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Senator SCHUMER. And then if I find one of them is inaccurate and I wrote the credit company, they will correct it?

Mr. BEALES. When you notify the credit reporting agency, that triggers the reinvestigation requirement. They have to go back to whoever furnished that information. The furnisher either has to verify the information or delete it.

Senator SCHUMER. And does that happen?

Mr. BEALES. Yes, sir, it does.

Senator SCHUMER. Are there times when it doesn't?

Mr. BEALES. Undoubtedly.

Senator SCHUMER. Which is more?

[Laughter.]

Mr. BEALES. We think it happens far more often than it doesn't. Senator SCHUMER. Do we have data on that to know?

I am sorry, Mr. Chairman.

Chairman SHELBY. No. I think what you are getting into is very important.

Mr. BEALES. I have seen data-there is an enormous number of corrections that get made, of changes that get made.

Senator SCHUMER. I just find when you talk to your typical mortgagor, when you talk to his real estate broker, his bank, her bank, there is huge dissatisfaction with the mystery of this system.

And it is not just some theoretical need to know, that it createseveryone scratches their head and cannot figure out a whole lot of the outcomes here.

Am I wrong about that? The realtors made this one of their big issues. They weren't doing it because everything is working right. Mr. BEALES. I think what has tended to happen in response to participants in the process being frustrated by not understanding as much as they wanted to, is that more information has been provided over time.

Whether that frustration is still there or not, I do not know. That is not something that we experience on an ongoing basis. But I think the fundamental answer of trying to explain this system to consumers better, is exactly the right one. And that is what we try to do in our consumer education materials.

Senator SCHUMER. Thank you, Mr. Chairman.

Chairman SHELBY. Could we say, as far as scores go, there is pervasive use and limited consumer understanding?

Obviously, I bet there is not two people in this room, maybe five, that would explain-maybe the credit bureau people here—but that could explain that scoring.

Senator SCHUMER. Maybe one of them brought the little black box.

Chairman SHELBY. Yes, the little black box.

[Laughter.]

So, I think the case has been made for very limited, at least at this period-we will have more hearings-but for limited consumer understanding of how they are scored.

Mr. BEALES. I think they certainly do not understand the details of how their scores are calculated.

What credit scoring replaced was a system that was essentially judgmental, which I think was, if anything, less transparent to con

sumers.

Chairman SHELBY. This is judgmental, too. It is just done by computer.

Right? It is based on a model of so and so.

Mr. BEALES. It is based on objective data, as opposed to being based on my personal assessment of you and whether you are a good credit risk or not.

Chairman SHELBY. I did not say it was good or bad. It may be a big improvement. I am just saying it is still a judgment is made. Mr. BEALES. Yes, I think that is right.

Chairman SHELBY. By an individual or by a computer.

Mr. BEALES. The judgment is made based on actual experience analyzed in a statistically rigorous fashion.

Chairman SHELBY. And no human flesh.

Mr. BEALES. Right, as opposed to my opinion based on whatever it might be based on.

Chairman SHELBY. Senator Sarbanes mentioned earlier that we balance all interest legislatively, or try to balance.

That is part of the legislative process.

We have talked about preemption, the merits of it, the problems with it, and so forth. But he asked you, as I understood it, could this be balanced?

Could the case be made-I am talking up here and later-for preemption which would benefit the creditors, benefit the consumers, ultimately, our national system, and at the same time, a standard for the consumers, you know, improve the standard for the consumers on notice and a lot of other things. Identity theft concerns and so forth.

Mr. BEALES. I think, certainly, that that can be done.
Chairman SHELBY. Balancing the interest, is it not?

Mr. BEALES. It is a balancing of the interests. And we have tried on an ongoing basis to assess whether there are problems, where there may be the possibility for improvements that would make the system work better.

That, presumably, if you did not extend preemption, presumably, that is the process that individual States would go through.

it?

But you can do that here, too.

Chairman SHELBY. And the possibility of Balkanization, doesn't

Mr. BEALES. Yes, it does. You can do it here and have it uniform and an improvement as well, if in fact the particular change is an improvement.

