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rules promotes operational efficiency for industry, and competitive prices for consumers.” Please identify and address any developments since 1996 rendering the statement by the Senate less relevant. A.4. I am not aware of any developments that would make these considerations less relevant today. Indeed, as the consumer credit system has become more national in scope, and given the continued mobility of the American consumer, these observations have continuing validity.
RESPONSE TO WRITTEN QUESTIONS OF SENATOR SARBANES
FROM J. HOWARD BEALES, III Q.1. What are the typical consumer complaints regarding FCRA issues that the FTC receives on an everyday basis? What are the issues that arise most frequently? A.1. The FTC receives complaints directly from consumers through our toll-free hotline (877–FTC-HELP), our online complaint form (www.ftc.gov), or by mail sent directly to the Commission. The following statistics regarding FCRA complaints are drawn from the Federal Trade Commission's Consumer Information System (CIS) database, an aggregation of consumer complaints received by the Commission. FTC contractors enter the complaint data into the CIS, and provide the callers with information and educational material that will help them to resolve their complaint. Commission lawyers and investigators use the complaint database to identify trends and targets for law enforcement action.
The statistics are derived solely from self-reported complaints, and have not been verified. All complaints are coded according to the information provided by the consumer, under the appropriate categories. FTC data analysts sort the data according to product/ service codes, which are generic categories for the complaints. The searches can be further defined by the statute or rule that is alleged to have been violated, for example the Fair Credit Reporting Act (FCRA). Finally, the complaint can be further coded for the specific law violation, such as the failure to reinvestigate disputed information under the FCRA. Not all complaints are coded in all categories. For example, a complaint may be coded with a rule or statute, but not have a product/service code associated with it. Thus, complaints designated generally as FCRA complaints may include complaints about credit reporting agencies, credit report users, and information furnishers. The precision of the coding depends on the information provided by the consumer and the ability of the phone counselor or the consumer to enter that information precisely.
In calendar year 2002, the total number of complaints reported directly to the FTC and entered into the CIS was 376,301. Of those, 23,740 related to the FCRA (coded according to statute at issue in the complaint). The five top categories of complaints, among those coded as involving the FCÑA, were “Provides Inaccurate Information” (13,188 complaints); “Fails to Reinvestigate Disputed Information” (3,030 complaints); “Knowingly Supplies Inaccurate Information to Credit Bureau” (2,486 complaints); “Provides Inadequate Phone Help” (1,614 complaints); and “Discloses Incomplete/Improper Credit File to Consumer" (1,414 complaints). The complete report of FCRA complaints for 2002 is attached as Appendix A.
În assessing the number and type of consumer complaints, it is also important to keep in mind several additional factors. First, there is no “typical” consumer complaint. There is a wide range of issues about which consumers contact the FTC. That said, the data consistently reflect accuracy and accuracy-related issues as a leading area of complaint about credit bureaus.
Not all complaints necessarily establish an FCRA violation. For example, some consumers, in an effort to "repair" their credit, file with credit bureaus multiple, repeated disputes of accurate information, and will sometimes complain to the Commission that the bureaus are rejecting their disputes. In fact, the bureaus are authorized under the FCRA to reject such “frivolous" disputes, and Commission staff likewise does not consider these complaints to reflect FCRA violations. Other consumers file complaints because they have a mistaken belief that once a delinquency is brought up to date (a lien satisfied, collection account paid, etc.) the preceding record of past payment history is no longer reported; when they see it on their report, they dispute it as "inaccurate.” In this circumstance, however, the FCRA requires that the consumer report be “complete"—that is, up to date, showing current status correctly-but does not require the deletion of the preceding payment history.
Although the Commission generally cannot make an independent judgment about whether each complaint (asserting inaccuracies, for example) is valid, we are concerned that complaints about accuracy continue to figure prominently. Accordingly, as discussed in the Commission's testimony, the Commission's FCRA enforcement efforts have included a number of actions related to accuracy issues.7 Q.2. Are there any marketing abuses that fall within the subject matter of the FCRA that have been brought to your attention? Please include specific descriptions of any such abuses. A.2. I am currently aware of relatively few abuses associated with impermissible use of consumer reports for marketing. In the 1990's, the Commission undertook enforcement efforts against major consumer reporting agencies to prohibit the use of consumer reports
7 See TransUnion Corp., 102 FTC 1109 (1983); FTC v. TRW Inc., 784 F. Supp. 362 (N.D. Tex. 1991); Equifax Credit Information Services, Inc., 130 FTC 577 (1995). Each of these "omnibus" orders differed in detail, but generally covered a variety of FCRA issues including accuracy, disclosure, permissible purposes, and prescreening.
