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STATEMENT OF SENATOR ELIZABETH DOLE Senator DOLE. Thank you, Mr. Chairman.
The accuracy of credit reports is a key issue, of course, for us to examine as we consider reauthorizing the Fair Credit Reporting Act. And I thank you, Mr. Chairman, for giving us this opportunity to review and discuss these issues in greater detail.
Under the Fair Credit Reporting Act, credit bureaus must, “Assure the maximum possible accuracy of the information concerning the individual about whom the report relates.” However, in recent hearings, we have heard anecdotes about the harm caused to consumers who have had false information on their credit reports as a result of mistakes or fraud. It is my hope that as part of this effort, we can agree upon positive steps to ensure greater accuracy in credit reports.
Recently, my staff and I purchased copies of our credit reports, as well as sample credit scores as preparation for our work on this issue. I was pleased to discover that my credit reports were entirely accurate and easy to understand. All of the information contained in the report was, in my opinion, appropriate and necessary. In addition, the sample FICO credit score gave simple and understandable explanations for the factors used in its determination.
We have, of course, heard testimony before this Committee on the problems some consumers have faced with respect to the credit bureaus. And, particularly, Captain John Harrison, a victim of identity theft, described to us on June 19 how information that had been removed from his credit report reappeared later. One of our goals here should be to do all we can to prevent such things from happening in the future. These errors can truly wreak havoc in a person's life, with effects that can linger for years or for a lifetime.
One positive sign that we are making progress was the truly bipartisan Fair Credit Reporting Act reauthorization bill that was recently introduced in the House. This proposal contains provisions that address many of the concerns voiced by consumer groups and the industry. The Administration also recently announced that it supports much of this approach, leading me to believe that we are well within sight of being able to sign off on a positive, consensusbased approach to reauthorization.
I want to take a moment to welcome Chairman Muris from the Federal Trade Commission who is with us today. As an alumnus of the FTC, it is a special pleasure to hear from you this morning.
And, Mr. Chairman, I stand ready to work with you and the rest of our colleagues as we move toward achieving our goal of reauthorization this year.
Chairman SHELBY. Senator Johnson.
STATEMENT OF SENATOR TIM JOHNSON Senator JOHNSON. Mr. Chairman, thank you for holding today's hearing on the accuracy of credit reporting information and the Fair Credit Reporting Act. Welcome to Chairman Muris and the second panel.
As I have noted in past hearings, the last thing our weakened economy needs is a blow to the credit-granting system. In fact, Treasury Secretary Snow stated yesterday that if the national standards were to expire and States adopted new laws currently under consideration, a minimum of 3.5 percent of loans now approved would be denied to maintain the same level of credit risk. That translates to at least $270 billion of the current total of just under $8 trillion in consumer credit outstanding could be in jeopardy, according to Secretary Snow.
So, Mr. Chairman, I thank you for focusing our attention on America's credit-granting system. The reason credit is so widely available and so affordable is due in large part to the amount of data available to lenders and other users of credit reports. Quantity is no substitute for quality, and I hope we can work together to make any adjustments to the underlying statute to increase the quality of the data without creating unintended consequences that deter data furnishers from participating in the system.
I am very pleased that the Administration and the FTC have now taken a public position in favor of permanently extending the preemption provisions of FCRA. I think a number of us on the Committee were beginning to feel a little sorry for Mr. Beales who appeared before us a couple times to tell us about how well FCRA is working, but was unable to say whether it might be better to let the California Legislature write the statute for us.
I hope that Chairman Muris will spend some time today talking about how our system would change if we lose uniformity of credit data. However, I am sure we all agree that the last thing we want is a uniformly bad system, which is why we need to look hard at the current statute to determine whether changes need to be made.
I have read Mr. Jokinen's testimony, and I am pleased to see him alive and well before us. And while Mark Twain might have chuckled over reports of his untimely death, it is no laughing matter when those reports deprive you of historically low mortgage rates and cause very real emotional damage in the process of correcting the information.
I regret that we do not have any data furnishers with us today. It sounds to me as if the breakdown in Mr. Jokinen's case may have had more to do with the data furnisher than with the credit bureau. But what is clear is that the system failed this witness, and we need to figure out if the statute itself is at fault or if we need to focus on enforcement. Clearly, there is enough blame to go around, and the fact is everyone benefits from accurate data.