Chairman SHELBY. Your testimony is made part of the record and then some of your oral testimony here, is full of references to the dynamic nature of the credit markets.

How do you make sure that the FCRA, the Fair Credit Reporting Act, legal regime and the interests that it is supposed to balance and protect, stays abreast, stays up with the real-world developments in these markets?

And what are your views as to the adequacy of the current regulatory structure? Is the Commission that you work with, the enforcement authority enough, or is there a need to expand your role to provide you with rulemaking authority? Are there other ways that we should consider to build in greater flexibility to help you do your job?

Mr. BEALES. The Commission has not taken a position at this point about rulemaking authority for the Commission. I think, generically, it is a good practice for regulators and it is good practice for the Congress to periodically review how regulations and regulatory schemes fit with the real world and whether they need to be adapted in light of underlying changes.

Chairman SHELBY. Okay. We appreciate your appearance here today. We look forward to working with you, and we thank you. Mr. BEALES. We thank you.

Chairman SHELBY. The hearing is adjourned.

[Whereupon, at 4:35 p.m., the hearing was adjourned.]

[Prepared statements, response to written questions, and additional material supplied for the record follow:]

PREPARED STATEMENT OF SENATOR ELIZABETH DOLE

I would like to thank both you and Ranking Member Sarbanes for agreeing to hold this hearing on the issues raised by the reauthorization of the Fair Credit Reporting Act. Enacted in 1970, the Fair Credit Reporting Act has served an important role in this Nation. In the time since its first passage it is astounding to consider the fundamental changes which have occurred in our credit system. In 1970, credit card charges over $20 required the store owner to call the creditor and have a staffer go through a card catalog system to approve the transaction. Today, it takes just seconds, even when you are on the other side of the world. While we take this innovation for granted it demonstrates how fundamentally our system of payments has changed.

In addition, the benefits of the Fair Credit Reporting Act have also been responsible for many of the advancements in how we choose financial products which best meet our needs. A system of fairly and rapidly assessing an individuals financial responsibility ensures that people can have quick access to competitive offers for credit, insurance, or other financial products. Clearly, our current credit system has been one of our Nation's best assets to benefiting individuals at every level of the economic ladder. This unprecedented access to credit combined with the low cost for credit realized through the efficiencies produced by law have created new opportunities for people who have never had access to credit before. No longer is collateral essential in qualifying for a loan, people can now raise themselves on the ladder of economic success simply by proving that they can responsibly handle their financial affairs.

Given this opportunity to reauthorize the Fair Credit Reporting Act, we must ensure that our actions do not result in increases in the cost of credit and lower access to credit. To do so could have harmful effects on our recovering economy. At the same time we must ensure that the law applies to everyone fairly and that the system to protect consumers against questionable material on credit reports operates efficiently and effectively.

I look forward to hearing the thoughts and observations of our witness and to working with all of my colleagues on the Committee as we reauthorize this very important law this year.

Thank you.

PREPARED STATEMENT OF SENATOR TIM JOHNSON

Chairman Shelby, thank you for holding today's hearing on the Fair Credit Reporting Act. While FCRA is not exactly a household name, our Nation's creditgranting system is one of the bright points in our otherwise lackluster economy. Outstanding consumer credit has grown from $556 billion in 1970 when FCRA was enacted to $7 trillion today, accounting for over two-thirds of U.S. gross domestic product. Which is why today's hearing is so timely. Unless we act by the end of the year to reauthorize FCRA's preemption provisions, we risk striking a terrible blow to our economy by our inaction.

As today's witness has noted in his very thoughtful written testimony, "the consumer reporting industry, furnishers, and users can all rely on the uniform framework of the FCRA in what has become a complex, nationwide business of making consumer credit available to a diverse, mobile American public." Yet if we fail to act by January 1, 2004, this uniform reporting system could break into as many as 50 credit reporting systems, all with different standards, different requirements, and different procedures.

Most people do not know much about our credit reporting system because it works so well. It does not occur to people to learn about what goes into a credit report until they get turned down for credit. And under the FCRA, those who do get turned down receive all the protections that come with a so-called "adverse action." They have the right to a free credit report; they have the right to dispute what information is contained in that report; they have the right to a quick investigation of the information; and they have the right to a timely correction. And those rights apply to everyone, regardless of whether they live in South Dakota or Alabama.

