Testimony before the Committee on Financial Services Subcommittee on Finanacial
Institutions and Consumer Credit regarding
Fair Credit Reporting Act: How it Functions for Consumers and the Economy
Introduction
Mr. Chairman, Congressman Frank, and Members of the Subcommittee, the National
Consumer Law Center1 thanks you for inviting us to testify
today regarding the Fair Credit Reporting Act. We offer our testimony on behalf
of our low-income consumersclients.
The Fair Credit Reporting Act (FCRA) contains important consumer protections,
yet there is a compelling need for improvements to this law to address the harm
caused by inaccuracies and substandard reinvestigations of disputed information.
Without improvements to the FCRA that include enhanced consumer remedies and
protections, economic and emotional harm to our nation’s consumers will
continue unabated. Such harm includes denial of credit, overcharges for credit,
denial of insurance or payment of higher insurance premiums, and the denial
of employment. For these reasons we recommend that Congress amend the FCRA to
ensure that all entities within the credit reporting system, including furnishers,
are held to high standards of accuracy and are held accountable when they fail.
The Fair Credit Reporting Act is an essential part of the federal umbrella
protecting one of only two significant federal laws that protect the privacy
of American consumers and the and ensures accuracy of in the information , which
is gathered by corporations about us all. Unfortunately, because of there are
numerous loopholes, in this the FCRA law that must be closed to protect fails
to protect American consumers fully. The flaws in the FCRA must be addressed.
The credit reporting system is broken and consumers are constantly harmed by
againsts misinformation that is provided by creditors and other furnishers of
information which is and then disseminated by credit reporting agencies. One
Congressman legislator has described the adverse impact of bad credit histories
this way:, “A poor credit history is the ‘Scarlet Letter’
of 20th century America.”2 While the Fair Credit Reporting
Act (FCRA) contains important consumer protections, there is a compelling need
for improvements to address the harm caused by inaccuracies and substandard
reinvestigations of disputed information. Without improvements to the FCRA that
include, but are not limited to, enhanced consumer remedies and protections,
economic and emotional harm to our nation’s consumers will continue unabated.
Such harm includes denial of credit, overcharges for credit, denial of insurance
or payment of higher insurance premiums, and the denial of employment. For these
reasons we recommend that Congress amend the FCRA to ensure that all entities
within the credit reporting system, including furnishers, are held to high standards
of accuracy and are held accountable when they fail.
The Credit Reporting System Is Plagued With Inaccuracies
The credit reporting system has an historic and ongoingenduring problem with
inaccuracies. Indeed and concern with the high level of inaccuraciesy in credit
reports was the primary theme throughout all of the legislative debates leading
up to passage of the FCRA.3
Several studies over many years have repeatedly documented the chronic problem
of inaccuracies found in credit reports. U.S. PIRG has conducted at least six
studies between 1991 and 1998 and each time it has found an alarmingshocking
number of serious errors in consumer credit reports. US PIRG’s most recent
study in 1998 revealed the following:
Twenty-nine percent (29%) of the credit reports contained serious errors
-- false delinquencies or accounts that had never did not belonged to the
consumer -- that could result in the denial of credit;
Forty-one percent (41%) of the credit reports contained personal demographic
identifying information that was misspelled, long-outdated, belonged to a
stranger, or was otherwise incorrect;
Twenty percent (20%) of the credit reports were missing major credit, loan,
mortgage, or other consumer accounts that would demonstrate the positive creditworthiness
of the consumer;
Twenty-six percent (26%) of the credit reports contained credit accounts
that had been closed by the consumer but incorrectly remained listed as open;
Altogether, 70% of the credit reports contained either serious errors or
other mistakes of some kind.
Another analysisstudy found that almost half of the reports reviewed contained
at least one error, and many contained multiple errors.4
Yet another surveystudy found errors in 43% of the reports furnished by the
three major credit reporting agencies.5 In 2000, a Consumers
Union review of credit reports of twenty-five staffers found that more than
half of the reports contained inaccuracies.6 In a more recent
study by the Consumer Federation of America and the National Credit Reporting
Association, the problems of inaccuracies and inconsistencies continued to
plague consumer credit reports upon which credit scores were based.7
Information reported by furnishers is not always complete8
and many small retail and , mortgage companies, and some government agencies
simply never do not even report to credit reporting agencies.9
Failure to report positive information means that consumers of these furnishers
never have the opportunity to prove their creditworthiness. Other creditorsMoreover,
sometimes creditors do not report or update information on the accounts of borrowers
who consistently make payments as scheduled, yet report negative information.
