Madame Chair, Members of the Committee: Thank you for the opportunity to present the views of the U.S. Public Interest Research Group (PIRG)¹ on the important matter of disclosing consumer credit scores.

Numerical credit scores have largely replaced narrative credit reports for credit decision-making. Billions of credit card and mortgage loan decisions are made on the basis of credit scores. Yet, unlike the right to review credit reports, consumers have no right to review their credit scores. U.S. PIRG and the state PIRGs support legislation, such as the Fair Credit Full Disclosure Act, H.R. 2856 by Rep. Chris Cannon (UT), now before this committee, as well as a similar proposal before the Congress by Rep. Harold Ford (TN).² We also, along with Consumers Union and the California Association of Realtors, support the California credit scoring disclosure proposal, SB 1607 (State Senator Liz Figueroa) now on the desk of Governor Davis awaiting his signature.

In U.S. PIRG’s view, at a minimum, the Congress should enact a credit scoring disclosure proposal that does five things:

-- First, it should require credit reporting agencies (CRAs or credit bureaus) to provide credit scores along with credit reports at no cost whenever credit reports are currently provided by law for free.

-- Second, it should require that in other circumstances credit scores be included with other credit reports at their current cost, without additional fees.

-- Third, it should prohibit, as a matter of public policy, any unfair contractual provisions between the various parties that restrict or bind creditors, mortgage brokers or realtors from showing consumers their scores.

-- Fourth, if Congress allows bureaus to disclose a generated generic consumer score, rather than the most recent proprietary score, then the bill should include a "Truth In Credit Scoring provision" to ensure the generated score yields results similar to scores sold commercially.

-- Fifth, any law it passes should establish a floor, not a ceiling, and allow the states to continue to develop innovative approaches to giving consumers greater understanding of their credit scores and credit reports, as California has done.

Since the late 1980s, when U.S. PIRG and other consumer groups began working on amending the Fair Credit Reporting Act (FCRA), we have supported making credit scores part of credit reports. Our full platform on necessary reforms to the act to increase accuracy and privacy and reduce identity theft includes a number of other remedial measures.³ Although the act was substantially amended in 1996, more needs to be done.

Indeed, the Federal Trade Commission once proposed, although it then reneged on, the logical concept that credit scores formed part of the "nature and substance" of credit reports subject to consumer disclosure on request.⁴ The FTC, in 1992, amended its Commentary⁵ on the FCRA to require disclosure of risk scores. Following requests for clarification by the industry, the FTC published a request for comment in the Federal Register,⁶ summarizing its position:

The comment period included negotiations between industry, government and consumer groups. Some industry players even developed draft model disclosure forms with educational material explaining the scores and suggested that generic scores, rather than the most recent proprietary score developed for a client, might be easiest to make available. Yet, the bulk of the industry, which included creditors, the CRAs and the companies that develop models, resisted the change in the commentary. They argued that it would cost too much for little benefit and that trade secrets would be made available. Consumer groups vehemently disagreed.

Following the comment period, then, the FTC reversed itself, and held that credit scores were not part of credit reports and did not need to be disclosed. In 1995, the FTC issued a Federal Register notice reversing its proposal. The explanation was based on a hyper-technical legal review of the various clauses of the act’s disclosure requirements. Clearly, the Commission decided that rather than opening up credit scores for public review, it did not desire to risk losing in court if the various industry parties followed up on their threats to sue over the issue.⁷

Since that point, the use of credit risk scores in lieu of credit reports has multiplied. In the first place, credit reports are complex narrative documents difficult to review and understand. In the second, the need for speed in the marketplace has required their conversion through algorithms into a mathematical summary for comparison to a passing grade.

Instant credit, where consumers obtain credit cards in 15 minutes at a department store, would not be possible without credit scores. Nearly all of the 3 billion credit card solicitations mailed each year are derived from credit scores. Debit cards are often approved not by checking your checking account balance, but through use of credit scoring predicative models.

By far, however, the area where the use of credit risk scores and their concomitant lack of transparency has led to today’s hearing is mortgage lending. Over the years, lenders have come to rely heavily on scoring models.⁸ Realtors and mortgage brokers have become the messengers to consumers who have shone sunlight on credit scoring. When a consumer applies for a mortgage, then is told that "her FICO score is too low for the advertised rate and she will need to go to a sub-prime lender for a higher rate loan," she demands to see the score and an explanation. Gradually, a network of realtors and mortgage brokers supporting scoring disclosure has developed. In California, the unique coalition of realtors and consumer groups has put SB 1607 onto the Governor’s desk, despite continued opposition from creditors and credit bureaus.⁹

Additionally, the Internet bank E-loan has played a key role in bringing credit scoring transparency to the forefront. In the spring, E-loan attempted to provide scores obtained from its contractor credit bureaus. The service was popular. However, Fair Isaacs, the dominant developer of scoring algorithms, invoked a contractual clause prohibiting transfer of credit scores to consumers. The credit bureau Trans Union now says that it will develop its own scoring model,¹⁰ independent of Trans Union’s algorithms, and will provide a generic score to consumers when credit reports are requested. While this consumer relations effort by Trans Union is a welcome beam of sunshine, if the Congress allows disclosure of such a generated score, it should require the FTC to develop standards to ensure that the consumer score yields results substantially similar to scores generated for commercial purposes, otherwise the exercise will become meaningless. The California proposal, SB 1607, imposes such a requirement.

U.S. PIRG has long supported the use of Fair Information Practices¹¹ first developed in the early 1970s. The FIPs provide, among other things, that consumers have access to review all databases of information about them, have the right to correct errors and have assurances of security and accuracy. Disclosing credit scores is a Fair Information Practice.

As introduced by Representative Chris Cannon, the Fair Credit Full Disclosure Act makes credit scores part of credit reports, as the FTC once set out to do. Since then, consumers, realtors, the Internet banker E-loan and mortgage brokers have forced the hand of the entrenched industry players and fractured their coalition. Although banks and, disappointingly, credit unions continue their tired clamor in California that SB 1607 proposal will raise the cost of credit and that consumers will not understand their scores, and Fair Isaacs continues to insist that its trade secrets will be laid bare to the world if consumers are given the necessary information that they need to save untold billions of dollars on credit, the once-obstinate credit bureaus are relaxing their previous opposition. Nevertheless, the best solution would be for Congress to amend the Fair Credit Reporting Act to require the disclosure of credit scores, subject to our five recommendations in the summary above.

We look forward to working with you on enacting legislation to provide greater transparency in credit scoring. Thank you for the opportunity to testify today.

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1.  U.S. PIRG serves as the national lobbying office for state PIRGs. PIRGs are statewide, non-profit non-partisan groups advocating environmental, consumer, and government reform. http://www.pirg.org

4.  The full Fair Credit Reporting Act (15 USC 1681 et seq as amended) is available on the FTC website at http://www.ftc.gov/os/statutes/fcra.pdf

5. Generally, the commission does not maintain rulemaking authority over the act. It has issued commentaries, interpretations and staff opinion letters explaining its enforcement stance.