July 9 , 2003

Shelby Says Senate Panel May Probe Bank 'Tying'

Senate Banking Chairman Shelby believes banks may be pressuring corporate loan customers to purchase services such as bond underwriting as a condition of providing them credit, breaking a federal law barring the practice. "We need to stop it," said Shelby in an interview reported by Bloomberg News of the practice known as "tying." "That's like being the bully on the block." Tying credit to the sale of merger advice or bonds is being examined by GAO, which is expected to issue a report in October. The GAO began its investigation at the request of House Financial Services Chairman Oxley, ranking member Barney Frank, D-Mass., and Energy and Commerce ranking member John Dingell, D-Mich.

Shelby said he is concerned about the issue and that the Banking Committee, which oversees the banking industry, may hold hearings on the matter.

House Action on the FCRA Reauthorization Issue

The Committee on Financial Services has scheduled a hearing on Wednesday, July 9, 2003 at 10 a.m., in Room 2128 Rayburn House Office Building, on H.R. 2622, the "Fair and Accurate Credit Transactions Act of 2003" (FACT Act). A staff briefing for the hearing will be held on Monday, July 7, 2003, at 5 p.m. in room 2220 Rayburn HOB.

Witnesses

This week's hearing will have three panels. On the first panel, the Secretary of the Treasury (Treasury) and the Chairman of the Federal Trade Commission (FTC) will discuss their support for reauthorizing the expiring national uniform standards of the Fair Credit Reporting Act (FCRA) and provide comments on the FACT Act. The second and third panels will be composed of general business representatives, financial services representatives, consumer and civil rights groups, and a representative of the credit bureaus providing their views on the FACT Act. A witness list for the hearing is attached.

Background

The Subcommittee on Financial Institutions (FI Subcommittee) held six hearings on the FCRA, pinpointing six critical areas for legislation: maintaining a national uniform credit system, reducing identity theft and protecting victims, improving dispute resolution, improving credit report accuracy, improving consumer access to credit information, and fixing the Vail opinion relating to investigations of employee misconduct. H.R. 2622 was introduced on June 26, 2003, by Representatives Bachus, Hooley, Biggert, and Moore, addressing each of these key areas. The FACT Act has 32 original sponsors from the Financial Services Committee, almost evenly divided between Republicans and Democrats.

FCRA's National Uniform Standards. The Treasury, Federal Reserve Board, FDIC Chairman, and Conference of State Bank Supervisors have now endorsed extending FCRA's national uniform consumer protection standards, finding that it brings significant benefits to consumers and the economy. Title I of the FACT Act would remove the sunset from the expiring uniform national consumer protection standards to make them permanent.

Identity Theft. According to Treasury's May 8 testimony before the FI Subcommittee, identity theft is one of the fastest growing crimes in America with an estimated one million new victims this year. Identity theft complaints to the FTC have grown from 31,000 to 162,000 in just the last 2 years, and are over 3 times as numerous as the next category of consumer complaints.

Title II of the FACT Act establishes a number of reforms to reduce the occurrence of identity theft and protect identity theft victims. The FACT Act requires credit card companies that receive a request for additional cards on an existing account within 30 days of receiving a change of address to notify the cardholder at the new and former address. Companies are prohibited from printing credit or debit card expiration dates or account numbers other than the last 4 digits on electronically printed customer receipts. The FACT Act also directs the Federal banking regulators to establish and update guidelines for banks to identify and "red flag" suspicious activity or patterns that might indicate identity theft.

