STATEMENT OF SENATOR CHRISTOPHER J. DODD Senator DODD. Thank you, Mr. Chairman. I ask that my prepared statement be included in the record. Chairman SHELBY. Without objection, it is so ordered. Senator DODD. I think most of the comments that I would make have been included, just striking the balance. Thank you, Mr. Chairman, for holding this hearing. It is extremely important. All of us as we travel around, no matter where we go, the issue comes up about whether or not we are going to reauthorize the FCRA, when we are going to do it, and what is it going to look like. I think these hearings are tremendously helpful, and I want to commend you. We have already listened to a lot of people and we are going to hear from some wonderful witnesses today who will share with us their views and thoughts on this very important subject, and that is tremendously worthwhile. As we move into an economy that requires some straightening out, credit is going to be even more important in terms of getting back on its feet again. So having a level of confidence that people will need is going to be essential. I appreciate my colleague from Wyoming mentioning Captain Harrison, my constituent from Connecticut, who gave eloquent testimony. His is certainly an incredible case. What he has been through is just stunning to identity theft issues. We know this may be an extreme case, but I think most people recognize that it probably occurs far more often than we all like to admit, even though studies may vary about the percentage of incidences. I just want to end on the note that the Treasury Department is moving in the right direction, and I want to commend them. I spend a lot of time saying what I think the Treasury Department is doing wrong, but in this case, I think the Treasury Department deserves some credit for its recent recommendations dealing with consumer protections. For example, it is right, I think, to suggest that consumers should have the right to free copies of their credit reports and credit scores so that they can identify the problems for themselves. Obviously, you can solve a lot of problems if you can have a chance to look at your own stuff and think something is wrong. That would seem to be helpful and positive, and I commend them for it. I also agree that we need to strengthen the protections against fraud, identity theft, and the like that they have made recommendations on. So, I am anxious to hear what other thoughts can be offered to us as we try and fashion this legislation. I think what Senator Carper said makes a lot of sense. Those are pretty good standards by which to judge how we are progressing here. There is the realization you are not going to have a perfect system, and any hopes of achieving that should be put aside immediately. But today with our technology and sophistication, we can do a better job all the time in guaranteeing that, to the extent possible, the consumers are being protected by accuracy of information that determines whether or not they are creditworthy. Again, Mr. Chairman, I thank you for your efforts. STATEMENT OF SENATOR MIKE CRAPO Senator CRAPO. Thank you, Mr. Chairman. As Senator Dodd indicated, most of-in fact, all of my thoughts have been very well stated by other Members of the Committee, so I will be brief. I want to thank you for not only this hearing, but the series of hearings that you are holding on this legislation because I think they have helped us to focus very well on the issues at hand. I have said before that I think our primary obligation here as we approach this legislation is to make certain that we protect the credit reporting system that we have in the United States today, which is the envy of the world and is the backbone and a strong part of our economy. In fact, I think the statistics I have seen indicate that something like three-fourths of all American households are involved in some way with the credit system in this country, and that frankly to me sounds like it might be a little bit low, either in the mortgage credit system or in the consumer loan system. As I approach this, we have already had hearings on identity theft and a number of other issues that directly relate to the issues we have before us here today. But it seems to me that we want to make sure that the information that we are dealing with in our credit reporting system is complete, that it is accurate, that it is accessible by consumers, that it is understandable by consumers so that those who are dealing with their own credit informationwhether it is in the context of identity theft or just in terms of a report that they are getting in terms of a credit transaction or just in terms of checking their credit rating-that they understand what it is that they are dealing with, and that it is fixable when errors occur. So that when a consumer finds that there has been a problem, whether it is a minor problem like Senator Bennett has identified or a major problem like an identity theft problem, or simply poor reporting or poor standards or poor procedures by the reporting agency, that it is fixable. And I think that means we might need to look at modernizing our dispute resolution process and some of the other