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Chairman Greenspan and his staff should read their own report, before they address this issue again.

The dispute numbers at the CRAs, Credit Reporting Agencies are running, typically, 7,000 to 10,000 'disputes per day, and this allows, with the number of staff they have and the number of disputed items per report, sometimes they really only have two minutes or so to deal with every dispute.

Credit grantors, like Capital One, are seeing their disputes go up from 1,000 a day about 18 months ago, to now, 4,000 disputes a day. They deal with this by having an automated dispute problem.

One of the things that can cause inaccuracies in credit reports is the use of partial matches, and I have seen this over and over again, where a credit bureau will say, if your Social Security number's not the same, if there is one digit difference, sometimes they will assume that if there is enough common letters in the first name, then they will assume it is the same person, and they will merge that information together. And so, it is this use of partial matches of both partial name matches and partial Social Security numbers, which causes great deal of inaccuracy. And I have detailed this in my statement.

They deal with the high volume of disputes by using an automated system to have basically this exchange of messages between the credit grantor and the credit bureau, in which the credit bureau asks, after a dispute, Did you say this? And the credit grantor comes back and says, Yes, that is what we reported. But they don't really try and investigate in a true sense of the word to get to find out what the truth is.

In my statement, we have talked about a lot of the damages that come to consumers in this area. I have also urged this committee to try and hold hearings, at least spend a morning or so, listening to the victims of mixed files and identity theft, so you can get a full range of the damages that people have to undergo when they are pitted with problems in the system. Not only can inaccurate data lead to credit denials, but it also can lead to price-hikes in the age of risk-based pricing, and cause the emotional distress of trying to correct a credit report mistake that was not of your making. The damages are extensive.

In three of the seven areas, where there is preemption, one of the areas is prescreening. I have just begun an investigation into this area, and with two phone calls, I have found that there are major criminal gangs across the country that are hitting mailboxes, trying to get any personal information they can get, including pre-approved credit card offers, also convenience checks, bank statements, so that they can take this personal information and use it to facilitate identity theft.

There is quite a range of sophistication among these groups. Some try and use the pre-approved credit cards or convenience checks to get money instantly. Others take the personal information and sell it to fences that are more sophisticated in counterfeiting and identity theft.

I think in this area I think that we need a stronger national standard, because if you look at your prescreened offers, you will see that even though the law says the notices are supposed to be clear and conspicuous, they are neither clear nor conspicuous, and

that we need to go beyond that and to have basically a national opt-out registry for credit offers through the mail, just as we have a registry to stop junk phone calls.

The duty on furnishers, is also a preempted area. But this is a very weak standard that basically sets up too many hoops the consumers must jump through in order to facilitate simple correction of their errors. I detailed in my statement some of those hoops they have to jump through and why a stronger standard is necessary, If Congress is unable to enact the stronger standard, then we need to let the States feel free to move forward and protect consumers in this area.

The final area is affiliate sharing, and despite all the talk of the need for a national standard, the FCRA sets no standard for affiliate sharing. It just says that the States will not enact anything in this area. So basically, it favors a national standard in an area where there is no national standard.

Now, Gramm-Leach-Bliley has some national standards to the sharing of financial data, which is simply a very weak and watered-down opt-out for sharing with third parties. Yet it too does not set a standard for affiliate sharing.

And so, the FCRA provisions are being invoked by Wells Fargo and Bank of America in litigation against localities and ordinances to try and stop those places from protecting their citizens with stronger privacy protection.

In closing, I would like to say that this is an extreme importance to the American consumers. The top complaint back in the 1990s was about credit reports; now it is about identity theft. It leads the complaint list about all sorts of other issues that involve out-ofpocket losses.

I think it is very important to the people of America to protect their good name. I think that is a major item that this law is all about and that is why there is a grave responsibility to this Congress to enhance consumer protection.

[The prepared statement of Evan Hendricks can be found on page 109 in the appendix.]

