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Furnishers of Information This preemption provision prohibits a state from regulating the responsibilities of persons who furnish information to consumer reporting agencies. If it expires, states could enact laws imposing different obligations on furnishers. States could create laws relating to those who furnish information to credit bureaus and impose varying duties on furnishers to correct and update information reported. States could also create laws imposing liability for failure to comply with certain furnisher obligations. They could also impose a duty on the furnisher to investigate consumer claims reported to credit bureaus.
States may impose duties on fumishers that are impractical for furnishers to comply with, which will result in an increase in compliance cost. Mortgage brokers generally do not furnish information to consumer reporting agencies. However, the lenders with which mortgage brokers transact business and many other industry sectors do furnish information to consumer reporting agencies.
If furnishers decide that compliance with different state laws is too burdensome, furnishers may choose not to submit the information at all thereby making consumer reports inaccurate or unreliable. This will result in a reduction in credit for the consumer and will increase the cost of credit since the risk of not knowing the credit worthiness of an individual will have to be priced as such.
Procedures of Disputing Inaccurate Information This preemption provision applies to the procedures a consumer reporting agency must use if a consumer disputes the accuracy of information in his/her consumer report. If this preemption provision expires, states could enact varying procedures for consumerreporting agencies to follow when they dispute information contained in their consumer report. This could result in a patchwork of state laws that impose different investigation duties on consumer reporting agencies, including the amount of time required to investigate a consumer dispute.
Some states may allow a consumer reporting agency a longer period of time to investigate disputed reports whereas other states may allow a shorter period of time to investigate. This could lead to a cursory and inaccurate investigation to the detriment of consumers. Mortgage brokers often work with consumers to help them to review and correctly dispute their credit when necessary to effect the most rapid modifications necessary before a consumer applies for a mortgage loan. It is one of the many benefits consumers experience when they work with a mortgage broker. Cursory and inaccurate investigations of credit disputes will frustrate this working relationship between a mortgage broker and the consumer.
Mortgage brokers have continued to work with the Consumer Data Industry Association (CDIA) in an effort to correct the dispute resolution issues we find on a daily basis on behalf of consumers. Mortgage brokers have played an active role notifying and encouraging repositories to continually better the accuracy in credit reporting. Mortgage brokers have been the watchdogs who have given CDLA the examples of the problematic reporting we have had to help consumers overcome in securing their home financing. Inconsistent state procedures relative to disputing inaccurate information will upset the ability of mortgage brokers to continue to work with consumers on fixing their credit inaccuracies.
If states enact different laws on the procedures of disputing inaccurate information, consumers may receive a fair and comprehensive investigation solely contingent upon the state in which credit was extended. The process whereby a consumer disputes information contained in their consumer report would therefore result in an inequitable and unreliable process.
Affiliate Sharing This preemption provision prohibits states from regulating the exchange of information among affiliates. As the financial services sector has evolved, financial services companies have come to rely a great deal on sharing information among affiliates. Although many of these companies are structured through separate legal entities, they serve their customers through one unit.
The ability to share among affiliates allows a company to tailor products and services to individual consumers thereby increasing consumer choice and reducing costs. Pursuant to FCRA, information can be shared among affiliates with limited restrictions. Information can be shared among affiliates without restriction if the information relates generally to experience and identification information. Affiliates can also share nonexperience information provided that the consumer has been notified that the information may be shared and is given an opportunity to opt out of sharing their information.
Generally, most mortgage broker businesses are very small, with very few employees, so most mortgage brokers do not have affiliates with which they share consumer information. However, some mortgage brokers do have business affiliates, such as a title company or appraisal company affiliates that consumers may work with throughout his or her purchase of a home. Some mortgage brokers also have insurance and financial planner affiliates. However, as the mortgage marketplace continues to grow and evolve, this could certainly be an issue in the future for mortgage brokers.
If this preemption provision expires, our national uniform credit reporting system could dwindle as states enact different affiliate sharing standards. The operational costs for companies would increase as they attempt to comply with inconsistent state affiliate sharing requirements. Any costs associated with such compliance will ultimately be passed on to consumers. If states impose restrictions on affiliate sharing, great benefits currently enjoyed by affiliate sharing, such as cross-marketing products and obtaining certain affiliate services, will be missed. The current national uniform affiliate-sharing standard is critical to the operational infrastructure of companies and provides enhanced benefits to consumers.
