assistant Secretary. Mr. Abernathy, you state in your testimony that since the experiment with uniform national standards under FCRA began, we have witnessed a significant increase in the availability of credit to Americans.
Given that consumer spending now accounts for over two-thirds of our country's gross domestic product, and I think you heard the Chairman mention that in his opening statement, is it safe to assume that any significant reduction in the availability of consumer credit would have serious negative consequences for the U.S. economy?
Mr. ABERNATHY. I think that has been very clear. As many have pointed out, one of the positive factors that we have had in the economy recently has been the fact that we have been able to sustain consumer spending.
And where would the economy be if that had not happened?
Page 23 PREV PAGE TOP OF DOC I think it is easy to say and undeniable that we would have been in very serious circumstances. The economic downturn would not have been as brief, would have probably been steeper, would have taken us a lot more time to get out of it.
Chairman BACHUS. Anything that we do we limit consumer spending, obviously has a detrimental effect on the economy and the nationalthe uniform national standards have resulted in an increase in consumer spending, is that safe to say?
Mr. ABERNATHY. The various studies that I have seen so far, and there are more that are coming forward, all point in that direction.
Chairman BACHUS. Thank you.
Can information sharing and pre-screening help target economic resources more efficiently and get consumer products they want, instead of junk they do not?
Mr. ABERNATHY. That is one of the things that we need to evaluate, one of the interesting questions that would be interesting to pose to a group of people. And try this sometime in an audience. Ask them how many of you here wish that you never got ever again a pre-screened credit solicitation in the mail?
And you can see a lot of hands go up. Then ask how many of you people, the same ones, currently hold a credit card that you obtained through a pre-screen solicitation. And very likely, you will see almost the same hands go up.
People, I think, a little bit of two minds of this process. And that is why we think we need to look at this in its entirety, again keeping in mind that there are two goals here that we need to achieve, and that I think are both achievablefacilitating the provision of credit and financial services to consumers, at the same time protecting the security of their financial information.
Chairman BACHUS. I tell you, I can speak for one consumer, myself. I think these activities of receiving a pre-screening often in the mail is certainly less intrusive than mass telemarketing appeals that come at 8:00 at night or during the middle of a football game.
Page 24 PREV PAGE TOP OF DOC Isn't a certain level of information sharing under FCRA helpful in combating identity theft and fraud? And doesn't having national uniform standards facilitate a company's ability to utilize additional authentications and identity verifications to protect consumer security?
Mr. ABERNATHY. Yes, as we have been trying to come to grips with this problem of identity theft, we have talked to a lot of people. We have talked to victims from all around the country. We have talked to law enforcement people. We have talked to regulators.
We have talked to industry. And we have asked them, just what can be done to improve the effort to fight identity theft? And every one of them constantly emphasizes the importance of information as the tool, the single most important tool for fighting identity theft.
So, again, remember, identity theft takes place when the crook puts on a mask. He is pretending to be somebody he is not. If we can find the way to see behind that mask, perhaps at the point of sale, at the point of transaction, we can stop a lot of identity theft from occurring. But that means information has to move quickly and it has to be accurate.
Chairman BACHUS. And authentications and verifications are a part of the national credit reporting system, aren't they?
Mr. ABERNATHY. They are. And it is an interesting pattern, as we talked to people. It used to be not terribly long ago that financial services providers, retailers, rely upon a single source of identity verification. They have discovered now that what they need to do is rely upon a package. And they need to be able to change that package, because the identity thieves are figuring these things out. And it used to be, well maybe your mother's maiden name is a unique identifier.
We had a high official at the Treasury Department give my staff a Rumpelstiltskin kind of test a little while ago. He said by tomorrow, tell me my mother's maiden name. My staff did it. They were able to keep their first-born, but it demonstrates that whatever these unique identifiers are, they change.
Page 25 PREV PAGE TOP OF DOC And what is needed is to allow the ability of the financial service provider, the retailer, to be able to change those unique identifiers faster than the crooks can.
Again, it is important that they know more about their customer than the thief does.
Chairman BACHUS. Thank you. Mr. Sanders?
Mr. SANDERS. Thank you, Mr. Chairman and thank you, Mr. Abernathy for your testimony.
Mr. ABERNATHY. Thank you.
Mr. SANDERS. From what we have heard this morning, I think from everyone, we all recognize the importance of this issue. And among other things, we all recognize the tragedy of identity theft.
And, obviously, the devil will be in the details, but I hope that we can all work together to deal with this scourge that is affecting so many American people. And we appreciate your help and comments on that issue.
It seems to me that the best thing that we can do as a committee, as a Congress, is to pass the strongest possible national legislation as a floor, but to allow those states that want to go beyond that to be able to do so.
I will give you an example. In the State of Vermont right now, to the best of my knowledge, and in some other states, if you as a consumer want, you can get a free credit report from one of the bureaus. That exist in some states, but not in all states. It is just a minority of States. I think that is a good idea.
I will fight to see that that exists in 50 states, but my question to you is if I am not successful, do you think that legislation should be passed which would preempt the State of Arizona or New Mexico from doing what seven states or so do right now, if they choose to do that?
Page 26 PREV PAGE TOP OF DOC Mr. ABERNATHY. Thank you, Mr. Sanders. I think as we evaluate how well the current system is working, and that is in essence what we are talking about. How has the current system worked, the uniform national standards, the seven that occur in the FCRA?
I think we need to look at that experiment in a couple of ways. And I think you point out that the Vermont example is part of that experiment. While we have been conducting an experiment nationwide of uniform national standards, we have had a couple of experiments going on simultaneously where that is different. And I think we need to evaluate what the data and the information tells us in all of those cases.
With regard to the free credit report, as we have been putting together a number of different suggestions on how to tackle the issue of identity theft, that has been one of the suggestions that has been made to us from a number of different parties. And I think there is a lot of merit to it.
As I have been saying to the credit reporting agencies, and particularly to their customers, there is a strong interest on the part of the user of their product that their information be accurate. A bank wants to be able to provide financial services. They want to be able to target the financial service as carefully as possible for their customer as they can.
One of the great phenomenon that has occurred in the last several years in financial services is the ability to tailor make products. But the only way you can tailor make a financial service for somebody is making sure the information you have is right.
And I wonder what impact it would have on the accuracy of information if we had 150 million people verifying the information that is there. I have to think that you would be enlisting the people who would be most interested and most sensitive to making sure that information is correct.
Mr. SANDERS. I do not mean to put you on the spot, and I very much appreciate your comments, but what I am hearing you say is that you are not unfavorably disposed to us having national legislation which would allow every American to gain full free access to their credit history? Is that roughly what I am hearing you say?
Page 27 PREV PAGE TOP OF DOC Mr. ABERNATHY. That is very much on the table if things were considered.
Mr. SANDERS. Okay, well, I appreciate that very much. Thank you very much, Mr. Abernathy.
Mr. ABERNATHY. Thank you.
Chairman BACHUS. Let me read out the list of Members in the order that the committee staff has given me, and let us make sure that we are all on the same page here. I have the next person that is here on our side as Mr. Kennedy, that he would be our first Member to ask questions. And then we would go to Ms. Maloney.
Then we go to Mr. Hensarling. Then Mr. Meeks, then Mr. Garrett, Mr. Moore, Ms. Biggert, Ms. Velazquez, Ms. Capito, then Ms. Hooley, Mr. Tiberi, then Mr. Gutierrez is not here any longer so Mr. Hinojosa, Mr. Castle, Mr. Davis. And then on this side, I have Lucas, Davis, McCarthy, Ford, and Gonzalez. Is thatwas that theMr. Gonzalez, have you been here since the start?
Mr. GONZALEZ. More or less, sir. I got here at
Chairman BACHUS. That is what I was thinking.
Mr. GONZALEZ. 15 minutes late.
Chairman BACHUS. This part is a little inaccurate. So I am going to try to work with that, but
Mr. GONZALEZ. Thank you.
Chairman BACHUS. But that will give somewhat of a
Mr. SANDERS. We stand in reporting, Mr. Chairman.
Chairman BACHUS. Say what? That is right, that it isthis system that we have of who comes in is a little hard sometimes to order, but Mr. Kennedy?
Mr. KENNEDY. I thank you. And thank you for your testimony.
Page 28 PREV PAGE TOP OF DOC I would like to just have you clarify again what benefit or harm it would cause to the economy to commercial business if there were rights for the States to over and above what was enacted through Fair Credit Reporting Act, be able to put on more stricter provisions in the States?
Mr. ABERNATHY. Mr. Kennedy, that is something that we are examining right now at the Administration, just what would be the impact if the uniform national standards that are currently in place were allowed to expire at the end of the year. From the point of view, sort of a micro level, what impact would it have on individual families? But also, what impact would it have on the economy as a whole?
All of the studies that I have seen so far indicate that the impact would not be immediate, but that the impact would progressively grow and could become very large. But we are right now evaluating that.
Mr. KENNEDY. And do you have any studies as to the cost that would be incurred by financial businesses if there was a patchwork quilt of regulations that needed to be dealt with around the country, and how much that would affect the cost of financial services to consumers?
Mr. ABERNATHY. We have seen a number of studies. I think there are some other work that it is going to provided probably in the next week or two from some private parties. I think your witnesses are going to be presenting some findings of their research. The Council of Economic Advisers is not only evaluating that, but we are doing some of our research on our own.
I would say there are preliminary information that some of these studies point at, but we want to make sure that we have the whole picture together before we say exactly what that impact would be. But I think it is undeniable that we are talking about something that is significant.
Page 29 PREV PAGE TOP OF DOC Mr. KENNEDY. Thank you.
And as we look at identity theft, you know, we in this new post 9/11 world have looked at a lot of homeland security proposals for how we can certify someone's true identity, including biometrics and other measures, to confirm that the person we are talking about truly is that person.
Has there been any creativity seen in other countries, in other applications, that could help us assure that the person using the credit is in fact that person?
Mr. ABERNATHY. There are a lot of very interesting things being done in the world of technology with regard to verifying identities. And certainly, we want to make sure that we do not do anything that discourages use and putting in place of the technologies that will help in that regard.
I think also, though, that there are things that we can do legislatively and perhaps regulatorily, that will facilitate the ability to verify who people are.
Mr. KENNEDY. Good, thank you for your testimony.
Mr. ABERNATHY. Thank you.
Chairman BACHUS. Ms. Maloney?
Mrs. MALONEY. Okay, thank you, Mr. Chairman. And welcome Assistant Secretary. I appreciate very much your appearance today, since we have something now very much in common. Your former boss, Senator Gramm, is now one of my constituents. So I can say we are both working or have worked for the same person.
Mr. ABERNATHY. He is working on the accent.
Mrs. MALONEY. Anyway, I truly appreciate your testimony. And I appreciate the lengthy discussion on identity theft in your testimony. It is truly a huge problem. And many of my constituents have been affected by it.
But beyond identity theft, does the Administration have a position on reauthorization of FCRA? Do they have a position?
Page 30 PREV PAGE TOP OF DOC Mr. ABERNATHY. We have a position. We do not have the final position yet. We are in a process. I think much the same process that is taken place here in the Congress.
Our position is, as we begin this process, that there are two very important interests that must be part of whatever the final legislation or solution or action is. And that is, that whatever we do, we have to make sure that we are facilitating access to credit for as many people as possible, in as wide a variety as possible, while also improving and increasing the security of the information.
If we can bring those two goals together, which I think we can, then I think we will have legislation that at the end of the year would better the circumstance of the consumers, which as I think as many pointed out, really need to be the focus of what we are doing.
Mrs. MALONEY. So this proposal will not be ready until when, January you say or?
Mr. ABERNATHY. No, I am saying where we are now is we have focused on what these two things are that need to be accomplished.
Mrs. MALONEY. Yes, I think we all agree with that, but when can we hear from the Administration what their position is?
Mr. ABERNATHY. It is a top priority, not only for the Treasury Department, but for the Administration as well. I think the answer of when we have the package of things that we think ought
Mrs. MALONEY. And when do you estimate that will be? In a month or two or three or six or 10 or?
Mr. ABERNATHY. I would say the sooner the better.
Mrs. MALONEY. The sooner the better.
Mr. ABERNATHY. It is just a matter of when we have thewhen we have all the pieces together for it to be a comprehensive set of actions.
Page 31 PREV PAGE TOP OF DOC Mrs. MALONEY. Okay. We cannot pin you down. You are like Greenspan. You are not going to tell us when you are going to have that. But does the Administration have any position on the privacy related ballot initiative in California that deals with Gramm-Leach-Bliley privacy provisions?
Mr. ABERNATHY. Now I do not believe the Administration has any position on that. Frankly, we do not make a habit of looking very closely at legislation that is before particularly states. I will say in as much as that impacts what is being done at the federal level in this area, we want to make sure that we can achieve those two goals that I have outlined.
Mrs. MALONEY. Also, among the functions of the seven provisions in FCRA that are expiring are exemptions dealing with loan underwriting, and preemptions that make it easier for companies to market products. So those are two of the preemptions, the loan underwriting and the marketing of products.
Some observers contend that it is impossible to separate the two. Does Treasury have any position on the relative importance of reauthorizing preemptions for underwriting versus marketing? And do you agree that the two are interrelated and inseparable? Or do you feel that the two can be separated?
Mr. ABERNATHY. No, I think you correctly point out that we need to consider that in the FCRA, there are seven particular uniform national standards. I think they are closely related, but I do not think that they are inseparable.
I think each one has its own particular purpose. They each relate to one another. And part of, I think the process in coming up with a uniform policy that makes sense for customers is being aware of how they relate to one another.
Mrs. MALONEY. In your testimony, and you spoke quite lengthily on identity theft, and you did note that you are concerned about the role that FCRA uniform national standards play in the fight against identity theft. And do you have any concrete recommendations for strengthening the provisions to fight identity theft?
Page 32 PREV PAGE TOP OF DOC Mr. ABERNATHY. We have a number of things that we are looking at. And that, frankly, is part of the package that we hope to bring to you is
Mrs. MALONEY. Can you share some of those ideas now or?
Mr. ABERNATHY. I would love to that, but what I have learned, one of the best processes that you have in work in the Administration is, when you have a good idea, you have to make sure the corners get rubbed off, if there are problems or any burrs on. And we are going through that interagency process right now.
So rather than share them, and then say, well, I have discovered there is a piece where it can be done better, we would like to make sure we have a good product before we bring it forward.
Mrs. MALONEY. In Peter Swire's testimony on the second panel, he addresses reports that the Administration is circulating a draft of PATRIOT 2 that would give unprecedented access to credit reports to government agencies.
The proposal in section 126 of the draft PATRIOT 2 Act is titled ''Equal Access to Consumer Credit Reports,'' but Mr. Swire contends it would allow law enforcement officials to get any credit report with a simple certification that they will use the information, and I quote ''only in connection with their duties to enforce federal law.''
