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Rochester. Professor Manning recently wrote Credit Card Nation, which has gotten a lot of publicity. He has testified extensively before the Senate and the House on lending issues, credit issues, and sub-prime and predatory lending issues.

We welcome you back. I think this committee's well aware of your experience.

Dr. Manning is a past Fulbright lecturer to Mexico, Ph.D. from John Hopkins, Northern Illinois University, M.A. and B.A. from Duke University.

Our next panelist is Evan Hendricks, editor and publisher of Privacy Times, a Washington-based newsletter specializing in privacy acts and what else?

Mr. HENDRICKS. Fair Credit Reporting Act, medical records, employment records.

Chairman BACHUS. Privacy issues and various policy issues. He served as consultant on privacy and business issues for major corporations, including Ericsson, a Swedish-based wireless company. And since August 1998, served on the Social Security Administration's panel of experts. He was a paid consultant for CNN, MultiState Tax Commission and various other commissions. He is quoted regularly in major and small newspapers including The Washington Post and The New York Times and ABC Nightline and is a familiar face on the nightly news. So we welcome you.

At this time, to introduce the general counsel for global consumer group for Citigroup, I am going to yield to the gentlelady from New York.

Mrs. MALONEY. I thank you for giving me the honor of welcoming one of my constituents from the great State of New York and the great city of New York. And I would like to introduce Mr. Martin Wong, and he is from Citigroup, one of our important financial institutions and he is general counsel of Citigroup's Global Consumer Group, and he has worked in various positions at City since 1987. He earned his B.A. in public administration from Loyola and J.D. from the University of Baltimore.

And we welcome him and thank him for taking the time to be with us. Thank you.

Chairman BACHUS. And our last panelist, Mr. Scott Hildebrand. He is vice-president, Direct Marketing Services for Capital One. He has had various responsibilities there, but direct marketing probably describes most of them. Prior to joining Capital One, Scott was vice-president at Epsilon, a leading database, marketing firm, formerly owned by American Express.

While there, he advanced customer relationship marketing, had a number of Fortune 500 companies improving customer retention, cross-sell and profitability. In addition, he served as a consultant for 80 little PepsiCo's Frito Lay and Kentucky Fried Chicken business units and the Marriott Corporation. He attended Georgetown University, B.A. degree.

And then he received his MBA, in marketing and finance, from the Kellogg School of Management at Northwestern University. So all-in-all, a very competent panel. We look forward to your testimony.

And at this time, we will just go right to testimony.
Mr. SANDERS. I will be just very brief.

Chairman BACHUS. Well, actually, Mr. Sanders.

Mr. SANDERS. Thank you very much, Mr. Chairman.

This is a very important panel dealing with a very, very important issue. The reality is that right now, in my view, among other problems with the industry, a major scam is being perpetrated on large numbers of Americans. And that scam, as I mentioned earlier, Mr. Chairman, and one of the underlying points that we have to reiterate, Mr. Chairman, is that not every American is all that sophisticated in all aspects of financial transactions. Bottom line is that companies promise people, or at least indicate that they are promising people, credit at a certain interest rate. And if I say to you, Mr. Bachus, I am going to charge you six percent for a year, your expectation is that if you pay your bills to me on time, that is going to be six percent.

That is usually the way we do business in America. And yet, increasingly, what we are finding is that those interest rates are zooming up despite the fact that the consumer is paying his or her bill to the credit card company on time.

But I can understand if I am late in paying the bill, you say, Hey Mr. Sanders, there is a penalty, they will raise your interest rates. If I pay the bill to you every month, on time, I have a right to believe that my interests are going to remain the same. And with the growth of sophisticated information acquisition, what credit card companies are learning, is that maybe 3 years ago, I was late in paying an auto loan. Or even more egregious, there was an illness in my home. I pay my bills on time. There was an illness and I have to borrow money to provide to pay the medical bills. And because I borrow more money, because I borrow more money, not because I am late in any of my payments, credit card companies say, well he is now a greater credit risk. He is more in debt. But maybe I pay my bills on time.