Identity Theft In the context of FCRA, Congress has been focusing on the issues relative to identity theft. NAMB supports efforts to address the growing problem of identity theft, but is concerned about that these efforts could be at the expense of the consumer. Identity theft is one of the fastest growing crimes in this country. Identity theft can tarnish a consumer's credit and sabotage their ability to obtain credit. NAMB believes that enforcement is also an integral component to combating identify theft.
Mortgage brokers today are constantly educating their consumers about methods to safeguard their credit. Mortgage brokers are generally the first contact for a consumer who must give that consumer the bad news about credit information revealed on his or her report that indicates someone else is using his or her identity. Mortgage brokers often spend hours assisting the consumer in how to clear their credit records before that consumer is in a position to make an application for a real estate loan. Mortgage brokers have a strong interest in eliminating avenues for identity theft.
We look forward to working with Congress and the Administration to address the growing concern with identity theft.
Conclusion The benefits of FCRA expand to a broad range of industry sectors from the mortgage originator to the retailer. These benefits are derived from an accurate, reliable and national uniform credit reporting system. FCRA provides a very carefully balanced uniform system that allows for the continued flow of consumer information. If the preemption provisions in FCRA are allowed to expire, our national uniform credit reporting system will be endangered and the benefits from FCRA will be lost.
Thank you for giving NAMB the opportunity to testify today on this very important issue.
Consumer Federation of America
TRAVIS B. PLUNKETT
SUBCOMMITTEE ON FINANCIAL INSTITUTIONS AND CONSUMER CREDIT OF THE HOUSE COMMITTEE ON FINANCIAL SERVICES
THE ROLE OF THE FAIR CREDIT REPORTING ACT
IN THE CREDIT GRANTING PROCESS
JUNE 12, 2003
Good morning Chairman Bachus, Ranking Member Sanders and all the members of this subcommittee. My name is Travis B. Plunkett and I am legislative director of the Consumer Federation of America.' I appreciate the opportunity to offer our comments on role of the Fair Credit Reporting Act in the credit granting process. This is a broad and important topic for consumers. For many years, CFA has conducted research and offered public policy recommendations on many aspects of this issue, including the extension and marketing of credit cards and the accuracy of credit reporting data. As this panel has been asked to focus on FCRA and mortgage lending, I will largely confine my remarks to this topic.
As this subcommittee has heard, the credit reporting system in the United States has experienced significant technological change in recent years. The good news is that consumers have benefited from many of these developments. Credit decisions can be made faster than ever before. As new tools for credit risk assessment have been developed - and creditors have generated substantial profits by charging higher fees and interest rates for riskier loans -- credit has been extended to many worthy consumers who in the past might not have been eligible. Partly as a result of this development, homeownership in this country has grown.
During the second half of the 1990s, mortgage underwriting increasingly incorporated credit scores and other automated evaluations of credit histories. As of 1999, approximately 60 to 70 percent of all mortgages were underwritten using an automated evaluation of credit, and the share was rising?. More recent estimates from industry leader Fair Isaac indicate that 75 percent of mortgage lenders and over 90 percent of credit card lenders use its credit scores in making credit decisions.
However, there is bad news too. Some lenders extended credit to subprime borrowers in an abusive and predatory manner, abusing their new technological capabilities to develop usuriously high interest rates and fees carefully targeted at unwitting and vulnerable consumers. The lending practices contributed to an unprecedented growth in bad credit card and mortgage debt, home foreclosures and personal bankruptcies in recent years. Meanwhile, as subprime lending boomed, the Fair Credit Reporting Act's protections to ensure reporting accuracy, protect consumer privacy and prevent identity theft have not kept pace. The increased speed with which credit decisions are now made exposes a significant number of consumers to new problems and abuses for which old safety measures are inadequate. It is as if the credit reporting industry has developed a BMW engine that powers an old Model T car without seat belts, air bags and other modern safety features.
In short, the Fair Credit Reporting Act (FCRA) is in need of an overhaul. This is especially true because this nation's policy is to continue to increase home ownership, particularly among minorities. There is a direct connection between the accuracy and completeness of credit information that is used about these potential borrowers and whether they
CFA is a nonprofit association of 300 pro-consumer organizations that, since 1968, has sought to advance the consumer interest through education and advocacy.
Straka, John. 2000. A Shift in the Mortgage Landscape: the 1990s Move to Automated Credit Evaluations.