Often and credit limits established on revolving accounts are sometimes not
reported, which in some cases has the effect of making consumers appear to be
less credit worthy than they really are... In other instancescases, creditors
may not notify the credit reporting agency when an account is closed or has
undergoes other material changes.10
Evidence of high error rates in the credit reporting system is also found in
the complaints received by the Federal Trade Commission regarding credit reports.
For many years consumer complaints about credit reports have ranked at the top
of all for complaints submitted to the FTC for any reason. Identity theft, which
also can involves creditors or furnishers of credit information and credit reporting
agencies, is now at the top of all fraud complaints received by the FTC. The
FTC reported to Congress that as of March, 2002, the FTC received approximately
3000 calls per week to their toll- free identity theft hotline.11
Identity theft is the number one complaint to the FTC. Approximately 43% of
all complaints received by the FTC in all subjects are identity theft related.12
These statistics and studies and reports clearly demonstrate that the credit
reporting system is broken and in need of a fix that includes heightened standards
for accuracy and accountability within the nation’s credit reporting system.
Most importantly furnishers must be provided with economic incentives to provide
accurate information about consumers. Without such improvements, American consumers
like those described below will continue to be harmed and suffer serious adverse
financial and emotional consequences that flowing fromflowing from the modern
our financial version of the “Scarlet Lletter.”
Consumers Are Harmed By Inaccuracies And Errors In Our Broken Credit Reporting
System
Statistics of inaccuracies tell only a part of the story. The harm caused to
consumers is real and devastating to those who, through no fault of their own,
are victims of credit reporting falsehoods. Just this month, the Hartford Courant
documented the harm and difficulties six consumers faced when inaccurate information
wais contained placed in their credit reports.13 Consumers,
who are victims of credit reporting errors, can be cut off from student loans
and lose educational opportunities,14 pay higher finance charges,15
and face difficulties obtaining home financing.16
Anecdotal stories of errors illustrate the human costs of credit errors, but
because they are stories of individuals they should not be considered to be
isolated instances of a minor problem. These stories are typical of the thousands
of daily errors in credit reports can including inaccurate reports of bankruptcies,17
reports of overpayments and non-payments, and, and reports of theft or other
crimes. In one case, a check cashing services agency that provides businesses
with check security services erroneously reported that a consumer was part of
“fraud ring.” This report led to the arrest of the consumer and
his friend who was waiting in a car while the consumer tried to cash a check.
Although a day later, the check cashing services firm learned that its information
was inaccurate, however the person arrested while waiting in the car spent ninety
days behind bars before the charges were dismissed.18 In another
case, a consumer had a bankruptcy listed on his credit report, even though he
had never filed for bankruptcy. The bankruptcy was instead filed by his business
associate, but listed on the consumer’s report even though the consumer
continued to pay the underlying debt.19 In another example,
a consumer received a nonrenewal notice from her insurer and learned that her
insurer erroneously reported that she had made four fire claims and an “extended
loss” claim over a short period of time. The consumer actually had only
made prior claims relating to hail damage to her home, as well as a claim relating
to her leaky washing machine. The false claims information remained on the consumer’s
report for over a year, even after the consumer filed suit, resulting in emotional
harm and forcing her to pay higher insurance rates.20 These
are just a few examples of the harm and problems associated with flaws in the
current credit reporting system.