There are no limits on redisclosure to other agencies and no mechanisms at all to ensure that the credit reports will be used for the Stated purpose, once they are given to the government. And does Treasury support this proposal? And could you please respond to Mr. Swire's criticisms?
Mr. ABERNATHY. If I could get back to you on that, Mrs. Maloney. I have not been part of any of those discussions, but I can certainly make sure that that question is taken back to those at Treasury that do work with that legislation.
Mrs. MALONEY. Well, I thank you. And you will get back to us in writing or how
Page 33 PREV PAGE TOP OF DOC Mr. ABERNATHY. If you would like, yes, we can
Mrs. MALONEY. Whatever way. Thank you.
Mr. ABERNATHY. Sure. Happy to do that.
Mrs. MALONEY. Thank you.
Chairman BACHUS. Ms. Kelly?
Mrs. KELLY. Thank you very much, Mr. Chairman.
Mr. Abernathy, it is nice to have you here again.
Mr. ABERNATHY. Thank you.
Mrs. KELLY. I am pleased that Chairman Greenspan and Secretary Snow have both endorsed the extension of the FCRA's uniform standards. And I share their views that a failure to reauthorize the FCRA would have a negative impact on the flow of credit and on our economy.
As you know, this committee's worked really hard to combat money laundering through the PATRIOT Act. We found that both criminals and terrorists use complex and very sophisticated schemes to manipulate the laws and our financial systems.
Their deception is spread across many entities. And it has continued to expand. I personally am concerned that not extending the FCRA may affect our ability to detect suspicious activity. I wonder if you could comment on the impact that failure to reauthorize the FCRA may have on our ability to carry out the PATRIOT Act?
Mr. ABERNATHY. I think that is certainly one of the things that needs to be weighed, as we examine thisthese uniform standards and how they operate, not only from the point of view of what we would consider traditional relationships between a customer and their financial services provider, but also thehow they might help us in a law enforcement way to combat things like money laundering.
One of the things that I continue to emphasize to the people in Treasury that do the day to day work on money laundering is that we need to maintain a cooperative relationship with the financial institutions in order to get the best kind of information on who the crooks are.
Page 34 PREV PAGE TOP OF DOC And it may be that the ability to have uniform ways of reporting information are central to that responsibility, central to that effort.
Mrs. KELLY. There is another troubling issue on which I have held hearings with Mr. Bachus. And that is identity theft.
Could you tell me your thoughts on how the FCRA and the information sharing that it provides has helped combat identity theft?
Mr. ABERNATHY. I can give you one example in particular that recently brought home to us. My wife thought it would be a great idea from my father-in-law for a gift to buy him a riding lawnmower so he would not have to mow his acre and a half in the countryside of western New York by hand. Or actually, she was concerned that her mother was doing that and that maybe if they got a riding lawnmower, dad would get out there and drive thing and do the mowing.
Well, after we bought that riding lawnmower, the very next day, we got a phone call. And the phone call was not from my in-laws. They would have called a little earlier than that. We got a phone call from our credit card company.
They said, ''Did you make a purchase in upstate New York at a garden supply store?'' And we said, ''Yes.'' They said, ''Okay, just wanted to know.''
They were using information that they were able to obtain, facilitated by the Fair Credit Reporting Act to verify whether that was a legitimate transaction or not. And my wife's reaction was gee, I am awfully glad they are doing that and that they can do that.
In many cases, I have heard of other cases where identity thefts have been discovered through that same set of process.
Mrs. KELLY. At one of our earlier committee hearings on identity theft, we had an expert security consultant that came in and testified that we need better practice standards to be implemented for information, security and auditing procedures. This is an issue that you think we ought to be taking a look at with more closely with regard to the FCRA?
Page 35 PREV PAGE TOP OF DOC Mr. ABERNATHY. Yeah, I think that all of these issues have to be on the table. And we have a great opportunity be doing that. And that certainly would be an important one as well.
Not all that we need to do needs to be done legislatively or regulatorily. There are also important best practices that can be developed.
Mrs. KELLY. Do you think there are potential ways that we can help consumers get more information to help them combat identity theft and fraud or to help coordinate with localwith law enforcement people and toI do not know if that is increased penalties or some kind of information sharing that could happen. It seems to me that perhaps we can energize consumers themselves to do a bit more to help protect against identity theft?
Mr. ABERNATHY. Yeah, they really are the first line. And I think a lot of identity theft can be stopped if people knew a little bit more about their credit reports, how the financial system operates. One of the other things that I spent a lot of my time, one of the responsibilities I have is financial education.
There is a crying need in this nation to improve the level of financial literacy. It is amazing to me the kinds of mistakes and trouble that people get into and might have been able to avoid had they known some of the basic rules of what we might call financial literacy of how financial affairs operate.
I think that certain types of information can be very helpful. I am eager to see the day when the average customer is able to put a stop to a lot of these problems just on their initiative. I do not think that is enough. I think there are a lot of other things that need to be done, but that is got to be an important part of it.
Mrs. KELLY. I am glad to hear you say that. I believe that financial literacy is something that is at a very low level, in general, in this nation. And we do need to do something about it.
Page 36 PREV PAGE TOP OF DOC And with the addition of the Smart technology that it seems to be coming more and more available, that is a potential thing. So anything you can help us with on that score I certainly think this committee would be grateful for. And I thank you and turn back the balance of my time.
Chairman BACHUS. Thank you, Ms. Kelly. Mr. Meeks?
Mr. MEEKS. Thank you, Mr. Chairman.
Mr. Abernathy, let me firstI do not know, I want to ask a question. It is something that has been happening with some constituents of mine and that they have been complaining about recently. Find out if you are aware about it, and what if anything you would recommend to be done?
Recently, I have had a number of complaints from individuals talking about insurance companies who are actually using credit information as a factor to increase or decrease their auto insurance, even though they may have a great drivers record, never had an accident, never had any problem, but if they had a problem with their credit, they have a credit report, that is causing the insurance companies to charge higher rates.
Have you heard of anything of this nature? And if so, what would you recommend be done about it?
Mr. ABERNATHY. I have heard anecdotes. Nothing in any kind of systematic way. Maybe I have heard some of the same kinds of complaints that you have. As you know, insurance is regulated at the State level. We do not have any federal insurance rules with regard to that.
There is obviously a strong interest on the part of insurance companies in particular to get the risk right. The way an insurance company makes money is by accurately, as accurately as they possibly can, identifying what the risk is of each particular customer.
And the way they compete with one another in many ways is how they can identify that risk better than their competitor can. There are other elements that they use to compete with, but that is an important part.
Page 37 PREV PAGE TOP OF DOC To the extent an insurance company gets that risk wrong, either by charging too much of a premium for a customer or too low of a premium, in the end, they will lose money. So I would think that over time, companies could not get away with that sort of practice.
Inasmuch as there is a practice that they are engaging in that is unfair, I would hope and would expect that the State regulators would be involved with that and that those kinds of complaints would be brought to their state regulator.
Mr. MEEKS. Let me also ask this question. The sharing of information, you know, since we have enacted Gramm-Leach-Bliley, I understand about people not wanting to opt in. They opt out. And when you go to the bank sometimes with the mortgages, you expect that they are interlocutory, etcetera.
But what about situations where we have major corporations that provide completely different services, such as commercial banking and investment banking?
Could we then, you know, flip so that there is an opt in as opposed to just having the option to opt out? Because in those situations, the consumer does not maybe readily expect that they can go to theirpay their credit card bill or something withat the same financial institution.
What would be your feel there?
Mr. ABERNATHY. Yeah, I think that goes into part of the whole parcel of issues that we are looking at in the context of this legislation. Obviously, there are debates taking place on these types of ways of presenting choices to consumers and other areas of legislation.
I think we need to keep first and foremost again in mind what is the goal that we are trying to achieve. The goal that we are trying to achieve is to provide the widest array of financial services to the most customers as possible at the lowest cost.
Now if we keep that in mind, together with the important goal of maintaining the security of their information, then we have some means of measuring where the one way of presenting choice to consumers is better than another choice, but we need to keep those particular goals in mind as we evaluate that.
Page 38 PREV PAGE TOP OF DOC Mr. MEEKS. And lastly, because I did not reallyI did not hear your answer, I did not understand your answer, to Mr. Sander's question about what would be your recommendation when we talk about the uniform national privacy law and having the States making a determination as to whether or not they want to go to a standard that would make sense nationally. Because we may all agree that we should do something nationally.
What is your opinion on allowing the States to have a higher standard than we may have since had nationally?
Mr. ABERNATHY. Well, that is the very key issue I think that we are evaluating right now. We have been having an experiment now for seven years as to whether or not setting uniform standards at the federal level with regard to information sharing is the right answer to get to thesethose goals that I mentioned to you. And now we have the opportunity to go back and see what are the results.
What has been the results in terms of providing services to customers at low cost and wide array? Has the current system worked best or are there some changes to it that might be better?
And that is the process that you are beginning today, that we have been undertaking. And at the end of the day, whatever the answer is, it has to be what is providing the best set of financial services to the customer as possible.
Mr. MEEKS. Thank you. I yield back.
Chairman BACHUS. Thank you, Mr. Meeks. Mr. Hensarling?
Mr. HENSARLING. Thank you, Mr. Chairman.
First, I feel compelled to set the record straight. And I regret that Ms. Maloney is no longer with us. She invoked the name of my dear friend and former employer, Senator Phil Gramm. I would like to say for the record that although he maintains an office in New York, I assure you that his home and heart remain in Texas.
Page 39 PREV PAGE TOP OF DOC Mr. Abernathy, in your testimony, you mentioned that since the FCRA experience with uniform national standards began we have witnessed significant increases in the availability of credit to Americans.
As a freshman congressman, FCRA is a matter of first impression to me, but I assume that there is at least from the evidence I have seen so far, a cause and effect relationship here.
And so, it was not evident to me in your testimony, do you believe there is a cause and effect relationship here?
Mr. ABERNATHY. There is certainly a high correlation. And the arguments that I have seen as to how you connect those dots are very compelling. I think really what the research that remains to be done is just what is the size, how big can you quantify that increased access to financial products through the FCRA?
But I think the trend is undeniable. I think the effect is undeniable. How big is it? I do not know, but it is big.
Mr. HENSARLING. So at least we have some historic analysis that underpins the belief that a uniform standard has increased greatly the availability of credit to Americans.
I am curious, have you reviewed any evidence? Or is there any other modern economy that you are presently aware of that has a contrasting system of consumer reporting? I believe the phrase patchwork has been used before. If so, have you compared and contrasted the system of that economic system with ours on the availability and cost of credit?
Mr. ABERNATHY. There are few countries in the world that have the kind of federal system that we have. Well, one of the great benefits that we have from our federal system is our dual banking system, which comes as a great consequence of our federal system.
Page 40 PREV PAGE TOP OF DOC But with regard to the availability of credit, really what the contrast is, is thewhat you might call the full credit report system that we have, that provides positive information with regard to customers, as well as negative information. Haven't been paying your bills? That is on your credit report as well.
You can compare that with a number of other countries that only allow the placing of positive information and the negative information does not go on.
And it seems to be that when you make those comparisons, the cost of financial services is much lower here in the United States than in those countries. And the availability, the way we didthe people that we can reach with financial services is much greater in this country than it is in those countries.
And the variety of services, the kind of creativity that we have in this country for developing new financial services far exceeds anything else that you find in any other country.
Mr. HENSARLING. In your testimony, you also allude to a GAO report that says it can take victims of identity theft as much as 175 man hours to clear their names and records, 175 hours. So roughly the same amount of time it takes us to fill out our federal tax returns, but I suppose that is a matter for a different committee at a different time.
I have some familiarity with identity theft. Prior to becoming a congressman, I was a small businessman for 10 years. I employed fewer than 10 people, but one of those people decided to open up a credit card in the name of our small business, obviously without the knowledge of myself, the owner of the small business, and run up a tab of roughly $23,000, roughly equivalent to this individual's annual salary.
I am happy to report that once I became aware of this, frankly, with one letter to the credit card company and one telephone call to the credit card company, I never had to worry about this matter again. And the employee obviously had to deal with a felony theft conviction.
Page 41 PREV PAGE TOP OF DOC But I am curious about how often, from your experience, does the system work? The system worked for me unlike the people who have spent 175 man hours to clear their names and records.
Mr. ABERNATHY. It is uneven, congressman. I think where the best progress has been made has been with credit cards. Partly, it is because of federal legislation, partly because of a lot of the work that has been done by the credit card companies.
Under the Truth in Lending Act, a consumer today, a credit card holder is liable only for up to $50 for any unauthorized purchase that may occur on his credit card.
What the credit card company has discovered, and they opposed that piece of legislation, when it was put in place though, credit card companies lowered that number on their own to zero, because they discovered that by eliminating the liability for unauthorized purchases, they could greatly increase the willingness of people to use credit cards, knowing that by using a credit card, I am not opening myself up to an unacceptable level of risk that unauthorized purchases are going to take place.
And to back up that, once they went to a zero liability, the credit card companies did a lot of other things to try to reduce the costs that they were then taken upon themselves. And so, we have seen a lot of great progress that has been made with regard toin the credit card companies.
Recently, a credit card company announced a program of offering insurance against identity theft. Not because there is a risk that you might have a loss for an unauthorized charge, but because as was pointed out I think by Mrs. Hooley, it costs a lot of money to clear your name and many victims.
175 hours, that is 175 man hours. That is a whole month, 40 hours a week of time stretched out over a long period of time, and usually involves very expensive legal costs.
Chairman BACHUS. All right, thank you. Thank you, Mr. Abernathy.
Page 42 PREV PAGE TOP OF DOC We are going to move to Mr. Moore. And I think at the end of his questioning, we probably will adjourn the committee for four votes on the floor. And we will convene shortly after those four votes, but it probably will be 45 minutes after we have recessed.
Mr. MOORE. Thank you, Mr. Secretary for your testimony.
Ms. Maloney asked you some questions. And you seemed to indicate that the Administration has not yet prepared to state a position or make recommendations to this committee, but I want to ask a couple of questions, coming at it from a different way, and see if you can help me with this.
Mr. ABERNATHY. Okay.
Mr. MOORE. FCRA's uniform national standards, which were enacted in 1996 were set to expire in January of next year, 2004. So we have now this committee and our committee, the full committee about eight months and the House, eight months to consider what is going to happen before the expiration on January 1st.
Are you able at this time to state, and maybe the answer is no, but I am going to ask anyway, are you able to state that you have any recommendations as to whether this experiment has been successful so far that we started in 1996 with uniform national standards?
Mr. ABERNATHY. I cannot give you complete answer because we have not completely reviewed all of the records.
Mr. MOORE. Then find me a partial answer if you can.