And arbitrarily and often, in fact, without the knowledge of the consumer, interest rates go way, way up: 25 percent, 30 percent, usurious rates, which are leading to bankruptcy and terrible situations for large numbers of the American people.

Mr. Chairman, I hope that we can work together on addressing this rip-off. Large multi-billion dollar companies should not be involved in a scam like that. They should be embarrassed. And I hope that we can discuss this today and vote in a bipartisan way, tripartisan way, in addressing this issue.

Mr. Chairman, thank you very much.

Chairman BACHUS. I thank the gentleman.
Mike, Mr. Vadala, you will lead off.


Mr. VADALA. Thank you, Mr. Chairman.

Ranking member, Sanders, members of the committee.

I think I am glad we lost to Auburn in football this year, and I wanted to remind you of that so that we

Chairman BACHUS. I had forgot about that.

Mr. VADALA. My name is Mike Vadala, and I am here today on behalf of the National Association of Federal Credit Unions to ex

press our views on the Fair Credit Reporting Act. I am president and CEO of the Summit Federal Credit Union, headquartered in Rochester, New York. The Summit currently serves over 42,000 members in all 50 States. Due to the complexity of the different laws that exist on a State by State basis, the Summit does not offer real estate loans outside the State of New York, but we do offer credit for all other consumer purposes to our members. If the FCRA preemptions are not extended, it is likely that the Summit will not make any loans outside of New York.

The foundation of America's National Consumer Credit system is FCRA, enacted by Congress in 1970 to streamline credit reporting and to provide consumers with protection from inaccurate and inappropriate disclosure of the personal information by consumer reporting agencies. In 1996, the FCRA was amended and now contains seven specific Federal preemptions to ensure that the National Consumer Credit System remains viable and can continue to deliver affordable and accessible credit and financial services to consumers.

NAFCU agrees with Federal Reserve Board Chairman Alan Greenspan that Congress should permanently reauthorize the preemption provisions of the FCRA. Doing this, will give credit unions the ability to continue to offer their members credit in a timely manner and at a fair market price. It would also codify the ability of credit unions to share certain member information with our affiliates, thus making credit union members aware of the opportunity to obtain additional financial services.

Failure to reauthorize these preemptions could drastically change the way a credit union conducts business. A credit union such as ours could be forced to incur additional costs necessary to comply with several new and changing State laws.

As you may know, credit unions, on average, are small financial institutions and may not have the resources necessary to comply with differing laws across the States. They would, therefore, be forced to forgo lending in many States in which they have members. This could result in the potential of millions of consumers loosing a viable lending option and may make smaller credit unions even less competitive.

Credit scoring and credit reports are two important factors in evaluating the creditworthiness of borrowers. Combined with our loan office experience in judgment, credit scores and credit reports have contributed to a very successful lending program at the Summit. We acknowledge that at times there are errors in credit reports, but we are pleased with the improvement that we have seen in recent years as a result of National Standards and improved technology.

We have also found that many times, well-trained credit officers can find these errors. Errors aside, credit reports are very valuable in verifying that a member has listed all of his or her debts on a loan application. These reports also provide details as to the payment history on those debts. With more members opening credit lines in multiple States, it would be unquestionable or unreasonable for the requirements reporting to vary from State to State.

A consistent method of credit reporting allows us to get the information that is necessary to extend credit responsibly to our members.

Credit scores are also an important part in the extension of credit. At the Summit, we have found that the credit scoring modules are statistically valid, and that the accuracy of credit reporting and credit scores are much improved over what they were prior to 1996. We use credit scores to offer automatic approval on loans and to determine loan rates on several loan products. We find those with lowest credit scores have the highest delinquency rates.

There are many factors that contribute to credit scores including, repayment history, amount of credit owed, credit history, new debt and credit mix.