So, I look forward to working with you, Mr. Chairman, and other Members of the Committee on a quick and responsible reauthorization process. Again, I have conflicting, overlapping committee hearings, including markups going on. I may not be able to stay as long as I would like. But, I thank you for conducting this hearing. Chairman SHELBY. Senator Enzi.
STATEMENT OF SENATOR MICHAEL B. ENZI Senator ENZI. Thank you, Mr. Chairman. I appreciate your holding this hearing and the other hearings that you are holding to steadily move us toward a consensus on getting this important reauthorization done. The accuracy of financial information collected, maintained, and delivered by the credit reporting agencies is vital to ensuring the integrity of our entire financial system. I was very pleased to hear Secretary Snow of the Department of the Treasury announce last week that the Administration supports making free credit reports available annually to consumers.
This will go a long way to helping consumers to understand what information is retained by the credit reporting agencies, to see if there are any inaccuracies in the information, and to correct that information. The accuracy and timeliness of the information will help consumers, merchants, and financial institutions to stem the explosion of identity theft crimes.
I also want to mention two articles that I believe highlight the problems that we face with identity thefts. The first article was a front-page article in The Wall Street Journal on May 1 entitled, “A Tussle Over Who Pays For Credit Card Theft-Retailers Stuck With the Bill, Say Issuers Lack a Reason To Fight.” The second appeared recently-in fact, last weekend-in Parade magazine.
I am concerned about the situations highlighted in The Wall Street Journal article where victims of identity theft struggle to retain their identities and the credit card industry appears to offer little help in pursuing the criminals. Further, it is troublesome that the retailers, most likely small business retailers, may get stuck with the cost of the crime. The financial cost of identity theft is growing at a very alarming rate, and we have to find ways to encourage credit card companies to track down fraudsters and help retailers recover damages. Therefore, I would like to hear from Chairman Muris as to what the Federal Trade Commission is doing to bring credit card companies to the table and what the Commission is doing to help small retailers cope with identity theft.
With regard to the Parade magazine article, my colleagues will remember-and Senator Dole already mentioned-Captain John Harrison who had testified at the June 19 hearing. The article illustrates the trauma that Captain Harrison has experienced as a victim of identity theft since July 27, 2001. For nearly 2 years, Captain Harrison has been trying to clear his good name. That means closing over 60 fraudulent accounts that range from credit cards to checking accounts to utilities. And, those are just the ones he knows about. Captain Harrison is still learning about open and damaging accounts.
He is just one individual whose life has been turned upside down. There are a hundreds of thousands more out there, and we have to do something to help these victims.
Last year, Senator Cantwell and I introduced a bill that would assist victims in reclaiming their identities. The bill passed unanimously in the Senate last November. It did not pass the House, however, and I would like to work with our esteemed Chairman to ensure that parts of that bill are reauthorized in the Fair Credit Reporting Act. Some of these parts may be similar to the changes proposed by the Administration relating to accuracy of information in a consumer's file. I am particularly interested in the Administration's proposal related to the blocking of files and reinvestigations by resellers. Senator Cantwell and I worked last year with all of the stakeholders to address these issues in our bill, and I would appreciate the opinion of Chairman Muris and the other panelists on the Administration's proposal.
In addition, I believe we need to discuss the accuracy of consumer's data when the consumer is also a small business. According to the Small Business Administration, there are millions of small businesses that are sole proprietors. Over the past decade, there has been a very good campaign on the part of financial institutions to market products and services to small business owners. This has made credit available to many sole proprietors that otherwise would not have been able to obtain credit elsewhere. I would like to hear from today's witnesses as to how we can maintain the accuracy of consumers' financial information if the consumer also owns a business.
Thank you, Mr. Chairman, for holding this hearing. I look forward to hearing from the witnesses. Chairman SHELBY. Senator Carper.
COMMENTS OF SENATOR THOMAS R. CARPER Senator CARPER. Mr. Chairman, thank you. To my colleagues, to our witnesses, and other guests, welcome. Chairman Muris, good to see you. Thank you for joining us today.