To protect identity theft victims, the FACT Act allows consumers who have a good faith suspicion that they have been or will be a victim of fraud to request a fraud alert from the credit reporting agencies (CRAs). The CRAs are then required to put a fraud alert in the consumer's file and notify each user of the consumer's credit report of the fraud alert. A user then cannot provide credit to anyone other than the consumer unless it first attempts to comply with the fraud alert's authorization procedure. A fraud alert is a statement in the consumer's file that notifies users that the consumer doesn't want new credit without special permission by a preauthorized procedure (such as by verbal approval at the consumer's home phone number). Consumers who file a police report alleging fraud can also establish a security freeze, requiring CRAs to block related fraudulent information on the consumers' credit reports. The FACT Act further directs the CRAs to develop policies and procedures for providing a notice of rights to consumers who believe they may be victims of fraud or ID theft, and directs the FTC to develop best practices procedures for CRAs.

Improving Consumer Dispute Resolution. The FI Subcommittee heard extensive testimony regarding the importance of giving consumers the right to challenge the accuracy of information maintained by CRAs. The Fact Act strengthens FCRA by directing the FTC to develop procedures for referral of consumer complaints on identity theft and fraud alerts among and between CRAs and the FTC, allowing consumers to report identity theft once and have the information shared with all CRAs and the FTC. The FTC is also directed to develop model forms and standards for identity theft victims to contact creditors and CRAs of fraud. CRAs are required to reinvestigate consumer disputes forwarded by resellers of credit reports, such as intermediaries who consolidate reports for mortgage lenders. The FACT Act also requires the FTC and the Federal Reserve to review how well CRAs and furnishers are complying with the procedures and timelines required by FCRA for the prompt investigation and correction of disputed information in a consumer's credit file, and report their findings and any legislative recommendations to Congress.

Improving Accuracy of Consumer Credit Records. The FTC's June 4 testimony before the FI Subcommittee stated that credit reporting accuracy is a core goal of the FCRA:

Accurate reports benefit not only consumers but also credit grantors. Congress recognize[d] that decisions based on inaccurate information can impose potentially severe consequences to individual consumers [and consequently] enacted the FCRA's accuracy protections.

The FACT Act includes reforms designed to improve the accuracy of consumer records. It requires CRAs receiving a request for a consumer report using a consumer address substantially different from that in its file to notify the requester of the discrepancy and reconcile the difference within 30 days. Furnishers are prohibited from reporting information to CRAs that the furnisher knows or has reason to believe resulted from fraudulent activity such as identity theft, to prevent a "repollution" of the consumer's files. Debt collectors and other creditor agents that learn that information in a consumer report may be the result of identity theft must notify the creditor of the fraudulent information, to ensure that knowledge of fraud gets passed along to the relevant parties.

Improving Consumer Access to Credit Information. In response to questioning at the May 8 and June 24 FI Subcommittee hearings, representatives from the Treasury and FTC suggested that consumers need better access to and understanding of credit information. The FACT Act would allow consumers to request a free credit report annually from each CRA. The CRAs would be required to include any credit scores on the consumer, as well as a summary of how the scores were derived and how the consumer can improve the scores. The FACT Act also addresses unsolicited offers of credit and insurance by requiring CRAs to make it easier and simpler for consumers to understand and exercise their rights to limit such offers, and by requiring the Federal banking agencies to develop standardized notices that are easier for consumers to understand.

Protecting Employee Misconduct Investigations: In 1999, the FTC staff issued the controversial "Vail opinion" concluding that 3rd parties who regularly perform investigations for a fee of employee misconduct are CRAs. According to the Chamber of Commerce's June 17 testimony, this opinion makes it almost impossible to hire outside investigators for fair and professional investigations of employee misconduct. In previous testimony to the FI Subcommittee, the FTC, Department of Justice, Equal Employment Opportunity Commission (EEOC), and various legal and consumer groups testified that application of the FCRA provisions to workplace investigations may hinder enforcement actions and corporate compliance programs. The FACT Act fixes the Vail opinion by excluding communications to an employer by outside third parties hired to investigate employee misconduct from the definition of "consumer reports" (meaning that advance notice/permission would not be required). An employer must still disclose to the consumer a summary containing the nature and substance of the communication, however, if any adverse action is taken based on the communication (although certain sources of information are protected).