In general, people know that when they don't manage their debts properly, it will show up on their credit report and hurt their credit rating. But even so, more needs to be done to educate consumers about credit. As an institution owned by our members, the Summit's vision is to educate our members so that they understand their credit scores. Today, we are doing so on a case-by-case basis, if members ask for explanations.

Mr. Chairman, in conclusion, growth in the credit union community is strong and the safely and soundness of credit union is second to none. We are providing credit to more Americans in more locations than ever before. We urge the subcommittee to reauthorize the preemptions included in the FCRA so that we can continue our unique role in serving America's consumers, while strengthening our economy.

NAFCU thanks the subcommittee for the opportunity to appear before you today and comments the House Financial Services Committee for examining this important issue. Thank you.

[The prepared statement of Michael Vadala can be found on page 197 in the appendix.]

Chairman BACHUS. Thank you, Mr. Vadala.

And at this time we will hear from Mr. Cloutier.


Mr. CLOUTIER. Mr. Chairman, I had the honor, a week ago, to be with the Community Bankers of Alabama, and they talked a lot more about football between Auburn and Alabama than we did about banking, but it is my pleasure to be here today and I appreciate the invitation from you and ranking member, Sanders and the members of the committee.

My name is Rusty Cloutier. I am chairman of the Independent Community Bankers of America and president of MidSouth Bank National Association, a $400 million community bank located in Lafayette, Louisiana. I am glad to be here today on behalf of the Independent Community Bankers of America, representing over 46,000 small community banks across America that want their voice heard.

ICBA supports the FCRA uniform national standard that will expire on January 1, 2004, and we strongly urge the committee to make these provisions permanent. Within the text of FCRA, Federal preemption is essential to ensuring constant uniform stand

ards. FCRA is an important tool in promoting economic growth and uniform credit reporting standard also insure the availability of credit, especially to the low and moderate-income borrowers that are so important in my State of Louisiana.

If Congress fails to renew the uniform standards, the current system will be undercut by the enactment of a myriad of State laws with potential conflict standards. This will result in increasing costs to the industry and a significant impact on a bank's ability to evaluate the creditworthiness of its customers.

We live in a highly mobile society. Customers often move frequently and live in several different cities and States. Some community banks serve customers in neighborhood States and allow customers to apply for credit over the Internet.

Certainly, a bank does not have to consider a customer's State or States of residence when reviewing his or her credit report in order to understand what, where and when and how the information was reported. The information reported in my credit report is based on the same Federal standard as the information in yours. Without uniform national standards, how and when information, such as loan delinquency, payment history is reported, would detrimental, would be determined by each State.

A borrower from Louisiana would then have a credit report with different standards and containing different information from that of a borrower from the State of Alabama or the State of Mississippi. And if that borrower had lived in each of the States, his credit report would contain the information reported, based on the standards of each of these States. This would be overwhelming for both the bank and the consumer to understand. Community Banks want clear and consistent policies and standards.

The history in the success of community banking in this country is predicated on the extension of credit. Our current system is fair and effective. Consumers have grown accustomed to the availability of quick low-cost credit. Stricter consumer protections on a State-by-State basis will ultimately be detrimental to the consumer who may experience delays in credit decisions and banks may lose the opportunity to extend credit. Reauthorization of FCRA uniform provisions will benefit both consumers and community banks.

Let me turn for a moment to a very important issue of identity theft. It is the nation's fastest growing crime and resulted in at least $1 billion dollars in losses to banks last year, including mine. FCRA plays a major role in this fight. Therefore, it is essential that the current national system of credit reporting is maintained. ICBA strongly supports measures to thwart identity theft.

We would also support measures to allow customers to obtain a copy of their credit report free of charge annually. The benefit to community banking and having a customer who has been able review his credit report outweighs the cost of lost opportunities to extend credit to that customer due to inadequate or incorrect credit file information that may take several months to correct. Our customers should not have to be faced with denial of credit before they are able to receive a free credit report.

Information sharing is also an important topic in this debate. ICBA strongly urges the committee to maintain an appropriate balance between the critical protection of a consumer, financing pri

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