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Senator BUNNING. Do you believe nonpassage of FCRA will lead to a Balkanization of privacy laws?

Mr. BEALES. I think it depends on what the States do. One can imagine a scenario in which there is no preemption and no State action and nothing changes.

I think it is crucially dependent on what the States do as to what the likely impact of not having preemption would be.

Senator BUNNING. In other words, each individual State could do their own thing, then.

Mr. BEALES. Right. In the absence of preemption—
Senator BUNNING. Yes.

Mr. BEALES. -each individual State could do their own thing. But each individual State could also choose to maintain the status quo. And that is the sense in which the consequence of not having preemption depends on what kinds of changes States try to make, are interested in making, and actually do make.

Senator BUNNING. Would you like to venture a guess-
-about States and preemption?

Mr. BEALES. I think the likelihood is that they would try to do various things. Some more sensible than others.

Senator BUNNING. Thank you. (Laughter.)

Do you receive prescreening complaints? If so, did you receive more before FCRA enactment, or after?

Mr. BEALES. Prescreening—we do get prescreening complaints. My recollection is that we do not get very many of them.

Prescreening is something that, although it was codified in 1996, under FTC interpretations going back to 1973, prescreening was permissible under the Fair Credit Reporting Act.

So there really wasn't any change or wasn't much of a change to give rise to a before and after.

In fact, what the 1996 Amendments did was to codify the ability to prescreen and to make it a little bit less restrictive in terms of how firm the offer had to be than the FTC's staff opinions had been. Senator BUNNING. Okay. A follow-up-do you

believe prescreening has helped or hurt the consumer in regards to the credit card market?

Mr. BEALES. I think that prescreening has facilitated more competitive credit markets, and that that has been very good for consumers.

Senator BUNNING. Do you think that it is helped?
Mr. BEALES. Yes, I do.
Senator BUNNING. And you offer as fact, what?

Mr. BEALES. The changes that have occurred in the nature of credit card offers

Senator BUNNING. If you could stop them from coming once a day, I would really appreciate it.


Mr. BEALES. You can do that because there is an opt out number that will let you opt out of prescreening offers.

Senator BUNNING. That is done statewide, though.
Mr. BEALES. It is done nationwide.

Senator BUNNING. It is done nationwide now?

Mr. BEALES. It is done nationwide. That was part of the deal for the codification of the ability to prescreen, was every one of those prescreening offers, if you read all the fine print in it, tells you that you can opt out and lists the numbers.

It is 888-5-OPTOUT.
Senator BUNNING. 888-
Senator BUNNING. — 5-OPTOUT.
Mr. BEALES. And that will get you out of all prescreened offers.
Senator BUNNING. Thank you.
Mr. BEALES. Glad to be of assistance.

Senator BUNNING. I really appreciate that because once a day is too often.

Thank you, Mr. Chairman.
Chairman SHELBY. Senator Sarbanes.

Senator SARBANES. Thank you very much, Mr. Chairman.

First of all, I want to commend you for holding this hearing. I know you are planning to hold a comprehensive series of hearings on this subject and invite a wide variety of interested parties to testify and I look forward to hearing from them. But I think it is important to comprehensively review this important issue.

I also should express thanks to the thorough approach at the staff level. There have been a number of staff briefings in preparation for examining these issues.

Of course, the preemption provisions of the Fair Credit Reporting Act, not the Act itself, just the preemption provisions, sunset on January 1, 2004.

The Fair Credit Reporting Act itself serves an important purpose. It helps to ensure privacy of consumer financial data, accuracy of credit report information, and fair practices in the collection and use of credit information and in credit granting.

This, of course, affects millions of Americans as they purchase homes, obtain insurance, seek new lines of credit, even apply for some types of jobs.

Actually, the Fair Credit Reporting Act itself, at its core, is a consumer protection statute. Obviously, that is why I think it comes under the jurisdiction of the Bureau of Consumer Protection of the Federal Trade Commission, which Mr. Beales heads up.

It protects the consumers by regulating the activities of credit reporting agencies, defining the responsibilities of both the users of consumer reports and those who furnish consumer information to credit reporting agencies. And of course, it provides important rights to consumers affected by such reports.

The preemption provisions, of course, cover a number of areas and as a consequence, some important issues that I anticipate we will be addressing during these hearings and throughout the reauthorization process, will be the protection of consumers' financial privacy, accuracy of credit reports, marketing practices of creditors,

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credit scoring and the use of credit scores, fraud and identity theft, and of course, the availability and cost of credit.

Mr. Chairman, I look forward to working with you as we embark on this comprehensive set of hearings.

Now I would like to ask just a couple of questions of the witness. I am going to ask some very elemental questions. You are the professional. I want you to take us through the process.

I want to get a copy of my credit report and my credit score. How do I do it?

Mr. BEALES. To get your credit report, you call one or more of the national credit reporting agencies and ask for a copy.

There is a verification procedure to go through. In some cases, it may be easier if you write. And under Federal law, you can obtain that report for a fixed price that is set by regulation of the Federal Trade Commission, and they will send it to you.

Senator SARBANES. What is that price?
Mr. BEALES. Nine dollars-
Senator SARBANES. Nine dollars.

Mr. BEALES. -is the Federal requirement. Now in some States, that report is free. But in other States, the Federal law sets the price at $9.

Senator SARBANES. And would you counsel me to get a copy of my credit report from each of the credit-rating agencies?

Mr. BEALES. If you are facing a major financial decision where the quality of your credit is going to be important—if you are going to refinance, if you are going to buy a home for the first time-I certainly would.

It is well worthwhile to look at all three credit reports and make sure that the information in there is accurate.