Furnishers (Creditors) Have No Incentives To Provide Truthful Information
Credit bureau subscribers, for examplee.g., department stores, banks, insurance
companies and utilities, make reports to the credit reporting agencies bureaus
of which they are members and include information about whether consumers are
current or late with their accounts or, if not, whether a consumer is late with
on a payments (30, 60, 90 days or more). The subscribers y also state what the
balance is on a consumer’s account and what the amount of minimum monthly
payment is. However, Wwhen they incorrect information is reported information
to credit reporting agencies incorrectly, that inaccurate information it will
be entered into a consumer’s credit report incorrectly as well. Although
credit reporting agencies have a duty to ensure “maximum possible accuracy”
under the Actgreater accuracy, they rely heavily upon creditors and other furnishers
of information.
Under the FCRA, consumers have very only limited remedies to pursue against
furnishers of inaccurate information. The FCRA does establishes minimum standards
of accuracy for furnishers. The problem is that , however consumers have no
private method of cannot enforcinge violations of such standards. privately.21
The only privately enforceable rights against furnishers of information are
those relating to the reinvestigation which the creditor or furnisher is required
must to perform after a consumer requests that a credit reporting agency reinvestigate.22
The reinvestigation process, intended by Congress to protect consumers from
inaccurate information, exists in name only. Instead it has become simply verification
process, not a reinvestigation process. I and it is highly doubtful thatwhether
the the process used by credit bureaus and furnishers is the reinvestigation
process which was envisioned by Congress when the 1996 Amendments were enacted.
Instead it has become a verification process, not a reinvestigation process.
The evidence, in reported cases and in case testimony by employees of the credit
industry, shows that routine violations of the reinvestigation requirements
are routine.23 Credit reporting agencies (CRA) and furnishers
bypass the requirements of checking original documents to determine the accuracy
of disputed accounts. This is despite the FTC opinion so, even though the FTC
has opined in a consent decree that furnishers they are required to check the
original documents when reinvestigating a debt must do so.24
Instead, credit bureaus simply punch in codes or numbers that verify inaccurate
information, without any real investigation or checking of documents.
Moreover, case testimony indicates suggests that the CRA employees who are
responsible for conducting investigations have time restrictions to investigate
and send the dispute onto the creditor or furnisher. One credit reporting agency
employee has testified that her agency TU receives between five to eight thousand
consumer credit disputes per day and employees must handle one dispute every
four minutes in order to meet quotas.25 This demonstrates
that the credit reporting agencies have no economic incentives to ensure accuracy
– instead the incentive is simply to go through the motions of an investigation
process. The current structure of the FCRA protects the agency and the furnisher
who engage in a process, regardless of whether the process yields real results
in ensuring accuracy.
Furnishers are not subject to litigation for providing incorrect information
and there is no federal liability for failing to provide truthful information,
or even for providing blatantly false information. Furthermore, so long as the
mistakes about consumers generally make the consumers appear to be a worse credit
risk than they really are, rather than better, the credit industry has no incentive
to improve the system, especially where the current system covers additional
risk by charging more for riskier borrowers wrongly identified as being a greater
risk by the credit reporting system.
Preemption Has Removed Important State Common Law Claims For Consumers And
Hurts Creditors Who Maintain High Rates of Credit Reporting Accuracy
Furnishers are also protected from state common law and other claims because
of preemption. Except in the context of a dispute and reinvestigation initiated
with and by the credit onsumer reporting agency, consumers have to turn to legal
theories outside the FCRA to establish liability of a creditor or other party
furnishing inaccurate information to a reporting agency. However, claims for
negligence, invasion of privacy and defamation are preempted unless done with
malice can be proven.26 Without preemption of state claims
consumers could pursue claims against furnishers for (a) unfair practices (Conduct
is unfair when it offends public policy, is immoral, unethical, oppressive or
unscrupulous, or it causes substantial injury to consumers,27.
(FN – See UDAP manual), where it “causes or is likely to cause substantial
injury to consumers which is not reasonably avoidable by the consumers themselves
and not outweighed by countervailing benefits to consumers or to competition.”)28,
(b) deceptive practices (actual deception is not necessary; deceptive practices
include affirmative misrepresentations and failure to disclose material information),29,
(c) defamation and (d) infliction of emotional distress. What about defamation??
