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and state insurance departments should conduct regular, comprehensive evaluations of the validity and faimess of all credit scoring systems, including any automated mortgage underwriting systems, insurance underwriting systems, tenant and employee screening systems, or any other systems or software that uses credit data as part of its evaluation of consumers, and report to Congress with its findings. These evaluations should be conducted and released in a timely fashion so that score developers can react to any recommendations and so the reviews do not become outdated as new versions of scoring software are developed and distributed. Strong oversight of scoring systems that identifies and protects consumers from any discrimination or abuses will foster consumer confidence in these powerful and increasingly utilized evaluation tools.

2. End the use of credit scoring for insurance purposes. The states of Hawaii and Maryland have forbidden the use of credit reporting data for the purpose of underwriting or pricing some forms of insurance. This is because insurers have not shown that credit data is logically related to a consumer's likelihood of incurring or filing a claim. These states have rightfully concluded that the contention that it is not enough to contend, as insurers have, that there is a correlation between credit history and claims. There may be a correlation between the color of someone's hair and their likelihood of filing an insurance claim, but that doesn't mean that it is logical or reasonable to charge people with red hair higher rates, or to refuse to cover them. What does a person's credit history have to do with the likelihood that a hailstorm will damage their roof and that he or she will file an insurance claim? Congress should follow the example of these two states and forbid the use of credit data for insurance purposes.

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E. Broaden federal enforcement of the FCRA.

1. Appropriate federal agencies should conduct regular credit bureau FCRA compliance audits. An appropriate federal agency, such as the Federal Trade Commission, should audit the repositories' records on a regular basis to identify data furnishers who report incomplete or incorrect information to the repositories. Such activity should be subject to fines or other penalties for non-compliance. These audits should also assess the overall accuracy of data maintained by the credit repositories, with appropriate fines or other penalties for inaccuracy.

2. The Federal Trade Commission should collect, analyze and disclose information about credit reporting disputes. Credit bureaus should disclose to the FTC on a quarterly basis data about all disputes filed by consumers, the identity of the furnisher who provided the information in dispute, the outcome of the reinvestigation and the amount of time that the reinvestigation took. The FTC should be required to present an annual report to the Congress that aggregates this data, analyzes the causes and outcomes of consumer disputes and offers public policy remedies to solve endemic problems.

F. Legally empower consumers to combat credit reporting inaccuracies and abuses. Although federal and state authorities should do more to enforce the requirements of the FCRA, a handful of agencies will never be able to adequately keep track of problems involving more than 190 million credit reporting files. The combined restrictions on private enforcement of the act make it extremely difficult for consumers to hold credit furnishers and bureaus accountable for major violations of the law.

1. Make it easier for consumers to pursue a claim against creditors who report wrong information. Consumers can only enforce the already weak accuracy standard for data furnishers (mentioned above) under very narrow circumstances involving the reinvestigation of a credit reporting problem. As a result, virtually no private actions against creditors have been successful, even for grievous reporting errors.

2. Increase legal deterrents to egregious violations of the law. Several courts have held that the FCRA does not allow injunctive relief for consumers. Broadening this right will allow courts to prevent bureaus from issuing credit reports with false or disputed information. The law should also grant successful plaintiffs minimum statutory damages for egregious violations of FCRA, such as the failure to correct inaccurate information after notice is provided. This will provide a further deterrent to consistently sloppy and inaccurate reporting. And finally, because of a recent Supreme Court decision", it is necessary to reinstate the previous rule that consumers have two years from the date of discovery of an error (as opposed to the date the error occurred) to file suit. Chairman Bachus and Representative Schakowsky have proposed legislation, H.R. 3368, which would laudably restore a reasonable statute of limitations for these claims.

G. Improve baseline federal credit reporting standards. Allow states to exceed these minimum standards, as long as state law does not conflict with federal law.

1. Improve federal law. As identified above, the FCRA needs to be modernized and improved to insure greater accuracy of information and to prevent misuse and abuse of credit reporting and scoring information. This will benefit creditors, credit bureaus, and consumers.