I just want to mention briefly three principles that I think we will all be able to subscribe to as we approach today's hearing. One of those principles is the need for accuracy of credit reports and something that is essential, first of all, to consumers. The second principle would be that accurate reports are also of a great benefit to those who grant credit. And, finally, the belief that absolute accuracy cannot be achieved; however, the system should have as few errors as possible. And the system that we are working with here and refining here should make it easier for consumers to correct errors in their credit reports.
I think those are three good principles that we can all subscribe to, and I am encouraged with the announcement by the Administration of their position on these issues. Today, we are going to make a step forward toward reaching those principles. I am encouraged that the House legislation has been introduced and is starting to move. It will be helpful toward that end.
Finally, we have had quite a few hearings with respect to FCRA, and they have been enlightening and educational. And I suspect that this will be true today.
Thank you, Mr. Chairman.
STATEMENT OF SENATOR ROBERT F. BENNETT Senator BENNETT. Thank you very much, Mr. Chairman. All of us are very much in favor of accuracy within the credit bureaus and the information that is reported. I want to change the focus just a little in my opening statement to accuracy of studies.
Senator Sarbanes quoted a study that said 29 percent of the credit records contained errors. There is a 1992 study commissioned by the Consumer Data Industry, which is the trade association group, that says the error rate is 0.2 percent. There is a 1998 study conducted by the U.S. Public Interest Research Group that says the error rate is 70 percent.
That is a pretty wide range, a 0.2-percent error rate or a 70-percent error rate or a 29-percent error rate. If we are going to legislate to try to bring down the error rate, we have got to know what the error rate really is. And these kinds of studies are all over the place. To go from 0.2 percent, some will say that is suspect because it was a study commissioned by the industry itself; to 70 percent, I frankly think that is obviously suspect, commissioned by someone who may hate the industry. We need to know exactly what the error rate is.
Furthermore, Mr. President-Mr. Chairman. Sorry, a Freudian slip with all the other colleagues around here.
We need to know accurately what an error is. I will give you an example out of my own life. We moved in Salt Lake City, and when you do that, you call people up and tell them that you have moved, and they put a new address on your bill. No matter how hard I try, I am unable to get the Salt Lake City Corporation to bill Robert F., as in Frank, Bennett. They insist on billing Robert S., as in Sam, Bennett. Someone heard that as an “S” over the telephone when we changed our address, and that constitutes an error.
Now, it could be a very serious error in that there might be a Robert S. Bennett out there who is rampaging around the credit world and I do not want to be associated with him. On the other hand, I really do not think that the fact that my water bill is addressed to Robert S. Bennett at 1224 11th Avenue, Salt Lake City, Utah, when it really is Robert F. Bennett at that address constitutes an error that justifies Federal legislation.
So as we examine this whole question of the error rate in these databases, we need to know what kind of errors we are talking about, and we need to be able to separate those that are incidental from those that do constitute a threat to our identities.
The only piece of data that I have been able to find out that I think moves in the direction of giving us an accurate picture of what is going on is information that we have had from the FTC, and I simply repeat it here. The FTC reports that they receive approximately 2,000 complaints per year per bureau—since there are three bureaus, that is 6,000 error complaints out of a database of 600 million.
Now, I realize that not every error by any means gets reported to the FTC. But those that felt concerned enough about the errors that they contacted the FTC gives us 6,000 on a database of 600 million, which is 0.001 percent. Perhaps more significant than this number is the fact that in 1990, the FTC was receiving 10,000 complaints per year per bureau. So over a decade, we have seen the complaints on errors go from a total of 30,000 down to 6,000 as far as the Feds are concerned.
Now, this is not a survey. This is not a study. This is not a poll. These are actual complaints coming into the Federal Government that signify the trend is going in the right direction. Six thousand is one-fifth of 30,000. So, in 10 years, we have had an 80-percent improvement rate in the complaints to the FTC while the granting of credit has gone up dramatically. I think that says that the Fair Credit Reporting Act has done a pretty good job.
Now, having said that, I am as concerned about making sure that the database is accurate as anyone else on this Committee. But I think as we pursue the goal of getting a higher rate of accuracy, we need to do so against the background of accurate information about what the problem really is and how bad it is.