In light of the preemption of state common law claims, except where there is
malice, and the limitation to claims for reinvestigations under federal law,
there is no incentive – litigation risk or credit risk –- for furnishers
to provide truthful information to credit reporting agencies. For furnishers
it is cheaper and easier to be sloppy. This creates a dynamic in the credit
marketplace that favors, which favors the creditor/furnisher operating the sloppiest
credit reporting system, as there is no economic incentive for the furnisher
to spend money to make the reporting accurate. Indeed the consumer is wrongly
charged a higher rate to access credit. This not only hurts consumers economically
and emotionally, as previously described, it unfairly and adversely affects
those creditors and furnishers who strive for accuracy. For those who seek strive
for greater accuracy, as envisioned by Congress when enacting the FCRA, the
extra money spent they are spending to maintain high accuracy standards is not
rewarded by the marketplace.
Changes to the The Credit Reporting System Are Needed To Protect Consumers
And The Marketplace
Now is the time to correct the deficiencies in the credit reporting system.
State laws should be allowed to apply so that the risk of litigation, including
state claims, provides the appropriate incentive to maintain high accuracy standards
and provide truthful credit information. Higher accuracy standards and clear
accountability for violating such standards ensure that consumers are protected
and that the marketplace, including those who use such credit information for
whenuse in making decisions on credit, insurance, and employment, can rely upon
the information. and that risks associated with such decisions will be reduced.
Consumers Should Have The Right To Obtain Equitable And Declaratory Relief
to Correct False Information.
Businesses who furnish information to the credit reporting agencies should
be liable to consumers for providing false or inaccurate information, especially
when done done after notification that the information is inaccurate.willfully.
Reporting agencies rely unquestioningly on the information furnished by creditors
and others. Yet, the Act currently protects creditors from all liability for
furnishing inaccurate information -- even if the consumer has repeatedly informed
the creditor of errors, or the information is blatantly wrong, or even if or
the information is furnished spitefully.30 With one minor
exception, 31 the FCRA does not even explicitly provide for
injunctive relief in actions by private parties.
One circuit court and several district courts have held that courts do not
have the power to issue an injunction under the FCRA32, despite
the Supreme Court decision in Califano v. Yamasaki33,
which provides that “[a]bsent the clearest command to the contrary from
Congress, federal courts retain their equitable power to issue injunctions in
suits over which they have jurisdiction.” Providing courts with explicit
authority to issue injunctive relief would further the purpose of the FCRA to
“assure maximum possible accuracy.” Courts should be granted the
explicit authority to order credit reporting agencies and furnishers to delete
inaccurate information and cease issuing reports that contain such inaccuracies.
This could easily be accomplished by granting consumers the ability to seek
injunctive and declaratory relief for initial reporting errors by furnishers
of credit information. Judicial efficiency would also be served since consumers
would not be compelled to file multiple suits when credit reporting agencies
repeatedly include inaccuracies or fail to comply with the FCRA’s requirements.
Injunctive relief would further limit the need for class actions. Finally, it
would provide relief to consumers who have not yet been harmed by the inaccurate
information due to a denial of credit or other actual damages, but who still
had inaccurate wrong credit information associated with their names.
We propose that consumers be granted the right to correct inaccuracies by obtaining
injunctive and declaratory relief against furnishers for the errors that furnishers
transmit to credit reporting agencies. In this initial process consumers seeking
injunctive and declaratory relief would not be entitled to monetary damages,
only attorney’s fees should they be successful in obtaining injunctive
or declaratory relief.
The ability to obtain injunctive and declaratory relief to correct inaccurate
information provided by furnishers can be accomplished by removing the prohibition
against private actions to enforce §1681s-2(a) of the FCRA. That limitation
is now found in §1681s-2(b)(4)(c) of the FCRA. The FCRA only allows state
and federal officials to enforce accuracy requirements against furnishers. An
appropriate amendment would remove these limitations and enable consumers to
seek only declaratory and equitable relief against those who furnish inaccurate
information.
Statutory Damages for Furnishers’ Failure To Correct Inaccurate Information
After Notice
For instances when a furnisher continues to report inaccurate information,
after being placed on notice of the inaccurate information and the consumer’s
dispute of such information, we propose that a consumer be afforded the opportunity
to seek statutory damages, in addition to declaratory and injunctive relief.