Within the last 5 years, we have brought cases concerning the failure of CRA's to investigate consumer complaints, see First American Real Estate Solutions, LLC, C-3849 (January 27, 1999); the failure of lenders to provide adverse action notices, see Quicken Loans Inc., D-9304 (April 8, 2003) and U.S. v. Unicor Funding, Inc., Civ. No. 99–1228 (C.D. Cal. 1999); and the failure of furnishers to report accurate information to CRA's, see U.S. v. DC Credit Services, Inc., Civ. No. 02-5115 (C.D. Cal. 2002) and U.S. v. Performance Capital Management, Inc., No. 011047 (C.D. Cal. 2001). We also have sued the three major national credit bureaus for failing to answer their toll-free telephones to take consumer disputes, see U.S. v. Equifax, No. 1:00– CV-0087 (N.D. Ga. 2000); U.S. v. Experian, No. 3-00CV0056-L (N.D. Tex. 2000); U.S. v. TransUnion, OOC 0235 (N.D. 111. 2000), and just recently, the Commission settled allegations that Equifax violated the consent decree the Commission obtained in 2000, see Commission press release of July 30, 2003, available at www.ftc.gov /opa /2003/07/equifax.htm. All of these cases are directed at credit report accuracy: the adverse action notice and the consumer dispute right are key mechanisms enhancing credit report accuracy, and furnishers' obligations to report accurate data to CRA's also serve to make credit reports more accurate.
for target marketing & More recently, in FTC v. Citigroup Inc., et al., 1:01-CV-00606-JTC (N.D. Ga. Mar. 6, 2001), the Commission alleged that a mortgage lender used consumer reports impermissibly to target market new or different types of loans. We are also aware of complaints about some companies selling credit reports or credit monitoring services. These complaints allege inadequate disclosure of the consumer's negative-option right to cancel the service. Q.3. Many consumers complain about invasion of their privacy caused by unsolicited calls from telemarketers. Clearly, consumers have not gotten the message about the ways in which to terminate such unwanted solicitations. What does a consumer need to do to prevent such solicitations? How can that information be conveyed more effectively to consumers? Please include specific recommendations as to how this information could best be conveyed. A.3. The Commission has amended the Telemarketing Sales Rule to give consumers a choice about whether they want to receive most telemarketing calls.9 Consumers can now put their telephone numbers on a national "Do Not Call” registry. Consumers can register for free either online or by telephone. Telemarketers must access the national registry beginning September 11, and beginning October 1, it will be illegal for most telemarketers to call a number listed on the registry.
Since the National “Do Not Call” registry opened on June 27 it has been immensely popular; nearly thirty million consumers have already signed on. The Commission is presently engaged in a vigorous consumer education effort to further publicize the availability of the registry.10 More generally, the Commission has undertaken comprehensive consumer education efforts in the privacy arena. 11
The FCRA is relevant to telemarketing only to the degree that telemarketers obtain consumer names and telephone numbers from consumer reporting agencies for prescreened offers of credit or insurance. 12 When telemarketing lists are derived from FCRA-approved prescreening, telephone solicitors are not required to give consumers notification of their right to opt out of future prescreened solicitations because Congress limited the FCRA requirement that consumers be notified of their opt out right to written prescreen offers. 13
8 FTC v. TRW, Inc., No. 3–31-CV266-H (N.D. Tex. Jan. 14, 1993); TransUnion Corp. v. FTC, 81 F.3d 228, 234 (D.C. Cir. 1996). See also, TransUnion Corp. v. FTC, 245 F.3d 809, reh. denied 267 F.3d 1138 (D.C. Cir. 2001), cert. denied, 122 S. Ct. 2386 (June 10, 2002).
9 Concurrent with the Federal Trade Commission rule, the Federal Communications Commission issued its own rule that requires banks, common carriers, and others to comply with DNC requirements, including using the FTC's national registry. See http://hraunfoss.fcc.gov/ edocs public/attachmatch/DOC-235841A1.doc.
10 See, e.g., http://www.ftc.gov / bcp/conline /edcams/donotcall/index.html.
13 Section 6150X1) of the FCRA requires that written solicitations include a “clear and conspicuous” statement of certain information, including that the consumer's credit report was used in the prescreen, various limitations on the offer, and disclosure of the consumer's right to opt out of future prescreen solicitations. 15 U.S.C. § 1681m(d)(1). The Commission engaged in an enforcement action to assure that consumers are given disclosure of their opt out rights. In Unicor Funding, Inc. (October 1999), the Commission obtained a $100,000 civil penalty from Unicor for failing to provide required notices to consumers receiving "prescreened" offers (8615(d)], and failing to provide adverse action notices ($615(a)]. I am also aware of complaints that raise a question whether disclosure notices are sufficiently “clear and conspicuous.” The
Continued Commission has therefore endorsed Administration recommendations that the Commission and bank regulators be authorized to clarify and strengthen the opt out notice requirements.