Mr. ABERNATHY. Well, I think the partial answer is, is that there is a lot of evidence that it has been very successful. There are some evidence or some assertions that are made that there are some problems that need to be worked on. We are looking at both of those, because when we bring our package or our suggestions to you, we want to make sure that they are the right answers, because it is very important that we get the right answer here.
Mr. MOORE. Everybody is concerned about privacy, right?
Page 43 PREV PAGE TOP OF DOC Mr. ABERNATHY. Yes, sir.
Mr. MOORE. And if, in fact, this experiment has worked for the most part well, I think a lot of us on this committee would agree that it should be extended. I am talking about uniform national standards?
Mr. ABERNATHY. Right.
Mr. MOORE. Okay? And in my experience as an attorney for 28 years, in many cases, the best answer does not always lie on either extreme, but somewhere in the middle. Will you agree with that as well?
Mr. ABERNATHY. That has been my experience of 20 years working in the Congress.
Mr. MOORE. All right. Are you aware, Mr. Secretary, of any other countries that have a system similar to ours or different than ours, that is better in your opinion, than ours as far gathering information for a credit report and extension of credit?
Mr. ABERNATHY. We are reviewing some of the other systems to see if there are some lessons to be learned. I do not think that that research has been extensive yet, although I knowand some members of the staff that are looking carefully at some of the examples of what there might be that we can learn from the European experience, for example.
It would be hard for me, though, to point to any country where I think it is better. Frankly, it is hard to find, and I do not know of any other country, where there is such a wide array of financial services available to the average consumer today, at as low a cost and to as many people. You know, we reach a much larger segment of the population than we ever did before.
Over the last 10 years or fewer, a lot of people that used to be on the fringe looking in to mainstream institutions are now their customers.
Mr. MOORE. I am not trying to beat a dead horse here. Not trying to push you say something you cannot say, but I would urge you and your other colleagues in the Administration to complete your study as quickly as possible, and provide that information and the recommendations for amendment or change.
Page 44 PREV PAGE TOP OF DOC And when we reauthorize this in January, before January of next year, so that we can take what needstake what action needs to be done here in this committee and the full committee and the House floor.
Mr. ABERNATHY. Thank you. I appreciate that encouragement and will act on it.
Mr. MOORE. Thank you, sir, very much.
Chairman BACHUS. Thank you. We are going to recess the subcommittee until 12:30. We are going to reconvene at that time. Assistant Secretary, will be available at that time?
Mr. ABERNATHY. Yes, sir.
Chairman BACHUS. Okay, thank you. So we will adjourn until that time. Thank you.
Chairman BACHUS. The subcommittee will come to order. Mr. Castle, if you have questions of the witness?
Mr. CASTLE. Thank you, Mr. Chairman.
Mr. Abernathy, this is a very hypothetical question. I do not want to get excited by what I am stating. And I am not even in support of what I am stating either, but I want to talk about national identification cards.
Mr. ABERNATHY. Okay.
Mr. CASTLE. Because I am interested in an objective opinion of what they might do with respect to preventing some of the piracy problems that you have concentrated on a lot today.
And I do notI am not advocating them at all at this point, although I am not opposed or for them. And, obviously, as you know, a lot of people are opposed to them at this point.
Page 45 PREV PAGE TOP OF DOC But if we had national identification cards with biometric identification, I guess fingerprints or irises to the eyes or whatever it may be, and similar cards obviously for people coming to visit in the country, and obviously combined in some way or another with the computer abilities we have now in terms of identification of people trying to use credit cards or other methodologies of credit, will this be a way of addressing this problem?
Because I agree with you. I think this piracy is a huge issue, the ways on the minds of a lot of people across this country. And you are right, it is a huge aggravation. It can be $5.00 worth of goods and it can create all kinds of problems for you. And I am just casting about for ways to do this.
So I am not asking you to endorse national identification. I understand some of the politics of that, but I am just curious as to whether you have given any thought to how that might interact with the whole business of piracy and perhaps the prevention of piracy?
Mr. ABERNATHY. Yeah, there are a number of different ways of identifying who your customer is, so that you can be relatively comfortable in the bonafides that you are dealing with the person who you think you are dealing with. And I think technology is opening up some very interesting opportunities that might not have been there years ago. Biometrics with so many ideas, smart chip cards and things of that nature.
I think it might be a little bit too early yet to predict where the technology will take us. And one of the more significant problems that you often have as a policymaker is trying to make the policy match where the technology is, or even more importantly, where the technology is going, to make sure that you are not coming up with policies that have foreclosed opportunities that the technologies might present to you.
And I would like to think of it in terms of thatlooking at the problem in that way, of making sure that we have legislation that does not foreclose the development of certain types of identifiers that technology might offer to us in the near future.
Page 46 PREV PAGE TOP OF DOC Mr. CASTLE. Well, Ithat is a good answer and I would agree with you. And you know, I just happened to pick national identification cards. I do not care how it is done. But I really hope that the Administration will spend a portion of each day, not to tell you what to do with your days, perhaps Sunday off, in looking at technologies.
And you are right, we do notwe in Congress never should pass legislation that would foreclose the possibility of developing something along those lines. And, frankly, technology has changed so fast, that it may have to change in two years. And I understand all that.
Mr. ABERNATHY. Right.
Mr. CASTLE. But I just think we need to have a greater focus. It just seems to me it is too simple in this country to be able to get a card, to get a PIN number, to be able to copy a signature or whatever it may be, or use a computer in some way or another, and be able to really take somebody else'sif not their identity, at least their credit for a borrowed period of time, if you will.
And I just think it is going to worse and worse. I think youryou have documented that today. And I think we have to fire with fire with thewe have done with this currency in this country. And I just think we need to start doing it with some of the other things that we are doing within the reasonable cost basis level. So I was just interested in getting that point clarified.
Mr. Chairman, I yield back.
Chairman BACHUS. Thank you. Thank you, Mr. Sherman?
Mr. SHERMAN. Just a comment or two. First building on the gentleman's remarks, I think that we did not have a whole lot of privacy 200, 250 years ago when we all lived in small towns. And given technology, we may not have much privacy in the future. And that is why it is important for us to develop rules for government and rules for other institutions, so that whatever information they do have cannot be misused.
Page 47 PREV PAGE TOP OF DOC I know these hearings are focused on whether we should have a federal system of regulating credit agencies. And I just want to say that I think that is an outstanding idea.
There are those in the consumer protection movement who would think if we could just leave it to every city to pass its own ordinance, then there would be a few cities that would pass their dream ordinance, or a few states that would pass their dream statute.
But that would leave hundreds of millions or tens of millions of Americans in states where they pass laws that would be the worse nightmare of these consumer agencies.
It makes more sense for us to reach a national mean, because 100 million consumers with no protection and 100 million consumers with whatever you define to be great protection, is not nearly as good as 200 million consumers with good protection.
A national economy does not work if Berkeley gets to have its own financial services laws, much as I know they would like to. So I do not know if the witness has any comment, but I do not really have a question with a question mark.
Mr. ABERNATHY. Well, I would add maybe one observation to that. I think it is important for us to understand that we have an interest in the security of our information. But I have a certain interest in my neighbor's information.
And my neighbor has some interest in my information. And one of the metaphors I use for that, but I think it applies in their financial information, I have on my house my street number.
Now, I could think I do not know if I want everybody to know what my street number is. So I could take off my house to house number. But that would make it much harder for the emergency vehicle to find my neighbor's house if all of the houses along the street did not have street numbers on there, and they had to try to figure out which is Mrs. Jones, where we are supposed to go to.
Page 48 PREV PAGE TOP OF DOC And I think there are similar ways in which each of our pieces of our information are important in helping meet the services needs of one another.
Now that does not mean that we cannot make sure that the information travels in secure channels. I think we can do that, but I think we need to understand that our information also is important to our neighbors. And their information's important to us.
Mr. SHERMAN. And just building on that, when there is identity theft, or where there is fraud, where there is fraud on both the financial institution and some identity theft victim consumer, or whether it is just fraud against the financial institution itself, those are not the only parties damaged.
I am damaged because I go to get a car loan, and they have to charge me a quarter point more on the interest to take care of the rest of that.
And so, while it is possible to identify people who have a problem with the present systembecause then you can say, ''aha, but my score is unfair.'' If we did not have a system design to prevent financial institutions from being defrauded or not having all the information they need, our interest rates would be higher, our consumer credit would be less available.
It is pretty amazing that people who never see me face to face are willing to lend me $10,000 and give me a nice plastic card with the picture of the ocean on it.
And that relies upon a system that has some disadvantages, but it has some advantages as well. I yield back.
Mr. ABERNATHY. Thank you.
Chairman BACHUS. Thank you. Assistant Secretary, the average American moves every six years. And that is actually two-thirds higher rate than any other country. Does our national uniform credit system play any role in increasing the mobility of our labor force and the ability of a consumer to move from state to state while keeping affordable credit reputation and preserving their ability to access well, cheap capital?
Page 49 PREV PAGE TOP OF DOC Mr. ABERNATHY. Yeah, I think it has a tremendous impact. We have today, because of the information sharing systems in place, we have in essence today the ability to have portable reputations. Your reputation can travel with you. And to give anI have seen that in my own family, how important that was.
I grew up, when I was a young child from age 1 to age 12 in south Florida. At age 12, my parents decided they were going to move. They did not move next door. They moved to western New York. And I saw how difficult it was for my parents to re-establish their reputations.
They had good credit reputations, good business reputations in south Florida. They had to rebuild all of that when they went to New York because the information was not portable at that time. This is in the late 1960s.
Other people now, I have many friends who have moved many times. And they can pick up their lives wherever the new place they move to. Almost right away there, they are fully integrated in the financial life of their new community.
Chairman BACHUS. Thank you.
At this time, if there are no other questions, I would ask that you get back to us as soon as possible on the Administration's proposals regarding both FCRA and identity theft.
Mr. ABERNATHY. I would be very happy to do that, Mr. Chairman.
Chairman BACHUS. Thank you.
Mr. ABERNATHY. Thank you.
Chairman BACHUS. With that, you are discharged. We very much appreciate your testimony. And it has been very helpful. Thank you.
At this time, we will go right to our second panel. At this time, I am going to recognize Representative Castle for an introduction.
Mr. CASTLE. Thank you very much, Mr. Chairman. It is myI guess the correct word, it is my privilege to introduce our next witness, but really, it is a great pleasure because he is a good friend.
Page 50 PREV PAGE TOP OF DOC Mike Uffner, who appears before us today in his capacity as a member and a board member of the United States Chamber of Commerce and the CEO of Autoteam Delaware, which is in the automobile business, selling cars to members of Congress who cannot afford toI am sorry that is not completely correct, but selling cars to people in Delaware.
He received his bachelors and masters degree from the University of Pennsylvania. And I am very pleased he decided to make Delaware his home. In addition to employing hundreds of people in Delaware, Mr. Uffner has been an active participant in Delaware's civic and charitable organizations, probably too numerous to mention, really, but particularly the Delaware chapter of the American Heart Association.
I look forward to his testimony about the real world benefits of the national credit reporting system, what it means to business owners. And he has some stories he can tell us and what it means to consumers.
So we thank him for volunteering his day to be here with the committee, as we endeavor to establish a sound policy on credit reporting.
Chairman BACHUS. Thank you. I am going to introduce the other members of the panel. We have Mr. Dean Sheaffer, vice President of Boscov's Incorporated on behalf of the National Retail Federation. And Mrs. Hart had wanted to be here to introduce you, but she is in a Check 21 meeting, legislation which she introduced.
Mr. Michael Turner, President and Senior Scholar, Information Policy Institute, we welcome you. Mr. Joel R. Reidenberg, Professor of law at Fordham University, thank you. Mr. Peter Swire, Professor of law, Ohio State University and Mr. Michael Staten, Director of Credit Research Center, Georgetown University.
And Mr. Swire, you are a Professor of law at the law school of Ohio State, is that correct? Okay, thank you.
We welcome youall of you gentlemen. At this time, we will go starting with Mr. Uffner for any opening statements.
Page 51 PREV PAGE TOP OF DOCSTATEMENT OF MICHAEL S. UFFNER, PRESIDENT, CHAIRMAN AND CEO, AUTOTEAM DELAWARE, ON BEHALF OF THE UNITED STATES CHAMBER OF COMMERCE
Mr. UFFNER. Thank you, Mr. Chairman.
Thank you, Governor Castle, for the warm introduction. Good afternoon, Mr. Chairman and distinguished members of the subcommittee. Thank you for inviting me to testify before you today. I commend you for your efforts to protect the nation's economy and for holding a hearing on this important issue.
My name is Michael Uffner. I am the President, Chairman and CEO of Audit Team Delaware. We are a regional automobile dealer. We are located in Wilmington, Delaware. We have customers throughout the region, including Delaware, Maryland, New Jersey and Pennsylvania.
I am here to speak with you today on behalf of the U.S. Chamber of Commerce. I became a member of the Board of Directors of the Chamber in 1998. I also serve as Chairman of the Chamber's public affairs committee, and am active in the Delaware state Chamber of commerce, where I formerly served as Chairman of the board.
The U.S. Chamber is the world's largest business federation, representing more than three million businesses and organizations of every size and in every industry sector and region of the country.
I would like to jump right into the practical side of this matter. I believe a failure to reauthorize the FCRA could adversely affect almost every industry sector in the economy.
In particular, a failure to reauthorize would significantly disrupt the country's credit markets, increasing interest rates, and reducing the availability of credit, and could cause major disruptions in the way that companies of all sizes and sectors interact with their customers.
Page 52 PREV PAGE TOP OF DOC In the economy that is two-thirds driven by consumer spending, this is not an issue that Congress can afford to ignore. For example, a multiplicity of credit rules across multiple states could wreak havoc on the credit industry and their customers, making it more difficult and expensive for consumers to obtain credit for everything from home and car loans, to student loans and credit cards.
Further, this does not affect only banks and their customers, but reduces the ability of entrepreneurs to start businesses and create jobs, impedes the ability of companies like ours to expand, and reduces consumer spending.
In short, a failure to reauthorize the uniform standards of the FCRA could cause significant problems throughout the economy, from manufacturing companies to everyday services that people simply take for granted, like utility service and shopping.
While my experience may be typical for an auto dealer or a small retailer, these issues cut across the business spectrum. For your convenience, therefore, I have included as an appendix to my written testimony a short description how a wide range of industries relies on the smooth and continued operation of the FCRA.
Prior to the enactment of the FCRA, there was little widespread credit availability or competition in the credit market. Today's consumers, however, enjoy more competition and convenience, because consumers who were formerly forced to obtain their car loans and own financing from their bank can now shop around for the most convenient and best deals.