ways that we address these issues. Finally, I think we need to make sure that the adequate protections are in place to assure that we do not have identity theft or fraud or inappropriate reporting mechanisms and that the entire industry, including the consumers, understand how the system works and are able to work with it easily. So, again, Mr. Chairman, I thank you for holding these hearings, and I look forward to working with you as we craft this legislation. Chairman SHELBY. Thank you, Senator Crapo. Senator Stabenow. STATEMENT OF SENATOR DEBBIE STABENOW Senator STABENOW. Thank you, Mr. Chairman. I have a complete statement that I would ask to have placed into the record. Chairman SHELBY. Without objection, it is so ordered. It will be in the record. Senator STABENOW. Thank you. Just a couple of comments. First, welcome, Mr. Chairman. We appreciate your being here and your work, and I would share the same concerns my colleagues have and as Senator Crapo just indicated in terms of what this is all about: accuracy of information for consumers, the ability to maintain a system that is the envy of the world. And we certainly want to extend, I believe, not only the existing provisions of the Act in a timely manner, but we also need to use this opportunity to look for ways to improve areas where there may be problems and concerns. So, I welcome your thoughts on that today. This is really our opportunity to do that. And when there is a problem for consumers, we want to make sure that it can be addressed quickly, that there is a way for us to remedy problems with our own credit reports or others that we represent. Mr. Chairman, I did just want to also mention on another front that one of the best ways, I think, in the long run that we can help on these issues is through making sure that we all have the education and financial literacy that we need in order to be educated, active consumers. Senator Enzi and I are working together on some legislation that we hope to bring to you and work with the Committee on. I know Senator Corzine is working on this issue, and other Members of the Committee. But I think it is important that provisions that move us forward on financial literacy are also a part of what we are doing in making sure that we are all educated consumers in using information in order to protect our own interests and our own financial situation. Thank you, Mr. Chairman. Chairman SHELBY. Senator Allard. STATEMENT OF SENATOR WAYNE ALLARD Senator ALLARD. Mr. Chairman, thank you. I have a full statement I would like to make a part of the record. Chairman SHELBY. It will be made part of the record. Senator ALLARD. I want to just make a couple of brief comments. First of all, I would like to associate myself with the comments of the Senator from Idaho, but I would add a couple of things. We are all human, and errors do occur. I think when errors do get into a credit report, we need to find ways that those errors can be expeditiously purged from the public record. So often an error is recorded by one group but it gets dispersed throughout the entire system. Other systems record this error and, it reemerges again. I hope that some time and thought is given to recorded errors. I also hope we can look at how that error can be readily purged so the consumer gets that mistake eliminated from the record and is able to move on with their own personal lives and investments. The second comment I would make is that earlier this week, Senator Schumer and I drew up a piece of legislation on disclosure of credit scores. I think full transparency of credit scores is important so that the consumer-if there is something impacting their credit, can respond to it. There are things that go into a credit score that, frankly, when I found out about them, I was surprised. I think a lot of consumers are unaware of the factors that make up their credit score. For example, if a customer is informed that their interest rate is higher than ordinary; or they get turned down, they do not know how to take the necessary steps to make themselves qualify again for a lower interest rate or a loan. These are two additional comments I wanted to make, and thank you, Mr. Chairman. Chairman SHELBY. Senator Corzine. COMMENTS OF SENATOR JON S. CORZINE Senator CORZINE. Thank you, Mr. Chairman. I want to congratulate you on the thoughtful way of approaching this overall issue. I think it is important that it get fleshed out in its fullness. I think we all recognize how important this is to each individual life. I think about two-thirds of our economy is driven by consumer activities. It even rises at certain points in time. And this is an enormous area of concern, and when you have the range of variables that Senator Bennett talked about of errors, I think we should understand how much that actually translates into individual life experience. I think the only other comment I would make-and I hear this over and over. This is an interconnected element of activity. Accuracy ties to identity theft, which ties to financial literacy, which ties to credit scores. And we should be thinking about this in a comprehensive way as opposed to piecemeal. And I think like many other