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mation before submitting the application, changes that alert the lender to suspicious activity. What is the FTC's experience? A.3. There is scant evidence of a linkage, one way or the other. To the extent that hard data exist, they suggest that identity theft growing out of prescreened offers is somewhat lower than identity theft associated with conventionally opened accounts.20 Q.4. What has the Commission's experience been with regard to consumer complaints about prescreening? Describe the volume and subject matter of these complaints. A.4. The FTC's consumer complaint database and the limitations of the information it provides is described above in response to Senator Sarbanes. With respect to this inquiry, out of the 376,301 complaints received directly by the FTC in 2002, 39 concerned prescreening. Twenty-two of these stated that the prescreening bureau failed to honor the consumer's request for removal from their list. Ten complaints concerned the failure of a prescreening service to provide notice of the opt out procedure. Four complaints concerned a prescreening service that failed to make a firm offer of credit, and three complaints alleged a false representation that an offer was preapproved. Q.5. Have State officials used their authority under the FCRA to enforce the FCRA's prescreening provisions? What is the volume and nature of consumer complaints about credit prescreening that state officials have handled? A.5. Section 621(c)(2) of the FCRA requires States to serve prior written notice upon the Commission of intended State actions to enforce the FCRĀ. The Commission has received only one such notification from any State, and the case did not involve prescreening.21 We know of no other case where a State has exercised its enforcement authority under the FCRA. Similarly, we have no information concerning consumer complaints at the State level, if any, about prescreening. Q.6. Does the FTC believe that changes are needed in the FCRA's prescreening rules? Would consumers be affected differently if changes lentified by the FTC or others are made by Congress, rather than by state or local officials? A.6. The Commission addressed these issues directly in its testimony on July 10. The Commission recommended that the preemption of State action on prescreening be made permanent and that the Commission and bank regulators be granted rulemaking authority to address the prominence and understandability of disclosures to consumers of their right to opt out of prescreen offers. The Commission has not taken any position with respect to changes or amendments to the prescreening provisions of the FCRA. Any needed revisions to this or other sections of the FCRA that are subject to preemption should be made by Congress and should apply uniformly.
21 The Attorney General's Office of the State of Minnesota charged US Bank with false advertising, deception, and other violations of Minnesota law, as well as FCRA counts. See Hatch v. US Bank Natl Ass'n, No. 99–872 (D. Minn. filed June 8, 1999).
RESPONSE TO WRITTEN QUESTIONS OF SENATOR MILLER
FROM J. HOWARD BEALES, III Q.1. Mr. Beales, what is the FTC's jurisdiction over the Fair Credit Reporting Act? Is it mainly education and guidance? Enforcement? Answering callers with FCRA questions or all of the above? A.1. The FTC has a role to play in each of these areas. The Commission's jurisdiction under the FCRA reaches firms other than those expressly assigned to another Federal regulator, such as banks and savings associations.22 Unlike the banking regulators, the Commission lacks rulemaking authority.23 Within those limits, the Commission has been active in all of the areas you identified. My testimony described many of the Agency's efforts in consumer and industry education and guidance.24 The FTC continues aggressively to pursue ongoing consumer and business education initiatives.25 The Agency continues to advance compliance with the FCRA, both through investigations of possible law violations and through informal means such as workshops, participation in public programs, and liaison with industry and other interested parties. The Agency has an active program to respond to telephone inquiries, through our Consumer Response Center described above and other avenues. Q.2. Based upon the daily callers with FCRA questions, what kinds of problems are they mostly asking about as it relates to the FCRA? Is there a trend? A.2. The FTC's consumer complaint database and the limitations of the information it provides are described above in response to Senator Sarbanes. As noted there, the FTC received 376,301 complaints in 2002. The five top categories of complaints related to the FCRA were “Provides Inaccurate Information" (13,188 complaints);” Tails to Reinvestigate Disputed Information” (3,030 complaints); “Knowingly Supplies Inaccurate Information to Credit Bureau” (2,486 complaints); "Provides Inadequate Phone Help” (1614 complaints); and “Discloses Incomplete/Improper Credit File to Consumer.” (1,414 complaints) The complete report of FCRA complaints is attached as Appendix A.
Appendix B lists the number of FCRA complaints received by the FTC for the past 6 years. These data do not allow us to detect trends in FCRA issues. First, 1997 was the first year we began a systematic approach to complaint handling. With each passing year, we have improved our ability to collect and enter the data. For example, our phone counselors are more highly trained, and we are able to use technology to better handle and process calls. Thus, our complaint volume has increased. Similarly, over the course of this time, we have pursued an aggressive outreach program, which has resulted in higher awareness of the FTC's consumer assistance program. Put another way, we receive more complaints because more people know about our consumer program. For example, in 1997, the FTC received a total of 13,362 consumer complaints. By 2002, as noted above, that number had grown to 376,301. Thus, while the data show a dramatic increase in the number of FCRA complaints over the past 6 years, there has also been a dramatic increase in the overall number of complaints received by the FTC during the same time period. As a fraction of total complaints we receive, FCRA complaints fell from 11.1 percent in 1997 to 3.5 percent in 2002.
22 Section 621 of the FCRA, 15 U.S.C. § 1681s.
24 See http://www.senate.gov/-banking/_files/beales1.pdf at notes 52–58 and text accompanying
25 See, e.g., the Commission's recently posted alert regarding an email campaign containing false and misleading information about the use of consumers' personal information, posted at http://www.ftc.gov/cp/conline/pubs/alerts /optalrt.htm, and linked prominently on the Commission's Internet home page, http://www.ftc.gov.