Full-file credit reports are unique to the United States. Unlike other countries, where only consumers with negative credit history have any kind of record, our system encourages data furnishers to report both negative and positive credit history, all on a voluntary basis. This information allows lenders to make informed decisions about a given consumer's credit risk and to make better lending decisions.

These decisions are good for consumers in a variety of ways. For some, full-file reporting may allow a lender to take a chance on a consumer whose positive credit

history may offset a past credit impairment. For others, more complete information may help a lender to decide not to extend more credit than a consumer can handle.

By the same token, full-file reporting helps lenders make sensible decisions that keep our financial institutions safe and sound. Poor lending decisions affect all of us through institutional instability and an increased cost of credit.

Other elements of FCRA are also critical to our credit-granting system. For example, in the modern economy, it's important to maintain a nationwide standard under which corporate affiliates may share information. Experts such as Chairman Greenspan have emphasized the need for national businesses, which serve customers in all 50 States, to have uniform standards across those 50 States. Failure to maintain this uniformity would jeopardize many of the efficiencies gained through information technology and wider consumer choice.

Mr. Chairman, I believe that a uniform national credit reporting system must be maintained, which is why I introduced the Economic Opportunity Protection Act of 2003, S. 660, which would extend the preemption provisions currently contained in FCRA.

At the same time, I commend you for holding the first in what I hope will be a series of hearings on the FCRA. As Congress noted when it created the FCRA, consumer credit "is dependent upon fair and accurate credit reporting." Therefore, it is appropriate for Congress to look at whether the statute is working properly and whether any of the provisions need to be amended to reflect changes in the marketplace.

I understand many on this Committee and in the Administration have a particular interest in identity theft, and I share this concern. In fact, I believe that a uniform national credit reporting system, if used properly, can be one of our most effective weapons to combat this growing problem. I hope as part of this year's discussion about FCRA, we can work together to develop solutions to what is a relatively new, yet extremely damaging, crime.

That said, I am disappointed that the Administration has yet to develop a position on this critical issue. It appears the Federal Trade Commission is also unwilling to tell this Committee its position on whether it is important to maintain a uniform national standard for our credit reporting system. I would urge the Administration over the coming weeks to devote more attention to the imminent expiration of FCRA preemption provisions and to develop a recommendation that can inform Congress' deliberation on this issue.

Mr. Chairman, I look forward to today's testimony.

PREPARED STATEMENT OF SENATOR JIM BUNNING

I would like to thank you, Mr. Chairman, for holding this very important hearing and I would like to thank our witness for testifying today.

Today, we have the first of a number of hearings on the Fair Credit Reauthorization Act. As we all know, FCRA is a huge issue for the financial industry and consumer groups. There are some who think we need to pass a clean FCRA, some who think we should pass FCRA but with additional privacy and identity theft protections and some who think privacy decisions would be left to the States. I believe these hearings will be a great help to Members in deciding which is the best course of action to take.

I have been involved in the privacy debate for a number of years. During the early 1990's, I worked with the Kentucky General Assembly to remove the Social Security number for Kentucky drivers' licenses. In the House, as Chairman of the Social Security Subcommittee of the Ways and Means Committee, I led the effort to stop the Social Security Administration from posting SSA earnings online. And of course, all of us who were on this Committee in 1999 were deeply involved in privacy issues during Gramm-Leach-Bliley.

I certainly believe more can be done to prevent identity theft. I would like to see more restricted use of the Social Security number. I would like to see those who have had the privacy stolen to have better means to get their credit problems fixed. And I, like everyone else, would like to stop getting flooded with mail and getting solicitation calls during dinner.

But I have another concern. I am very concerned about this economy. I am very worried about the possibility of a double-dip recession. I know that puts me at odds with more optimistic economic experts, like Chairman Greenspan, but we have disagreed before. We are not growing like we can, and we are not creating jobs. There are many reasons for this. I believe Chairman Greenspan acted way to slow to cut rates back in early 2001. He should have cut them in the fall of 2000. The corporate

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