[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]

EXAMINING THE USES OF
CONSUMER CREDIT DATA

=======================================================================

HEARING

BEFORE THE

SUBCOMMITTEE ON FINANCIAL INSTITUTIONS

AND CONSUMER CREDIT

OF THE

COMMITTEE ON FINANCIAL SERVICES

U.S. HOUSE OF REPRESENTATIVES

ONE HUNDRED TWELFTH CONGRESS

SECOND SESSION

__________

SEPTEMBER 13, 2012

__________

Printed for the use of the Committee on Financial Services

Serial No. 112-157

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HOUSE COMMITTEE ON FINANCIAL SERVICES

SPENCER BACHUS, Alabama, Chairman

JEB HENSARLING, Texas, Vice BARNEY FRANK, Massachusetts,
Chairman Ranking Member
PETER T. KING, New York MAXINE WATERS, California
EDWARD R. ROYCE, California CAROLYN B. MALONEY, New York
FRANK D. LUCAS, Oklahoma LUIS V. GUTIERREZ, Illinois
RON PAUL, Texas NYDIA M. VELAZQUEZ, New York
DONALD A. MANZULLO, Illinois MELVIN L. WATT, North Carolina
WALTER B. JONES, North Carolina GARY L. ACKERMAN, New York
JUDY BIGGERT, Illinois BRAD SHERMAN, California
GARY G. MILLER, California GREGORY W. MEEKS, New York
SHELLEY MOORE CAPITO, West Virginia MICHAEL E. CAPUANO, Massachusetts
SCOTT GARRETT, New Jersey RUBEN HINOJOSA, Texas
RANDY NEUGEBAUER, Texas WM. LACY CLAY, Missouri
PATRICK T. McHENRY, North Carolina CAROLYN McCARTHY, New York
JOHN CAMPBELL, California JOE BACA, California
MICHELE BACHMANN, Minnesota STEPHEN F. LYNCH, Massachusetts
KEVIN McCARTHY, California BRAD MILLER, North Carolina
STEVAN PEARCE, New Mexico DAVID SCOTT, Georgia
BILL POSEY, Florida AL GREEN, Texas
MICHAEL G. FITZPATRICK, EMANUEL CLEAVER, Missouri
Pennsylvania GWEN MOORE, Wisconsin
LYNN A. WESTMORELAND, Georgia KEITH ELLISON, Minnesota
BLAINE LUETKEMEYER, Missouri ED PERLMUTTER, Colorado
BILL HUIZENGA, Michigan JOE DONNELLY, Indiana
SEAN P. DUFFY, Wisconsin ANDRE CARSON, Indiana
NAN A. S. HAYWORTH, New York JAMES A. HIMES, Connecticut
JAMES B. RENACCI, Ohio GARY C. PETERS, Michigan
ROBERT HURT, Virginia JOHN C. CARNEY, Jr., Delaware
ROBERT J. DOLD, Illinois
DAVID SCHWEIKERT, Arizona
MICHAEL G. GRIMM, New York
FRANCISCO ``QUICO'' CANSECO, Texas
STEVE STIVERS, Ohio
STEPHEN LEE FINCHER, Tennessee
FRANK C. GUINTA, New Hampshire

James H. Clinger, Staff Director and Chief Counsel
Subcommittee on Financial Institutions and Consumer Credit

SHELLEY MOORE CAPITO, West Virginia, Chairman

JAMES B. RENACCI, Ohio, Vice CAROLYN B. MALONEY, New York,
Chairman Ranking Member
EDWARD R. ROYCE, California LUIS V. GUTIERREZ, Illinois
DONALD A. MANZULLO, Illinois MELVIN L. WATT, North Carolina
WALTER B. JONES, North Carolina GARY L. ACKERMAN, New York
JEB HENSARLING, Texas RUBEN HINOJOSA, Texas
PATRICK T. McHENRY, North Carolina CAROLYN McCARTHY, New York
KEVIN McCARTHY, California JOE BACA, California
STEVAN PEARCE, New Mexico BRAD MILLER, North Carolina
LYNN A. WESTMORELAND, Georgia DAVID SCOTT, Georgia
BLAINE LUETKEMEYER, Missouri NYDIA M. VELAZQUEZ, New York
BILL HUIZENGA, Michigan GREGORY W. MEEKS, New York
SEAN P. DUFFY, Wisconsin STEPHEN F. LYNCH, Massachusetts
FRANCISCO ``QUICO'' CANSECO, Texas JOHN C. CARNEY, Jr., Delaware
MICHAEL G. GRIMM, New York
STEPHEN LEE FINCHER, Tennessee
FRANK C. GUINTA, New Hampshire

C O N T E N T S

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Page
Hearing held on:
September 13, 2012........................................... 1
Appendix:
September 13, 2012........................................... 43

WITNESSES
Thursday, September 13, 2012

Anderson, Rodney, Executive Director, Supreme Lending, Dallas,
Texas.......................................................... 20
Pratt, Stuart K., President and Chief Executive Officer, the
Consumer Data Industry Association (CDIA)...................... 22
Schoshinski, Robert, Assistant Director, Division of Privacy and
Identity Protection, the Federal Trade Commission (FTC)........ 7
Spector, Mary, Associate Professor of Law, Southern Methodist
University Dedman School of Law................................ 24
Turner, Michael A., Ph.D., President and Chief Executive Officer,
Policy & Economic Research Council (PERC)...................... 26
Wu, Chi Chi, Staff Attorney, the National Consumer Law Center
(NCLC)......................................................... 28

APPENDIX

Prepared statements:
Westmoreland, Hon. Lynn...................................... 44
Anderson, Rodney............................................. 45
Pratt, Stuart K.............................................. 58
Schoshinski, Robert.......................................... 76
Spector, Mary................................................ 94
Turner, Michael A............................................ 101
Wu, Chi Chi.................................................. 110

Additional Material Submitted for the Record

Schoshinski, Robert:
Written responses to questions submitted by Representative
Renacci and Representative Ellison......................... 137
Turner, Michael A.:
Written responses to questions submitted by Representative
Renacci and Representative Ellison......................... 143
Wu, Chi Chi:
Written responses to questions submitted by Representative
Renacci and Representative Ellison......................... 151
Written statement of the National Association of REALTORS....... 165

