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FAIR CREDIT REPORTING ACT

(Current as of March 2003)

THE ISSUE IS: Reauthorization of the Fair Credit Reporting Act (FCRA) and retention of the provisions that provide efficiencies for legitimate businesses and important protections and cost-savings for consumers.

IT'S IMPORTANT BECAUSE: Congress enacted the FCRA in 1970 to establish rights for consumers regarding the privacy and accuracy of their financial information. The FCRA sets forth regulations for credit reporting agencies, parties who provide information to credit reporting agencies and users of credit reports. Only organizations with a legitimate businesses need as defined in the FCRA can gain access to individuals' files maintained by credit reporting agencies. Examples of these organizations include creditors, government agencies, mortgage companies, insurers, landlords and some businesses. Under the 1996 FCRA amendments, employers and prospective employers may only access credit information with approval of the individual. The FCRA also provides several important protections for consumers including the right to be notified if the information in their files is used against them, the right to access credit files and dispute inaccurate information and the right to remove their names from credit reporting agency lists used for unsolicited credit and insurance offers. In addition, many states have relied on the FCRA in developing their privacy regulations mandated by the Gramm-Leach-Bliley Act.

It important for Congress to reauthorize the FCRA in 2003. The 1996 FCRA amendments established several provisions to create national uniformity for certain aspects of the credit reporting process, and these provisions are set to expire on January 1, 2004. The protections established in both the original FCRA and the 1996 amendments have been beneficial to consumers, businesses and the economy as a whole.

Under current law, states cannot restrict prescreening activities involving the use of credit reports for insurance or credit transactions that are not initiated by the consumer. Companies are able to use the information to send firm offers of products and services to groups of eligible consumers, often at reduced costs for the recipients. Consumer reporting agencies must provide consumers who do not wish to receive these offers the opportunity to opt-out.

Another provision of the FCRA allows companies such as insurers to share information with their affiliates. For example, insurer affiliates can share transactional or experience information among themselves without restriction. This includes information necessary to conduct business such as claims history and bill payment records. When not related to a necessary insurance transaction, the company/affiliate must give an individual the opportunity to opt-out before sharing other information with affiliates. Examples of "other information" include any information relating to a consumer's credit worthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living.

In addition, the information contained in credit reports is standard throughout the nation, and states are prohibited from placing additional regulations on this information. This is critical for both businesses in order to access all of the relevant information in an efficient manner and for consumers, who can easily access their information in a clear, understandable format from the three national credit bureaus. If States were allowed to alter FCRA information requirements, it could create many other credit reporting agencies and consumers would have a much more difficult time correcting inaccuracies.

In a February hearing before the House Financial Services Committee, Federal Reserve Board Chairman Alan Greenspan emphasized the importance of reauthorizing the FCRA. He said, "These data systems are.essential, in my opinion, to enable consumers to have access to credit." He added that the current credit system "has had a dramatic impact on consumers, households, and for access to credit across the country at reasonable rates."

On June 26, 2003, Chairman of the House Financial Institutions and Consumer Credit Subcommittee Spencer Bachus, R-Ala. and 32 bipartisan cosponsors introduced H.R. 2622, the Fair and Accurate Credit Transactions Act. The House Financial Services Committee approved the bill on July 25 by a vote of 61-3. This legislation would permanently extend all of the existing FCRA preemptions and establish additional protections for consumers to address the problem of identity theft. The full House is expected to consider H.R. 2622 in September.

The Senate Banking Committee has completed a series of hearings on the FCRA, and Chairman Richard Shelby, R-Ala., is expected to introduce his legislation to reauthorize the act within the next several weeks.

NAMIC POSITION: NAMIC supports a clean reauthorization of the FCRA. In its current form, the FCRA achieves the important objectives of facilitating access to necessary information to conduct business and protecting the privacy and accuracy of consumer information. An important goal of the FCRA is to quickly restore the credit rating of people who have had their identity stolen and good credit ruined. The provisions of the FCRA help law enforcement officials to quickly contact a victim's creditors and discover all of the ways that person's financial privacy has been violated. Also, a uniform consumer information system helps insurers investigate and mitigate fraud.

The current prescreening rules are efficient for both consumers and businesses as the amount of "junk" mail both sent and received is reduced, and consumers have the rights both to receive firm offers and to remove their names from lists. The affiliate sharing rules, particularly those involving the exchange of experience data in order to complete necessary transactions, are critical. If companies faced restrictions in sharing experience information among affiliates, transactions would take much more time and be more expensive for all involved. It is also extremely important to have one set of regulations governing the information contained in credit reports. If States are allowed to enact legislation altering FCRA requirements regarding the content of consumer reports, it could cause many serious problems for businesses, consumers and reporting companies.

In its current form, the FCRA has achieved an appropriate balance between the needs of business and the rights of consumers. It has also been an important factor in extending access to credit for consumers, allowing them to purchase homes, automobiles and many other products and services. NAMIC believes that Congress should extend the current provisions of the FCRA, which have benefited not only businesses and consumers, but the economy as a whole.