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ability to discover and correct errors, thereby improving the accuracy of the system; (b) educate consumers about the importance of consumer reports and scores and how to improve them; and (c) in some cases provide an early alert to identity theft victims about crimes committed in their names. In an environment with consumer reports and scores used more and more frequently in eligibility and pricing decisions for a myriad of products and services, consumers' knowledge of their credit records is crucial.

2. National fraud alert system

The Commission supports standardizing the means by which consumers who reasonably suspect they have been or may be victimized by identity theft, or who are military personnel on active duty away from home, can place an alert on their credit files. The alert would put potential creditors on notice that they should proceed with caution when granting credit in the consumer's name. The proposal would also codify and standardize the “joint fraud alert” policy whereby an identity theft victim only needs to call one national CRA to place a fraud alert and obtain a free consumer report from all three. The three major CRAS voluntarily follow these procedures now (except for the military alert). The Commission supports the codification of this system in the FCRA.

scores" or "credit scores.") When the consumer applies for credit or other goods or services, the scoring programs that are developed from the complex analysis of past data compare the scoring factors to the individual information of the particular consumer, with the result reflected in a score that is generated for that application.

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The Treasury Department's proposal would require CRAS immediately to cease

reporting ("block") allegedly fraudulent account information on consumer reports when the

consumer submits a police report or similar document, unless there is reason to believe the report

is false. Blocking would mitigate the harm to consumers' credit record that can result from identity theft. We understand that the three major CRAS do this voluntarily now, and

recommend that it be codified in the FCRA.


Reinvestigation duties with respect to resellers

Persons who purchase consumer reports for resale (also known as “resellers”) are covered by the FCRA as consumer reporting agencies and have all the obligations of other CRAS, including the duty to reinvestigate information disputed by consumers. Typically, resellers combine information from the three major CRAS (also sometimes referred to as "repositories" in this context) to produce reports for mortgage lenders. Resellers are an important source of consumer reports, but the current FCRA dispute obligations of CRAS and furnishers do not work well when applied to resellers. The Commission supports amending the FCRA to better address reinvestigation duties when a reseller is involved. If a consumer disputes information in the report, the reseller may meet resistance in getting the creditor who originally furnished the information to investigate the dispute, because the creditor has no relationship with the reseller. Yet, if the reseller sends the dispute to the relevant repository, that repository currently has no legal obligation to reinvestigate, because the dispute did not come


directly from the consumer.' The Commission supports an amendment that would require

resellers to submit disputes to the originating repository and the source furnisher to investigate these disputes. Such an amendment would ensure that the dispute process functions more



FTC rulemaking on adverse action notices

The FCRA requires that when adverse action is taken against a consumer based even in part on a consumer report," the user must notify the consumer of (1) the identity of the CRA from which the creditor obtained the report; (2) the right to obtain a free copy of the report; and (3) the right to dispute the accuracy of information in the report. Adverse action notices are a critical first step in the "self help” system for correcting inaccuracies in the consumer reporting system. Consumers are in the best position to know whether the data in their consumer reports are accurate. The adverse action notice informs a consumer that a denial was based, at least in part, on the report. With the notice, consumers have specific incentives to correct inaccurate


17 If the consumer is told by the reseller that he must dispute the information to the source repository, this delays the dispute process. Time is often of the essence in the case of a mortgage application.


"Adverse action" generally means any action that is adverse to the interests of the consumer, and can include a denial of credit, denial of an apartment rental, or denial of a retail purchase by check. In the insurance context, "adverse action” means “a denial or cancellation of, an increase in any charge for, or a reduction or other adverse or unfavorable change in the terms of coverage or amount of, any insurance." In the employment context, the term includes “a denial of employment or any other decision for employment purposes that adversely affects any current or prospective employee." See FCRA § 603(k).

Currently, the definition of “adverse action" for credit transactions is imported into the FCRA from the Equal Credit Opportunity Act (“ECOA")." Under the ECOA definition, there is no adverse action in many situations when the consumer is offered less favorable terms, such as a higher interest rate, because of information in her consumer report. For example, there is no adverse action when the consumer accepts a "counteroffer" that includes those less favorable terms. The ECOA definition does not adequately address modern credit markets, in which consumers do not necessarily apply for specific credit terms, but rather for the best terms for which they can qualify. In turn, creditors offer terms tailored to the consumer's risk profile, which may often mean a higher price than would otherwise have been the case but for the consumer's consumer report. Yet, under current law, consumers who accept this higher price would not receive an adverse action notice, and thus would never know about a problem in the consumer report that caused the higher price. We support the proposal to grant specific rulemaking authority to the FTC to address the definition of adverse action in credit transactions to better reflect the modern credit market.20

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Prescreened offers provide many benefits for consumers, and can enhance competition,


At the same

leading to greater credit availability, better terms, and lower costs for consumers. time, the 1996 amendments appropriately gave consumers the right to opt-out of receiving such offers, and required that creditors and insurers clearly and conspicuously disclose this right in the


The ECOA adverse action definition is not imported into the FCRA with respect to insurance or other noncredit transactions.



Currently, the Commission has no rulemaking authority with respect to the FCRA.
IPI Report, at 54-59.

offer itself. The Commission has observed that these notices in many cases have been buried in locations difficult to find, and that the language of the notice is often difficult to understand. The Commission supports the proposed amendment to the FCRA directing the Commission and bank regulators to clarify and strengthen the opt-out notice requirements. A regulatory proceeding would allow the agencies to provide more specific direction on this requirement, based on empirical evidence of the costs and benefits of various disclosure options and their effectiveness in communicating to consumers.

C. Other Treasury Department legislative proposals

The Commission also supports the non-FCRA proposals to prevent identity theft, limit the damage from that crime, and help victims restore their reputations.

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In many instances, identity theft results from thieves obtaining access to card numbers on receipts. This source of fraud could be reduced by requiring merchants to truncate (i.e., print less than the full card number on the receipt). The use of truncation technology is becoming widespread, and some card issuers already require merchants to truncate. The Commission supports requiring truncation, but recommends that the law be phased in over a period of time to allow for the replacement of existing equipment.

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One way to deter identity theft is to make it easier to prosecute. Legislation proposed last year would have created a new crime of “aggravated identity theft," with stiff penalties and

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