EXAMINING THE USES OF
CONSUMER CREDIT DATA

----------

Thursday, September 13, 2012

U.S. House of Representatives,
Subcommittee on Financial Institutions
and Consumer Credit,
Committee on Financial Services,
Washington, D.C.
The subcommittee met, pursuant to notice, at 2 p.m., in
room 2128, Rayburn House Office Building, Hon. Shelley Moore
Capito [chairwoman of the subcommittee] presiding.
Members present: Representatives Capito, Renacci, Manzullo,
Hensarling, Luetkemeyer, Huizenga, Fincher, Guinta; Maloney,
Watt, McCarthy of New York, Baca, Scott, and Carney.
Also present: Representatives Green and Ellison.
Chairwoman Capito. We are right in the middle of a window
of time, so I wanted to go ahead and try to start on time. I
have the ranking member here with me, so we are ready to call
this committee hearing to order.
As I said, we do expect some votes in the middle of this,
so we will probably have to recess and come back. But I want to
definitely finish this as quickly as we can, but giving the
issues their due diligence that I think we need to do. So, we
are going to focus on the use of consumer credit data to
construct a consumer credit profile and how that profile
affects folks' ability to access different financial products.
Just briefly, the Fair Credit Reporting Act (FCRA) governs
the collection, assembly, and use of credit--consumer credit
reports--and provides the framework for the consumer credit
reporting system. This system uses a consumer's payment
history,--I think we are all familiar with this, painfully or
not--their level of debt, and information about their loan
history to provide lenders and potential employers with the
means to assess a consumer's ability to manage their financial
responsibilities.
Today, we will learn about the current types of data used
to construct a consumer credit profile, as well as potential
issues that arise when data is improperly reported. The
subcommittee will receive input from our witnesses on two
legislative proposals.
The first is a bill by Representative Manzullo and
Representative Shuler. They have offered a bill that requires
consumer reporting agencies to remove paid or settled medical
debt from credit reports within 45 days. I believe most members
of this subcommittee are familiar with this legislation as we
had it last year.
The second bill was introduced this week by Vice Chair
Renacci and Representative Ellison. It is called the Credit
Access and Inclusion Act, and it makes clear that the Federal
statute permits public utility services to voluntarily report
positive and negative payment data to the consumer reporting
agencies. The stated goal of this legislation is to provide
consumers with the ability to build a positive credit history
by paying their utility bills on time.
I am interested to learn from our witnesses their thoughts
on this. And I want to commend Mr. Renacci for starting this
discussion. Again, I thank our witnesses for providing us with
insight on these issues.
And I would like to recognize the gentlelady from New York,
the ranking member of the subcommittee, Mrs. Maloney, for the
purpose of making an opening statement.
Mrs. Maloney. I thank everyone for coming, and I especially
thank Chairwoman Capito for having this hearing. This is an
important hearing because our credit scores have a tremendous
impact on our ability to take out a mortgage, get a car loan,
or get a credit card. And it also impacts the interest rates
that you are charged. One late payment can mean the difference
between an affordable loan at a competitive interest rate and
an unaffordable loan at a much higher rate. So, this is very
important to consumers and the overall economy.
This committee has been looking at credit scores and how
they are computed for a long time. Today, we are not only
looking at the computation, but looking at how data is used or
not used to impact the score. And we are considering two bills
that will direct the credit bureaus to, in the case of one
bill, delete certain data, and in the case of the other, report
certain data that will impact what kind of information is used
to determine our credit scores.
The Medical Debt Relief Act is a bill we have looked at in
the past. It has passed the House of Representatives with
bipartisan support. In many cases, the consumer is not aware
that they have an outstanding debt because there is an entity
in the middle, the insurance company, that settles claims and
payments. And there has been some testimony before this
committee and others about situations where people have not
even known that they were late on their payment because the
insurance company was taking care of it. Yet, when they went to
get a loan, it had impacted their score.
So, that is a bill that has been around for quite some
time. And this committee has not looked at the issue of
alternative data, although I know that is something that
advocates have been working on for years.
Unlike the Medical Debt Relief Act, which is requiring the
bureau to remove information, the other bill we are looking at
today enhances the credit report with additional information
like positive payment history of utility bills, cell phone
bills, and other recurring payments.
Supporters of the bill argue that for consumers with thin
credit profiles, and those who are ``unscorable,'' reporting
this information will help build credit histories and enable
them to be eligible for credit cards, mortgages, and auto
loans. Although that sounds like a worthy goal, not everyone
agrees that allowing alternative data to be reported will have
that intended effect.
So, these are important issues. And I look forward to the
testimony and reviewing them in greater detail.
I do know that Mr. Green asked for some time, so if I could
yield to him my remaining time. Mr. Green?
Chairwoman Capito. Why don't I recognize him after--I want
to make a quick announcement, and then go to Mr. Renacci, and
then go to Mr. Green.
It is with great regret that I announce to the subcommittee
that we are losing a very valued employee who has worked for
the Subcommittee on Financial Institutions and Consumer Credit
and the Financial Services Committee. Michael Borden is our
counsel. He not only provides great wisdom and intelligence, he
is also a lot of fun to work with and a good friend to know.
Michael is returning to the private sector. And we
solicited comments from some of his friends to see what I
should really say about him. I could make a ruling from the
Chair that the Dodgers and the Chargers are not good teams. I
will not say exactly what people said on that one.
But this is likely the last time that a committee counsel
will be wearing Dolce & Gabbana in the anteroom. And then, we
could add all kinds of other things like his low-carb diet,
designer sunglasses, driving the same car as his frenemy
Brendan, et cetera.
But what the heck; I just want to wish him good luck. And
thank you from the bottom of our hearts, Michael, for all you
have done not just for me and the committee, but for your
service to our country. So, let us have a little round of
applause.
[applause].
With that, I will recognize Mr. Renacci for 1\1/2\ minutes
for an opening statement.
Mr. Renacci. Thank you, Madam Chairwoman.
Credit is the lifeblood of our economy. Access to credit is
what allows entrepreneurs to create businesses, small
businesses to finance expansions, and ordinary citizens to make
everyday purchases on up to their first home. Increasing access
to credit is why we are here today.
The person who will testify on our second panel has for
years been studying the impact of alternative data on access to
credit. The research shows there are an estimated 50 million
credit invisibles, those who have 3 or fewer payment histories
on their credit files and consequently are unscorable.
Furthermore, 50 million people could have higher credit
scores if nonfinancial payment data such as utility payments
were reported to credit bureaus. I believe the research is
overwhelming, and this is why I joined my colleague,
Representative Ellison, in introducing H.R. 6363, the Credit
Access and Inclusion Act.
I want to be clear; we are not talking about reducing
credit standards. I strongly support strong underwriting
standards and believe poor credit standards played a
significant role in the recent financial crisis. In fact, my
goal is to increase sound underwriting by promoting greater
access to data. The more accurate data an institution can
access, the better they can access credit risk.
This legislation is a win-win. Our bill will help provide
more thorough information to lenders and allow millions to
climb out of the shadows and build a credit history. It is
clear that negative information can and already is being
reported. Our bill simply seeks to make sure the consumers who
can be punished for missing payments can also be rewarded for
making the same payments.
I want to thank all of our witnesses for being here today,
and I look forward to working with you on this important piece
of legislation. Thank you. And I yield back.
Chairwoman Capito. Thank you. Mr. Scott for 2 minutes for
an opening statement.
Mr. Scott. Thank you very much, Madam Chairwoman. I want to
be as brief as I can. But I just want to issue one little
statement on why I am so, so supportive of these two measures,
especially the Medical Debt Responsibility Act of 2011. I
represent the Centers for Disease Control, and last year they
did a study that I want to point out to the committee and to
the panelists. And in that study, the CDC found that one out of
every three Americans was part of a family that would consider
their medical bills a deep financial burden. And in addition,
one in five Americans struggled to pay medical bills that were
related to medical debt each month. And one in 10 stated they
were unable to pay these bills at all.
And now, these statistics are worsened when they are
focused solely on African Americans; among African Americans,
over 40 percent of them report financial burdens of medical
care and nearly 28 percent cite problems with paying their
medical bills in the past year.
Unlike other forms of debt, medical debt is nearly always
unplanned and involuntary. No one knows what day or time it
will hit, especially if it hits big. And currently, 8.1 percent
of Americans are unemployed, and they are simply unable to take
on burdensome medical debt that would further impede their
access to credit.
That is exactly why these two bills are so important. I
commend the sponsors on them, and I certainly urge quick
action.
Thank you, Madam Chairwoman.
Chairwoman Capito. Thank you.
Mr. Hensarling for 2 minutes.
Mr. Hensarling. Thank you, Madam Chairwoman. And thank you
for holding what I believe is a very important hearing. We know
that we continue to be in a very troubled economic environment,
and many of our constituents continue to suffer. That is why it
is so important that we ensure that credit scorers are serving
our constituents. I believe they are an incredibly important
tool. They have helped democratize consumer credit; made it
more egalitarian. It is an empowering thing for consumers. And
so, I think we ought to approach this with a fair amount of
care and trepidation.
I have read some of the testimony; not all of the
testimony. And certainly, there are some disturbing anecdotes,
and I believe some very legitimate issues dealing with medical
debt. But I still think we should be very, very careful here in
what we do. And our goal should be to try to make credit
reports more accurate, not less complete.
And so, I do want to thank Mr. Renacci for his legislation,
which I think does take us in the direction of making credit
reports more complete. I am always concerned when Congress
attempts to involve itself in credit allocation policy.
We did that with the mortgage finance system where
financial institutions were in effect told to ignore predictive
information, be it credit reports, debt-to-income ratios, or
significant downpayments in a financial crisis, and millions of
our countrymen have suffered.
So, the bottom line is thinner credit files can erode risk-
based pricing. Ultimately, that can make consumer credit more
expensive and less available. And now is a very poor time to
move in that direction.
Thank you, Madam Chairwoman.
Chairwoman Capito. Thank you.
Mr. Green for 2 minutes.
Mr. Green. Thank you, Madam Chairwoman. I thank you and the
ranking member for the opportunity to be a part of the hearing.
And I would like to thank Mr. Renacci and Mr. Ellison for the
piece of legislation that they are presenting.
I do understand that we have a good many people who are
invisibles, as has been said. Mr. Renacci called it to our
attention, some 30 to 50 million people.
These are people who do not have credit files at all or
they have no credit score that can be measured simply because
they have what I consider credit--they pay light bills, gas
bills, water bills, and phone bills--but they do not have these
things scored.
And in my opinion, these people can make timely payments.
They have demonstrated it, but they just do not have the credit
score. So, I compliment them on what they are doing.
I would also call to the committee's attention the
alternative credit scoring bill that we passed in this House
that calls for a pilot program with FHA. We are looking forward
to moving forward on this and having this opportunity for
persons with this alternative credit to have their credit
properly scored.
When it comes to money, there are some people, if I may say
it this way, who do not believe in ``First National;'' they
believe in ``first mattress.'' And they keep their assets close
to them, right under them if I may say so. Just because they do
not participate in the process and the system to the same
extent that we do, it does not mean that they are not
creditworthy. And my hope is that we can find a way to make
sure that they can complete the process, but do it in such a
way that they can pay their bills and they too can have credit.
I yield back the balance of my time.
Chairwoman Capito. Mr. Manzullo for 1\1/2\ minutes.
Mr. Manzullo. Thank you. Thank you for calling this
hearing, Madam Chairwoman.
I have long supported this bill, the Medical Debt
Responsibility Act. In the past two Congresses, we have worked
with colleagues on both sides of the issue to make sure that
this important issue is addressed. In fact, last Congress the
House passed a similar bill, the Medical Debt Relief Act of
2010, with overwhelming bipartisan support.
A straightforward bill is good for consumers and the
economy. There is no cost to the government. Medical debt
affects many hardworking Americans who have been diagnosed with
an illness or involved in an accident, the results can be
devastating. Even small medical debts are causing large
problems for consumers and are stifling our economy.
So, Madam Chairwoman, this is a great bill. I appreciate
the opportunity to be here to ask questions of the witnesses.
Chairwoman Capito. Thank you.
Mr. Ellison?
Mr. Ellison. Thank you, Madam Chairwoman. I will be quick
because I know that we have a vote.
But I first of all want to thank Mr. Renacci. I know it
seems like it is somewhat rare to get a chance to come together
on a bipartisan basis to do something good for the American
people. So, I am very grateful that we are able to work
together. Also, Mr. Jones, Mr. Capuano, and Mr. Hinojosa who
joined the bill as original co-sponsors.
I just want to say very briefly that millions of people
have damaged credit scores. Delinquencies remain in their files
for years. In addition, there are an estimated 35 to 50 million
people who are credit invisible. I think this bill can take us
a long way toward solving this problem and really helping many
families in our country to have an accurate credit score.
Another concern is that there are about 50 million people
whose credit scores are lower than they would be or should be
if all of their credit information was included. Credit
invisibility affects all kinds of Americans; all Americans
really in some way. But it also affects some groups
disproportionately.
For example, African Americans, Latinos, young people,
immigrants, and women whose credit has been in their late
husband's name often are credit invisible. People who for
religious or personal reasons do not borrow money with interest
rates are affected. And people who live mostly in the cash
economy. So, it affects a whole multitude of people in various
walks of life.
The solution I think is simple. Our bill clarifies that
utility and telecom firms can report their customers' on-time
payments. It is not a mandate.
Also, a nonpartisan research group that works on this
issue, the Policy & Economic Research Council, known as PERC,
has provided impressive empirical evidence which establishes
that the value of including alternative data in credit scores.
And I find the data important and reliable and overwhelmingly
to the benefit of customers.
Borrowers who benefit from improved access to the credit
mainstream are going to be better off. And they can save money
on insurance and debt and increase their wealth by accessing
affordable credit. Lenders benefit by being able to better
assess risk because they have more information and they can
more profitably and soundly extend credit to segments
previously viewed as risky.
So, let me just wrap up by saying that I am very happy to
be working on this bill. I look forward to hearing from people
who have various points of view. I know that not everyone
thinks the bill is great as it is. I want to hear from them
too. But I think that this is a very good step and a bipartisan
attempt to improve the lives of millions of Americans.
Chairwoman Capito. Thank you.
Mr. Fincher for 1 minute.
Mr. Fincher. Thank you, Madam Chairwoman.
Credit is a necessary part of America's financial system. A
person's credit report has become as important as their resume,
personal reputation or integrity. Unfortunately, our credit
data may be susceptible to mistakes by creditors, credit
bureaus or simply human error. Also, many hardworking Americans
continue to have difficulty establishing credit histories,
which is a necessary component to establishing good credit.
Too often in Congress, there are unintended consequences to
the laws we create. Laws requiring personal credit reporting
and credit history are too important to not get right the first
time. Therefore, I looking forward to hearing from our
witnesses. And I yield back. Thank you.
Chairwoman Capito. Thank you.
What I would like to do is give Mr. Schoshinski a chance to
give his opening statement for 5 minutes. And then, we will
probably adjourn at that point, and come back for questions.
So, I would like to welcome as our first witness Mr. Robert
Schoshinski, the Assistant Director of the Division of Privacy
and Identity Protection at the Federal Trade Commission.
Welcome. You are now recognized for 5 minutes.