Whether they have received the written opt out disclosure or not, consumers can opt out of receiving prescreened offers by calling 1888–567–8688. Once a consumer has opted out, his or her name cannot be supplied in a prescreened list for future offers, whether those offers are made in writing or by telephone. Q.4. If a consumer elects to opt out of such unwanted solicitations by contacting the credit reporting agencies by telephone, why is that opt out effective for only 2 years, whereas it is effective permanently, unless revoked, if done in writing? A.4. Congress created this distinction in the 1996 Amendments to the FCRĂ. For consumers who exercise their opt out rights under the FCRA, the 1996 Amendments provide that an opt out conveyed through the telephone notification system required by Section 604(e)(5) should be effective for a 2-year period after notification.14 The 1996 Amendments further provided that, for a consumer who submits a signed notice of election to opt out in a form issued by the consumer reporting agency under Section 604(e)(2), the exclusion from prescreened lists shall be effective until revoked by the consumer. Q.5. Free credit reports are made available to consumers in several States, including Colorado, Georgia, Maryland, Massachusetts, New Jersey, and Vermont. What have been the results of this provision with respect to the availability of credit in these States? Has the provision of free credit reports had an adverse impact on the credit system in these States? A.5. The FTC's information to date on the comparative number of reports supplied to consumers is inconsistent. Some information indicates a mere marginal increase; other information indicates that the number of reports supplied to consumers nearly doubles. I am unaware of any data that demonstrate any impact from free availability either on the availability of credit or on the credit systems of these States. Q.6. Very few consumers understand the prescreening process. Should the FTC establish standards within the FCRA that clearly delineate the prescreening process? A.6. The FCRA itself delineates the prescreening process in some detail. 16 The Commission lacks rulemaking authority under the FCRA, and thus cannot establish standards delineating the prescreening process. Q.7. What additional statutory or regulatory authority does the FTC need to effectively implement the FCRA? A.7. The Commission's testimony on Thursday, July 10, set forth specific recommendations for additional FTC authority.
14 Section 604(e)(4)BXi); 15 U.S.C. $ 1681b(e)(4)(BXi). 15 Section 604(e)(4)(B)(ii); 15 U.S.C. $ 16816(eX4XBXii).
16 Sections 603(1), 604(c), 604(e), and 615(d) of the FCRA codify procedures that must be followed by creditors and insurers when using (and by CRA's when providing) consumer reports to make unsolicited offers of credit or insurance to consumers, a process known as “prescreening." Section 4(c) provides a limited permissible purpose for consumer reporting agencies to furnish consumer report information for prescreening. Section 603(l) defines a “firm offer of credit or insurance" as an offer that will be honored if a consumer meets the consumer report criteria used to create the list of consumers to receive the offer. Section 603(1/1) permits a business to use information in a consumer's application (such as the consumer's income) to determine whether a consumer meets specific application criteria bearing on credit worthiness or insurability so long as the criteria were established before the prescreened list was created. Section 60311)(2) permits businesses to verify that a consumer continues to meet the credit worthiness or insurability criteria that were used in the prescreening to select the consumer to receive the solicitation, and permits businesses to also verify the application information provided by the consumer and used in any Section 603(1)(1) postscreening. Finally, Section 603(1)(3) permits credit grantors and insurers to require that consumers furnish collateral so long as any required collateral is established before the prescreening is conducted and is disclosed to the consumer in the solicitation that results from the prescreening.
RESPONSE TO WRITTEN QUESTIONS OF SENATOR BENNETT
FROM J. HOWARD BEALES, III Q.1. Is credit prescreening simply a tool that makes it easier to market loan products to consumers? Some say that it serves other goals such as helping lenders reduce risk, increasing the availability of consumer credit, or fostering competition among lenders. Please comment. A.1. I believe that prescreening, in combination with other direct marketing and advertising, has enhanced competition and led to the widespread availability of credit cards with no annual fee and other attractive benefits. 17 For example, the use of prescreened offers for marketing credit cards has led to the development of credit card banks that rely almost entirely on prescreened offers to market their cards.18 There is also some evidence that prescreened offers help lenders manage risk, and do not contribute to identity theft-indeed, may even help prevent identity theft to some de
Q.2. Expiration of the FCRA's prescreening preemption language would allow States to prohibit prescreening, or require consumer reporting agencies or lenders to obtain the prior consent of the customer before their credit file could be accessed for prescreening. How would such requirements impact consumers? A.2. As explained above, prescreening benefits consumers by enhancing competition. State restrictions on prescreening would interfere with these benefits. Q.3. Is there a linkage between prescreening and identity theft? Some say that prescreening increases consumers' exposure by making it easier for lenders to flood consumers with preapproved applications that can be stolen and submitted by identity thieves. Lenders say that prescreening reduces opportunities for identity theft, because it allows them to make smaller numbers of targeted offers rather than mail volumes of applications. They also claim that because preapproved offers are preprinted with the consumer's address and other information, it becomes easier to foil identity thieves when would-be identity thieves change the preprinted infor
Section 604(e) sets forth consumers' rights to opt out of prescreening, and CRAs' duties to honor such opt outs. Section 615(d) sets forth duties of credit grantors and insurers when making prescreened offers.
17 See also statement by Michael A. Turner before the House Committee on Financial Services, Subcommittee on Financial Institutions and Consumer Credit, May 8, 2003, http://financial services.house.gov/media/pdf/050803mt.pdf, at 7–9.
18 See http://www.senate.gov /-banking / files / beales 1.pdf at notes 70–71 and accompanying text.
19 Id. at 9-10.