This proposal would serve the dual purpose of providing incentives to maintain
high accuracy standards for consumers and, at the same time, empower consumers
with the ability to obtain immediate and effective relief from harm caused by
inaccurate reports.
The ability to obtain injunctive and declaratory relief to correct inaccurate
information provided by furnishers can be accomplished by removing the prohibition
against private actions to enforce §1681(a). That limitation is now found
in §1681s-2(b)(4)(c) of the FCRA. The FCRA also limits enforcement of accuracy
requirements under subsection (a) of § 1681s-2 to state and federal officials.
34 An appropriate amendment would remove these limitations
and enable consumers to seek declaratory and equitable relief, for negligently
furnishing inaccurate information.
Other Recommendations to Ensure Accuracy And Increase Accountability
Clearly the most important economic incentive for furnishers and credit reporting
agencies to maintain high accuracy standards is private litigation. However,
we also believe that other improvements to the FCRA are necessary to ensure
accuracy and accountability in our credit reporting system. Such improvements
would include the following: for furnishers include:
Requiring furnishers to conduct a “reasonable” investigation
and not simply verify information;
Requiring furnishers to comply with the same modification and deletion requirements
as those applicable to credit reporting agencies after there has been an investigation
of disputed information;
Requiring credit reporting agencies to notify furnishers anytime information
is deleted from a consumer’s file; and.
Requiring credit reporting agencies and furnishers to maintain data for
a period of five years, including anything sent to creditors or others who
use credit reports.
Conclusion
NCLC has over 30 years of experience working on behalf of consumers in several
areas of financial and credit services. We have seen the exponential growth
of the availability of credit and personal information about consumers and we
are familiar with the shortcomings of our current credit reporting system to
ensure high rates of accuracy in credit reports. Our current law has not kept
pace with the growth of the marketing of consumer credit information. As a result,
consumers bear the burden, financially and emotionally, of responding to and
attempting to correct the misinformation that furnishers and others in the credit
reporting system disseminate. We offer to the subcommittee our expertise and
access to attorneys in legal services, private practice and governmental agencies
to improve the FCRA and correct this injustice within our credit reporting system.
Thank you for this opportunity to testify today.
June 4, 2003
Testimony written and presented by:
Anthony Rodriguez
Staff Attorney
National Consumer Law Center
1629 K Street, N.W., Suite 600
Washington, D.C. 20006
(202) 986-6060
arodriguez@nclcdc.org
1 The National Consumer Law Center is a nonprofit organization
specializing in consumer credit issues on behalf of low-income people. We work
with thousands of legal services, government and private attorneys around the
country, representing low-income and elderly individuals, who request our assistance
with the analysis of credit transactions to determine appropriate claims and
defenses their clients might have. As a result of our daily contact with these
practicing attorneys, we have seen numerous examples of invasions of privacy,
embarrassment, loss of credit opportunity, employment and other harms that have
hurt individual consumers as the result of violations of the Fair Credit Reporting
Act. It is from this vantage point--many years of dealing with the abusive transactions
thrust upon the less sophisticated and less powerful in our communities--that
we supply this testimony today. Fair Credit Reporting (5th ed. 2002) is one
of twelve practice treatises, which NCLC publishes and annually supplements.
These books, as well as our newsletter, NCLC Reports: Consumer Credit &
Usury Ed., describes the federal and state law currently protecting all types
of consumer loan transactions.
2 136 Cong. Rec. H5325-02 (daily ed. July 23, 1990) (statement
of Rep. Annunzio), cited in FTC v. Gill, 265 F. 3d 944, 947 (9th Cir. 2001).
3 “[T}he increasing volume of complaints makes it clear
that some regulations are vitally necessary to insure that higher standards
are observed with respect to the information in the files of commercial credit
bureaus. I cite what I consider to be the three most important criteria for
judging the quality of these standards. They are first, confidentiality; second,
accuracy; and third, currency of information.” Statement of Sen. Proxmire,
114 Cong. Rec. 24903 (1968).
4 Consumers Union, What Are They Saying About Me? The Results
of a Review of 161 Credit Reports from the Three Major Credit Bureaus, April
29, 1991.