STATEMENT OF ROBERT SCHOSHINSKI, ASSISTANT DIRECTOR, DIVISION
OF PRIVACY AND IDENTITY PROTECTION, THE FEDERAL TRADE
COMMISSION (FTC)

Mr. Schoshinski. Thank you, Chairwoman Capito, Ranking
Member Maloney, and members of the subcommittee. It is my honor
to present the Federal Trade Commission's testimony on the
important issues of consumer reports and credit scores today.
The Fair Credit Reporting Act is the law that governs the
operation of our Nation's consumer reporting system. In
enacting the FCRA in 1970, Congress recognized the vital role
that consumer reporting agencies play in assembling and
evaluating information bearing on creditworthiness, credit
standing, credit capacity, character and general reputation of
individual consumers.
Today, consumer reports are used by issuers of credit,
insurance companies, employers, landlords, and others to make
critical eligibility decisions affecting consumers. The
information contained in an individual consumer's report will
affect the eligibility and cost of various consumer products
and services that most of us would consider to be essential
parts of the activities of modern life.
I would like to highlight three aspects of the Commission's
testimony in my comments. First, as explained in the testimony,
the accuracy and completeness of consumer reports is a central
concern of the FCRA. In the credit context, for example,
complete and accurate consumer reports enable creditors to make
informed decisions benefitting both creditors and consumers.
Errors in consumer reports, however, can cause consumers to
be denied credit or other benefits, or to pay a higher price
for them, and can cause credit issuers to make inaccurate
decisions that result in declining credit to a potentially
valuable customer or issuing credit to a riskier customer than
intended.
The FCRA contains numerous requirements designed to ensure
that information contained in consumer reports is accurate and
complete. For example, consumer reporting agencies must make
reasonable efforts to assure the maximum possible accuracy of
reports, and must maintain procedures through which consumers
can dispute and correct inaccurate information in their files.
In addition, amendments to the FCRA in the last decade have
allowed consumers to access their own consumer reports and the
credit scores based on those reports. These important rights
permit consumers to know what is being reported about them and
to evaluate whether their files contain inaccurate or
incomplete information that they should dispute.
Second, the issue of thin files or consumer files with
limited or no credit histories can limit the ability of credit
providers to assess the subject consumer's creditworthiness. In
2003, Congress asked the Commission to study whether common
financial transactions not generally reported to the credit
reporting agencies would be useful in determining the
creditworthiness of consumers.
The Commission issued a report containing its findings in
2004. The report concluded that there was a sizable consumer
population that was difficult to evaluate for credit purposes
because they have thin files or no credit history.
The Commission found that the types of consumers with thin
files included young people living on their own for the first
time, people who established credit through their spouse,
recent immigrants, and people who either do not use credit or
who rely on alternative credit sources.
The report discussed arguments for the inclusion of
alternatives to traditional data and credit files, such as
rental payment information, utility payment information, and
cellular phone payment information, and identified private
efforts under way to collect and report these types of
alternative data.
Third, I would like to address the treatment of medical
debt in credit reporting and credit scoring, which continues to
present unique challenges. Medical debts can be reported as
derogatory items on consumers' credit reports, even after such
debts have been paid, adversely affecting a consumer's credit
score.
As the Commission's testimony describes, some have
questioned the appropriateness and value of medical debt in
assessing and predicting credit risk. In some cases, the debt
may result from a billing dispute or misunderstanding between
the consumer and their insurer. Additionally, some argue that
medical debt is often an unexpected one-time expense, and thus
may not be a good indicator of a consumer's general
creditworthiness.
On the other hand, some argue that because such debts can
provide accurate information about consumers' financial
obligations and payment histories, they should be included in
credit reports.
The Commission continues to monitor developments in the
reporting of medical debt. For example, the bill discussed here
today, H.R. 2086, the Medical Debt Responsibility Act of 2011
seeks to address this issue by requiring the removal of some
fully paid medical debt accounts from consumer reports. The
Commission has not taken a position with respect to the Act or
any other Federal or State legislation on this issue, but
continues to monitor developments on the issue.
The FTC is committed to using all the tools at its disposal
to ensure privacy and accuracy of consumer reports as required
by the FCRA, and we would like to thank the chairwoman and the
committee for providing us an opportunity to appear today. I am
happy to answer any questions that the committee may have.
[The prepared statement of Assistant Director Schoshinski
can be found on page 76 of the appendix.]
Chairwoman Capito. I thank the gentleman. That was exactly
5 minutes. Very good.
The committee will now stand in recess. We have four votes,
so I predict we will be back somewhere in the 3:00 hour. Sorry
for the interruption.
[recess].
Chairwoman Capito. We will go ahead and reconvene the
hearing. Again, I apologize for the delay, but we should have
clear sailing hopefully for the rest of the hearing. I will
start the questioning for 5 minutes.
In terms of how credit scores are developed, are they all
developed by third parties like the credit bureaus? Or do
financial institutions also develop their own sort of in-house
scoring models?
Mr. Schoshinski. I do not know the exact answer to that
question. I think it depends. And I know there is a
representative from the industry on the second panel who may be
able to address it.
My understanding is that credit reporting agencies develop
scores, but that they are--the lenders or the others who are
using the scores may ask for specific weight to be given to
different factors in the credit reports. So, the scores may
differ depending on who is receiving the score.
Chairwoman Capito. One of the questions I have, and this is
just a random question, but you always hear about things
staying on your credit report for 7 years. What is so magical
about 7 years?
Mr. Schoshinski. Seven years is just the cutoff point that
Congress elected to use. It decided that things beyond 7 years
are either stale or not indicative anymore at that point. So,
it is 7 years for most derogatory items. I think for
bankruptcies it is 10 years. But that is just what Congress
determined when they passed that section of the Act.
Chairwoman Capito. Having been obviously a consumer who has
looked at my credit report, it really is frustrating that you
cannot--you can satisfy these negative parts of your credit
score and you really do not get credit for it for 5 years later
or something like that. I do not know if there are options that
can be built in for that.
And another thing, I think--and I will also go to the other
panel on this--the communication issue in trying to talk to a
credit bureau, to try to work on your credit score, is not
easy. It is not consumer-friendly. Do you all address that at
the FTC?
Mr. Schoshinski. We certainly do. There are provisions of
the FCRA that require credit reporting agencies to do certain
things when disputes are received. And they have to do a
reasonable investigation. They have to do it within a certain
amount of time, usually 30 days. And they have to communicate
the results of their investigation, whether they are going to
change the item based on what the consumer told them, or
whether they are going to refuse to change it.
So, there are provisions in the Act that require the credit
reporting agencies to do certain things. If they develop or put
up stumbling blocks to consumers to keep them from disputing or
actually having the credit reporting agency investigate the
item, then that could be a violation of the Fair Credit
Reporting Act. And we would investigate and take action on
that.
Chairwoman Capito. This is another thing that has entered
my own life. And as a mother--my children are in their 20s now,
and trying to build their own credit history. You are
encouraging them as much as you can as they go through college,
to not run up a bunch of debt. You are trying to keep them
clean as much as you can financially.
And then they reach the point where they are in their first
job and they have no credit history because they basically have
been good players--I guess that is what you are calling it.
What would you recommend to the young people to be able to
start building that before they reach the turndown for the
option of credit as they are in their early adulthood moving on
to their careers?
Mr. Schoshinski. I think the most important thing is to
avoid negative information on a credit report. Now, that does
not necessarily address the issue of--
Chairwoman Capito. Building positive information.
Mr. Schoshinski. Right.
Chairwoman Capito. Yes.
Mr. Schoshinski. Some have advised using credit cards and
paying them off on time as a way to build credit. I cannot say
whether that is an appropriate or a good way to do it. But that
is one way to put one's footprint on a credit report, again, as
long as the information is positive.
Chairwoman Capito. Right. Okay. I will yield to the ranking
member for questions.
Mrs. Maloney. In your statement, that we should work to
build positive information on our credit scores. But
oftentimes, there is negative information on it. And sometimes,
it is incorrect. How do you go about correcting negative
information on these credit scores? And do you oversee the
efforts to correct it? What if you get a score and you know it
is wrong? How do you approach it? Are there professionals who
work with you like attorneys or, I don't know, advocates who
help? Most consumers would not know where to go.
What would you do if the information was wrong? Would you
call an attorney? Would you call a credit agency? What would
you do? I do not think most people know what to do.
Mr. Schoshinski. That is a good question. And one of the
things that the FTC has done in terms of raising consumers'
awareness about their rights under the FCRA is to do a lot of
outreach and a lot of consumer education. And there are a
number of consumer advocate groups that do engage in that kind
of assistance.
But the most important thing the consumers can do is to
know what their rights are. And the way they are going to do
that is first to receive their credit reports and make sure the
information that is on there is accurate. And once they do,
they have the right to, if there is inaccurate information, go
either to the credit reporting agency or to what we call a
furnisher, the entity that initially reported it to the credit
reporting agency, and say, hey, this information is incorrect;
it needs to be changed.
That starts the clock running. And that imposes an
obligation on the furnisher or the credit reporting agency to
do a reasonable investigation and either take it off or say why
they are not going to take it off.
Mrs. Maloney. Or say whether or not?
Mr. Schoshinski. Say why they are not going to take it off.
Mrs. Maloney. Why they are not going to take it off. And
they have to give you that information?
Mr. Schoshinski. Yes.
Mrs. Maloney. Okay. In your written testimony, you state
that errors in consumer reports often lead to credit issuers
making inaccurate decisions that result in declining credit to
a potentially valuable customer. Can you comment on the two
bills that are before us today and how they will help alleviate
this problem? Do you support these two bills?
Mr. Schoshinski. We have not taken a position on either of
the bills. We do not either advocate the passage of, or
advocate against the passage of, either of the bills.
From my reading of the bills, they would not have a direct
impact on the inaccuracy issue. The medical reporting bill
would limit some information that was put on credit reports,
and the thin file bill would increase information that is being
put on reports. So, it would affect the amount of information,
either subtracting or adding. But we do not have any data to
indicate whether they would increase the rate of inaccuracy or
decrease the rate of inaccuracy.
Mrs. Maloney. And in your statement, you also note that you
share jurisdiction now over credit scores issues with the
Consumer Financial Protection Bureau. Can you expand on how
this will work with two regulators? Are you responsible for
some things and they are responsible for how you delineate it?
Or how does it work?
Mr. Schoshinski. Sure. In the area of enforcement, the
Federal Trade Commission and the CFPB share jurisdiction. The
CFPB now has primary responsibility for rulemaking and
supervision and oversight of some of the larger credit
reporting agencies. But in enforcement, we share authority and
jurisdiction.
The way we are dealing with it is in January of this year,
the two agencies entered into a memorandum of understanding to
sort of set the guidelines for how we will deal with
enforcement issues related to the Fair Credit Reporting Act and
other issues that overlap between the two agencies. The goal of
that is to avoid duplication.
We do not want two agencies doing the same work. And we
want to have a consistent voice in terms of what advice we are
giving, what policy statements we are making. And so the two
agencies have working groups that meet on a regular basis, and
share information about the investigations they are doing to
make sure that we are not duplicating anything.
We would be wasting resources by having two agencies do the
same thing. And in my experience, it has been working out
pretty well.
Mrs. Maloney. Do you believe that consumers are now more
aware of how data affects their credit scores? And how have
your enforcement actions raised awareness possibly for
consumers?
Mr. Schoshinski. Yes. I think consumers are more aware of
these issues, especially with the amendments over the last 10
years to the Fair Credit Reporting Act that enabled them to get
free credit reports, enabled them to dispute items on the
credit report with the credit reporting agencies and
furnishers.
And I think both the enforcement that the FTC has done and
the consumer education and outreach has raised awareness and
has let consumers know that they do have these rights and can
take action when there is inaccurate information.
Mrs. Maloney. Thank you. My time has expired.
Chairwoman Capito. Thank you.
Mr. Renacci for 5 minutes.
Mr. Renacci. Thank you, Madam Chairwoman.
In your testimony, you mentioned the FTC's 2004 study on
the possible benefits of reporting more ultimate data. Your
testimony states that there is a sizable consumer population
that is difficult to evaluate for credit purposes due to a lack
of credit history. Is it the conclusion of the study that the
population suffers in any way negatively from the lack of
unscorability?
Mr. Schoshinski. I do not know that the study reached a
particular conclusion on that. But I think because there are a
large number of people who cannot be scored or cannot be
evaluated under the credit reporting agency, some of them are
denied credit who would have been able to get credit if the
additional information had been reported.
Now, there is a flip side to that. Additionally, some
consumers, either through late payments or failure to pay
certain bills, might be denied credit or have a worse situation
if that information was reported in the credit reports.
Mr. Renacci. I notice you said with the chairwoman that
maybe one of the options was getting a credit card. But how
about that person who cannot get a credit card?
Mr. Schoshinski. Yes. Some people are in a situation--it is
a Catch-22 where they cannot establish the credit that they
need in order to then get--establish a credit rating.
Mr. Renacci. So, what options would they have?
Mr. Schoshinski. I do not have a particular answer to that.
In the current system, I do not know what options they do have.
Mr. Renacci. But do you think if there was attachment of
their current rent payments and some of the alternative
payments that they would have some opportunity for a credit
history?
Mr. Schoshinski. Yes. For those who are timely and who pay
those currently unreported items, it will give them an
opportunity to establish credit.
Mr. Renacci. You also mentioned in your testimony that the
Commission identified barriers to reporting alternative data,
specifically laws and regulations. Can you discuss some of
those barriers and discuss what actions are needed for you to
remove some of them?
Mr. Schoshinski. Certainly. There are some either State or
local requirements about utility payments, that require either
consumer consent or other preconditions before it can be
reported to a credit reporting agency. So in those cases, it is
difficult for utilities and others to report complete
information. I do not know how to eliminate those. It could be
done legislatively or otherwise.
Mr. Renacci. There are proponents of alternative data
reporting in a report focused on bringing no-file and thin-file
consumers into the financial mainstream. How might alternative
data reporting affect those already in the credit reporting
system?
Mr. Schoshinski. I do not have data or information on that.
It seems to me that generally more accurate information in the
credit reporting system is good for everyone. It enables
creditors and individuals seeking credit to have better
information and make better decisions. So to the extent that
any provision would provide more accurate information, I think
the general conclusion would be to benefit consumers in the
system.
Mr. Renacci. So you do agree that more information actually
could provide better credit opportunity?
Mr. Schoshinski. More accurate, consistently reported
information, in our opinion, is good for the credit system.
Mr. Renacci. I yield back.
Chairwoman Capito. Mr. Scott for 5 minutes.
Mr. Scott. Yes. Thank you, Madam Chairwoman.
I am interested in your answer to an earlier question. You
said that you did not have a position on either bill. And that
struck me as kind of strange. Why would not you have a position
on either one of these bills? Especially when you stated in
your written testimony that errors in consumer reports often
lead to credit issuers making inaccurate decisions.
And these two bills that we are discussing, the Medical
Debt Relief Act and the Credit Access Inclusion Act, are
designed to alleviate the very problems that you addressed in
your testimony. It would make our discussion and hearing more
beneficial if you would state how these two bills would impact,
especially given the fact that your agency, the FTC, will be
largely responsible for helping us work through these.
We are moving ahead with these two bills and it is so
important to get exactly what your opinions are. That would
help us to maybe move to correct, or you make some suggestions
or recommendations. So, it is very important that we do get
your opinion on these.
Mr. Schoshinski. Yes, Representative Scott. The Commission
has not taken a position on either of these bills and has not
authorized me to testify--
Mr. Scott. I do not want--when I say position, I am not
talking about whether you are for or against. What is your
commentary? Are we moving in the right direction? What in these
two bills are we doing right? What may we be doing wrong?
Mr. Schoshinski. Those are not questions that I can answer