2. Allow federal preemption of state credit reporting laws to expire. The eight specific areas of federal preemption that were put in place for the first time in 199620 expire on January 1, 2004. If federal credit reporting consumer protections are broadened and improved, very few, if any, states are likely to attempt to exceed these baseline standards. However, the expiration of these preemptions would allow some states the opportunity to quickly respond to the particular needs of their states' residents. This is what Vermont did in 1991, when residents of entire towns were victimized by the systemic misreporting of false credit reporting information. It is always a good idea to require meaningful consumer protections in the least economically burdensome manner possible. However, to date, we have not heard a factual basis for the rather hysterical contention that the expiration of these preemptions will result in the passage of many burdensome state laws that will drive costs to consumers up, make credit unavailable to borrowers in some states and result in a “balkanization” of the credit system. In fact, testimony put on the record by the Assistant Attorney General of the State of Vermont and the U.S. Public Interest Research Group last week documented that fair credit reporting standards have always been developed and

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Andrews v. TRW, Inc., 534 U.S. 19 (2001). 20

Under 15 USC Section 16816(b)(1), these preemptions affect: (1) prescreening of consumer reports by credit reporting agencies; (2) timelines by which a consumer reporting agency must respond to consumer disputes; (3) the duties of users of credit information that make adverse decisions; (4) the duties of a person using a consumer report in connection with a credit or insurance transaction not initiated by the consumer; (5) the type of information in a consumer report; (6) the responsibilities of furnishers of information to credit reporting agencies; (7) sharing of credit reporting information among corporate affiliates; (8) the form and content or disclosures that must be offered to consumers. Some stronger state laws were allowed to continue to exist under these provisions.

enforced at both the national and the state level. As cited in these testimonies, there are a number of state laws that exist right now that either: (a) already exceed federal standards on preempted laws because they were “grandfathered” in as part of the 1996 FCRA amendments, or (b) exceed federal standards on non-preempted credit reporting laws. Proponents of continued preemption have not offered evidence that any of these laws, such as the California law that holds credit furnishers to a higher standard of accuracy than federal law, have led in any way to reduced credit extension or higher costs for credit for consumers in these states. On the other hand, these laws have led to increased protections for consumers in those states, which is very positive. Continuation and expansion of a rational federal/state system of credit reporting standards is the best way to both provide some predictable baseline requirements for creditors and credit bureaus, while providing the best and most responsive protections for consumers.

Thank you again for the opportunity to offer our views and recommendations. We look forward to working with you, Mr. Chairman, and the members of this subcommittee to improve the Fair Credit Reporting Act for consumers.

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NAFCU

Written Testimony of Mike Vadala

President/CEO of The Summit Federal Credit Union

On Behalf of The National Association of Federal Credit Unions

Subcommittee on Financial Institutions and Consumer Credit

United States House of Representatives

Fair Credit Reporting Act

June 12, 2003

National Association of Federal Credit Unions

3138 10th St. North

Arlington, VA 22201

(703) 522-4770

Introduction

The National Association of Federal Credit Unions (NAFCU) is the only national organization exclusively representing the interests of the nation's federally chartered credit unions. NAFCU is comprised of approximately 900 federal credit unions financial institutions from across the nation -- representing approximately 24 million individual credit union members. NAFCU-member credit unions collectively account for approximately twothirds of the assets of all federal credit unions. NAFCU and the entire credit union community appreciate this opportunity to participate in the discussion regarding the Fair Credit Reporting Act (FCRA) and its effects on America's consumers.

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Historically, credit unions have served a unique function in the delivery of financial services to Americans. Established by an act of Congress in 1934, the federal credit union system was recognized as a way to promote thrift and to make financial services available to all Americans, many of whom would otherwise have no access to credit. Congress established credit unions as an alternative to banks and to fill a precise public need-a niche that credit unions fill today for over 82 million Americans. Every credit union is a cooperative institution organized "for the purpose of promoting thrift among its members and creating a source of credit for provident or productive purposes.” (12 USC 1752(1)). While nearly 70 years have passed since the Federal Credit Union Act (FCUA) was signed into law, two fundamental principles regarding the operation of credit unions remain every bit as important today as in 1934:

Credit unions remain totally committed to providing their members with efficient, low cost personal service; and,

Credit unions continue to emphasize traditional cooperative values such as democracy and volunteerism.

Credit unions are not banks. The nation's approximately 9,600 federally insured credit unions serve a different purpose and have a fundamentally different structure, existing solely for the purpose of providing financial services to their members. As owners of cooperative financial institutions united by a common bond, all credit union members have an equal say in the operation of their credit union -"one member, one vote" regardless of the dollar amount members have on account. These singular rights extend all the way from making basic operating decisions to electing the board of directors. Unlike their counterparts at banks and thrifts, federal credit union directors, serve without remuneration fact epitomizing the true "volunteer spirit" permeating the credit union community.

Credit unions have never cost the American taxpayer a dime. Unlike the Federal Deposit Insurance Corporation (FDIC) and the Federal Savings and Loans Insurance Corporation (FSLIC) – the precursors to Bank Insurance Fund (BIF) and Savings Association Insurance Fund (SAIF) – that were started with seed money that came from the United States Treasury, every dollar that has ever gone into the National Credit Union

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