Finally, as discussed earlier, because this data is self-reported we cannot conclude that they reflect either the actual or a projectable incidence of FCRA violations.
Despite the various considerations that preclude explicit conclusions from the numbers and types of complaints alone, the most common subject areas of consumer complaints (accuracy, reappearance of previously deleted items) have typically led the list of subject areas complained of over the years. Q.3. Will your updated Commentary that you are working on reflect the more recent problems raised by callers? A.3. The Commentary is intended to give guidance to all parties who are subject to the requirements of the FCRA. The Commentary will reflect a wide range of Commission experience in enforcing the FCRA. Additionally, the Commission staff undertook an informal outreach effort prior to drafting the updated Commentary. The staff received views from a variety of sources, including consumer groups, consumer advocates, trade groups, and industry and public interest lawyers. Q.4. Of the seven 1996 preemption amendments to the FCRA, which ones have callers raised the most issues with? Have there been any problems with the treatment of affiliate information sharing? A.4. Consumers have not typically complained about areas subject to the preemptions in ways that implicate any issue relevant to preemption itself. We are aware of no complaints regarding the treatment of information sharing by affiliates.
THE GROWING PROBLEM OF IDENTITY THEFT AND ITS RELATIONSHIP TO THE FAIR CREDIT REPORTING ACT
THURSDAY, JUNE 19, 2003
Washington, DC. The Committee met at 10:02 a.m., in room SD-538, Dirksen Senate Office Building, Senator Richard C. Shelby (Chairman of the Committee) presiding.
OPENING STATEMENT OF CHAIRMAN RICHARD C. SHELBY Chairman SHELBY. The Committee will come to order.
Today, the Committee returns to considering the expiring preemption provisions of the Fair Credit Reporting Act. As part of this process, I believe it is essential that we undertake a thorough review of the larger context in which the Act operates. And, in this regard, the first thing worth noting is the truly dynamic nature of the credit markets in our economy. In just the 6 years since the Fair Credit Reporting Act was last amended, significant changes have occurred. There are new participants, new technologies, new information use practices, and new products. Indeed, there is more that has changed than has remained the same in the operation of the credit markets since the last time Congress considered the Fair Credit Reporting Act.
While many of these changes introduced positive features, such as more credit and an expedited process for obtaining credit, not every new development has been positive. Unfortunately, as our economy has grown more automated, allowing more and more depersonalized transactions to occur, and, as the transfer of personally identifiable information has become much more frequent, a new type of crime that takes advantage of these circumstances has emerged-identity theft.
Identity theft involves a person using someone else's personal information without their knowledge to commit fraud or theft. Practically speaking, the crime involves misappropriation of such personal information as a victim's name, date of birth, and Social Security number. Identity thieves then use this information to open new credit card accounts, to divert current accounts from victims to themselves, and to open bank accounts in victims' names, among other things. The bad charges and the hot checks usually happen while the victims, banks, credit card companies, and other firms are unaware that something is amiss. After all the activity and the skipped payments, businesses usually take action to get compensated and ultimately cut the thief off.
In most instances, this is when the victims first become aware of the fact that they have been targeted. It is also when they begin to experience the negative consequences-dealing with law enforcement and collection agencies. Soon thereafter, when the criminals' handiwork shows up on their credit reports, they face the considerable task of restoring their good name and credit. Plainly, this crime has many victims. Firms lose profits. Individuals lose time, money, and peace of mind when their good name and reputation are tarnished.
In light of the serious nature of the consequences of identity theft, this issue would merit attention even if there were only a limited number of victims. Unfortunately, there are thousands of victims whose numbers are growing at an increasingly faster pace. Indeed, it has been asserted that identity theft is the fastest growing crime in America.
This issue tracks across credit reporting in so many ways that it is essential that we consider it in the context of the reauthorization of the preemption provisions of the Fair Credit Reporting Act.
Identity theft prevention, restoration of accurate reports, and victim assistance, among many other areas, are things that were not on the radar screen when the 1996 Amendments were passed into law. These are things we need to be thinking about as we go forward, things we must be considering if we are going to meet our goal of ensuring that the law produces the most effective, efficient, balanced, and fair system possible.
I want to thank the witnesses for appearing this morning andwe look forward to hearing from them. Senator Johnson.
STATEMENT OF SENATOR TIM JOHNSON Senator JOHNSON. Thank you, Chairman Shelby, for convening this hearing on identity theft. Identity theft is a growing problem and yet one that is not well understood. While most people know where to go in the case of more traditional crimes, victims of identity theft are particularly hard-pressed to know where to turn. A call to the local police department, unfortunately, rarely points the consumer in the right direction.
Clearly, we need to create a framework to address identity theft. Back in 1995, when Sandra Bullock starred in “The Net,” a feature film about identity theft, the movie was classified as science fiction. After reading the testimony of the witnesses before us today, I think it is clear that we must confront the reality of this crime.
Today's hearing is on the relationship between identity theft and the Fair Credit Reporting Act, and, Mr. Chairman, I believe this is an important hearing. As we know, our credit reporting system has created a national credit marketplace, and I think that we are all familiar with the enormous benefits that come from increased credit opportunities. However, a national marketplace has created new opportunities for remote economic crimes where the thief can be thousands of miles away from the location of the victim.
A couple of days ago, Assistant Secretary of the Treasury Wayne A. Abernathy, who is well-known to many of us here for his long