today. But I think the Commission will be happy to work with
the members of the subcommittee on either of the bills or any
other bills that address these issues to see if there are ways
to address those concerns about accuracy in them.
Mr. Scott. Okay. Let me ask you this: What challenges do
consumers face, in your opinion, in terms of if they have the
opportunity to dispute information that may be contained in
their credit report? What challenges do they face? And what
resources does the FTC provide to assist consumers who are
looking to address these errors in their credit reports?
Mr. Schoshinski. Certainly. So, the resource that the FTC
provides is we have extensive consumer education materials both
on our Web site and in written materials to provide consumers
with the step-by-step process through which they can dispute
inaccurate data on their credit reports either with the credit
reporting agency or with the furnisher of the company that
initially provided the information to the credit reporting
agency.
The FTC also has engaged in extensive outreach and training
to assist consumer advocates who help people with these kinds
of issues, and train them through the law and the process
through which these issues can be disputed.
Mr. Scott. Let us talk about these errors. Give us some
examples of some of the errors that occur in consumer reports
that lead to these credit insurers making inaccurate decisions.
Mr. Schoshinski. Errors could be anything in a credit
report. It could be an account, a credit card that you paid off
being reported as delinquent and unpaid. It could be that a
credit card or another account is being reported as one that
you never opened or never used. It could be that they are
associating information from another consumer with your
account.
An individual could be the victim of identity theft and
information could be on their credit report as a result of
that. So, there is a broad range of inaccuracies and errors
that could be on a credit report.
Mr. Scott. And in your opinion should we be limiting the
amount of time that settled medical debt remains on a
consumer's credit report?
Mr. Schoshinski. I cannot express an opinion on that. It is
a policy call.
Mr. Scott. All right.
Thank you, Madam Chairwoman.
Chairwoman Capito. Mr. Luetkemeyer for 5 minutes.
Mr. Luetkemeyer. Thank you, Madam Chairwoman.
I am kind of curious about some statistics with regard to
credit reporting; for instance, what percentage of the lenders
use credit reports? Do you know offhand?
Mr. Schoshinski. I do not know. I do not have that data.
Mr. Luetkemeyer. Do you know what percentage of businesses
report to credit reporting agencies?
Mr. Schoshinski. No, I do not.
Mr. Luetkemeyer. There is no ballpark figure out there that
most of the folks who do some sort of credit payment type stuff
or--there is no data?
Mr. Schoshinski. We do not keep those statistics. Although,
the witness from the industry in the second panel may have
information about that.
Mr. Luetkemeyer. Okay. I will assume then probably--I was
kind of curious if you knew based on the lending--the lending
based on those credit reports how accurate are the lenders when
they make a loan? Do you know anything, whether they are--those
things are--how accurate to be able to make a loan on? Is it
worthwhile, not worthwhile? Is that up to each individual
lender?
Mr. Schoshinski. We do not know about the accuracy of the
lender's decision. But there is currently a study the FTC is
doing that the FTC was charged by Congress to do to evaluate
the accuracy of data in credit reports. And that report is
currently expected to be issued in December of this year.
Mr. Luetkemeyer. Okay.
Mr. Schoshinski. So, it took a random sample and--
Mr. Luetkemeyer. Okay. In my State, over a couple of years,
we have had some devastating natural catastrophes. We had a
tornado run through Joplin, Missouri. We had a devastating
flood in the southeast corner of our State. And as a result, we
have a lot of folks who have some--obviously some bills that
were not paid, some well beyond their control. They have lost
jobs as a result of all this. They have lost homes. They lost
everything.
How are those things taken into consideration? Do you re-
weight your report? Are those things noted in the report? How
do you take those things into consideration?
Mr. Schoshinski. I think it depends on the credit reporting
agency and the creditor, whether they are willing to forebear
on payments based on those circumstances or not. I do not have
an answer for how that works. But again, the witness from the
credit reporting industry--
Mr. Luetkemeyer. Okay. So, what you are telling me is for
the folks, for instance, who had the tornado go through and
they lost a job and they lost their house. And so for the 3
months so they could find some sort of subsistence living
quarters and then find a new job, all those bills that they
accumulated will still show up on their credit report?
Mr. Schoshinski. They could, yes.
Mr. Luetkemeyer. And you have to look at the forbearance
and understanding of your creditor to go back and say well,
this is what we did and whenever I did get a job and my bills
started getting paid again. Is that what you are telling me?
Mr. Schoshinski. That is correct.
Mr. Luetkemeyer. Okay. With regard to identity theft, I
think Mr. Scott mentioned it a minute ago or you mentioned it,
I believe, in your discussion with him. How quickly are those
things removed from somebody's credit report?
Mr. Schoshinski. They can be removed pretty quickly. If
someone reports identity theft and has gone to the police and
identified that someone has stolen their identity and used
their information, the process can be pretty quick, within
weeks or a month.
Mr. Luetkemeyer. Do you have a red flag situation or a
system by which an account is red-flagged? If you see something
coming in that is so dramatically out of the norm from what
that person in the past has been doing that you say man, this
guy is off the reservation, what happened? Which would be an
indication I would think, that there is probably a stolen
identification of some kind, a credit card or a debit card or
whatever?
Mr. Schoshinski. Credit card and debit card issuers do have
processes to identify fraudulent, out-of-character purchases--
Mr. Luetkemeyer. So, they would catch it more quickly than
you would?
Mr. Schoshinski. Yes.
Mr. Luetkemeyer. Yes. Okay.
That is all I have. Thank you, Madam Chairwoman. I yield
back.
Chairwoman Capito. Thank you.
Mr. Carney for 5 minutes.
Mr. Carney. Thank you, Madam Chairwoman. And thank you for
holding this hearing today.
I would like to go back to some of the questions that Mr.
Scott asked. You have said a couple of times in response to the
questions that these are policy questions and you do not have a
position from the Commission. But I am wondering--I expect that
your role here today is to talk a little bit about the
implications of the work that you do for these changes that
might occur, right, if Congress decides to pass this
legislation.
So, with respect to medical debts, is there anything within
those changes that would cause you concern with respect to your
responsibility? Why don't we start with--tell me the breakdown
between your responsibility and the CFPB's, just so that I am
clear on that, if you could do it briefly?
Mr. Schoshinski. Certainly. The Federal Trade Commission
and the CFPB share authority and jurisdiction for enforcement
of the Fair Credit Reporting Act. Under--
Mr. Carney. Where are those lines? What is your
responsibility and what is their responsibility?
Mr. Schoshinski. The responsibility is basically governed
by coordination between the two agencies to make sure we are
not working on the same thing. So, we have--
Mr. Carney. So, you do the same things; you just work on
different cases?
Mr. Schoshinski. There is some authority that the CFPB has
that the Federal Trade Commission does not have. For instance,
they have taken most of the rulemaking authority under the
FCRA. So, they are responsible for that portion of the FCRA
program.
Additionally, they do supervision for some of the larger
credit reporting agencies. That means they have the ability to
go in and look at what they are doing, at the procedures to
make sure they are in compliance. We do not have that authority
and we have never had that authority.
Mr. Carney. So, what is the major focus of your--the
accuracy of the information or--
Mr. Schoshinski. Accuracy and enforcement of the provisions
of the FCRA such as dispute resolution.
Mr. Carney. Okay.
Mr. Schoshinski. Such as providing data for impermissible
purposes. If a credit agency is providing data for
impermissible purposes, we would take action on that. So,
primarily what we do is review complaints and other reports of
violations of the Fair Credit Reporting Act, and take action
where we find--investigate and take action where we find--
Mr. Carney. So, is there anything in these two pieces of
legislation with respect to medical debts or thin files that
raises any flags or concerns for you with respect to the charge
that you have?
Mr. Schoshinski. I do not think that they would change
enforcement in any significant way. It is just that there would
be--
Mr. Carney. Be more.
Mr. Schoshinski. I am sorry?
Mr. Carney. There would be more to look at right?
Mr. Schoshinski. That is correct. There would be additional
provisions to make sure that credit reporting agencies and
furnishers are complying with. But other than that, I do not
think it would change.
Mr. Carney. So, with respect to your enforcement
authorities, there is no real--you do not have any concerns
other than the additional work that you would have to do to
look at this--these pieces as well.
Mr. Schoshinski. No. And that is not necessarily a concern.
Mr. Carney. Okay.
Okay. Thank you. I yield back.
Chairwoman Capito. The gentleman yields back. I believe Mr.
Manzullo has no questions. So, Mr. Green?
Mr. Green. Thank you, Madam Chairwoman.
And thank you for appearing today, sir. I am not sure
whether my questions will fall within the purview of your
appearance today, but I am interested in some things that you
may know. What is the current status of requirements with
reference to utility bills? Are they--are credit agencies--or
well maybe is the debtor required in any way to report any of
these?
Mr. Schoshinski. Currently, under the Fair Credit Reporting
Act, there is no limitation on this kind of data and whether it
can be reported. So, there is nothing in the Fair Credit
Reporting Act that keeps credit reporting agencies from
reporting utilities and other data.
The question is whether they find it useful and whether
they actually do it. And that is a question for--I think for
the witnesses from industry to say what the current practice
is. But the law does not prevent them from reporting it
currently.
Mr. Green. Are you finding that you have these items being
reported from time to time, occasionally, quite often? And if
so, are they reported on the negative side or the positive
side?
Mr. Schoshinski. The information that we have is that they
are reported sometimes. Sometimes it is only the negative.
Sometimes it is both. But we do not have data on what the
prevalence of that is, whether it is--
Mr. Green. Sometimes only the negative.
Mr. Schoshinski. Sometimes only the negative.
Mr. Green. And are there times when only the positive is
reported?
Mr. Schoshinski. I am not aware of that circumstance, but a
witness from the industry may--
Mr. Green. I understand. So, you are aware that the
negative may be reported absent the positive. But you are not
aware of whether the positive is reported absent the negative?
Mr. Schoshinski. Yes. In some circumstances, such debts are
only reported when they go to collection or delinquency. That
is the only data that gets reported. So by definition, in those
situations, there is no positive information to be reported,
only the negative delinquency going--or the fact that the debt
was passed onto collection.
Mr. Green. Do you have a means by which consumers can
complain to your agency?
Mr. Schoshinski. We do, both at our Web site and we have a
toll-free number where consumers can make complaints about
consumer protection issues and specifically Fair Credit
Reporting Act concerns that they might have.
Mr. Green. Do you receive complaints about the negative
being reported absent the positive?
Mr. Schoshinski. I cannot say whether we have received
specific complaints about that practice. We do receive a lot of
complaints about credit reporting. But I do not have a
breakdown for the kinds of specific issues that are involved.
Mr. Green. Let us move to one other area quickly. Do you
find that you have--or have you reviewed any studies that
indicate persons who are not scored in the traditional credit
market are creditworthy and can make payments on typical
household items and the typical things that we purchase, any
studies?
Mr. Schoshinski. I do not have any data on that but I
imagine it is the case that there are people who do not have
credit histories or credit ratings who have positive payment
histories and ability to pay. So, I do not have a study, but I
imagine that it is the case.
Mr. Green. Do you find that your complaints are
concentrated in a given area, the complaints about credit
scoring?
Mr. Schoshinski. I do not. I do not have a breakdown by
area. We do have breakdowns by who the entity that is being
complained about is, whether it is a credit reporting agency,
whether it is a furnisher, whether it is a user of the data.
Mr. Green. What is the report on the credit reporting
agencies? Do you tend to have more complaints or fewer
complaints as it relates to the agencies?
Mr. Schoshinski. The latest here that we have the full
reporting for is 2011. And for that, we have received
approximately 30,000 complaints about credit reporting. And of
those, 18,818 were about credit reporting agencies; 11,759 were
about furnishers, so those would be the entities that was the
debtor that provided the information to the credit agency; and
1,542 were about users, so those who were using the data to
make determinations about whether to provide credit or other--
Mr. Green. Thank you. My time has expired.
Thank you, Madam Chairwoman.
Chairwoman Capito. Thank you.
Mr. Huizenga, did you have a question?
Mr. Huizenga. Thank you, Madam Chairwoman. I appreciate
that.
I am curious as well, and we have had a number of
discussions about credit scores and the use of them, what they
are used for. What do you believe are some alternative credit
data that could predict sort of a borrower's creditworthiness?
And then specifically, how do we deal with young people or
with people who are emerging out of bruised credit situations?
How do we deal with them?
Mr. Schoshinski. The Fair Credit Reporting Act allows a
broad range of information. So, there may be whole areas of
payment information and other information out there that is not
currently being used or is not widely being used by credit
reporting agencies that could provide the means that consumers
who are either new to the credit system or coming out of
adverse situations could establish that.
I do not know the particular types of data and I do not
know how useful creditors will find them. But obviously, there
is a lot of data out there that creditors and credit reporting
agencies can use.
Mr. Huizenga. And I will yield back. Thank you.
Chairwoman Capito. I think that--oh. Mr. Ellison just came
in. Excuse me, I am sorry. Go ahead, 5 minutes.
Mr. Ellison. Thank you, Madam Chairwoman.
And thank you, sir, for your testimony. I just have a few
questions. I have tried to listen to what some of the critics
of our bill have had to say, and taken them seriously.
One complaint is that if people who are sort of credit
invisible now become credit visible by having their utility
bills reported on time, then they might start receiving a bunch
of mail marketing materials that they really do not want. Is
credit information used for marketing purposes?
Mr. Schoshinski. Credit reporting information is not
supposed to be used for marketing purposes; that is an
impermissible purpose. The only exception is for firm offers of
credit.
So if a credit card company or some other entity is going
to say, based on your credit reporting, your credit report, I
am willing to offer you this credit, they can make a firm offer
of credit for either a credit card or another type of credit.
But other than that, they cannot be used for marketing
purposes. And consumers have the right to opt out of even those
firm offer-of-credit offers.
Mr. Ellison. Okay. So, let me ask you this about the Equal
Credit Reporting Opportunity Act, particularly Section 1002.6.
I hate when people do that to me, but do you know what I am
talking about?
Mr. Schoshinski. That is not a statute that is within our
enforcement authority.
Mr. Ellison. Okay. So, do the best you can. Does the
consumer have the right to have all of their financial
information included in a loan application?
Mr. Schoshinski. I do not have an answer to that question.
Mr. Ellison. Okay. We will skip to the next one. And
finally, is the National Consumer Telecom & Utility Exchange
complying with the Fair Credit Reporting Act, to your
knowledge?
Mr. Schoshinski. I have no reason to believe they are not.
Mr. Ellison. Okay. So when late-paying customers try to
open new accounts, are you aware as to whether or not the
National Consumer Telecom & Utility Exchange tells them that
their history of late payments results in them paying higher
deposits or rates? Do you know anything about that?
Mr. Schoshinski. I do not have any information about that.
Mr. Ellison. Okay. Equifax is a company that owns this
Telecom & Utility Exchange reporting. Do you have any
background on that?
Mr. Schoshinski. I do not.
Mr. Ellison. Okay. Fair enough. And let me just wrap up by
asking you to talk a little bit about how many people do not
yet have a credit score or have a thin file. How does that
reality for them affect their lives? Can you just expand on
that a little bit?
Mr. Schoshinski. Just generally speaking, if you do not
have a credit history, if you do not have access to credit,
there are a lot of things that you are not going to be able to
do. You are unlikely to be able to buy a house unless you pay
cash or to buy a car. You may have difficulty getting certain
jobs. There may be other situations, other purchases and
services that you might not be able to get because of that.
Mr. Ellison. So, bringing people into some sort of credit
visibility, generally speaking, will enhance their ability to
access credit.
Mr. Schoshinski. Generally speaking, with the obvious sort
of warning that some people who will come into credit
visibility will have not very good credit scores based on that,
and so, it is not necessarily the case that they are going to
improve based on that. But people who do pay on time, have a
history of payment, may find their situation improved.
Mr. Ellison. But even people who may not benefit because
their credit history--not paying utility bills say--has been
problematic. They will still have an opportunity to improve
their credit.
Mr. Schoshinski. Absolutely.
Mr. Ellison. And they will at least know where they stand.
Mr. Schoshinski. Absolutely.
Mr. Ellison. Yes. And I believe you mentioned that
employment--usually when we think of credit scores, we think of
borrowing money to buy stuff. But some employers have looked at
people's credit scores. Is that right?
Mr. Schoshinski. Absolutely, yes.
Mr. Ellison. Yes. So, it would be important for that
purpose as well.
Thank you. I yield back.
Chairwoman Capito. Thank you. I believe that concludes the
first panel. I want to thank Mr. Schoshinski for his patience
and his testimony.
We will have the second panel assemble. And we will start
as quickly as possible.
Thank you.
Mr. Schoshinski. Thank you.
Chairwoman Capito. Our first witness is Mr. Rodney
Anderson, executive director, Supreme Lending, in Dallas,
Texas.
Mr. Anderson, you are recognized for 5 minutes.