5 Jan Lewis, Credit Reporting: Paying for Others’ Mistakes,
Trial 90 (Jan. 1992) (describing a 1998 study done by Consolidated Information
Services that reviewed 1500 reports from Equifax, Trans Union and TRW).
6 Credit Reports: How Do Potential Lenders See You?, Consumer
Rep. July, 2000.
7 See Credit Score Accuracy and Implications for Consumers,”
Consumer Federation of America and the National Credit Reporting Association,
December 17, 2002.
8 Id.
9 See An Overview of Consumer Data and Credit Reporting, U.S.
Treasury (2003)
10 Id.
11 Identify Theft: theTheft: The FTC’s Response: Before
the Subcommittee on Technology, Terrorism and Govt. Info. of the Senate Judiciary
Comm. (March 20, 2002)
12 A PA positive Agenda For Consumers: The FTC Year In Review
(April, 2003)
13 See Kenneth R. Gosselin and Matthew Kauffman, , A Credit
Trap for Consumers, Hartford Courant (May 11, 2003).
14 Id.
15 See Credit Score Accuracy and Implications for Consumers,”
Consumer Federation of America and the National Credit Reporting Association,
December 17, 2002.
16 Id.
17 See Nelson v. Chase Manhattan Mortgage Corp., 282 F. 3d
1057 (9th Cir. 2002).
18 Haque v. Comp U.S.A., Inc. 2003 WL 117986 (D. Mass. Jan.
13, 2003).
19 Nelson v. Chase Manhattan Mortgage, Corp., 282 F. 3d 1057
(9th Cir. 2002).
20 Boris v. Choicepoint Services, Inc., 249 F. Supp. 2d 851
(W.D. Ky 2003).
21 15 U.S.C. § 1681s-2 (c) & (d) (enforcement limited
to the FTC and state attorneys general).
22 15 U.S.C. § 1681-2(b); See Bruce v. First U.S.A Bank,
National Association, 103 F. Supp. 2d 1135 (E.D. Mich.).
23 Deposition of Regina Sorenson, Fleischer v. Trans Union,
Civ. Action No. 02-71301 (E.D. Mich. Jan. 9, 2003). (Cite)
24 U.S. v. Capital Management, (Bankr. C.D. Cal. Aug. 24, 2000)
(consent decree).(Cite to FTC Letter)
25 Deposition of Regina Sorenson, Fleischer v. Trans Union,
Civ. Action No. 02-71301 (E.D. Mich. Jan. 9, 2003).
26 See 15 U.S.C. § 1681h(e) ____.
27 FTC v. Sperry & Hutchinson Co., 405 U.S. 322 (1972);
See National Consumer Law Center: Unfair and Deceptive Acts and Practices (5th
ed. 2001 and Supp.).
28 15 U.S.C. § 45(n).
29 See FTC V. Colgate-Palmolive Co., 380 U.S. 374 (1965); FTC
v. Gill, 71 F. Supp. 2d 1030 (C.D. Cal. 1999); See National Consumer Law Center:
Unfair and Deceptive Acts and Practices (5th ed. 2001 and Supp.).
30 See generally, 15 U.S. § 1681s-2, FCRA §623.
31 15 U.S.C. § 1681u(m), relating to FBI counter-intelligence
purposes.
32 See Washington v. CSC Credit Services, 199 F. 3d 263 (5th
Cir.), cert. denied, 530 U.S. 1261 (2000); Ditty v. Checkrite, Ltd., Inc. 973
F. Supp. 1320 (D. Utah 1999); Mangio v. Equifax, Inc. 887 F. Supp. 283 (S.D.
Fla. 1995); Kekich v. Travelers Indemnity Co., 64 F.R.D. 600 (W.D. Pa. 1974).
Compare Califano v. Yamasaki, 442 U.S. 682 (1979) which provides that “[a]bsent
the clearest command to the contrary from Congress, federal courts retain their
equitable power to issue injunctions in suits over which they have jurisdiction.”
33 442 U.S. 682 (1979)
34 § 1681s-2(b)(4)(d) limits enforcement of § 1681s-2
(a) to FTC and state enforcement agencies.
and NCLC