These come from their auto retailer, their realtor, or even the bank across the country. For example in my industry, customers often had to shop around to a couple of different banks, wait a few days for approval, and compare financing packages that way. Now, they can obtain instant financing through us, through their own bank, or even through companies that may not even have offices in our state.
The customer benefits from these advantages. And the consumer will be the one to pay the price if a lack of uniformity increases costs and hassles. Because I come from the great State of Delaware, which incidentally, the U.S. Chamber recently rated as having the best legal system in the country, I am not particularly worried about any ill considered rules that my State legislature might impose on small businesses or on the credit reporting system.
Page 53 PREV PAGE TOP OF DOC However, my ability to conduct our business could be directly impacted if other states enact their own rules, even if I do not have any business relationships with those states. Different rules in different states may put consumers at a competitive disadvantages. Like many companies of all sizes, we generally operate on a regional basis, and have customers from four states. However, we occasionally do business with consumers from states as far away as West Virginia, Texas, and Florida, especially Florida.
For companies like mine who serve customers from multiple states, a uniform national standard is vital. Different credit rating and reliability standards in different states may affect my ability to serve customers in those states. And they force me to charge different prices for customers based solely upon where they live.
Second, a state law that reduces the information available in a credit report, making it less reliable, may force lenders to charge customers higher interest rates to compensate lenders for increased risks.
Finally, credit furnishers, companies that voluntarily provide information to their credit bureaus every month, could be impacted by the increased liability associated with different rules in different states.
This increased liability could impact upon their desire to report the proper information in a quick way. In a national economy that depends on interstate commerce, and allows consumers and businesses easy access to services in other states, a national uniform standard that treats every customer the same is vital.
Increased inefficiencies in costs could also adversely affect the primary job creator that our economy has, small businesses. For example, many entrepreneurs take out loans or borrow from their credit cards to start a company or sustain themselves during lean times.
If it is more difficult and expensive to obtain critical financing, many small business owners may decide that the costs are too great. Small businesses and consumers have been the drivers in this weakened economy. Let's not shut them down, now that the economy is just getting its legs back.
Page 54 PREV PAGE TOP OF DOC In our particular case, a failure to reauthorize could cause severe disruption in our ability to care for our customers. We have a corporate structure that is made up of separate, but affiliated firms. They are linked by common ownership and control, but perceived correctly by our customers as a single brand.
Restrictions on information sharing between these affiliated companies could turn a series of transactions that are seamless to our consumer into time consuming, multiple transactions. This could add to the hassle and stress to our customers, could increase the potential for errors, and could cause consumers to miss or forego potentially vital services.
Further, multiple transactions could actually increase the opportunities for identity theft if, for example, the number of people handling a single transaction increased from one to many.
In conclusion, the FCRA protects consumers, businesses, and the economy from potentially massive disruption. Without the preemptive provisions of the FCRA, a consumer's ability to borrow could face severe delays and burdens. Retailers' ability to provide seamless service to their customers would be at risk.
Borrowers could have their ability to establish credit impaired if lenders stopped reporting payment history to the credit bureaus. And companies that operate across state lines could be forced to charge different customers different amounts simply because the rules were different in the different states.
So, the current act helps me to meet the needs of my customers. If a customer needs financing at 8:30 at night, or on a Saturday afternoon, the current system provides me with the tools to complete the transaction quickly and efficiently, and to provide our customer with a competitive financing package.
If Congress allows these amendments to expire, the benefits of our national consumer credit system that have evolved over the last seven years will likely unravel. This potential patchwork of dozens of divergent laws and systems could result in significant detrimental consequences for consumers and businesses.
Page 55 PREV PAGE TOP OF DOC Again, thank you very much for the opportunity to present my experience to this committee. I would be happy to answer any questions.
[The prepared statement of Michael S. Uffner can be found on page 142 in the appendix.]
Chairman BACHUS. Thank you. Mr. Sheaffer?
STATEMENT OF DEAN SHEAFFER, VICE PRESIDENT OF CREDIT, BOSCOV'S INCORPORATED, ON BEHALF OF THE NATIONAL RETAIL FEDERATION
Mr. SHEAFFER. Good afternoon. My name is Dean Sheaffer. I am Senior Vice President of Credit and CRM for Boscov's Department stores and Chairman of the Pennsylvania Retailers Association. I am testifying today on behalf of the National Retail Federation.
I would like to thank Chairman Bachus and the ranking member Sanders for providing me with the opportunity to testify before the subcommittee. Boscov's is a family owned mid Atlantic department store chain. In addition to stores in Maryland, New Jersey, Delaware and New York, we have more than two dozen stores in our home State of Pennsylvania.
Boscov employs, more than 10,000 people. In 1911, Solomon Boscov established the first Boscov store in Reading, Pennsylvania. In those days, retailers granted store credit by word of mouth and the customer's good reputation.
As towns and cities grew
Chairman BACHUS. Yes, if you would move your microphone a little closer. Thank you. Thank you, Mr. Sheaffer.
Mr. SHEAFFER. As towns and cities grew, retailers began using their local merchants associations as a trusted repository for information about the customers with whom they dealt. Eventually, the merchants associations were merged or sold, and became part of today's credit reporting system.
Page 56 PREV PAGE TOP OF DOC Boscov's currently has 1.1 million active credit card accounts. Activity on all our accounts, not just past due accounts, is reported monthly to the three major credit bureaus. As many of you know, consumers often use retail credit as their gateway into the larger credit market. It is very common for a Boscov's card to be the first credit card in a customer's wallet.
By building good credit with us, they help build a good credit file with the credit bureaus. This, in turn, makes them eligible for other credit products, such as car loans, or even a first mortgage.
I am here today to express strong support on behalf of Boscov's and the retail industry as a whole, for the permanent reauthorization of the seven state law preemptions contained in Section 624 of the Fair Credit Reporting Act. I want to briefly focus on three of the areas of the law that are particularly important to retailers: furnisher liability, pre-screening, and affiliate sharing.
Mr. Chairman, uniform standards and furnished liability are critical to the integrity and overall success of the current voluntary reporting system. Quite frankly, inconsistent or heightened liability standards, and the creation of new private rights of action would discourage lenders from supplying information, particularly negative information, out of fear of being sued.
Credit reports are only as good as the participants' information. If a creditor does not have a complete view of the consumers' information, their risk assessment may not be adequate. This incremental risk would then have to be factored into the loan, driving up the cost of credit, and diminishing credit availability. In the end, no one would benefit, except for lawyers.
Another important preemption under the FCRA is that for pre-screening. Retailers like Boscov's use pre-screening to grow our customer base. This is not just important to our credit card business. We use the same customer base as the best predictor of where to open a new store.
Page 57 PREV PAGE TOP OF DOC For us, it takes as many as 10,000 to 20,000 known customers to venture into a new location. Boscov's is still growing. Over the past few years, we have opened one or more stores in every state in which we do business.
If any mid Atlantic state were to act to prohibit pre-screening, they would undoubtedly slow down Boscov's entry into the new markets, potentially costing jobs and consumer opportunities.
Third, Mr. Chairman, in order to give our customers the service they expect, it absolutely necessitates information sharing among our affiliates, as well as with our third party licensees.
As a department store retailer, I would like to take a moment to explain the structure of our stores. When a customer walks into a Boscov's, they see a broad range of specialty departments, from make-up to fine jewelry. However, the Clinique and Lancome counters, for example, are not operated by Boscov's, but by Clinique and Lancome under third party license contractual agreements.
Additionally, a licensee company runs many of our fine jewelry counters. Boscov's also owns several retailing affiliates, including Boscov's travel center, our hearing aids center, and a warranty department that services the electronics and appliances that we sell.
Our in-house credit card is further maintained by corporate affiliates. This complex business structure is necessary for many valid, legal and accounting reasons. However, the structure is completely transparent to our customers.
Through information sharing with these entities, we cannot only market more specifically to our customers, and provide them with exceptional customer service, but we can also do things, such as underwrite more credit, and combat identity theft.
A lot of people have asked what affiliate sharing has to do with the granting of credit. And the answer is, a lot. Retailers use the data they collect from their stores and affiliates to create internal models that predict the credit habits of our customers. This information supplements credit reports and FICO scores to paint the most accurate picture possible of a customer.
Page 58 PREV PAGE TOP OF DOC In fact, retailers must often use this type of information to grant credit to people on the margins, in lower income households with mediocre FICO scores, or who are just entering the credit market. Information is also a retailer's best weapon against identity theft. As you know, this is one of the fastest growing crimes in the United States.
At Boscov's, we have implemented a number of safeguards to help protect our business and our customers, all of which require information sharing. Many retailers also have neural networks that identify suspicious purchasing behavior. Our systems will automatically flag transactions and refer them for investigation.
Further, as a service to our requesting customers who have been victims of identity theft, we program our register system to immediately refer sales made on their accounts to our credit center, to verify the customer's identity.
We at Boscov's are constantly challenged to find new patterns in our many data sources that will help us identify fraudulent transactions without inconveniencing our legitimate customers.
Without the ability to search all data sources available to us, ID theft would grow at an even greater rate. The ability to share, aggregate and search affiliate and third party data sources is paramount in the effort to protect Boscov's and our valued Boscov's customers.
In closing, I would again like to emphasize the retail industries strong support for the permanent reauthorization of the seven areas of State preemption.
In the final analysis, we in the retail industry have a real concern that more fragmented reporting and approval processes for credit will negatively impact consumers, and as a consequence, retail sales, ultimately costing jobs and hurting the economy as a whole.
Thank you again for the opportunity to testify here today. I look forward to working with all of the members of this committee to permanently reauthorize the FCRA preemptions before they expire on December 31st of this year.
Page 59 PREV PAGE TOP OF DOC [The prepared statement of Dean Sheaffer can be found on page 92 in the appendix.]
Chairman BACHUS. Thank you.
STATEMENT OF MICHAEL TURNER, PRESIDENT AND SENIOR SCHOLAR, INFORMATION POLICY INSTITUTE
Mr. TURNER. Good afternoon, Mr. Chairman and honorable members of this subcommittee. I am grateful for the opportunity to testify before you today.
My name is Michael Turner and I am President and Senior Scholar at the Information Policy Institute, a non-profit, non-partisan research organization dedicated exclusively to issues pertaining to the regulation of information, both locally, federally, and globally.
Perhaps no information issue is more important on a day to day basis than the national credit reporting system. Currently, we are studying the significance of the federal regulatory framework, and related preemption that govern this system.
Preliminary findings from our analysis strongly suggest the national credit reporting system as governed by the Fair Credit Reporting Act, ensures that all consumers are given an equal opportunity to access credit, and with it, the opportunities that this access provides.
In addition, our data suggests that consumers have enjoyed a wide range of benefits directly attributable to the national credit reporting system. These consumer benefits are sizable and real, and would be put at risk should Congress fail to reauthorize the FCRA's strengthened preemptive provisions.
We have been examining how automated underwriting has impacted the cost of mortgage credit. In addition, we have been reviewing at a range of existing research in order to document how credit scoring and automated underwriting have affected access to mortgage credit, particularly for minority and low income borrowers.
Page 60 PREV PAGE TOP OF DOC Our analysis suggests that the use of credit scores and automated underwriting have played a key role in the dramatic expansion and access to mortgage credit witnessed over the past few years.
The institute is also conducting research to understand how the loss of full-file credit reporting may affect access to and the price of credit.
We have designed a number of scenarios showing how credit files could be affected with the loss of preemptions.
We constructed these scenarios based on pending state proposals. We are running the alternative-scenario credit files through a number of risk scoring models, determining the effect of the predictive power of the models, and comparing these results with the baseline from the current models.
We will also use these results to explore whether credit issuers would have to restrict access to credit to keep defaults at their current level, or, alternatively, accept higher default levels at the current levels of access.
The institute is also conducting research exploring the likely impact from a ban on the use of pre-screening. We are collecting data showing how credit-card issuers require new customers now, and how they would acquire them if pre-screening were prohibited.
Our study is not yet complete, but our preliminary results show that pre-screening is the single most important method of acquiring credit-card customers, accounting for about half of all new customers acquired.
Preliminary results also indicate that, on average, it is less expensive to acquire a customer using pre-screening. Further, we have good reason to believe that the loss of pre-screening would result in some loss of access from new-credit applicants.
Preliminary results from our study offer some indication that pre-screening may help to protect against identity theft. First, credit bureaus generally filter out accounts identified as being at high risk for fraud.
Page 61 PREV PAGE TOP OF DOC Second, card issuers typically review the application, using a variety of sophisticated authentication tools. These products are very successful, identifying as much as 80 percent of fraudulent applications before the accounts are ever opened.
Thus, a ban on pre-screening is unlikely to reduce the incidence of identity theft and may, ironically, have just the opposite effect. While we have yet to complete the quantitative component of this portion of our analysis, a survey of State bills is suggestive on its own.
During the current legislative session, there have been nearly 250 FCRA-related bills introduced in 46 states.
The diversity of these bills strongly suggests that a post-preemption world will not be characterized by legislative coordination and harmony among the States.
One possible near-term result is horizontal preemption.
As is likely to occur, should a single large state enact data restrictions inconsistent with the current FCRA regime, in a very real sense, then, Congress must decide whether it wishes to have its current authority over the national credit-reporting system usurped by lawmakers in a single state.
Mr. Chairman, thank you for the opportunity to testify, and I would be happy to answer any questions you and your colleagues may have.
[The prepared statement of Michael Turner can be found on page 130 in the appendix.]
Chairman BACHUS. Thank you. And Professor Reidenberg, it is my understanding that you have to leave at 1:50?
Mr. REIDENBERG. That is correct.
Chairman BACHUS. So you will be free to leave at that time, and we welcome your testimony.
Page 62 PREV PAGE TOP OF DOCSTATEMENT OF JOEL R. REIDENBERG, PROFESSOR OF LAW, FORDHAM UNIVERSITY
Mr. REIDENBERG. Thank you, Mr. Chairman and members.
I would like first to commend you for convening this hearing on the national credit-reporting systems and would like to thank you for the honor and privilege to be able to testify today.
By way of background, I am a law Professor at Fordham University in New York, where I teach courses in information privacy.
As a law Professor, I have written and lectured extensively on the regulation of fair-information practices in the private sector, and my bibliography includes a series of scholarly articles and co-authored books on privacy.
I have also studied and written about the Fair Credit Reporting Act, and of particular relevance to today's hearing, I assisted the Federal Trade Commission in its successful litigation against TransUnion's illegal disclosure of credit-report information for marketing purposes.
I am testifying today, however, solely as an academic expert on data privacy, and I am not representing any organization or institution with which I am or have been affiliated.
I have a prepared statement for the Committee, and thought that I must highlight a couple of points from the Statement, and make a few recommendations, rather than go through all the details.
I will start, however, with a concern I have in hearing the testimony at today's hearings and some of the questions from the members concerning the current Fair Credit Reporting Act.