STATEMENT OF RODNEY ANDERSON, EXECUTIVE DIRECTOR, SUPREME
LENDING, DALLAS, TEXAS

Mr. Anderson. Thank you, Chairwoman Capito, Ranking Member
Maloney, and members of the subcommittee. Thank you for the
opportunity to testify on examining the uses of consumer credit
data. My name is Rodney Anderson, and I am the executive
director of Supreme Lending, based in Texas, as well as the
author of ``Credit 911.''
As a mortgage originator for more than 28 years, I have had
the opportunity to discern economic trends, consumer credit,
and credit capacity. I have witnessed many changes in my
industry and in the market over the years. But there has been
nothing more disturbing to me than creditworthy consumers
trying to gain access to necessary credit in this economy and
being denied.
It takes 2 years to establish a good credit history, and
one payment reported in error, or one late payment that a
consumer may or may not have known about, to destroy such
credit. Even after a consumer pays for such reported debt in
collection, regardless of whether or not it was actually owed
by the consumer, the consumer's credit report is tainted for 7
years.
Unfortunately, errors on credit reports are rampant.
According to research by the Commonwealth Fund in 2010, an
estimated 9.2 million people age 19 to 24 were contacted by a
collection agency because of a billing mistake. Another recent
study conducted by the Columbus Dispatch showed an error rate
of about 30 percent.
If an item is in dispute, a consumer may not be able to
obtain a mortgage until the dispute is resolved. Although debts
in dispute are expected to take 30 days, I see debts in dispute
for 5 to 7 years. Where do I see the most errors? In the area
of medical debt.
The New York Times recently ran a featured story about a 9-
year-old son of one of my clients who was involved in an
accident. The boy was taken to the hospital in a $200 ambulance
trip, which insurance said they would pay.
Several months and several phone calls later, when the bill
remained unpaid, my client finally decided it was easier to pay
the $200 himself rather than risk the negative mark on his
credit report. But by then, it was too late. The bill had been
turned over to a collection agency without my client's
knowledge.
It was only when my client and his wife went to refinance
their $240,000 mortgage on their home in Lewisville, Texas,
nearly 6 years after the accident, that he learned that the
paid bill had shaved about 100 points from his credit score.
Even with no other debts, a healthy income, and otherwise
pristine credit, the couple had to pay an extra $4,000 to
secure a market interest rate.
There are many more stories like this which not only impact
creditworthy consumers, but also the economy. Markets work well
when decisions are made on accurate information. Markets do not
work well when the information is incorrect, not known, or is
otherwise compromised like it was during the housing bust.
When information is inaccurate, markets make decisions on
less than perfect information. With regard to medical debt,
this can mean seriously reducing the consumer's credit score
and impeding economic activity and consumer borrowing capacity.
This is why I support a bill which was approved last
Congress overwhelmingly in the House, and has been introduced
again in this Congress by Representative Manzullo and of this
subcommittee and others to require consumer credit reporting
agencies to permanently remove paid or settled medical debt not
to exceed $2,500 from a consumer's credit report within 45 days
of being paid or settled.
This legislation is supported by a diverse group of
housing, lending, and consumer groups. Similar legislation has
been introduced in the Senate. I strongly believe the passage
of the Medical Debt Responsibility Act will reignite our
housing market and creditworthy borrowers will finally have the
access to credit they have earned.
Finally, I would like to add that alternative forms of data
can be very helpful, especially to those people who have
suffered financial damage in the past, or who have no access to
credit. This is why I support Representatives Renacci and
Ellison's bill to permit utility and telecom companies to
report on-time payments instead of only delinquent payments to
the three major credit bureaus. This may help those consumers
who suffer from thin credit files.
I believe that there is one sure place this committee can
be helpful in the housing market recovery, and that is by
improving the quality of information being used to allocate
credit to consumers. Thank you for the opportunity to testify.
And I am more than happy to answer any questions.
[The prepared statement of Mr. Anderson can be found on
page 45 of the appendix.]
Chairwoman Capito. Thank you, Mr. Anderson.
Our next witness is Mr. Stuart K. Pratt, president and
chief executive officer, the Consumer Data Industry
Association. Welcome.

