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,
Washington, D.C.
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.
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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.
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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 customers—consumers, 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 success—National 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.
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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.
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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.
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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 of—my 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.
[Laughter.]
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.
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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.
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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 conventional—a 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 way—not 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.
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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.
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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.
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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 most—certainly 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.
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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.
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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.
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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.
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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.
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Thank you. I yield back the rest—the 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 this—to 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 consumer—their 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.
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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 also—the 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.
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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——
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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 those—that 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?
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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.
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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 make—to take away the mask?
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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?
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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 national—the 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 achievable—facilitating 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.
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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.
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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?
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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?
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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 that—was that the—Mr. 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 is—this 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.
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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.
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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?
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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 the—when we have all the pieces together for it to be a comprehensive set of actions.
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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?
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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——
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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 this—these 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 the—how 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.
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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?
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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 local—with law enforcement people and to—I 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.
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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 first—I 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.
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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 their—pay their credit card bill or something with—at 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.
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Mr. MEEKS. And lastly, because I did not really—I 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 these—those 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.
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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.
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But with regard to the availability of credit, really what the contrast is, is the—what 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 did—the 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.
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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 to—in 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.
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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?
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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 know—and 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.
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And when we reauthorize this in January, before January of next year, so that we can take what needs—take 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.
[Recess.]
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 not—I 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.
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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 that—looking 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.
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Mr. CASTLE. Well, I—that 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 not—we 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's—if 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 your—you have documented that today. And I think we have to fire with fire with the—we 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.
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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.
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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 system—because 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?
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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 an—I 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 my—I 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.
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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 to—I 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 you—all of you gentlemen. At this time, we will go starting with Mr. Uffner for any opening statements.
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STATEMENT 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.
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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.
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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.
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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.
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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.
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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.
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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. Whe