In particular, I am concerned by the terminology being used today: ''Uniform national standard,'' and ''reauthorization of the Fair Credit Report Act.''
Page 63 PREV PAGE TOP OF DOC The terminology concerns me because I find those terms to be imprecise. Perhaps they are imprecise by design, but the effect of that imprecision is a very dangerous scare tactic for the development of good public policy.
The Fair Credit Reporting Act does not expire on January 1st. Only certain limited provisions related to federal preemption expire on that date.
As for the ''uniform national standard,'' a term that we have heard used quite a bit this morning, it never existed, and it does not exist today. Prior to the enactment of the Fair Credit Reporting Act, two states, Massachusetts and New Mexico, already had credit-reporting statutes.
The current act, in fact, expressly authorizes three states to have standards that go beyond those preempted under the 1996 amendments. And, we have a series of States around the country that have stronger provisions on various areas of the statute that are not preempted by the provisions included in 1996.
So I think it is very important when the committee examines this issue, that the Committee focuses quite specifically on the exact alleged problems and exact harms and remedies that the statute is trying to resolve.
In looking at the statute, I think it is particularly important to review the history. Strong privacy protections are absolutely essential for the credit-reporting system in the United States.
The Fair Credit Reporting Act created the conditions for today's robust system. Congress in the 1960s heard extensive testimony on patterns of abuses. The statute introduced fairness and better accuracy.
The FCRA was novel in its time. The law created an opt-in approach for privacy. The statute defined core credit-reporting purposes, and authorized dissemination of credit information for those purposes. Anything else needed written consent.
Page 64 PREV PAGE TOP OF DOC Congress very wisely allowed the States to go further and to enact stronger protections. The 1996 amendments, as we have heard, contained a partial preemption clause. The amendments did not create a ''uniform standard.''
As the ranking member quoted from my prepared statement earlier this morning, when we look at the States exempted from the preemption clause, the three states that Congress allowed to go further, some preliminary data suggest that they do much better on credit decisions: They have lower bankruptcy rates. They have cheaper home-mortgage rates.
Strong privacy is absolutely essential for public confidence.
Looking at the statute, I think there are substantial weaknesses that threaten the safety and soundness of our credit reporting system.
The basic tenet for fair information practices enshrined in the original statute was that data collected for one purpose should not be used for other purposes without consent. Deviations from the key standard threaten the system. The 1996 amendments deviated from this key fairness principle in the affiliate-sharing and pre-screening provisions.
Industry practices today are exploiting and circumventing the FCRA. Major wireless phone companies, for example, under the guise of offering credit, rummage through credit-reporting files, and instead offer free phones and free phone services.
Information dealers will sell the same data that is regulated under the FCRA outside the scope of the statute, because of the way the statute is drafted.
The kind of data leakage that is enabled by those provisionsthe leakage of credit information for secondary uses of affiliate sharing, unsolicited offers, non-credit decisions undermine security. They undermine confidentiality and they facilitate identity theft.
In fact, Assistant Secretary Abernathy this morning mentioned dumpster diving in his testimony. When an identity thief goes dumpster diving, what is it they are likely to find in the trash?
Page 65 PREV PAGE TOP OF DOC All of those pre-approved offers of credit in the envelopes that people have thrown away. They give lots of valuable information for potential identity thieves.
Some of the issues we just heard in testimony on this panel were misleading. Pre-screening for instance, is not authorized under the statute for market research to decide where to locate stores.
We have to be very careful how we let data leak from the basic core credit-reporting functions.
I would like to make three recommendations for your consideration going forward. In essence, these all say that Congress must continue to assure the integrity of the credit-reporting system.
I think it would be particularly valuable first for Congress to legislate higher standards of privacy, to ensure the integrity and public trust by specifically returning pre-screened offers to the opt-in approach of the original FCRA, or else allow the States to legislate higher standards.
Let the preemption clause lapse January 1st, as you originally anticipated in 1996.
Second, expand the definition of consumer report in the statute to cover affiliate sharing. Or else, let the States modify that definition.
Third, extend the protections of the Fair Credit Reporting Act to the dissemination of personal information collected for the purpose of making any type of financial decision about the consumer, so that similar activities affecting consumers do not escape fair information practice standards.
In other words, these other organizations selling very similar information for critical decisions about consumers escape the protections of the statute. They should be brought within the statute. Thank you very much. I will be happy to answer any questions.
Page 66 PREV PAGE TOP OF DOC [The prepared statement of Joel R. Reidenberg can be found on page 85 in the appendix.]
Chairman BACHUS. Thank you. Mr. Swire?
STATEMENT OF PETER P. SWIRE, PROFESSOR OF LAW, MORITZ COLLEGE OF LAW, OHIO STATE UNIVERSITY
Mr. SWIRE. Yes, thank you, Mr. Chairman, ranking-member Sanders and other distinguished members of the committee.
My name is Peter Swire, and I thank you very much for the invitation to testify today.
I am currently a Professor of law at the Moritz College of Law of the Ohio State University. I live here in the D.C. area and am Director of the school's summer internship program.
As a Professor both of banking law and of privacy law, the area of financial privacy has long held special fascination for me, as odd as that might sound to normal human beings.
I have written four law-review articles in the book chapter just on the topic of financial privacy, and I will not be able to cover all of that in the five minutes here today. Thank goodness.
In March 1999, I was named as the chief counselor for privacy in the U.S. Office of Management and Budget, and in that position, I was intensively involved in the Administration policies during the Gramm-Leach-Bliley debates.
And as you know, President Clinton in the spring of 2000 proposed additional financial privacy legislation that was introduced in this committee as H.R. 4380, and that I think still can serve as a useful guidepost for some issues for today.
Since returning to law teaching, I have written a law-review article on my views on the Gramm-Leach-Bliley privacy provisions, and all of that is on my web site.
Page 67 PREV PAGE TOP OF DOC My written testimony, which goes into more length on several topics, largely agrees with the views of Mr. Abernathy and other witnesses on the overall tremendous effectiveness of the FCRA as a system for providing the advantages of price, speed and variety of products to the American consumers.
This has been a great success as a law which went into effect in 1970.
But I also think people involved in FCRA reforms should go back and read the hearings from the 1960s or read Professor Arthur Miller's book on the subject from the time, to see why we got this law, because I think some similar things are happening today in certain respects.
At that time, people's lives were being ruined by certain problems in the credit system. There were documented numerous stories of people being turned down for jobs and mortgages because of erroneous credit reports.
Because consumers have no direct relationship with credit-reporting agencies, there at that time was no effective way for the individuals to discover the mistakes and make the changes.
And in many instances, people would be turned down over and over again and never find out why.
As Professor Reidenberg just told us, the Fair Credit Reporting Act in 1970 created a legal systemopt-in consent, private rights of action, the FTC, the State attorneys journala series of strict and enforceable legal rules that changed all this.
Most central was that it changed accuracy in the system, because now consumers can see their own credit history.
In fact, industry fought that request for a long time, saying it was too burdensome to let individuals see their full credit history. We have gotten past that now at how keep improving accuracy is something that I think everyone has a great stake in.
Page 68 PREV PAGE TOP OF DOC So to sum up that history, an effective system of checks and balances that has been updated in 1996 with stronger consumer protections has helped create this great system we have today.
In my testimony, I make a number of observations about preemption and the FCRA. I am going to limit myself to one remark today.
Having heard the discussion, my question is whether identity theft efforts in the States should be preempted by Congress this year. This is a tough year. We know there is an awful lot going on in identity theft. We do not have all the answers yet. We hope the Administration will have its proposal in short order.
But as a basic matter, are we going to let the States experiment? We have, as Chairman Bachus said earlier today, a huge number of people suffering from identity theft in a lot of different ways.
It seems to be a natural subject for states to try to figure out how to do things, perhaps as they have helped figure out anti-spam legislation, and now Congress is learning from that.
There are several substantive matters that I touch on briefly in my testimony, and I am going to do it in one or two sentences here, issues to bring to the committee's attention.
One is an observation, again, that was made earlier this morning, that since 1989, there has been a tremendous increase in availability of credit to underserved populations, the lowest and second lowest quintile of incomes in the United States.
1989 perhaps coincidentally is when there started to be stricter enforcement of the Equal Credit Opportunity Act. This follows shortly after that by much stronger efforts in the community reinvestment area.
It is at least possible that underserved communities got some help from laws that came from this committee in these respects, and not simply from an earlier past credit reporting act.
Page 69 PREV PAGE TOP OF DOC A second point had to do with information security. In 1996, that was not on the horizon for how to improve the information security of critical infrastructure and the rest. It is on the front burner now. The Administration talks about information security in its testimony. There may well be measures to improve practices in that area, as you look at the law this year.
A third topic is medical privacy in the FCRA. The law was visionary for mentioning medical privacy in 1970, but it has not been amended in that respect since then. We now have a much fuller set of protections on the medical privacy area. This, too, probably deserves further attention.
And the fourth and final topic that Congresswoman Maloney mentioned earlier today, is some very disturbing language in the so-called PATRIOT 2 text that was widely circulated in town earlier this year.
As she described, there would be essentially no safeguards on sending credit reports in to government agencies basically without any limits on redisclosure.
For those who have followed the total-information awareness systems, where credit histories were something that was discussed there, we can see a system where credit reports get fed into the federal systems automatically.
How furnishers, how people in the system will feel about that in the world of voluntary compliance, is something, I think, that deserves attention.
In conclusion, my written testimony goes into more detail on this. A central question is how do we keep updating this information system for the information age?
Eight years ago, we did not talk about identity theft or information security. Eight years from now, there will be new information challenges.
However the committee looks to solve the problems for today, I hope we have a way to come back over time to update the protections for people in the system.
Page 70 PREV PAGE TOP OF DOC Thank you.
[The prepared statement of Peter P. Swire can be found on page 118 in the appendix.]
Chairman BACHUS. Mr. Staten, you are the third witness in a row from a University, from Georgetown University. We welcome you and your testimony.
STATEMENT OF MICHAEL STATEN, DIRECTOR, CREDIT RESEARCH CENTER, GEORGETOWN UNIVERSITY
Mr. STATEN. Thanks very much, Mr. Chairman and good afternoon to the members of the committee.
I am very pleased to be invited to join this discussion of the impact of the Fair Credit Reporting Act.
It is a remarkable piece of legislation that has facilitated the most robust credit reporting system in the world, a system that provides the foundation for the most competitive and robust credit markets on the planet.
By way of background, I am Professor of Management and Director of the Credit Research Center within the McDonough School of Business at Georgetown University. The center is a non-partisan academic-research center, devoted to the study of consumer-and mortgage-credit markets.
Over its 29 year history, the center has generated over 100 research studies and papers, many of which have been published in professional academic journals.
Many of these articles have directly addressed the evolution and value of credit-report data and credit scoring as a critical risk-management tool. We have watched the credit-reporting industry evolve under the FCRA, and we have closely studied the development and application of the risk-evaluation tools that credit reports make possible.
I should also note for the record that throughout its history, the center's research program has been supported by a mix of grants from the public sector, including the National Science Foundation and the Federal Trade Commission, as well as unrestricted private-sector grants from foundations and corporations made to the university on behalf of the center.
Page 71 PREV PAGE TOP OF DOC Because our projects so often address public-policy issues related to consumer credit markets, we are sensitive to concerns about our reliance on funding from industry sources.
For that reason, we established in 1974 and continue to rely on broad based external advisory panel of academic and government representatives, who provide independent oversight and commentary on all of our activities and projects.
Among that group, currently, are several distinguished Professors of finance and economics at major research universities, Senior Vice Presidents from the Federal Reserve Banks of Atlanta and Chicago, and senior economists from the Federal Reserve Board of Governor staff right here in Washington.
By agreeing to serve in an advisory capacity, the reputations of these individuals become intertwined to some degree with the centers. Thus they have an incentive to be sure that our methodology is sound, and our conclusions are supported by the empirical evidence.
That structure, plus our continued placement of articles in high-quality peer-reviewed academic journals should diminish concerns that somehow our corporate sources of funding color our results.
This afternoon, I am pleased to share with you the results of two reports which I have recently co-authored to assess the impact of the FCRA.
One report was co-authored with my colleagues Fred Cate, Robert Litan and Peter Wallison, and was just published by the AEI Brookings Joint Center for Regulatory Studies.
The other report was commissioned by the Financial Services Coordinating Council, and it was co-authored with my colleague Fred Cate at the Indiana University School of Law.
I have summarized the highlights of both reports in my written testimony and will happily make the reports themselves available to the committee for your review.
Page 72 PREV PAGE TOP OF DOC Because there has been surprisingly little comprehensive study of the overall impact of credit reporting in the United States, our goal in both reports was to fill the gap, not by creating new estimates, but by surveying the business and economics literature to assemble evidence about the performance of the reporting system in regard to its original objective, which was to facilitate broad access to credit-related products for all consumers.
All of the relevant economic analyses, case studies, and government and industry reports that we examined pointed to one conclusion.
Underpinned by the most comprehensive credit reporting system in the world, the system of consumer-and mortgage-credit markets in the United States has achieved a remarkable combination of: one, widespread access to credit across the age and income spectrum; two, relatively low-interest rates on secured loans, such as autos and home loans; three, exceptionally broad access to open and unsecured lines of credit, such as bank credit card-products; and four, relatively low default rates across all types of consumer loans.
Achieving one or two of these results is relatively easy. Achieving all four simultaneously is an accomplishment unequaled in the rest of the world.
One of the strongest messages from the material we surveyed is that these benefits derive because we have evolved the national credit-reporting system, which in turn has facilitated a truly national market for all types of consumer loans.
Competition in every location, urban and rural, has been heightened because credit reports give lenders the confidence to reach out to consumers they have never seen, living hundreds or even thousands of miles away, and make them offers of credit.
Credit reports give consumers a portable reputation. That reputation brings them offers of credit from lenders they have never met. It travels with them across state lines, so they can obtain credit when they travel or move.
As a result, the vast majority of Americans deal with one or more creditors from out of State.
Page 73 PREV PAGE TOP OF DOC In turn, that out-of-state competition forces the local institutions to be just as competitive in pricing and product development. All of this lowers the cost of credit to U.S. consumers.
It is important to emphasize that it is not just the content of our credit reports that drives this result, but also the ability of institutions to use those reports across their affiliates to pre-screen customers and make them offers.
The ability to use credit reports to pre-screen customers is the jet engine that powered the explosion and competition over the past two decades. Credit reports provided the jet fuel.
Laws that would inhibit the assembly of comprehensive credit reports act as a barrier to that competition by denying new market entrants the information needed to provide new credit services.
In many European countries, where comprehensive credit reports are unavailable, and France and Spain are good examples, financial services are provided by far fewer institutions, and customers to a large degree are captive to the same institution for years.