STATEMENT OF STUART K. PRATT, PRESIDENT AND CHIEF EXECUTIVE
OFFICER, THE CONSUMER DATA INDUSTRY ASSOCIATION (CDIA)

Mr. Pratt. Madam Chairwoman, Ranking Member Maloney, and
members of the subcommittee, thank you for this opportunity to
appear before you today. In my oral remarks, I will just touch
on some of the key points we make in a more fulsome way in our
written testimony.
First, the accuracy of our members' data systems is world
class. In May of 2011, the Policy & Economic Research Council
(PERC) completed and released a CDIA-commissioned study of the
quality of data found in the databases of nationwide consumer
credit reporting agencies. PERC used two measures of what might
be a material error in a consumer's credit report, and in the
first instance they measured the point change, how often my
score changed dramatically from before and after the
reinvestigation. And in this case, they found that 0.93 percent
of the time, a consumer had a material error in their file.
Dr. Turner, however, recognized that in a risk-based
pricing context, even a single point change in a credit score
could also result in a change in the price that a consumer
received in the marketplace. So, they looked at how often a
consumer moved in between one pricing tier and another pricing
tier and considered that as a possible material error measure
in credit reports.
And in this case, they found that 0.51 percent of all
credit reports contained in error that would give rise to that
type of pricing tier change, moving from a higher-priced
product to a lower-priced product. In our mind, the study puts
to bed the debate that has been going on for some time about
the accuracy of what data is in credit reports and how it is
used and how scores estimate risk relative to that data.
Consumers are also extremely satisfied with the
reinvestigation process. The staff and the systems used by our
members to handle consumer requests for reinvestigations of
data reported to them are first class, and this is not merely
our opinion.
We also asked PERC to study how often consumers were
satisfied with the reinvestigation process in the context of
the accuracy study they conducted. And in this case, fully 95
percent of consumers indicate that they were satisfied with the
results of the reinvestigation process.
There is a vibrant market of alternative data funded by the
private sector and creating opportunities for consumers across
all walks of life. In 2004, the FTC's FACT Act report on common
reported transactions stated the following: ``The concern
prompting this request is that many Americans may be missing
out on the benefits associated with the consumer reporting
system, even though they may have a demonstrable history of
financial responsibility.''
Our members did not wait for the FTC report to start the
expansion of data that could empower consumers, improve
transparency, and create better risk management decisions.
Members of the CDIA are building new databases, acquiring data
assets, and deploying new analytical technologies that solve
problems now.
Consider just a quick list of some of those various data
types: assets that we own such as homes, autos, and
investments; utility and telecommunication services payments;
rental payments; remittance transactions; payments regarding
traditional non-traditional loans; demand deposit account
loans; short-term loans; prepaid card data; and demand deposit
account activity including direct bill pay transactions, income
data, and models that estimate income.
With this positive context in mind, it is important for
this subcommittee to know that in the context of our voluntary
system of data furnishing, some data sources remain on the
sidelines because of concerns about regulatory as well as
statutory burdens, restrictions, and liability risks associated
with reporting information to consumer reporting agencies.
And let me close by making one of our most important
points, which is we must preserve the integrity of the credit
reporting system as we know it today. The committee asked us to
comment on the Medical Debt Responsibility Act of 2011.
The bill imposes a duty on consumer reporting agencies to
delete medical debts that are less than or equal to $2,500
within 45 days of the date that we have been notified.
Consistent with testimony we have offered in the past, we
oppose this bill for a number of reasons.
First, the bill proposes the deletion of accurate
predictive data. We do not have the banking industry's full
perspective here at the table and what it means for their
lending decisions. We would of course encourage the committee,
subsequent to this hearing, to reach out in a more fulsome way
to the lending community as a whole to get their input on all
of this.
And of course score developers--however, it is important to
note that score developers have consistently found that
presence of any type of debt reported to third-party debt
collectors is extremely predictive.
There have been some assumptions that the medical debt
getting to the credit file gets there quickly, maybe too
quickly. We of course cannot speak for the medical industry, or
the insurance industry that covers all of the medical coverages
that are out there. But our own members who are debt collectors
have reported to us that in 85 percent of the cases, the
account they receive from the health care service provider
included contact information they could use to successfully
contact the consumer.
They also report that their medical providers only provide
the data to them only after a full 3 to 4 months has elapsed.
And then they maintain the data on their system for another 45
days before they reported to the bureau.
So, we are talking about something in the range of 5 months
before the data gets to the credit bureau file. And that is the
length of time that the attempts are being made to collect the
debt.
Let me just close by saying that our members will never shy
away from a thoughtful, probative discussion of the quality of
data. But we do believe the bill is technically flawed as well
as substantively flawed. We oppose it in its current form. We
are happy to have that dialogue.
And we also look forward to the success of our members in
the marketplace as they continue to roll out alternative data
that will empower consumers and allow more consumers to compete
in a market that is more fair, more transparent, and more
available to them. Thank you.
[The prepared statement of Mr. Pratt can be found on page
58 of the appendix.]
Chairwoman Capito. Our next witness is Ms. Mary Spector,
associate professor of law, Southern Methodist University
Dedman School of Law. Welcome. Thank you.

STATEMENT OF MARY SPECTOR, ASSOCIATE PROFESSOR OF LAW, SOUTHERN
METHODIST UNIVERSITY DEDMAN SCHOOL OF LAW

Ms. Spector. Thank you. It is really an honor to be here to
talk with you today about the ways in which we might change the
consumer reporting, ways in which we might change it to benefit
consumers.
The primary method that the Fair Credit Reporting Act uses
to protect consumers' private, sensitive financial information
is to limit or exclude certain information. And that is why
certain information like bankruptcy filings that are more than
10 years old, arrest records that are more than 7 years old,
and those kinds of things are excluded from reporting.
The limitation on reporting of certain information is a
method that States use as well. Some States limit the reporting
of certain public record information like an eviction filing
without the subsequent resolution, or the reporting of payment
histories with respect to public utilities. That approach of
limiting information is what the Medical Debt Responsibility
Act does, and one which I believe is an important addition to
the efforts to change consumer reporting in ways that benefit
consumers.
Some estimate that outstanding medical debt accounts for
about 50 percent of the negative information appearing on
consumer reports. One researcher says that about 30 to 40
percent of medical bills contained errors. And when you plug
those numbers into a system in which persons other than the
consumer is ultimately responsible for payment, you have a
system that creates confusion, frustration, and is very time-
consuming.
That was the case with the couple that I mentioned in my
written statement, Steve and Tara Barnes. There was a
disagreement with the insurance company about who was
responsible to pay, and the providers had turned the bills over
to a collection agency. Once the bills were paid, though, the
couple still suffered as a result of those paid bills appearing
on their credit report. They estimate they paid about $1,700
more than they would have had the paid medical bills not have
been there.
The Medical Debt Responsibility Act would help them. It
would have taken those paid bills off of their credit report
that were issued more than 45 days after a payment.
Benefits that the Barnes might obtain by the Medical Debt
Responsibility Act may be overshadowed in some way by a flood
of information, so-called alternative data contemplated in H.R.
6363. It is described to provide positive information. But the
bill is not limited to positive information. It includes
everything, and would enable the reporting of all payment
information, including whether or not the consumer qualifies
for a payment assistance program.
Moreover, the bill does not do anything to protect against
transfer of billing errors from utilities, much less reduce
errors on existing reports or improve the current system's
dispute resolution, which has been called a mess that cries out
for redress.
Reporting of alternative data does have the potential for
thickening a thin file, for creating a history for a consumer
who does not have one. But when it comes to employment, no
credit history is better than a poor credit history. Employers
using credit reports almost overwhelmingly use them as a
negative factor to disqualify a candidate for a job. Only about
14 percent of employers use them for a positive factor.
In addition, two States and the District of Columbia
prevent full reporting of utility information. My own State,
Texas, prevents the reporting of delinquent accounts during the
period that they are in dispute until or unless they are
resolved against the consumer.
For some consumers, though, alternative information might
enhance their creditworthiness. We already have existing
measures through the Equal Credit Opportunity Act, for example,
that provide for voluntary opt-in provisions for creditors to
look at alternative data.
As a result, I think that the addition of alternative data
to the reporting system should be considered only as a portion
of a larger package to reform the system. I would like to close
by identifying just a few areas for further study, if I may.
One would be restricting or prohibiting the reporting of
certain kinds of public information like paid tax liens or
public records of filings until after there has been a full
disposition.
We might limit the weight given in credit scoring to
certain kinds of public records, certain suits and certain
types of courts, or for less than a certain amount of money.
Limiting name-only reports which capture information that has
nothing to do with the consumer whose report is actually
sought. Or heightening duties of reinvestigation to require
consumer reporting agencies and furnishers to provide
meaningful substantiation in disputed cases.
Finally, I hope the subcommittee will consider ways to
enhance consumer protection, to provide information that would
supplement consumer reports with information that may be
technically accurate but still incomplete or misleading, as in
the case of public records resulting from unfair collection
litigation practices.
Thank you for considering these issues and for allowing me
to speak today.
[The prepared statement of Professor Spector can be found
on page 94 of the appendix.]
Chairwoman Capito. I appreciate it. Thank you.
Our next witness is Dr. Michael A. Turner, president and
chief executive officer, Policy & Economic Research Council.
Welcome.