Mr. TIBERI. [Presiding.] Thank you, Mr. Hendricks. Mr. Wong? STATEMENT OF MARTIN WONG, GENERAL COUNSEL, GLOBAL

CONSUMER GROUP, CITIGROUP, INC. Mr. WONG. Good afternoon, Chairman Bachus, Congressman Tiberi, Ranking Member Sanders and members of the subcommittee. Citigroup thanks Chairman Bachus and Chairman Oxley for their leadership and holding these hearings.

Today, I want to emphasize the importance that Citigroup attributes to reauthorizing the national standards contained in the Fair Credit Reporting Act. FCRA provides a national framework for the credit reporting system, which has been shown to work well and to provide substantial economic benefits to consumers. These benefits include affordable credit, wide credit availability and protection against fraud and ID theft.

FCRA appropriately balances a wide range of consumer protections, with the crucial need for creditors to have access to a uni

Thank you.


form national database on which to make credit decisions. It is essential, therefore, that Congress act to preserve the national framework that is scheduled to expire at the end of this year. While maintaining national standards for all seven of the key provisions is crucial, I want to highlight a few areas that are especially important to Citigroup and explain why they affect our ability to continue to serve our customers well.

First, affiliate sharing. Citigroup shares information among our affiliates for many important reasons, such as control and credit risk, credit monitoring and fraud control. It also is important in identifying products and opportunities that may be beneficial to customers. Sharing information among affiliates greatly assists in the prevention and detection of ID theft. It helps to detect unusual spending patterns and habits that are used to identify fraud and allows us to promptly notify the customer.

The ability to share information among affiliates also conforms to customer expectations. For example, a Citibank customer expects to be recognized and demands a certain level of service and accountability whenever visiting a Washington, D.C., Citibank branch of our Federal thrift, or a New York Citibank branch of our national bank. The legal distinction between the two affiliated Citibanks is not relevant to the customer, and it should not affect his or her ability to obtain products and services.

In 1996, Congress struck the appropriate balance between the consumer protection and business needs by allowing customers to opt-out of having certain information shared among affiliate entities. If different States were allowed to pass laws governing the exchange of information among affiliates, it would significantly disrupt out seamless nationwide system of serving our customers. Complying with a patchwork of State and local laws would be extremely burdensome and costly for lenders, and ultimately for consumers.

Second, and I want to talk about prescreening. Prescreening is essential for targeted marketing. Credit card issuers and other lenders use prescreening to substantially reduce the cost and increase the efficiency of identifying potential customers.

For consumers, targeted marketing is vastly preferable to the most likely alternative, blanket marketing. Most new entrants and major competitive initiatives in the credit card industry in the last 20 years were based on prescreening. These competitive initiatives have provided consumers with lower interest rates, cards without annual fees and an array of new discount and bonus features. Prescreening allows institutions to control their risk by targeting those individuals that meet certain credit standards.

Accounts obtained through prescreening have lower loss rates and less fraud than other forms of account acquisition. The prescreening provisions appropriately balance the need for consumer protection by providing consumers with the ability to opt out for a single toll-free call. If States were allowed to adopt different rules for prescreening or prohibit prescreening, consumers would not be able to enjoy the same benefits derived from robust national competition that they receive today.

Finally, I want to talk about the provisions dealing with the content of credit reports. Uniform national guidelines for credit report

information allow creditors to price risk more accurately, which results in lower cost for all consumers and more credit availability.

If the FCRA provisions that dictate the content of credit reports were allowed to sunset, an individual State could pass a law prohibiting creditors from reporting to credit bureaus until borrow payments were at least 90 or even 180 days past due.

For credit grantors, the result could be disastrous. It would grant credit to consumers who appear to have unblemished credit, but in fact, would have a very high risk of default. The universal response of lenders to increase credit losses is to raise interest rates and to reduce credit availability. This is not a desirable result for our credit society.

Thank you again, for the opportunity to appear before the subcommittee.

[The prepared statement of Martin Wong can be found on page 207 in the appendix.]

