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In other words, these are "notices" that are designed not to be noticed. The first line typically advises that "information in your credit report was used in connection with this offer," and "you received this offer because you satisfied the criteria for creditworthiness used to select you for this offer." The next line finally informs you that you're not really pre-approved in the way you might think: "Grant of this offer, after you respond to it, is conditioned upon your satisfying the creditworthiness criteria used to select you for the offer." By the fourth line, the notices advise, "You have the right to prohibit use of information in your file with any credit reporting agency in connection with any transaction that you do not initiate." If the reader gets through all that, he can finally find the address to write the three CRAS or the number to call (888) 567-8688.

In my opinion, the vast majority of Americans, despite regularly receiving pre-screened offers, are not aware that these offers are generated from their credit report. We may learn soon that there is a heightened urgency in making Americans aware.

Privacy Times is in the early stages of an investigative story on how various criminal gangs across the nation, intent on committing identity theft and credit fraud, are targeting mail boxes for consumers' personal information and financial instruments. Their favorite targets include "convenience checks," pre-approved credit card offers and bank statements. The gangs involved with these have demonstrated different levels of sophistication. Some consist of drug addicts; others are associated with specific foreign nationals. Some of the more active gangs hit 200-300 mailboxes in one day. Some of the gangs try and use convenience checks or preapproved credit card offers to get credit quickly. Others sell the personal data to other gangs specializing in identity theft, credit fraud and counterfeiting.

In one recent month in one mid-sized western city, there were 20 arrests and 14 prosecutions. In that city, one law enforcement team has four of its six investigators dedicated to identity theft.

Like everything related to identity theft, the raiding of mailboxes by ID theft gangs promises to get worse. Therefore it is imperative that we strengthen the rights of Americans to have reasonable control over their identifying information and sensitive financial data so they can protect themselves against identity thieves. This means not only strengthening consumers' rights to know about and stop the use of their data for pre-screening, but also blocking use of their personal data for other financial offers that might not be made from affiliate-sharing or other process that falls outside of the FCRA-regulated pre-screening. I agree with U.S. PIRG that the solution to this problem is a national "Do Not Send Credit Offers" Registry, similar to the "Do-Not-Call" Registry being developed by the FTC.

Pre-screening clearly played an important role in the past decade's credit boom. But we have to recognize that times are changing, so we are looking forward and "not fighting the last war." The above-described threat from criminal gangs should cause us to examine critically the costs and benefits of pre-screening. Moreover, in today's hyper-competitive credit markets, consumers have an array of choices and ways they can find the best credit offers when they so choose, including radio and print ads, the Internet and the telephone.

Affiliate Sharing

"No requirement or prohibition may be imposed under the laws of any State... (2) with respect to the exchange of information among persons affiliated by common ownership or common corporate control." Thus, the FCRA's provision on affiliate-sharing do not set a national standard, it simply bars State action. In effect, the provision says there shall be no standard.

Because the provision was added hastily in 1996 with no hearings or analysis, it is poorly crafted and confusing. The financial services industry has argued that the provision bars California or its localities from enacting provisions that would strengthen consumers' rights to opt-out from affiliate sharing of financial data not covered by the FCRA.

This is a rather bizarre situation, because Gramm-Leach-Bliley also does not set a national standard on affiliate sharing - it only provides notice and opt-out for sharing with third parties. In GLB, Congress recognized that affiliate sharing implicated important privacy issues and specifically added the Sarbanes Amendment, preserving the rights of the States to enact stronger financial privacy laws, including ones that gave consumers rights in relation to affiliate sharing.

The GLB notice-and-opt out standard has proven ineffective. The notices generated under the law are confusing to consumers and costly to industry. Last year, the people of North Dakota voted 72% in favor of restoring an opt-in financial privacy law. If the California legislature fails to pass Sen. Jackie Speier's legislation (SB 1, an opt-in for third parties, opt-out for most affiliates), then Californians will vote an even stronger initiative in March 2004. Opinion polls show that 85-90% of Californians favor an opt-in standard for their sensitive financial data.

This should come as no surprise. I would urge members of this committee, when opportunity arises, to ask constituents two straightforward questions: “Should banks have to get your permission before they sell or share your financial data with outsiders? Should you have any rights to stop companies from sharing your financial data among affiliates?"

Congress has the opportunity to correct the mistakes of GLB, which is not based upon traditional Fair Information Practices standards, and expand the protections of the FCRA to all sensitive financial data. The American people want this. If Congress is unable to accomplish this, the States must be left free to protect their citizens.