It is no coincidence that also in those countries, consumer credit plays a far smaller role in the national economy and both unsecured and even secured loans are harder to obtain for those outside the upper tiers of the income distribution.
That is why proposals in this country to abandon the federal preemption enacted in 1996 under the FCRA threaten the diverse array of benefits that flow from the current credit-reporting system.
U.S. consumers are remarkably mobile, thanks in large part to the ubiquitous availability in credit reports. Regulating the content and uses of credit reports state by state would ill serve consumers as they move, commute and deal with businesses across state lines.
Page 74 PREV PAGE TOP OF DOC It will leave holes, and potentially large ones, in their credit files, which would greatly reduce the reliability of all credit reports.
A Balkanized credit-reporting system would make a consumer's credit worthiness, and credit opportunities, depend on the State in which he or she lived.
Thus the preservation of a truly national credit-reporting system is critical for sustaining and building on the remarkable record of the past 32 years under the FCRA.
As Congress deliberates whether to reauthorize the federal preemption, the risk of unraveling these remarkable gains to individual consumers should give members pause.
Thank you very much for the opportunity to testify today, and I would be happy to answer questions.
[The prepared statement of Michael Staten can be found on page 102 in the appendix.]
Chairman BACHUS. I thank all members of the panel for their testimony.
At this time, I am going to reserve my five minutes to allow other members who have been here time to ask questions. Mr. Royce?
Mr. ROYCE. Thank you, Mr. Chairman. I appreciate it.
I was going to ask Dr. Turner a question, and that was, if the seven provisions of the Fair Credit Reporting Act were allowed to expire, what information do you have concerning the effect that the legislative proposals that are put forward in the States would have on current reporting and information-sharing systems?
And I am thinking, for example, of California, my home state, has a proposal, which is Assembly Bill 800, which would dramatically alter, I think, the credit-reporting system, but only for California residents.
And it would allow a $2500 per violation fine for erroneous information, including typos.
Page 75 PREV PAGE TOP OF DOC And the question I wanted to ask was if you could provide your judgment concerning the likely impact of those changes, both individually and collectively.
Chairman BACHUS. Mr. Turner?
Mr. TURNER. Thank you, Congressman.
It is an excellent question, and it is very complex because, in fact, the relationship between the preemptive provisions and the robustness and richness of the credit reporting system is difficult to model.
What we have done is we have taken actual state proposals and categorized them, and constructed four different scenarios that we consider fairly likely should the strengthened preemptive provisions expire.
And these scenarios range from what we consider moderate or conservative, to more severe, and we have been working with modelers and analysts at credit bureaus and financial institutions to understand how this would affect particular data sets and then their ability to predict default, which is the primary objective of a risk model.
And we have not actually seen the results yet, but based on strong priors and our hypotheses, we expect that the ability to predict default will be deteriorated substantially.
And credit issuers would have one of two choices. Essentially, either they could preserve their current default rate, and to do that, they would most likely to restrict access to credit.
So, fewer people who are currently getting credit would get credit.
Or, they could keep the current level of access, but the cost of credit would be lost because charge-offs would likely go up. It becomes a riskier proposition.
Now this, of course, plays out through the credit markets generally, and it could have serious implications potentially for the safety and soundness of the entire system.
Page 76 PREV PAGE TOP OF DOC But, again, we expect to have the results back soon, and we look forward to being able to share them with this committee.
Mr. ROYCE. Thank you very much, Mr. Chairman.
Chairman BACHUS. Thank you. Mr. Sanders?
Mr. SANDERS. Actually, let me pick on Mr. Royce's questions to see if I understand. Do I understand, Mr. Royce, that in California, they are considering legislation which would fine some of the credit bureaus if there were mistakes found?
Mr. TURNER. $2500.
Mr. SANDERS. $2500? Okay.
I would gather, knowing this is the first that I have heard of that, that there is a reason that that legislation was proposed, and I gather there is concern about the number of mistakes that have been reported.
The issue here, and I want to address my opening remarks to Mr. Reidenberg, is it seems to me this committee should be doing two things.
First, we should have a national floor, a strong pro-consumer national floor, which among other things, does what six states in the country now do, and apparently the Administration is not unkindly disposed to this idea, to make sure that every citizen in this country at least once a year can get free access to their credit.
Six states now have that. I would like to see 50 states have that.
And I think in a number of ways, as the committee would want to deal with identity theft in as strong a way as we can, have a high national floor. That is one issue, and we will be arguing about what that means.
But the second issue then comes down to the question of States' rights and whether or not the folks in California or in Vermont or Alabama should also have rights to go forward in ways that they think can address the consumer concerns of the people in their own State.
Page 77 PREV PAGE TOP OF DOC Now from where I come, and what my political background is about, I think it is a really good idea. We can learn something from California. Maybe it will work, maybe it will not work. There must be a reason. Maybe these guys will get unelected if it is a bad idea.
But when we have 50 states and 50 Governors and 50 legislatures working on issues, whether it is identity theft or other issues, it seems to me there are a lot of good ideas out there that we would like to see germinate. What do you think about that?
Mr. REIDENBERG. I agree completely.
Mr. SANDERS. That is why we have you as a witness.
Mr. REIDENBERG. You took all the fun away.
On the national floor, that in fact has been the practice for almost all American privacy legislation. We can look at the different sectors in which Congress has enacted legislation. In HIPPA, in the Cable Communications Policy Act, the Video Privacy Protection Act, in each of these statutes, Congress has allowed to states to go further than the level the federal government set. That is the standard practice in the United States on privacy.
It is also the standard practice in other countries. If you look at what is going on in Europe, the European Directive, enacted in 1995, set a minimum standard for the European Union. Each of the member states had to adopt that minimum standard, but they could go further.
On the States' rights point, and from what we see in the different states, where certainly we have seen many interesting initiatives percolate up from the States in the privacy sphere, I think we will also find that there may be very local concerns in credit reporting coming from the States that we would not want to shut down.
An interesting example comes from your state, Congressman, a number of years ago, when I believe it was the entire town of Norwich, Vermont, found their credit reports all contained serious erroneous information because there was a particular problem that occurred in Vermont.
Page 78 PREV PAGE TOP OF DOC Mr. SANDERS. There is a slight problem. Those who paid their property taxes on time were told that they had not paid their property taxes at all. Other than that, it was no problem.
Mr. REIDENBERG. And if I may just make a point on the international side, because I mentioned the standard practice elsewhere. I think we have to be very, very careful making comparisons to other countries, which we have heard done I think in a very fast and loose manner during this hearing.
When you look at the credit industries and the granting of credit decisions in other places, those decisions are affected by far more than the privacy laws, and I will take the example of France, which was mentioned
Mr. SANDERS. We do not talk about France here, sir.
Mr. REIDENBERG. Yes. We know.
We do know, for instance, that the French do not view the American dream the same way we do, and in France, where I have done substantial work on French data privacyI hold a Ph.D. from the University of Paris in lawthe suggestions that home ownership in France is a lower percentage than the United States, that the deposits one has to make to buy a home are higher because of the credit reporting system, those are extraordinarily creative uses of statistics.
The banking system is different there. Direct regulation of the credit relationship is different there. Foreclosure obstacles are substantially different there from the United States. All of those things factor in. You can not look just at the
Mr. SANDERS. Mr. Reidenberg, I agree with that. But we do not have a whole lot of time. Let me throw it to somebody who has a different point of view.
Mr. Swire made a point a moment ago that it was not so many years ago that the credit bureaus opposed the right of people to even know what their credit was. We know that they have opposed free access to information. They now oppose the rights of States to go above the federal level.
Page 79 PREV PAGE TOP OF DOC Who wants to tell me why you think the world will collapse if the California legislature addresses what they see as a pro-consumer need? Or Vermont does the same? Who wants to tell me why that is just such a horrible, terrible idea?
Mr. STATEN. I will take a crack.
I am not going to claim the world is going to collapse, but let me describe to you a little bit more of the complexity of the reporting system.
First and foremost, it is a voluntary system. Nobody is required to report.
And because of that, that creates a certain fragility in the system, such that if you impose let's say excessive furnisher liabilityand I do not know exactly wher liability becomes excessive, but at some point, clearly, we could have excessive furnisher liabilitycreditors could decide just not to report information that could trigger such a lawsuit.
What kind of errors in credit reports are likely to trigger such private rights of action? Probably negative information. So that might be the first thing that disappears from the credit files in those states that have passed those sorts of laws.
So you begin to lose the negative, so-called ''derogatory,'' information in the credit file, which is the most important component for predicting future risk.
But it is more complicated than that. We are a very mobile society. It has been mentioned earlier, every American moves on average every six years.
So if Californians who live in that state, and for whom creditors now have not been reporting negative information for some period of time then move, they have holes in their credit files.
And a creditor that looks at them when they move to Texas or Georgia or some other state, does not know if a clean history is because they have really paid all their bills on time, or because they used to live in California and they simply can not see some of that negative information.
Page 80 PREV PAGE TOP OF DOC And so, the problem tends to perpetuate around the system, because we have a national credit system, and because we have a very mobile society.
And that is the root of the problem when you begin to let states do different things.
Mr. TURNER. Could I touch on that as well? I am sorry, because some of our analysis gets to that.
Chairman BACHUS. Go ahead and just briefly.
Mr. TURNER. And I think this, Congressman, should be of particular interest to you.
We are actually trying to retool models based on these alternative scenarios, and we have actually just gotten a credit bureau to agree to refit the models, based on proposals like the one, in fact, you recommend from California.
Mr. SANDERS. I did not recommend it. I just heard about it.
Mr. TURNER. Fair enough.
And it is a significant investment in terms of time to adjust to the data restrictions.
And imagine a scenario: We are only doing four, but imagine 50 states continually passing legislation. You have to continually then adjust 50 separate models to moving targets, at considerable expense and considerable time.
Now these models are based on sample sizes that are national currently, but if you go to a state, and particularly a small state with a small population, the predictive ability of smaller sample sets is diminished.
So for example, what you get is you get a small state/big state dichotomy. So in some senses then where you live determines your credit, and people in smaller states could be handicapped.
Page 81 PREV PAGE TOP OF DOC Mr. SANDERS. Let me just thank you for the extra time, Mr. Chairman. It is an interesting debate. I do not agree with the last two speakers, but I thank them very much for sharing their thoughts with us.
Chairman BACHUS. Thank you. Mr. Castle?
Mr. CASTLE. Thank you, Mr. Chairman.
I would like to address a question to Mr. Uffner and Mr. Sheaffer, in trying to understand the actual application of Fair Credit Reporting and what would happen if the preemption is removed, where the rubber meets the road at the retail level.
And I would assume that your experiences are quite different. I am not sure if Boscov's is nationwide or just the East Coast?
Mr. SHEAFFER. Just in the mid-Atlantic region.
Mr. CASTLE. Or mid-Atlantic region.
But one dealing with a smaller department-store type of transactions, the other with large automobile transactions.
For example, the case of Mr. Uffner, with all the zero-percent financing promotions on automobiles, etcetera, you know, is that something that could be done if we did not have some sort of immediate credit checks, and you had to go through several states?
Or just various questions about credit in general. I do not know if you recall what it was like before preemption or what you know about it, but I am sure you have probably monitored this to a degree, both of you, and what the costs would be, what the concerns would be, and just how it applies to those of us in the room who are trying to go get credit and buy something?
Mr. UFFNER. I will take a crack at this first.
From a practical standpoint, I can tell you from personal experience that before 1996, we very rarely would deliver a vehicle to someone, what we would call instantly.
Page 82 PREV PAGE TOP OF DOC We have clients that come in all the time now. About 50 percent of our clients will take delivery of a vehicle within two or three hours, the same day.
Whereas in the not so distant past, in order to get a credit decision from a finance source, which would be either a factory-finance source or a local bank, could in some instances take several days.
During that period of time, a lot of things happen, and vehicles that are set aside for people could get damaged. Or somebody else would try to buy it.
All I can tell you is that from a practical point of view, the transactions that take place in an automobile dealership today are significantly enhanced by the fact that we make reliable credit decisions very rapidly.
And we also do business in a lot of different states.
And we have real problems in some states with the titling laws that are completely different all across the country, and I know there has been some discussion about national titling, and that is not what we are here today for, but what affects us, and what affects the consumer and you as a consumer, is that there is significant additional costs in dealing with different titling laws in different states.
And we would look at it in the car business as this being a similar type of problem. If we had credit rules that were different 10 minutes away in New Jersey than we have in Wilmington, Delaware, then consumers from New Jersey would be at a disadvantage if the rules were severe enough.
So, this whole national preemptionand I am certainly not an academic expert, but maybe a practical onereally enhances our ability in this nation to affect the commerce in the automobile business.
Chairman BACHUS. Mr. Sheaffer?
Mr. SHEAFFER. Talking from retailer's perspective, I remember a point in time where retailers used to take a customer's driver's license and a major credit cardVisa, Mastercardand rely upon those two pieces of information to issue a starter line of credit, typically $300.
Page 83 PREV PAGE TOP OF DOC In fact, Boscov's used to do this in the early and even up until the mid 1980s.
Once that card was issued, the retailer then had the obligation to try to go out and get the credit-bureau report as fast as they could, and to try to make a decision based on potentially non uniform data.
Two things happened. One is we made poor decisions in issuing that $300 line of credit. If a person were trying to defraud us, they would have instant access, to that relatively small but nonetheless real $300; that they would walk away with our merchandise.
The flip side of that is the customer may have been wanting to make a very large purchase, a $2,000 purchase of a large screen. Well, perhaps they did not have large-screen TVs then, but a $2,000 purchase in our store, and we would not be able to authorize that purchase instantaneously.
In today's world, because of the uniform standards, because we know what a current line of trade in the credit bureau means, because we know precisely what a FICO-risk score means, we can make very well-informed decisions.
96 to 98 percent of the decisions we make as a credit granter are good decisions. They are accounts that pay us on time, they are responsible consumers. We are acting as responsible credit granters.
If we Balkanize the credit system, and now in California, ''current'' means, well the customer paid us somewhere between one and 90 days, but in Delaware, it means the customer paid us between one and five days. I really do not know what a ''current'' credit line means anymore.
Scoring systems begin to deteriorate. My decisions deteriorate. My cost of credit goes up. My ability to grant credit diminishes. It affects the economy as a whole.
Mr. CASTLE. Thank you both, and I yield back to Mr. Chairman.
Page 84 PREV PAGE TOP OF DOC Chairman BACHUS. Thank you. Mr. Moore?
Mr. MOORE. Thank you, Mr. Chairman.
Mr. Staten, would you agree that California, in terms of the economy, the relative size of the economy is one of the biggest in our country?
Mr. STATEN. Absolutely.
Mr. MOORE. Okay. In fact, it is bigger than many nations around the world, isn't it?