Mr. TIBERI. Thank you for finishing before your time even expired. Mr. Hildebrand? STATEMENT OF SCOTT HILDEBRAND, VICE-PRESIDENT,

DIRECT MARKETING SERVICES, CAPITAL ONE Mr. HILDEBRAND. Thank you, Chairman Bachus, Ranking Member Sanders, Congressman Tiberi and members of the subcommittee.

My name is Scott Hildebrand. I am appearing here today on behalf of Capital One Financial Corporation, where I serve as the vice president for Direct Marketing Services. On behalf of Capital One, let me express my thanks to you, Mr. Chairman, and Chairman Oxley for the leadership that you have shown on this important issue.

At Capital One, we believe that permanent extension of the national standards contained in the FCRA is essential to the continued health of our nation's economy. Capital One's 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 many ways, Capital One is a creation of the competitive environment established by the uniformity provisions of the FCRA itself. This competitive environment commenced 30 years ago with the passage of the FCRA and accelerated greatly with the amendments to the Act in 1996. We would not have seen today's level of competition in the balkanized, localized credit card markets of 30 years ago. Even as late as 1987, the credit card market was mired in a one-size-fits-all approach, characterized by across the board rates of 19.8 percent and annual fees of $20.00.

That market was ripe for innovation, and companies like Capital One saw an opportunity to utilize the information provided by the national credit reporting system to customize product offerings to customers based on particular needs, interests and risk profiles.

Our founders realized that a one-size-fits-all approach made little sense in an environment where each consumer possessed vastly different needs and characteristics. While some consumers are risky, many more were not.

Either way, consumers suffered. The less risky customers were simply paying too much and for the rest, credit was hard to come by, if available at all.

Capital One was able to utilize information within the legal framework provided by the FCRA to make significant advances in underwriting, better distinguishing the risk characteristics of our customer base. Capital One and other companies were also able to utilize information to create profound innovations in the marketing and product design of credit cards. Our company, for instance, lead the charge with new product ideas, like balance transfers.

By 2003, the moribund competition, the flat pricing structure of old, was no more. In its place, came fierce competition with fixed rates as low as 6.9 percent and no annual fees commonplace. According to Robert Turner, in his testimony last week, this price competition produced $30 billion in annual savings for consumers across the country.

Capital One has been able to take this market-leading approach in reinventing other lending businesses as well, including auto finance. We have pioneered innovations, such as a unique auto refinance product, that allow consumers to take advantage of lower rates like they do when mortgage rates decline.

With regard to specifics of FCRA, two major provisions warrant further explanation. Data credit consistency and permitted uses of credit data. The credit data consistency provisions strike a sensible balance that enables companies like Capital One to construct highly accurate credit models on a nationwide basis. Based on the voluntary nature of the system, it is a frustrating argument for those

a of us who use the data as part of credit granting process that, the argument being, that we do not have a significant stake in the accuracy of that information provided on consumers. Put most simply, at Capital One, our models do not work if the information contained in the bureau reports is not accurate.

The permissible use provisions enable companies like Capital One to use information to reach potential customers and to make prudent credit decisions. Prescreening reduces risk. Losses from customers obtained through prescreened offers of credit are significantly lower than losses of customers obtained through other nonprescreened channels. This provides a vital tool in ensuring the continued safety and soundness of consumer lending institutions.

Prescreening fosters competition by allowing financial services firms to identify the credit characteristics of individuals and offer them credit products with tailored terms and conditions specifically designed to beat the competition. Prescreening fosters innovation. Extraordinary ancillary benefits, such as airline miles and cash rebates attached to modern credit card products are largely a function of prescreening.

Prescreening is transforming other businesses as well. Our highly successful auto refinance product, which can save consumers up to 4 percent on their loans, is made possible through prescreening.

Prescreening reduces identity theft. Our data demonstrates that rates of fraud are 5 to 15 percent times lower for credit granted through prescreening than from credit generated through other channels.

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