FOR RELEASE: 9:30 A.M., JUNE 6, 1991 FTC SUPPORTS MAJORITY OF CHANGES TO CREDIT REPORTING LAW: SEEKS CIVIL PENALTY ENFORCEMENT AUTHORITY Consumer complaints about credit bureaus appear to be on the rise, and inaccuracies in consumer credit records are, by far, the predominant subject of complaints related to credit reporting received by the Federal Trade Commission, according to FTC testimony before a House panel today. The accuracy of credit reports is perhaps more critical than ever given the growing use of these reports by employers in making hiring decisions, the Commission said. The Fair Credit Reporting Act (FCRA), enacted in 1971, governs the accuracy of consumer credit records and limits access to the consumer credit history and payment information found in these records. The records are compiled by "consumer reporting agencies" or "credit bureaus" which, under the Act, can make the records available to potential employers, credit grantors -- such as bank card companies, department stores, and mortgage companies -- and others with a "permissible purpose" as defined by the Act. Today's hearing of the House Banking Committee's Subcom- mittee on Consumer Affairs and Coinage was held to consider three bills that would amend FCRA. The FTC is generally supportive of most of the provisions in the bills, especially those to expand the consumer notification obligations of those who use credit reports. The agency also offered a few suggested additions. While current law requires credit bureaus to follow reason- able procedures to assure the maximum possible accuracy of the credit information they report, said Jean Noonan, who is Asso- ciate Director of the FTC's Division of Credit Practices and who testified for the FTC, no similar standards exist for those who supply the information to credit bureaus in the first place. Thus, the FTC would support a bill to create potential civil liability for credit grantors, thereby holding those who provide consumer credit information to the same standard as those who report it. - more - (FCRA Testimony--06/06/91) On the issue of prescreening -- a legal practice in which a credit grantor asks a credit bureau to provide names of people who meet specified credit criteria, and then gives those consumers a firm offer of credit -- Noonan noted that the practice has grown far more sophisticated in recent years. "Prescreening today often applies dozens of interrelated criteria" and thus, can be more invasive of consumers' privacy than before, she said. While the firm offer of credit which is necessary for this practice to be legal "seems to impose natural limits on prescreening," Noonan said, "consumers are entitled to an informed choice regarding the dissemination of information based on their personal credit files." The Commission also warned against the use of personal finan- cial information for target marketing purposes, an illegal use un- der the Commission's interpretation of FCRA. "Target marketers or, indeed, the consumer reporting industry, may well have a different view of Congress' intent, however," Noonan said, and requested additional Congressional clarification. In other areas, the FTC said it would support a provision allowing it to seek civil penalties for violations of FCRA, as it can for violations of FTC rules. "We believe that effective en- forcement of FCRA would be enhanced significantly if the Commission were able to do more than order a violator to comply with the law through a cease and desist order of prospective effect only," Noonan said. The FTC also continues to be concerned about the need for credit bureaus to share corrected information. A consumer is justified in complaining when, after having spent considerable time and energy correcting misinformation in a report at one bureau, he or she applies for credit again and finds that a different credit bureau has reported precisely the same inaccurate information, Noonan said. Requiring the source of the disputed information to inform all bureaus to which it provided such information in the first place that the information is incorrect or that it continues to be disputed by the consumer would seem an efficient approach to solving this problem, she said. She added, however, that the consumer reporting industry may suggest even more efficient approaches. Other FCRA changes proposed in the bills that the FTC would favor include provisions to require: -- users of credit reports to notify consumers in writing when information in their report leads to an adverse decision, and to tell consumers their rights under FCRA at the same time (this will help alert consumers to check their reports for inaccuracies in a timely manner -- if they do so within 30 days, there is no charge to the consumer); FCRA Testimony--06/06/91) -- credit bureaus to provide a consumer who has been turned down for credit, a job, or insurance based on his or her credit report a written copy of the report (current law requires only that the consumer be told the "nature and substance" of the report); -- credit bureaus to pass on to consumers specific identifying information about any user who has obtained access to or received a copy of their credit reports (credit reports sometimes contain only initials or abbreviations of users); and -- that reinvestigations of credit report items disputed by consumers be conducted within 30 days generally (this would simply legislate current industry practice, according to the FTC), and that credit bureaus report the results of such investigations to the consumer. On a related topic, Noonan said the FTC recommends consider- ation of the stringent approach taken by New York and Tennessee to hammer at fraudulent credit repair schemes -- that is, to prohibit these firms from collecting money from consumers until they actual- ly perform the services as promised. The statutes also require disclosures to make it clear that FCRA does not preclude the reporting of accurate adverse information until the information is obsolete. Copies of the testimony are available from the FTC's Public Reference Branch, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-326-2222; TTY 202-326-2502. # # # MEDIA CONTACT: Bonnie Jansen, Office of Public Affairs 202-326-2161 STAFF CONTACT: Jean Noonan, Division of Credit Practices 202-326-3224 (FCRATEST)