STATEMENT OF MICHAEL A. TURNER, PH.D., PRESIDENT AND CHIEF
EXECUTIVE OFFICER, POLICY & ECONOMIC RESEARCH COUNCIL (PERC)

Mr. Turner. Thank you, Madam Chairwoman, for inviting me.
And I would like to also start by thanking Congressmen Renacci
and Ellison for showing the type of bipartisan leadership that
Americans so desperately want and need, especially on an issue
that pertains to tens of millions of Americans every day in
terms of their ability to build a credit history or rebuild and
repair their credit history given the macro economy. This is of
crucial importance.
Lenders today overwhelmingly use sophisticated value-added
services to assess credit risk, creditworthiness, and credit
capacity. These services are generally the use of credit
reports and credit scores. It is automated underwriting.
The default assumption--for better or worse--of most
lenders if there is insufficient information to score a person
is that they are high-risk and they are automatically rejected.
Consequently, 54 million Americans remain frozen outside of the
mainstream financial system, and they have real credit needs.
And those real credit needs are being met by pawn shops, payday
lenders, check cashing services, and other predatory lenders.
There is a solution to this credit Catch-22, and it is a
Catch-22. In an automated underwriting system, it is like when
you apply for your first job and they look at your resume and
they tell you your resume looks terrific, but they would like
someone with more experience. Lenders lend credit to people who
already have credit experience. How do I get that credit
experience?
We fully support H.R. 6363 as an elegant solution. It is a
means whereby the onus is not put on the consumer. It is not
opt-in. It is not burdening the consumer. Their good payment
history is coming in and populating their credit report, and
thickening it trade line by trade line, enabling lenders to
have a more comprehensive view of their credit risk and to make
a more informed decision.
We are the only organization at this table which has looked
at this empirically and not theoretically, which has looked at
this in terms of the actual outcome on people's lives; which
has looked at it in the actual outcomes in credit markets. And
we see that when--in a report we issued in 2006 with the
Brookings Institution, we saw that adding a single utility
payment data increases credit access for all Americans by 10
percent. It increases access for Latinos and African Americans
by 22 percent; for younger Americans below 25 and for elderly
Americans by 14 percent; and for the lowest income tier, those
earning $20,000 or less, by 21 percent.
When we put this report out, we had an overwhelmingly
favorable response, and we had some skeptics. We pay attention
to what skeptics say. And the initial response was, this is
easy credit. This is big credit trying to con people into more
credit than they can afford.
So, we looked at this over a 3-year period, people who were
new to credit from alternative data. First we proved the data
was predictive. Then, we proved that the data is being used by
lenders when available. And what we saw was people who had a
utility trade were able to access credit at 4 times the rate of
thin file people without a utility trade.
And after two--or actually after just 1 year, they were
performing the same as the general population in terms of every
meaningful metric: overextension; credit availability; age of
credit; and depth of credit. And by the second and third years,
they were outperforming the general population. So, there is no
empirical basis to support any assertions that this is
overextension.
The target moved again. And it was that the data is stale
now. We had the Great Recession. We had the global financial
crisis. The data from 2005 and 2006 does not matter. So, we
have data from 2009, 2010, the peak of the recession with high
unemployment, people's savings burned through.
If this did not matter, we should see it. And we have in
places like Detroit and Chicago and Milwaukee that have been
economically ravaged. And the results were remarkably
consistent. The biggest lift goes to the people who need help
the most.
We also see, interestingly, that over time people's credit
scores go up. African-American scores with utility data go up
by 60 points on average over 3 years; 55 points for Latinos.
This is important because again, if this were about
overextension, if the macro economy mattered, then we would see
more delinquencies, more bankruptcies. But we do not. So,
again, this has been evaluated empirically.
Finally, the notion came that moderately late utility
payment data will affect, disproportionately harm. And we have
heard the quote even today that a single late payment will tear
down my credit score by 60 to 110 points.
We have just released a report showing that the frequency
of a low-income person having a single 30, a single 60, or even
unlimited 30s and 60s is minimal. And in fact what we see is
that people's scores improve dramatically from having this
reported and their access to credit does as well.
The harm or potential harm from moderate late payment is
greatly overstated simply because utilities do not report that.
Even for utilities that are reporting fully today,
unfortunately it is only on less than 6 million Americans. The
vast majority report over 60 days late and not 30 days. There
is flexibility in the system and we would encourage finding a
common ground. We support not having the account information of
those who are on energy assistance programs reported.
We think there is a workaround and we do not want to deny
the benefits--the ratio is 27 low-income people gain access to
credit for every one person whose score goes down. That is a
huge ratio. And I urge this committee to consider the facts and
not the conjecture. Thank you.
[The prepared statement of Dr. Turner can be found on page
101 of the appendix.]
Chairwoman Capito. Thank you, Dr. Turner.
And our final witness is Ms. Chi Chi Wu, staff attorney,
National Consumer Law Center. Welcome.

STATEMENT OF CHI CHI WU, STAFF ATTORNEY, THE NATIONAL CONSUMER
LAW CENTER (NCLC)