On a routine basis, it depends on whether-absent some impending transaction where you know this is going to matter, it depends on—it is up to you. It depends on how risk-adverse you are and how much you want to worry about how you want to balance the difficulty of going through the report and the hassle of getting it, against the risks of some inaccurate information that might be there.

If you get notified unexpectedly that there was an adverse action, then surely, it is worth your while to look at that report.

Then it is free. And make sure the information is accurate.
Senator SARBANES. And how do I get my credit score?

Mr. BEALES. Your credit score may or may not be disclosed. It depends on the practices of the credit reporting agency.

Your credit score, although we talk about it that way, may be actually any one of a variety of different proprietary products with different lenders, different creditors having their own scoring systems that they think work better for them.

Senator SARBANES. When I get this instantaneous credit that people refer to, that keep the wheels of commerce moving, is it the credit score that the creditor relies upon?

Mr. BEALES. The credit score is likely a key part of that.

Senator SARBANES. Because it is all—you know, they tell you that it is done right away. You are there. You want to make this purchase. You want to get a car, so you tell the guy and they check

it out and the next thing you know, they come back and they say, okay, you can go ahead.

But they must just be working off the credit score in a situation like that, aren't they? Or not?

Mr. BEALES. Not necessarily. The way the system works, essentially, in all probability, the whole credit report goes—it is clearly an automated process that the creditor is using to decide on the spur of the moment whether to approve or not.

But that may be an automated system based on the credit score. Or it may be a system that is based on a computer program that looks at all the information in the file and says, yes or no.

That can happen pretty quickly as well.
Senator SARBANES. Mr. Chairman, I see my time has expired.

Chairman SHELBY. If we can suspend for a minute. I told you earlier that we are going to proceed with marking up the nominations.

We have a quorum.

We have before the Committee now some nominations. The Committee will meet in Executive Session to consider and hopefully vote on a number of nominations pending before the Committee.

The nominees are: Nicholas Mankiw, to be Member of the Council of Economic Advisors; Steven B. Nesmith, to be Assistant Secretary for Congressional and Intergovernmental Relations, U.S. Department of Housing and Urban Development; Jose Teran, James Broaddus, Lane Carson and Morgan Edwards, to be Members of the Board of Directors of the National Institute of Building Sciences.

Each of the nominees appeared before the Committee on May 13. Is there any comment or debate about the nominations? [No response.)

If not, I ask unanimous consent that the nominations be considered en bloc.

[No response.)
Hearing no objection, so ordered.
All those in favor of the nominations, say aye.
[A chorus of ayes.]
Those opposed, no.
(No response.)

The ayes appear to have it and the nominations will be favorably reported to the full Senate.

Thank you for your indulgence.
Senator SARBANES. Mr. Chairman, my time has expired.
Chairman SHELBY. Senator Crapo, do you have any questions?
Senator CRAPO. Thank you, Mr. Chairman. I will pass.
Chairman SHELBY. Senator Bennett.

STATEMENT OF SENATOR ROBERT F. BENNETT Senator BENNETT. Thank you, Mr. Chairman. And thank you for holding this hearing.

I do not know of many issues quite like this one where a number of people whose judgment I respect have come to me and said, if we do not extend the preemption section of the Fair Credit Reporting Act, there will be serious, serious economic consequences. Some have said to me, failure to do that will throw the economy back into a recession. No one has been to lobby me on the other side, which I find kind of interesting.

And so, if indeed it is that serious, and Chairman Greenspan has indicated that he thinks it might be that serious, although he stopped short of predicting a recession-Chairman Greenspan always stops short of predicting anything that specific one way or the other.

My first question, then, Mr. Beales, is we have had this Act in place for 30 years, it was updated 7 years ago in 1996, is there any problem that has come up, particularly since 1996 forward, since that is the most recent change that cries out for mediation or that says we have had all of these difficulties and it is absolutely essential that we let this thing lapse in order to avoid these difficulties?

Have the last 7 years of history told us that we have a challenge here?

Mr. BEALES. I do not see anything in the last 7 years that would indicate a significant problem or a compelling reason to change, except that the clock has run and the statutory provision is expiring.

There is certainly thing that I would point to to say, based on this experience, there is something that you need to do differently.

There may well be places where the balance that the Act strikes between privacy and the needs of commerce could be struck differently or fine-tuned in various ways. At this point, the Commission hasn't made any recommendations for changes.

But there are certainly things that I see that would lead me to say that there is a pressing need for change.

Senator BENNETT. When I first came to the Banking Committee, one of the issues that we spent a good deal of time on was the challenge of making more credit available, particularly to minorities.

We had experts who came in here who had organized banks that loaned almost exclusively to minorities. We have had many somewhat heated discussions in this Committee about CRA and its role in making credit available to minorities.

If indeed we got the Balkanization you were discussing with Senator Bunning, and which many people think would happen, wouldn't one side effect of that be to reduce the availability of credit to minorities?

Mr. BEALES. If you got significant Balkanization, I think it would likely reduce the availability of credit. How selective that would be, whether there would be a differential impact on minorities versus everybody else, is harder to assess, and I think it would ultimately depend on the kinds of actions States took and the kinds of restrictions that were put in place.

I am sure there are some restrictions that likely would differentially affect minorities or lower-income people and their access to credit. There is probably other restrictions that States might adopt that would have differential effects the other way.

Senator BENNETT. My own sense of things based on all of the previous discussion that I referred to is that this probably would, in fact, have a chilling effect on credit being available to minorities.

I have a chart here which you cannot discern that far away, if for no other reason than that the difference between the light gray and the dark gray is absolutely indistinguishable more than 10 inches away from the chart.

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