In my opinion, problems in the current system are too far-reaching for Congress to come. with thoughtful, workable legislative solutions in less than six months. After all, it took six years to enact the 1996 amendments. To advance the legislative debate, I've attached the following list of preliminary concepts for improving the law.

Preliminary Concepts For Improving The FCRA/National Financial Privacy Law

The following are some of the preliminary concepts are vital to updating the FCRA and national financial privacy laws. This list is the work of several groups and experts, including U.S. PIRG, Consumers Union, Consumer Federation of America, National Association of Consumer Advocates, National Consumer Law Center and myself.








Strengthen, Promote Consumer Access To Credit Reports

A. One Free report per year w/ Credit Score (Explained)

B. Cap price of monitoring/alert services

(Accuracy & ID Theft Benefits)

C. Require credit grantor to provide credit report that caused adverse action

Improve Accuracy

A. Strengthen Duty On Furnishers To Report Accurately & Reinvestigate
Disputes -

B. Require that furnishers who report, abide by a “completeness" standard

C. Notify consumers when negative info reported

D. Shorten reinvestigation period

Identity Theft

A. Match four identifiers before disclosing credit report

B. Fraud Flag Alert

C. Address Change verification

D. Get the SSN out of circulation (Anti-Coercion, Credit Headers)

Strengthen Consumer Rights Over Pre-Screening

A. Notice prescribe by statute, prominence requirement

B. Have a National Opt Out Registry for All Credit Card Offers

Affiliate-Sharing Privacy -

A. Enact Shelby-Markey opt-in, opt-out for third party & affiliate-sharing

B. Extend access/correction rights to all financial data

'Democratize/Popularize' Enforcement

A. Minimum statutory damages

B. 'Catalyst theory' for attorneys fees

C. Express consumer right to File In Small Claims Court (Like TCPA)

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Testimony of

Mr. Scott Hildebrand

Vice President, Direct Marketing Services
Capital One Financial Corporation

before the

House of Representatives Committee on Financial Services Subcommittee on Financial Institutions and Consumer Credit

"The Role of FCRA in the Credit Granting Process”

June 12, 2003

Chairman Bachus, Ranking Member Sanders and Members of the Subcommittee. My name is Scott Hildebrand and I am appearing before you on behalf of Capital One Financial Corporation where I serve in the capacity as Vice President for Direct Marketing Services. On behalf of Capital One, let me express my thanks to you and Chairman Oxley for the leadership you have shown on this important issue. We greatly appreciate this opportunity to discuss the "Role of the Fair Credit Reporting Act (FCRA) in the Credit Granting Process." We believe that the permanent extension of the national standards contained in the FCRA is essential to the continued health of our nation's economy. Since its enactment, the FCRA has delivered extraordinary benefits to consumers, helping to fuel innovation and competition in the financial services industry that has made credit less costly and more widely available that at any time in U.S. history.

Capital One is one of the top 10 largest credit card issuers in the nation, and a diversified financial services company with over 48 million customer accounts and $68 billion in managed loans outstanding. In addition to credit cards, we are one of the nation's premier auto finance companies, and also offer our customers an array of banking and related products. We employ nearly 18,000 associates worldwide, with offices around the country and overseas.

I. An Overview of the Role of the FCRA in Creating a National Credit Granting Process

The FCRA Created a National Competitive Environment for Credit Grantors

In many ways, Capital One is a creation of the competitive environment established by the uniformity provisions of the FCRA. The primary role of the FCRA is to benefit consumers by providing a national framework of rules governing the use of credit information that does not favor any particular type of lender or corporate structure in any particular geographic location. In other words, to create a vibrant nationwide marketplace free of the old paradigm of dominant local or regional institutions which tended to stifle competition and with it, consumer choice.

That competition is alive and well today. In 2001, approximately 6800 financial institutions issued general purpose credit cards such as MasterCard and Visa, in addition to those issued by American Express, Discover and many retailers.' A 2002 Federal Reserve survey indicates that of the 176 largest credit card issuers, 64 distribute their cards nationally, Capital One among them. Obviously, this market is not dominated by any one issuer. There are few barriers to entry and exit. Over the past year, the top 10 issuers lost market share to newcomers such as Juniper Bank and the banking arm of State Farm Insurance."

1 The Profitability of Credit Card Operations of Depository Institutions: An Annual Report by the Board of Governors of the Federal Reserve System, June 2001.



3 Credit Cards, 2003, SMR Research.

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