college, where by the time they graduated they would have $2,000 in a credit line. Also, that would not preclude their options for a Federal and private student loan. Chairman BACHUS. In your book, you are talking about the wide use of credit cards. I notice the Federal Reserve estimates that 50 percent or more of all transactions in the U.S. involve cash. Checks are the second most popular form. And it says that checks total 72 percent of non-cash transactions in the United States. Now this was in 1997, credit cards were 18 percent of non-cash transactions. Is there any statistical evidence from the Federal Reserve, the FDIC, that youth are having a greater default level today than, say, other than anecdotal, than say 5 or 10 years ago? Mr. MANNING. Well, that is obviously proprietary information from the industry, and I would be happy to examine it. Chairman BACHUS. Well, maybe I would ask the industry. Are we having larger default rates this year than we were 5 years ago? And has there been an increase in lending to college students? Mr. HILDEBRAND. Mr. Chairman, I do not know if we have a higher default rate than we did a few years ago. I do, however, want to take the opportunity to correct something that Mr. Hendricks said. He implied that most of the marketing to college students was prescreened. As a matter of fact, the only marketing that we do to college students is through prescreening. The only way that a college student can be on a prescreened file from the bureau is if they have already established a credit record. So these people have, in some way or another, entered the commerce system of America already when we go out to offer them credit. There are other forms of marketing to college students, tabling, T-shirts, things like that. Capital One does not partake in those. We treat college students and our underwriting of college students the way we treat the general population of America. Chairman BACHUS. All right. Mr. HENDRICKS. Just for the record, that is Mr. Manning, and I am Mr. Hendricks. Mr. HILDEBRAND. I am sorry. I apologize. Mr. HENDRICKS. We have a mis-merge here. Mr. HILDEBRAND. I apologize. Mr. MANNING. I don't think I used the term that most college students are prescreened. I said that there is a policy within which there is a preference given to people of a certain age if they are a college student versus not being a college student. Chairman BACHUS. Let me ask you this. The FDIC recently said this in their spring 2000 report, that the credit card is one of the best innovations of the 20th Century. Do you all generally agree with that statement? Mr. MANNING. I would certainly say that the transactional superiority of credit cards in general from a convenience level certainly in the average everyday life has been a great advantage. The problem, of course, is that the cost of using a credit card has increased dramatically, especially for those who can least afford it. Chairman BACHUS. You are talking about the cost, but here is another: Dr. Thomas Durkin, Federal Reserve Board, Division of Research and Statistics, this is in a study issued in 2000: "Although one can usually find anecdotes to illustrate a point, consumers who are unaware of the cost of credit cards, for instance, or consumers who overspend because of the wide availability of credit, such examples can never lead to a definitive understanding of issues having broad social and economic impact." You know anecdotal evidence. Do any of you have statistics one way or the other that we are Mr. MANNING. My understanding of that survey was that there were a lot of very critical comments that consumers reported in the use of credit and the cost of credit and the resolution of conflicts, and that there was a real concern about whether that survey instrument was accurately measuring the true criticism the average American has on credit cards, or whether we need a better measurement instrument. Chairman BACHUS. Well, I guess that is my point. Or are the default rates going up? I think we all agree that there is more credit availability, which is what FCRA has really brought, is availability of credit to a larger number of consumers, easily available credit. I saw another statistic where loans in low-income areas have gone up 50, 60, 70 percent, to low-income Americans. Lending to borrowers in low-income neighborhoods has gone up significantly since 1993, when we adopted these changes. Particularly the two gentlemen I think that are representing consumers, do you have any statistical evidence, not anecdotal evidence, but statistical, that we are seeing soaring default rates? Mr. MANNING. Well, certainly we can look at Chairman BACHUS. The interest rates, are they much above what they were, say, 5 years ago? Mr. MANNING. Well, if you look very clearly at the spread between the cost of borrowing money from the banking industry and the cost that they are loaning out to consumers, that fair share of reduction in costs hasn't been adequately shared with consumers in that benefit. Chairman BACHUS. Has been shared? Mr. MANNING. If you look at table four, which is industry data, we see very clearly that the cost of funds went down 28 percent over $7.5 billion between 2000 and 2001, and yet the interest that was charged went down less than 1 percent, even though that the total portfolio only went up 8 percent. Mr. HENDRICKS. Mr. Chairman? Chairman BACHUS. Yes? Mr. HENDRICKS. I didn't come prepared for that, and that is not my area of expertise. I did try to provide statistics in my statement about what appears to be a dramatic rise in consumer disputes arising from inaccuracies in their credit reports, and some of those are credit report related. Chairman BACHUS. I apologize. I think, to a certain extent, this is kind of off the issue. There are less than five minutes left on the vote on the House floor. Mr. TIBERI. Mr. Chairman, can I just make one statement in response to Mr. Manning's comments, the last comments you made, with respect to the credit card industry. I wish my father were here. My father is an immigrant with no formal education of America, sixth-grade Italian education. He has got a credit card that he pays no annual fee on that he uses all the time now. He pays it off every month, and the end of the year he gets money back. He thinks this is a great country because of that. So it is just bizarre to me that you can kind of paint this stroke about an industry and people who have a lack of education, because my father would tell you he has no education, and he has figured it out, and he is probably a loss leader for the credit card industry. Mr. MANNING. There are a lot smarter people than me working on marketing campaigns that I can't understand, so I am assuming that most Americans when they read their contracts are at least as uncertain about the consequences as I am. Mr. TIBERI. Well, Mr. Chairman, with that- At this time, we will discharge the second panel. I very much appreciate your testimony. Your written statements, which we had yesterday, have been very helpful to us. Thank you. [Whereupon, at 2:20 p.m., the subcommittee was adjourned.] STATEMENT OF CHAIRMAN SPENCER BACHUS SUBCOMMITTEE ON FINANCIAL INSTITUTIONS AND CONSUMER CREDIT "THE ROLE OF FCRA IN THE CREDIT GRANTING PROCESS" Good morning. The Subcommittee will come to order. Our hearing today is another installment in the series of hearings the subcommittee is holding with respect to the Fair Credit Reporting Act (FCRA). The provisions in the FCRA that guarantee a single national standard with respect to many of the FCRA's provisions are set to expire on January 1, 2004. As I stated last week, my focus throughout this debate will remain on providing consumers and the economy with strong benefits and protections. At our last hearing, we had more than 20 witnesses describe why and how the FCRA is important to consumers and the economy as a whole. Today we will focus on the credit-granting process and the role of FCRA in facilitating the most robust credit market in the world. The process of applying for a personal loan, car loan, or even a credit card has become increasingly simple. The consumer fills out a brief application, and within a matter of minutes the consumer will know whether he or she has qualified for credit. The chairman of the Federal Trade Commission, Timothy Muris, has referred to this as the "miracle of instant credit." Even the mortgage underwriting process has become much less complicated. Today new homeowners can spend more time picking out new curtains and wallpaper because they spend less time on mortgage paperwork and stress. It should be obvious that these improvements in the creditgranting process benefit consumers. Our witnesses today will provide us with a complete picture of how the FCRA operates as part of the credit-granting process. Our first panel will focus on how lenders assist millions of |