Congress Likely To Reform National Credit Reporting Systems

By Sarah Borchersen-Keto, CCH Washington Staff Writer

A large percentage of consumers lack basic knowledge and understanding of the credit-granting process, according to testimony at a Senate Banking Committee hearing on July 29, 2003, before Congress adjourned for its summer recess. This is especially a concern given the responsibilities consumers bear under the Fair Credit Reporting Act (FCRA) with respect to the content and control of their credit reports. Provisions of the FCRA expire at year's end, and Congress is debating their extension.

Committee Chairman Sen. Richard Shelby (R-Ala.) described a "troubling" lack of consumer awareness, while ranking member Sen. Paul Sarbanes (D-Md.) said consumer understanding "is less than it ought to be." Sarbanes added that all consumers ought to have the knowledge to access their credit score, the ability to access their score with ease, and the understanding necessary to realize the importance of their credit score and the impact it may have on the consumer choices they make.

Sarbanes noted that a report submitted to the committee by the Consumer Federation of America (CFA) shows that 61 percent of Americans say their knowledge of credit scores is either fair or poor. This figure increases to nearly 70 percent among households with incomes under $35,000 a year. The report also shows that around 75 percent of Americans say they do not know what their credit score is. "This is indicative that there's a serious need to increase financial literacy and education among consumers," Sarbanes said.

A day before the hearing, Sarbanes introduced a bill that would create an intergovernmental coordinating committee, based in the Treasury Department, which would develop a national strategy to promote financial literacy and education within a year.

Travis Plunkett, legislative director of the CFA, told members that "there has never been greater need for Congress to discuss how it can help boost overall financial awareness and improve financial decision-making by Americans, especially in regards to the credit reporting and credit granting process."

Plunkett noted that unless consumers understand the credit reporting system and have access to clear, timely information, they won't be able to use the rights granted to them under the FCRA. In light of the low levels of consumer knowledge, CFA is recommending that Congress overhaul the "cumbersome" procedures under FCRA for resolving disputes between consumers and credit bureaus, and between consumers and data furnishers, such as credit card companies.

House Financial Services Committee Passes FACT Act

Meanwhile, Congress continues its work to extend provisions of the FCRA and to battle identity theft. On July 24, 2003, the House of Representatives' Committee on Financial Services voted 61 to 3 to pass the Fair and Accurate Credit Transactions Act (FACT Act), which seeks to provide consumers with greater identity theft protections while also establishing permanent national credit reporting standards.

Included in the legislation are provisions that would give consumers the right to one free credit report per year and access to their credit scores. The bill also includes provisions that would establish new fraud identification tools and help consumers limit prescreened offers of credit and insurance. In addition it provides significant new protections of consumers' medical information.

Treasury Assistant Secretary Wayne Abernathy praised the bill for taking "direct aim at the terrible problem of identity theft, giving consumers, financial institutions and financial regulators powerful tools to fight this problem." He noted that according to new estimates, up to 7 million Americans have become victims of identity theft in the last year. Abernathy added that the bill incorporates many of the elements of the administration's proposal, noting that the committee's strong support of the bill sets the stage for enactment later this year.

Specific provisions of the bill would:

• increase the effectiveness of consumer-initiated fraud alerts and enable consumers to block fraudulent information in their personal credit records after filing a police report
• increase consumer awareness of their rights if they believe they may be victims of fraud or identity theft
• improve the accuracy of consumer credit information by discouraging the reintroduction of fraudulent information into the credit reporting system
• give consumers the right to request a free credit report annually
• simplify consumers' ability to limit unsolicited offers of credit
• require financial institutions to develop procedures to "red flag" identity theft, to investigate certain changes in customer addresses, and to truncate credit and debit card information
• direct regulators to determine how to increase the prompt investigation and correction of disputed information in a consumer's credit file

Under the bill, the disclosure of certain medical information in the preparation and dissemination of credit reports would be limited. In addition, credit-reporting agencies would be required to code information about sensitive medical information.

The legislation is the result of six hearings, nearly 100 witnesses and months of deliberations by lawmakers. In those hearings, testimony indicated that an expiration of the uniform national consumer protection standards in the FCRA would negatively affect consumer access to credit and the economy. Many witnesses also noted the need for increased protection for consumers against identity theft and other inaccuracies in the credit reporting system. The FACT Act specifically addresses concerns arising from those hearings, according to a release from the full committee.

Related items:

Lawmakers Debate Extension of Fair Credit Reporting Act Preemption Provisions

''Identity Theft Has Exploded'': Gov't Review

Posted August 18, 2003.