Mr. STATEN. All but about what, seven or eight I think?
Mr. MOORE. Okay.
And if commercial entities want to operate in California, and California legislature adopts something more stringent than federal standards, they have to do it, don't they? Or just give up a large portion of a potential business. Is that correct?
Mr. STATEN. Anybody with a California presence would find it difficult to walk away from.
Mr. MOORE. Okay. In effect, could California then kind of set the standard for the rest of the country?
Mr. STATEN. I could certainly see it happening with respect to an issue such as this one.
Mr. MOORE. All right.
And I am not sure, and maybe Mr. Sanders has a different view, but I am not sure I would want that to happen for Kansas or for Vermont or any other state. Would you agree with that?
I am not asking Mr. Sanders, I am asking you, Mr. Staten.
Mr. STATEN. Well, I am a Virginia resident. So I suppose that I prefer to have Virginia laws bind me.
Page 85 PREV PAGE TOP OF DOC Mr. MOORE. All right. Okay.
We have experimented for about the last eight years with uniform national standards and preemption, and I think most of the people up here, who have testified today, most of the witnesses agree, that that deserves to be extended. There is one-and-a-half, maybe, exceptions there, but most of the panelists, I think, agree that it has worked pretty well overall.
I guess my question to you, Mr. Staten, and to anybody else who cares to comment is if it has worked well, if you agree with that, should it be extended on a permanent basis or on a five, seven or 10 year, something less than permanent where we can come back and reevaluate it once again in the future?
Do you want to start, Mr. Staten, please?
Mr. STATEN. Well, I certainly am in favor of extending it. It seems to me Congress always has the right to look at it again, at any point in time. So, whether it is the five year additional preemption or a permanent one, seems to make no difference in my view.
Mr. MOORE. You are going to agree with him, Mr. Swire?
Mr. SWIRE. I agree that these are national systems overwhelmingly. I think there is a lot of reasons to preempt, but there are two items.
One is that because of the expiration this year, this whole committee is taking this issue very, very seriously and really looking at a lot of things it might not have looked at otherwise.
And that fits the other laws we have seenGramm-Leach-Bliley and HIPPA and the Telecom Actwhich is that privacy laws have been passed in this Congress when industry and consumer interests came together to favor legislation.
If you have permanent extension, you are not going to have that confluence, and you are really unlikely to get the reexamination, I think.
Page 86 PREV PAGE TOP OF DOC Mr. MOORE. Thank you. Anybody else care to comment?
Mr. SHEAFFER. I will jump in.
I believe that the permanent reauthorization is necessary. As stated before, you can certainly go back and look at it at any time.
But in 1996, as part of the overall negotiation process, we all agreed upon a test to determine whether or not state's preemption worked.
Indeed, the United States credit reporting system is effectively the holy grail of the world's credit reporting systems.
There is no better credit reporting system in the world. There is no reason not to extend it permanently, and again, you can always go back and look at it if technology or the environment changes.
Mr. MOORE. Mr. Uffner, any different thoughts?
Mr. UFFNER. Well, I really do not have any different thoughts.
I really feel that if we have to change our rules in midstream, that it will create tremendous disruption, especially on a retail level amongst small businesses, medium-sized businesses, and I would hate to see that happen, especially when we are trying to get our economy back together again.
Mr. MOORE. Thank you, Mr. Chairman and panelists. Thank you as well.
Chairman BACHUS. Thank you. Mr. Tiberi, you are sort of an expert on this.
Mr. TIBERI. Yes, thank you, Mr. Chairman.
I did not give an opening statement, because I had hoped to have an opportunity to ask Mr. Abernathy a question, and that did not work out, but as you know, Mr. Lucas from Kentucky and I have sponsored a bill that not only extends FCRI but delves into the Gramm-Leach-Bliley issue.
Page 87 PREV PAGE TOP OF DOC And I appreciate you having this hearing today, and also the hearings that you are going to have in the future.
Mr. Turner, I am going to ask you a question I was going to ask Mr. Abernathy.
Section 507 of Gramm-Leach-Bliley, appears to authorize states to enact privacy laws that are more stringent than Gramm-Leach-Bliley, the Gramm-Leach-Bliley standard. Section 506(c) of the Gramm-Leach-Bliley Act also makes clear that Gramm-Leach-Bliley Act in no way modifies or supersedes FCRA and the Act's preemptions of State law.
What is your opinion, that you can give to us, on the interaction between Gramm-Leach-Bliley and the Fair Credit Reporting Act with regard to State laws on affiliate sharing?
Mr. TURNER. It is an excellent question. Unfortunately, it would have been probably better posed to Abernathy.
Our analysis does not look specifically at affiliate data sharing, nor does our analysis examine any relationship between Title V and GLDA and the strength in preemptive provisions in the FCRA.
We are really trying to measure the performance of the National Credit Reporting System over time, and as E.E. Schattschneider suggested that research is really finding the facts behind the facts.
We are trying to understand the causal relationships between the preemptive provisions and the performance, if any.
So unfortunately, that does not really speak to your question, but that is really the scope of our analysis.
Mr. TIBERI. Anybody else want to take a crack at that? Mr. Swire?
Page 88 PREV PAGE TOP OF DOC Mr. SWIRE. Well, the federal courts examined thatDistrict of Columbia courtand I thought it was a convincing opinion that the judge wrote in that case, which basically found that the Gramm-Leach-Bliley provisions were effective, notwithstanding the claims that the FCRA prevented them from being affected.
Mr. TIBERI. Anybody else want to take a crack at that? No?
Let me switch to the issue of States here and the preemption of States, and Mr. Swire, I am an Ohio State graduate.
Mr. SWIRE. Oh.
Mr. TIBERI. So you and I are not going to be agreeing on this issue, but at least we agree on the Buckeye issue. You represent Columbus.
You made a statement in written testimony that standards under the FCRA are appropriate on a state-by-state basis because it will affect only those companies who choose to do business in each particular state, and your comments have been similar to that this afternoon.
Let me take it to another step here. As a state legislator, the issue of States preempting municipalities came up with respect to predatory lending. Can't we take this further and say, ''Well, how about the municipalities that want to write their own laws with respect to this issue?'' And what would you say to that?
Mr. SWIRE. Well, we have seen that, of course, in California with some of the Gramm-Leach-Bliley issues. I think that in my testimony I said the closer you get to how the computer systems you have to program nationwide, the more compelling the federal interest.
And the more it has to do with what kind of signage or what kind of local issues or what kind of personal interactions you have down at the local level, the stronger the local interest.
Page 89 PREV PAGE TOP OF DOC And if you are talking about how the programs are going to get reported into a national system, to me, that feels pretty national.
Mr. TIBERI. And following up on Mr. Moore's comments, doesn't it have the effect in essence, if you have Cleveland, Ohio and Los Angeles enacting stringent standards, stronger than maybe 40 other states, in essence, you have a national standard taking place that essentially could be controlled by a city council in Cleveland and a city council in Los Angeles, where Congress really is being usurped of its authority?
Mr. SWIRE. At some level, we have a history of State contract law being a local common-law, state-law effort. A lot of consumer laws get written at the State level. When this committee did Regal-Neil in 1994, they said the consumer-protection law stayed at a state level.
There is a very long tradition of that.
On the other side, if you are chopping up national computer systems with local exceptions, that is going to create a big mess, and so, I am just trying to make sense out of when does preemption makes sense.
The closer you have to a national system that you have reprogram, the stronger the argument for preemption.
Mr. TIBERI. Mr. Turner, do you want to comment on that same theory?
Mr. TURNER. Again, we see in the preliminary data a real risk. If there is a Balkanization of, for example, data-furnisher requirements or obligations or obsolescence rates, for example, for derogatories or you know, an increase in the reporting periods, it will have an impact on, again, the predictive power of the models, which will play out through the safety and soundness of the system.
So you know, obviously, we are talking about the difference between unified system versus a Balkanized state system.
Page 90 PREV PAGE TOP OF DOC If you extend that even further and allow counties or municipalities, you know, that problem increases exponentially. So I would not see that as a positive development in terms of consumer access to credit and the price of credit, and all of the benefits associated with those two variables.
Mr. TIBERI. Thank you. Mr. Chairman, just a comment.
It was talked earlier about credit bureaus providing credit reports. I would just like to note that my wife actually thought we had a credit problem, made a request to a credit bureau to get a copy of our credit, and we were provided a free credit report based upon the fact that there was a concern about our credit.
And I think that is done pretty uniformly across the country. Thanks, Mr. Chairman.
Chairman BACHUS. Do you think she had a credit problem because she was married to you?
Mr. TIBERI. Well, no, and it had nothing to do with the telemarketer either.
Chairman BACHUS. I appreciate that. Mr. Crowley?
Mr. CROWLEY. Thank you, Mr. Chairman.
Sorry I was not here for your testimony, but my able staff will make sure I get all your written statements, and I thank the Chairman for holding this hearing.
I have a general question for all of you, and then I have a second question specifically for Mr. Turner.
And the first question is, while I understand the need for information for a consumer to acquire credit, that would include any consumer's credit report that covers such things like their name, Social Security number, telephone, address, employment information, credit, and payment history, and other previous credit inquiries.
Page 91 PREV PAGE TOP OF DOC I am wondering what the law means by requiring one's personal characteristics and mode of living as criteria in regards to one's credit report.
And specifically, what do those last two terms mean as they are barely defined in U.S. Code 15 FCRA chapter of the U.S. Code, and how do they pertain to the core mission of the FCRA, which is to ensure easy and uniform availability of credit to U.S. citizens?
Mr. TURNER. My recollection is that the mode of living language has more to do with something called investigative credit reports, which were a much bigger deal back in the 1960s, where if someone was a doing a check on your credit, they might go interview your neighbors and do a whole background write-up on you.
And overwhelmingly, we have shifted away from that to a much more standardized system. So I think that is a much smaller piece than it was when the law was first passed.
Mr. CROWLEY. Well, this gets I guess to my second question then, and that is, there are these seven provisions that are in the law, and there has been discussion about parsing the seven privacy provisions that are all up for sunset at the end of this year.
And with some arguing that, as you have just made the argument, that maybe some are outmoded, and they be somewhat more important than others, could you rate the seven provisions in order of importance? Or do they in essence work in tandem, as for taking any one of them away would in effect changed the system of credit reporting?
Mr. TURNER. As I mentioned earlier, our analysis is not systematically examining the relationship between all of the provisions and the cost and benefits of the national system.
I have, through the process of conducting our research, come across this notion that several of preemptive provisions are for marketing, and the rest are for scoring.
Page 92 PREV PAGE TOP OF DOC And I just caution on this bifurcation, because the relationship between the preemptive provisions and either marketing or scoring is not necessarily linear and not necessarily intuitive.
For example, this notion that affiliate sharing is purely about marketing, in the work we are doing on identity theft, we have been having discussions with financial institutions, credit bureaus and the networks.
And we see that, in fact, the credit-card issuers interface with the networks in their neurological networks, and they rely on data from their affiliates to ascertain whether or not an identified incident of fraud is an isolated case, or is part of a crime ring.
And restrictions on affiliate data sharing, because perhaps it is considered a marketing preemptive provision, would in fact miss the greater context of the value of consumers of affiliate sharing.
And actually on that, I caution on this notion that consumer protections in the FCRA should be viewed narrowly through the privacy lens.
The ability of consumers to access credit, the ability of consumers to be rewarded for responsible behavior, for example, the de-averaging of credit that we have seen, because of risk modeling, and because of pre-screening frankly, could be lost.
And these are real consumer benefits, and these are real consumer protections.
So I think that when you are looking at the preemptive provisions, rather than ranking them, it would be far more beneficial to really understand the full context of each one, and that there may be scoring consequences or identity-theft consequences from these so-called marketing provisions that are not immediately understood.
Mr. SHEAFFER. Perhaps I could answer your question a little bit more directly, too.
Page 93 PREV PAGE TOP OF DOC As a retailer, I can tell you that every single one of the State's preemptions, if they were not extended and not reauthorized, would have a significant negative impact on my business.
And to expand on Mr. Turner's statements, in the retail business, we have many affiliates and unaffiliated companies under the Boscov's umbrella.
For example, there is the Boscov's Receivable Finance Corp., the Boscov's Credit Card Master Trust, and the Boscov's Travel Center. Some retailers have their dotcom operation as a separate affiliate structure.
We also have third party licensees: The Lancome counter, Clinique counter, the Ritz Camera Center in some of our stores, unaffiliated, contractually related third parties.
If we are unable to take and share data across those entities, I will do a much worse job of identifying identity theft, stopping identity theft, stopping credit-card fraud, protecting not only my business, but the customers, my customers in the communities in which I do business. This is absolutely critical.
Mr. SWIRE. Just one sentence. I said in my Statement today that I have come to think listening to the discussion today on preemption, a big issue is is the Congress going to preempt theft initiatives at the State level?
Are states just going to be put out of that business? Or do they have some role?
And I think figuring in to the overall preemption debate this year is something that deserves some careful attention.
Mr. CROWLEY. I thank you. Let me just thank the Chairman. I am in the middle of a mark-up over in the IR committee, but I appreciate this panel's testimony today. Thank you.
Chairman BACHUS. Thank you.
Page 94 PREV PAGE TOP OF DOC I would like unanimous consent to go ahead instead of going back and forth, for you two members to both question consecutively, and then I will close with either one.
Mr. FORD. Thank you. Thank you, Chairman.
If the ranking member in the committee, my friend Mr. Gutierrez, wants to yield to the leader, just a couple of quick questions, following up on the line of questions raised by my friend Joe Crowley.
I have concerns about these credit scores and the way there bureaus put this stuff together.
And the funny thing to me in this whole thing is that they do not really have any standards for putting stuff on the credit report, if it is bad, but they make you jump through about 50 hoops to reach them, let alone get the thing corrected, if they have made a mistake.
I just wanted to, for the record, one of these consumer federation groups, Consumer Federation of America, which does not always agree with me, but I agree with them more than they think I agree with them.
I think they are right on thisone of their more recent findingsor I should say I find interesting one of their more recent studies, where they get in to how two or three headachesI would love to hear the panel's sort of observations on this.
The first is that there seem to be these widespread discrepancies amongst credit scores between or among the different agencies, and we know the impact that these credit scores now have on pricing for credit and insurance and utility service, employment, and housing, rental housing included.
And the numbers are just staggering here. If I could, Mr. Chairman, one of the findings in the study shows that the impact of credit-score discrepancies on at-risk consumers is really phenomenal.
Page 95 PREV PAGE TOP OF DOC So, roughly eight million consumers are likely to be misclassified as sub prime upon applying for a mortgage, based on the studies review of credit files for errors and inconsistencies.
This misclassification can require a bar to overpay by tens of thousands of dollars in interest payments over the life of a typical mortgage.