Senators, I have pieces of this with respect to financial literacy, and with respect to questions on identity theft. Frankly, I think there is a need for this to be brought together in a comprehensive format so that we aid the consumer on a complete basis. Thank you. Chairman SHELBY. I appreciate your remarks. STATEMENT OF SENATOR CHARLES E. SCHUMER Senator SCHUMER. Thank you, Mr. Chairman. Again, I want to add my kudos to you and Ranking Member Sarbanes for the careful, thoughtful, and thorough way these hearings are being conducted on one of the most important pieces of legislation that will be before us, the FCRA. I think of all the hearings we have had, this one may be the most important, at least in terms of its impact on the average person's life, and that is the accuracy of the information in his or her credit report. Our laws and principles make it clear that the reporting agencies have a responsibility to maintain accurate information. And on top of this obligation, there is the pressure of the market. Companies want accurate information. They do not want it to be too high or too low. It does not lead to their best economic interest. But as Senator Allard mentioned, there is an additional check and balance that we must have in the system. Consumers should have a right to review their credit information and the right to have that information corrected when it needs to be. After all, they have the most at stake from inaccurate information, and we have found that in our financial systems, when there is transparency, the opportunity for abuse is lower. And that is why Senator Allard and I introduced this week legislation that will provide our national credit system with more transparency. Our bill is called S. 1370, the Consumer Credit Score Disclosure Act of 2003. Hopefully we can add it to FCRA at some point and not move it along separately. But whatever the Chairman would please-I think I speak for Wayne, as well-would be fine with us. Let me just give my colleagues a little bit of detail about this, and I will be quick. Right now, people get a credit report, and it is a complex formula, but it is the credit score that matters most. The score determines whether a loan is made and at what rate. Often, people only know the number of their score. They do not know the factors that went into the number, how different information in their credit report was weighed. It is like a black box. And the stakes are very high here. Nearly 80 percent of all mortgage lending decisions now use credit scores. Specifically, lenders use the score to determine whether to extend a loan to an applicant and to make pricing decisions regarding the terms of the loan. For most families, we all know buying a home is the biggest financial move they make. Credit score, the principal factor in determining the creditworthiness and loan terms, is shrouded in mystery, and the simple purpose of our legislation is to lift the veil of secrecy. There is a huge difference. Let me take an example, a modest Syracuse mortgage of $80,000. If you shave three points from that loan, it would save the homeowner about $140 a month, $1,600 a year. And so if the credit score is wrong, people pay for 15, 20, or 30 years, depending on the term of their mortgage. And up until this year, even the outline of how these scores, mysterious scores, have been determined was kept a secret. In fact, most consumers, for instance, have no idea that having a whole lot of credit cards, even if you pay every one on time, lowers your credit score. Well, if consumers knew this was part of the credit score, they could make a decision whether they wanted to have that fifth, seventh, or tenth credit card. So things are beginning to move into the right direction. ELOAN, one company, is offering a free Web-based service that allows real estate agents, bankers, and consumers to instantly determine the credit rating. But we think this should be available for everybody. And I hope that our colleagues will pay some attention to this legislation as we move it along. It requires lenders to supply consumers with their credit score and an invoice that describes how it was calculated, the source of who calculated the score, and the four factors negatively affecting the score. It is simple Adam Smith free market disclosure, and it is something we would like to discuss, Senator Allard, and I would like to discuss as we move this bill along. Thank you. Chairman SHELBY. Thank you, Senator Schumer. Our first panel will just be one gentleman. Mr. Timothy Muris, he is the Chairman of the Federal Trade Commission. We welcome you to the Committee. We appreciate your indulgence through our opening statements. Your written statement will be made part of the record in its entirety, without objection. You may proceed as you wish. STATEMENT OF TIMOTHY J. MURIS CHAIRMAN, U.S. FEDERAL TRADE COMMISSION Chairman MURIS. Thank you very much, Mr. Chairman. I want to thank you for holding this important hearing, and I particularly want to thank you and your staff for working so closely with us. I know, as has been mentioned, the Director of the FTC's Bureau of Consumer Protection, Howard Beales has testified before the |