I like numbers. I do not understand all this language. To give you all a sense of what I am trying to say, is over the life of a 30 year, $150,000 mortgage, if they place you at a 9.84 sub-prime loan, you would pay some $317,000 in interest, compared to about $190,000 if the borrower could obtain at 6.5 percent prime loan, a difference of almost $125,000.
That is a lot of money to a lot of families and to a lot of people in this country. I know this Congress will take up tax-cut policy here in the coming days or say the coming hours.
I know Mr. Sanders touched on the idea of these free credit reports and making this a national bill, and I would imagine everybody on the panel here has an interest getting accurate credit scores, I should say, free reports and having their credit risk evaluated fairly and accurate.
What are your thoughts on the free report? I heard some answers, but I did not hear them all.
And two, what are your thoughts about there being a better mechanism for consumers to redress or to correct problems with furnishers, discredit that?
And three, with the impact that these credit scores have if it is a wide array of things here in the country, shouldn't consumers, and for that matter just regular people, have some idea about how this credit-score methodology is put together?
I think that is what Jill was getting at it, just a tad bit there, because we all can guess paying your bills on time, doing all those things, the smart things, but it would still be good to know, and it would probably eliminate some of the bad things that people think about credit-reporting agencies along the lines that maybe they, based on where you live, or what you look at, to where you may work, or where you may not work.
Page 96 PREV PAGE TOP OF DOC So it seemed to me to be in the long run, this would be good for the industry, good for lenders, good for their furnishers of credit scores and most important, good for consumers.
I would love to heard some observations. Again, my frustration, if it came across, is not directed at anybody at the panel. I, like some 50 million Americans, have had a personal experience with this and have had to go through one recently, as I tried to get my home refinanced.
And one of the reasons was because one credit agency had something bad on it and the other two did not. It was my luck that the lender picked the one with the bad stuff on it, the wrong stuff I should say. I ended having to walk back through to try to correct that.
What are your thoughts? Congress is going to struggle with this, but how do you see we redress this, and can national legislation help or hinder?
Mr. STATEN. I will take the first crack it.
You had a number of different things rolled into those observations and I sympathize and agree, in fact, with many of them.
As far as the CFA study on the errors or discrepancies and the implications for a credit score and price, I am not intimately familiar with that study, but my big recollection is that a good part of those discrepancies came from errors of omission, if you will.
In other words, information that was not present on some credit bureau files, but was on others for that same individual, and my only point there is that, you know, that is partly a fallout of our voluntary credit reporting system.
And I just hearken back to some of my earlier comments that if we take steps, either at the national or at the State or at the municipal level, that discourage voluntary reporting, those kinds of problems the CFA found are going to get worse.
Page 97 PREV PAGE TOP OF DOC Mr. FORD. What do you mean by that? I am little a confused.
Mr. STATEN. Because there may be more errors of omission in the sense that good trade lines may not get reported. Negative may not get reported, and there may be essentially more holes relative to the true picture of the consumer that are present in the credit file because information simply is not being reported.
All right? In terms of the second comment, should consumers play a more active role in trying to do their part to police the quality of information in the credit files? Absolutely. I am all for that. That was the linchpin of the FCRA at the outset, giving consumers the right to access those credit reports.
Whether that means that they should have one free copy per year, I do not know. I do not really have a position on that, but I am all for anything that will encourage them to be using that and viewing it, and getting back to bureaus when they perceive that there are errors.
Mr. FORD. I could not agree more with everything you said, but what happens when you find there is a mistake on it or an error, and it takes you forever to try to get the doggone thing fixed?
And by the time you get it fixed, the lender's already made a negative decision. That is the challenge that so many, as you well know, of your customers or consumers and others face, and that is the concern I have.
I can understand mistakes being made. We make them here hourly. The way you correct it here is every two years, people go to the polls and vote. I want to know how do you expect the consumer going up against a large lenderand the lender's basing their decision on what they think is accurate information from a credit agencywhat steps can be taken?
And maybe you do not want to propose, you know, regulation of credit reporting agencies, but how much can you do going up against your banker if the banker says, ''Look, this is what we got from your credit report.''
Page 98 PREV PAGE TOP OF DOC Mr. SWIRE. You have more rights than you used to because the FCRA exists.
Mr. FORD. You don't have any gripe on me there.
Mr. SWIRE. Right. But here are two observations.
One is, if Congress decides it is going to be a national law, and the States are out of the business here, then it is up to Congress to figure out these consumer protections. There is no one else to point to. So that is part of the work for this committee.
And the second point is, I have heard of a problem where a consumer goes in, corrects the mistake, but then the bad data comes back in a second time.
And I think that is an area that deserves special attention, maybe some additional hearings just on how that gets fixed, having the bad data come back in once it is been fixed the first time.
Mr. FORD. No, I am not shirking our responsibility. I just want to know your recommendation to us, because I have to think if we do something wrong, you are going to come back and tell us. So you might as well as tell us on the front end what we should do to make it right.
So I know I am going over my time, and I hope we can take Mr. Swire's advice, Chairman, and maybe even hold another hearing on these things. I know Mr. Gutierrez has expressed some concerns in this area as well.
Chairman BACHUS. Mr. Ford, we will just give you one minute instead of five minutes next time.
The gentleman from Illinois?
Mr. GUTIERREZ. Thank you, Mr. Chairman.
Well, I want to follow up on Mr. Crowley and Mr. Ford and the issues that they were speaking to. Because it seems that about 70 percent of credit reports have some kind of mistake on them, and three out of 10 have such a significant mistake, that it can actually impact.
Page 99 PREV PAGE TOP OF DOC I know a lot of us like to go out there and say APR and what that is, and what that means, and if does not mean anything else, it means the best rate for those people that have the best scores.
Everyone should walk into a mortgage company or a car dealership and get the best score.
So we know there are lot of mistakes being made, and we know they can be simply made.
And we know that insurance companies, at least it has been my experience that credit-card companies, even when you pay them the annual fee and you tell them that somebody double charged you, they seem to go into this new interrogation''Well, you sure you were not at that hotel? Are you sure you didn't stay there? You didn't order that room service?''to the point where you can feel like they are not on your side, and they are supposed to be protecting your interests.
And given this new phenomenon of these lack of any kind of personal relationship or real caring from the credit-card industry as I have seen it, and the credit industry in general and maximizing their profits.
The FCRA does not specifically address a reference-insurance score, so I would like if Mr. Swire could talk a little bit about insurance score.
So, if they are using your credit report in order to see whether or not you are going to have any insurance, how long, what your rate is going to be. So if I paid my Discover card on time for five years, and my mortgage, does that necessarily mean that I am going to get the best insurance rate? Can I make that assumption?
And conversely, are there things that my insurance report says about me that have nothing to do because I never violated a law in 10 years. I am a perfect driver. I pay my bills late, but I drive perfectly.
Page 100 PREV PAGE TOP OF DOC I imagine those people exist. I drive perfect. I have never been in any accidents, no traffic tickets. I mean, that has happened to me personally since I got elected in 1992. I have not gotten stopped or been issued a police traffic violation.
I mean some might say that is because I am from Chicago, but I like to say I have been much more careful about the way I drive. So I guess the question is, do your credit scores enhance necessarily how well you do in getting an insurance policy?
And if I drive real well, but I have a bad credit, can I get a lousy insurance rate?
And do we know enough about how they acquire that insurance score? Do we know enough of what the elements are? And should there be some more transparency in how we arrive at those? And would that help consumers?
Mr. SWIRE. I have heard about the practice. I have not been in pure discussions about it.
The question for the insurance company is that they think that they can price more accurately, based on a set of information. As a business, they are tempted to price more accurately, and if they find out from experience folks do not pay their home premiums as quickly, then they are going to be tempted not to charge.
One of the problems is it exacerbates mistakes. Right? If there is a mistake in your file, or if there are reasons why your community gets treated badly on some score or there is any other problems in the system, as you link the system 12 different ways, that problem keeps going on all the way through.
One thing I mentioned earlier is, there are interactions for things like Community Reinvestment Act and Underserved Communities and a whole list of other areas.
And I think that those are things to watch for as these systems get linked together.
Page 101 PREV PAGE TOP OF DOC Because one apparently innocent factor could turn out to be used to disadvantage people a lot of other places.
Mr. GUTIERREZ. So we do not have a lot of information then, about howbecause now that they are all interrelated, the people that give you credit, sell you the insurance, and give you the mortgage and everything else and the credit cardin order for me to establish my policy, the duration, and the premiums on my policy, we mightany members of the panel, do we know anything about the insurance industry using credit reports to reach decisions about what my premiums might be?
Mr. STATEN. I know that it is done. I know that it has actually been a growth product for the scorecard builders, these companies that build the models, like Fair Isaac in California, and I know that many of the leading property-casualty insurers do use them.
And the reason they use them is much as Peter said, they found that it is predictive of risk in the auto-claim area.
And so, like any good business, if you are worried about the competition, you are worried about other carriers stealing away your better risks, your better customers, if you can find a way to price them less, because you can reward them, then you would lower the price.
And you would gain more customers or you would keep customers from defecting.
By the same token, some people are going to get priced higher as a result, and I do not have a particular problem with that, although it is a bit of a mystery as to why your payment performance influences your driving risk, but it apparently does.
Peter's comment is well taken here, though, and that is that if there are errors, it is not just affecting the credit markets, but it is spread to the insurance market as well.
Page 102 PREV PAGE TOP OF DOC Mr. GUTIERREZ. Mr. Chairman, having driven a cab for three years, I paid all my bills on time, but you can imagine what my driving record was like.
And conversely, now that I no longer drive a cab, it has gotten better, and I would like to make sure that the public is getting a good break, a fair break, and that the information is such that they can challenge that information about how they get insurance premium.
Maybe we should look a little bit better into that.
And I think it stresses the point about, you know, these kind of impersonal institutions, when you have an 800 number for a credit-card company versus a lender that gives you a mortgage.
And I know Mr. Ford, the closer you get to home to those financial institutions, savings and loans and banks, the easier it is to resolve those problems, because you get a human being on the line that really wants to make sure that mortgages are handed out in that particular community, and it is really looking to do that.
Thank you very much, Mr. Chairman. You have been very, very generous with both Mr. Ford and I in extending this conversation.
Chairman BACHUS. Thank you.
Mr. GUTIERREZ. Thank you.
Chairman BACHUS. Mr. Uffner, could you explain how an individual might qualify for an auto loan if they were from a state that allowed robust credit reporting, might not quality for a loan, or may have to pay a higher rate if they are from a state that puts restrictions or limitations on credit history?
Mr. UFFNER. Well, from a practical standpoint, if a consumer comes in to purchase a vehicle, whether it is new or used, we are not the ones that make the credit decision.
However, we do use the information from the credit granters in order to make a determination as to whether or not we should deliver the automobile to this particular client.
Page 103 PREV PAGE TOP OF DOC So if we have a situation where we can not get a decision or that the decision that comes down from the bank or finance company is not as favorable, then that person would have to pay more for his or her credit.
It would not affect the price of the vehicle, but it would affect the price of the credit that they receive.
So anything that would interfere with the ability of the ultimate credit granters to make those decisions on a timely basis is, I think, is likely to increase the costs of those decisions.
Did I address your question, sir?
Chairman BACHUS. Yes, thank you.
Mr. Sheaffer, you have three stores in Delaware. You have three in New York. You have a couple of dozen in Pennsylvania. So I suppose it would not be too much for you to be aware, maybe, of the laws in those states.
But now you are both a furnisher and a user of credit information?
Mr. SHEAFFER. That is correct.
Chairman BACHUS. If we had 50 different laws out there, how might that impact you with regard to furnishing credit information or in using credit information? What would the cost of that be?
Mr. SHEAFFER. I do not know that I can give you a hard-dollar cost, but I can tell you how it would affect us.
Chairman BACHUS. Right.
Mr. SHEAFFER. For example, if there are 50 different laws, on what information I could report, at what point in time I could report that information, or if there were different standards of furnisher liability throughout all 50 states, I would have to make a business decision whether or not, again on a voluntary basis, I wanted to report information on my customers in that given state.
Page 104 PREV PAGE TOP OF DOC For those states that I chose not to report credit information, the credit report will be less complete. Therefore, my fellow credit granters would be able to make less accurate future credit decisions.
The same is true as a user of credit information. If for each individual state in which I did business, I would have to have an entirely different process, an entirely different set of business rules, not only about who are individuals to whom I grant credit, the credit scores bring out different things for different states.
I would also have to create different processes for credit-limit assignment, account management, collections, charge-off and recovery potentially, because I now have more or less predictive information about how to handle an account throughout its entire life cycle.
So it is not just an issue of initial underwriting, it is an issue of account management throughout the life cycle.
Chairman BACHUS. You know, I would think that with some of those states who may impose a higher limit, obviously you could have the unscrupulous take advantage of those in several different ways. Could it encourage people to move from state to state?
Mr. SHEAFFER. Well, not only could it encourage people to move from state to state, it almost might prevent folks from living from state to state. For example, if Maryland, hypothetically, had a standard that said an issuer was not allowed to report credit information for 90 days, and Pennsylvania has a provision that said you may report it in five days, I may not, as a Maryland resident, if I have been sort of past due, and my credit availability has still been there, and I am thinking about taking a new job in Pennsylvania, I may make the decision not to do that because I know that just by virtue of moving to a different state, my Visa card or my Boscov's charge will be past due; or, I am sorry, will be closed, or my credit limit will be reduced. Or, perhaps I will not be able to get a mortgage in the States that now have more robust credit reporting law.
Page 105 PREV PAGE TOP OF DOC Chairman BACHUS. Thank you. We have a vote on the floor. And I think we have about five minutes left. So we are going to discharge the committee at this time. But Mr. Turner, I would ask you, you mentioned some interesting work that you have done that I think could helpful for us to consider on the issue.
But would you be willing work with the GAO, so that they can maybe understand your research, and help us evaluate it? We understand that the data would be subject to confidentiality restrictions and GAO would have to respect those, but if you would work with the GAO, it would be quite helpful to us to submit some of your
Mr. TURNER. To the extent that they are willing to respect the confidentiality agreements, I would welcome the opportunity.
Chairman BACHUS. Thank you. At this time, the hearing isMr. Crowley, I do not know if we have time.
Mr. CROWLEY. Mr. Chairman
Chairman BACHUS. Go ahead.
Mr. CROWLEY.my quick point, and that is, Mr. Sheaffer, you actually answered my question. I was going to ask on uniformity. For instance, late payments, for instance, varying from state to state. We obviously have until the sun set. And you have answered my question. I thank the chair.
Chairman BACHUS. And I apologize. Thank you.
This hearing is adjourned.
[Whereupon, at 2:32 p.m., the subcommittee was adjourned.]