Ms. Wu. Madam Chairwoman, Ranking Member Maloney, and
members of the subcommittee, thank you very much for inviting
me here today. I am testifying on behalf of our low-income
clients who would be greatly impacted by both of the issues and
the bills being discussed here today.
The first bill, H.R. 2086, would remove paid or settled
medical debt under $2,500 from credit reports. This approach
will tremendously benefit consumers, and it is probably the
simplest and easiest quick fix out there to improve the credit
records of millions of Americans, enabling them to qualify for
low interest rates and spur economic growth.
The second bill, H.R. 6363, encourages utility companies to
report payment information to credit bureaus on a monthly or
regular basis. We have serious concerns about this practice. We
fear that it will add millions of negative marks to credit
reports from low-income and financially strapped consumers. We
are not opposed to consumers voluntarily providing this
information. We are concerned about it being mandatorily
reported.
Proponents claim that utility payments will help tens of
millions of consumers. However, the data is based on the very
few electric and gas utilities that do report on a regular
basis. The vast majority of utilities only provide information
to a credit bureau when there is a seriously delinquent account
that has been referred to collections or written off as
uncollectable. That is a far lower number than those consumers
who may pay late on their bill occasionally but then eventually
catch up.
The data cited by proponents is only based on this handful
of utilities and might not be representative. For example,
proponents claim that reporting utility payments will not harm
consumers because fewer than 5 percent earning less than
$50,000 or less have a 60-day late utility payment. Yet, the
data we have from utility regulators shows much higher
percentages than 5 percent.
Columbus Gas in Ohio reported that about 21 percent of
their customers were 60 days late in December 2011. That figure
was 16 percent for East Ohio Gas. San Diego Gas reported that
11 percent of general residential customers and 34 percent of
energy assistance customers were 60 days late in June of 2012.
And 17 percent of National Grid's New York customers were over
60 days late in the spring of 2010.
I urge the Members here today to go back to your own
utility regulators and ask them, how many consumers in your
State are 60 days or more late on their gas or electric bills?
So, to the extent that utility reporting creates new scores
for the credit invisible, we are concerned that these consumers
will end up with a bad credit score. In fact, in the June 2012
study, proponents say that for all those who become scorable,
about one third scored in the ``F'' category, and 22 percent
scored in the ``D'' category; so over half of formerly
unscorable consumers ended up with a ``D'' or an ``F.'' That
hardly qualifies them for low-rate mortgages or prime credit
cards. I do not know about you, but I do not want a ``D'' or an
``F.''
Proponents responded that a low score is better than no
score. We disagree. A bad score can harm consumers by making
them a target of fee harvester credit card, those credit cards
with high fees and limited real credit.
And do not forget, credit reports are not just used for
lending anymore. A lot of employers use credit reports, not
scores apparently, reports in hiring. And that is a situation
where it is far better for a worker if the employer sees no
report than one with negative information.
Insurers also use credit scores. And that is another
situation where not having a credit history is less harmful
than having a bad history because the absence of a score is
treated as a neutral in many States.
Utility credit reporting can also conflict with consumer
protections like the winter moratorium in many States that
prohibit utilities from disconnecting services from certain
consumers during the winter months. Utility credit reporting
would give these consumers black marks on their credit reports
when the moratorium was designed to give them some breathing
room.
We have concerns also about the scope of H.R. 6363 because
it actually goes far beyond utility credit reporting. It
eliminates any regulation under the Fair Credit Reporting Act
restricting furnishing of information to the credit bureaus,
such as limits on identifying information, public records or
tenancy information. It would prevent the Consumer Financial
Protection Bureau from establishing regulations that would
prohibit the furnishing of outdated, irrelevant or sensitive
personal information.
Finally, turning to medical debt, this is an issue with
enormous implications for current credit reports. Medical debt
makes up over half of the items on credit reports for debt
collection. Furthermore, as we have heard, it is for services
that are often involuntary, unplanned, and unpredictable. Plus,
a lot of these medical collection items are the fault of our
convoluted health care payment system.
A collection item could result either from a dispute
between the insurer and the provider or a mistake in billing.
The American Medical Association estimated that one in five
claims is processed inaccurately. When mistakes occur, delays
happen, and bills can be sent to a collection agency in the
meantime.
Now, even worse, when the insurer or the consumer finally
pays off the bill, the collection item still remains on the
consumer's credit report and still drops the score. FICO has
said anywhere from 45 up to 125 points. Now, tell me how does
the fact that a consumer got caught between an insurer and a
hospital in a billing dispute make him or her a bad credit
risk?
I thank you for the opportunity to testify and look forward
to your questions.
[The prepared statement of Ms. Wu can be found on page 110
of the appendix.]
Chairwoman Capito. Thank you very much, all of you. And I
will commence with the questions because we are on another time
constraint here.
Let me just--point of clarification between Mr. Anderson
and Mr. Pratt. Mr. Anderson, you testify that there are 9
million inaccuracies on credit reports for folks between 19 and
26, is that correct?
Mr. Anderson. For people between 19 and 64. It was
according to The Commonwealth Fund, Madam Chairwoman, in 2010.
Chairwoman Capito. Okay. But Mr. Pratt, your figures do not
sync with that. Did I hear that right?
Mr. Pratt. I think it is two different sets of data. One is
a subset of the other. One discussion we are having here today
is the accuracy of the medical debt billing process which gives
rise to the collection agency activity, which gives rise to the
reporting.
And the other is just the macro question; are credit
reports accurate? Do they operate as an effective risk
management tool in the marketplace? And I think that is what
Dr. Turner's study has laid to rest, is the question of whether
or not the overall credit reporting system was accurate. At a
macro level, 3 data elements being uploaded every month, 200
million plus consumers out there. The numbers look great.
I would say this about The Commonwealth Fund as well. The
Commonwealth Fund also said 30 million consumers have received
contact from a debt collector. And they said 9.7 million of
them then were wrongfully contacted.
Of course, that means the other 20.3 million consumers were
correctly corrected. And I think that is one of the challenges
we have is understanding what part of the medical debt billing
process is accurate versus not accurate. And then what part of
that is making its way into the credit bureau record?
Chairwoman Capito. Okay. So, let us just say that we are
having errors here and misunderstandings. Ms. Wu talked about
that as well. And the debate between the hospital and the
insurer where really the patient is kind of caught in the
middle and not really trying to get it figured out for the
patient.
Is there any way that this could--what would be the best
way to sort of preempt those issues rather than have them
already placed on your report where we have already discussed
it is difficult to get resolution? Has anybody thought about
that, like a moratorium or anything like that? And I am not
sure if it is contained in the bills that we have before us. I
am just throwing that out to anybody who might have a thought
on that.
Ms. Wu. There are actually a number of States that restrict
or put a limit on how long a hospital has to wait before they
can refer a bill to a debt collection agency or send them to a
consumer reporting agency. California has such a law. I think
Illinois might have such a law. And we have advocated for some
sort of breathing room like that.
If you think about it, medical debt is something you have
no control over. Mr. Anderson's client's son was hit by a
bicycle. That is not like going and opening up a credit card
account. The idea that it is somehow predictive of how
creditworthy you are, I think really needs to be examined
thoroughly.
By the way, one option consumers unfortunately do not have
under the Fair Credit Reporting Act is to get the paid
collection item off their credit report using the dispute
system because there is a bad 9th Circuit case--it is called
Carvalho--where in the exact same situation, the consumer was
caught between the hospital and the insurer. And she tried to
use the Fair Credit Reporting Act to get it off and the 9th
Circuit said no, it stays on.
Mr. Anderson. Yes. And the dispute process--if I may, the
dispute process is so convoluted. When somebody goes to dispute
that, it is supposed to be removed in 30 days. But more
consumers are turning to the creditors themselves rather than
the credit bureaus because they find the credit bureaus are
inaccurate.
They are not helpful and they are--when they find out about
these items most of the time they are in lenders offices and it
is way too late. A lot of these are already paid medical
collections that should have never been on their credit report
in the first place.
I have an example of a borrower just the other day or just
a week ago, who wanted to buy a $240,000 house, put 20 percent
down, has pristine, excellent credit, and a $10 medical
collection showed up on his credit report. It has dropped one
of his scores 110 points and another one 128 points. That is
the scope of the problem.
And lastly on this, Aetna was recently interviewed on CNBC,
and they were asked how many medical claims they pay a year.
And they said, 440 million claims. And they asked them, how
many of them have errors? And they said, 3 percent. So, if you
take that down, that is over a million claims a day at 3
percent.
That is a staggering number on just Aetna alone. And the
AMA says 20 percent of them have errors. So, the scope of the
problem with medical is overwhelming for consumers. And that is
why we have this problem today.
Chairwoman Capito. Okay. I am going to yield to Mrs.
Maloney.
But I would make a statement too, and I do not know that
anybody has talked about this. But there has to be an
uncalculable statistic here for people who just simply say, I
cannot deal with the credit bureau, I cannot deal with trying
to make the adjustments. I cannot deal with paying the bill.
So, I don't think they are even in these statistics. And I
don't know what that would be. But I am sure it is pretty
sizable but people just feel like they have--their alternatives
are so slim that they just kind of throw up their hands and
just keep trying to move forward.
Mrs. Maloney?
Mrs. Maloney. Following up on the chairwoman's statement,
to show there is a little bipartisan support up here, I would
like to follow up on her statement and ask the panelists,
starting with Chi Chi Wu and anyone else who wants to comment,
what challenges do consumers face in terms of disputing
information contained in a credit report?
What can they do? What resources does the FTC give them?
How do they address errors in their credit reports, assuming it
comes back incorrect like Mr. Anderson said? And if Ms. Wu
would comment, and then Mr. Anderson and then Ms. Spector, and
then anyone else.
Ms. Wu. Thank you, Congresswoman Maloney. We have
repeatedly documented the problems consumers face in disputing
errors on their credit report. We were here before the full
committee in 2007. We issued a report in 2009 entitled,
``Automated Injustice'' which talks about how difficult it is
for consumers to get errors taken off their credit reports,
corrected.
The credit bureau systems are just entirely perfunctory and
automated--people spend hours putting together disputes,
sending them, and then the credit bureaus turn them into a two-
digit code, do not forward the documentation to the original
supplier, the furnisher of the information. Just send that two-
digit code with maybe a line of text. And then whatever the
furnisher comes back with, they accept. And if the furnisher
says verified, even if they are a debt collector with a really
bad record, the bureaus take their word for it. It is very hard
for consumers to get their errors fixed.
And in speaking of the study that showed--supposedly only 1
percent of credit reports have errors, they did not count any
errors where people did not file a dispute. And some people
simply just do not have the literacy or educational backgrounds
to file the dispute by themselves.
We do hope that with the Consumer Financial Protection
Bureau up and running and taking complaints--and they are going
to start taking complaints in that field, we do hope that the
situation improves for consumers. We have great hopes for the
CFPB.
Mr. Anderson. Congresswoman Maloney, one of the things is
within Fannie Mae and Freddie Mac, for example, in the housing
market, the GSEs have come out with an underwriting policy
which states that a consumer cannot have one dispute on their
credit report. That dispute has to be pulled out of the report,
otherwise they do not get a home loan.
And so what basically happens during that period of time,
if a person goes under contract on a house to close in 30 days,
they cannot even knowingly dispute that process because the
GSEs, Fannie Mae and Freddie Mac, state that you cannot get a
home loan.
Also, FHA during their underwriting standards state that if
the dispute was in an item in the last 2 years, then you are
not eligible. But if the dispute is over 2 years old and is
paid, then they do not have to count it. So, there are a lot of
variables here. And that is why we see the problems in the
housing market and the trouble with the dispute process.
And lastly, all these items, you should see it. Item in
dispute, item in dispute, item in dispute, and they are all
always on medical parts. And those disputes--even though they
are more than 30 days old; they are from 2006--are still on
that report where the Fair Credit Reporting Act states that
item should be out of dispute. Then why is it still on their
credit report, I would ask Mr. Pratt, 6 years later?
Mrs. Maloney. And why is it 6 years? I would question if
somebody has a medical problem that happened because of the
insurance company, as many of you pointed out, they do not even
know about it. Then why keep that on your credit score for 7
years?
Can you address that, Ms. Spector? Do you know why?
Ms. Spector. I can address that particular question because
I agree that the paid medical debt should come off the report.
Mrs. Maloney. Let me ask you to respond to some of the
concerns that have been expressed by the credit bureaus about a
potential slippery slope. And they say that if you remove
settled medical debt from a credit report, you risk sliding
down a slope whereby other data could be the next to go. And
then the data is not there to make the determination. Can you
respond to that concern that has been put out there, Ms.
Spector, Ms. Wu, Mr. Pratt, anybody?
Ms. Spector. I would be happy to try. I think that there
are some things that should come off the report. You talked
about errors, and that errors are a problem. But there is also
information, accurate information like a paid medical debt that
can be misleading or it does not give a complete picture of the
consumer's path.
That is why the paid--when we know about what happens with
the insurance system and how that payment system works, we
begin to get a better picture. And so, removing that kind of
even accurate information can be very helpful to consumers.
There are other kinds of information that may be accurate
technically, but incomplete, like the filing of the lawsuit
that has not been fully resolved or an unpaid tax lien that may
be uncollectable because of the passage of time, but still
appears on someone's credit report. So, I think that there are
good reasons to further limit--I am not going to say which ones
now should be limited. I think it deserves further study.
Mrs. Maloney. My time has expired.
Chairwoman Capito. Mr. Renacci for 5 minutes.
Mr. Renacci. Thank you, Madam Chairwoman.
Mr. Turner, I want to thank you for your testimony and all
the hard work you have done in this area. Some of the testimony
today seems to imply that there is currently little negative
impact on the consumers who miss payments. Do you agree with
this assertion?
Mr. Turner. The status quo, just to be clear, most utility
companies that report--we studied this. We surveyed the Edison
Electric Institute and the American Gas Association members.
And the two most common reporting periods were 60 and 90 days.
So, your delinquencies are getting reported to credit bureaus
today.
Your serious derogatories, and I could be wrong but I do
not believe anybody at this table would suggest that serious
derogatories that suggest that are correct should be excluded.
And really what is happening is if your--life happens to you.
The macro economy turns south. You have sudden unexpected
medical expenses and you cannot make ends meet. You are getting
those stains in your credit report.
Now, your circumstances change. You get a job, maybe even a
better job. You are making ends meet. You are paying your
bills. That is what is not getting in there. There is no
countervailing data that is going in to help you.
So, again, we have proven this. This debate has moved
beyond the theoretical. We do not see any evidence that low-
income Americans are being disproportionately harmed or harmed
at all. We disagree on the definition of harm.
We think the harm is when you are discriminated against,
you are not able to get credit, not because of anything you
have done but because the information is not there. And so we
think that this bill, H.R. 6363, represents a massive step in
the right direction in terms of helping those people who have
scratches in credit, who have been harmed by this macro economy
and those who are credit invisible.
Mr. Renacci. Don't many utilities already report late
payments?
Mr. Turner. Indeed. In fact, first, most utilities, the
vast majority of utility companies that report, report only
negative payment information.
And again, they begin reporting primarily at 60 and 90
days. Some report later because of the very policies that Ms.
Wu represented. There is a moratorium during hot weather months
in some southern States and during cold weather months in some
northern States.
Our sample, our analysis, if this were an issue, if those
companies that fully reported were going to harm people on
these plans or were going to harm people during this
moratorium, we would have found it, because our States look at
cold weather States like Michigan, like Illinois, and like
Ohio, and we do not see it. So, indeed that data, negative data
is already getting reported.
Mr. Renacci. Thank you.
Ms. Wu, I want to thank you also for testifying today. I
want to start by saying I hope we can find some common ground
on many of the concerns you raised on this testimony. On
several issues before this committee, the competing interests
were so far apart it is really hard to find common ground. But
I do not believe that is the case in this instance.
I believe we are all trying to help the same group of
people. So, my soul purpose in sponsoring this legislation is
to help those currently unable to access credit climb out of
the shadows. I am willing to listen to any and every idea on
how to accomplish these goals.
You mentioned the drastic changes this bill would have to
the FCRA. I want to assure you that it is not like there really
is a straightforward clarification that timely payments can be
reported. And after reading your testimony, we have checked the
language with legislative counsel who drafted the bill and they
do not believe it makes the sweeping changes you allege. Do you
believe that we can work together on language that will ensure
we do not change any of the existing protections under FCRA?
Ms. Wu. Thank you, Congressman Renacci. Yes, I certainly
would want to work with you and your staff on the language of
the bill. One of the things that concerned us about the bill
was the language itself and how it went beyond utility
reporting to talk about things like public records, identifying
information, real property leases, and performance on
subscription agreements. These are all things that have nothing
to do with utility service. And so certainly when we saw the
language there, we were a bit concerned, and we certainly want
to work with your staff on that.
The irony is that currently nothing in the FCRA prohibits
the furnishing of utility information. But what the bill says
is that there shall be nothing to prohibit furnishing of this
other information, some of which could be sensitive.
Mr. Renacci. One last question, Mr. Turner, is there any
evidence that some low-income Americans could be harmed by
fully reporting utility payment data to credit bureaus,
especially as a result of moderately late payments being
reported that are currently excluded?
Mr. Turner. No, sir. Again, we did studies on this, both
pre- and post-financial crisis and recession. And the largest
net beneficiaries in both instances are the low-income
Americans. Ms. Wu mentioned the report card schematic that was
in our most recent report, and talked about the distribution
for old data.
Let me compare that to the traditional data that is in a
file. Both come in at 33 percent for an ``F,'' both. If you
have one traditional trade line or one alternative trade line,
33 percent are for an ``F.'' ``Ds'' 22 percent alternative
data, traditional trade 31 percent. ``As,'' ``Bs,'' and ``Cs,''
which are all prime variants by the way, 45 percent for
alternative data, 37 percent for traditional data.
The reason why with one trade line people have low scores
is because it is one trade line, not because it is alternative
data. We do not want a situation where there is one trade line.
We want a situation where there are many trade lines.
Alternative date moves people up from the ``Fs'' and the
``Ds'' into the ``As,'' ``Bs,'' and ``Cs.'' There is nothing
empirical to substantiate any of the assertions Ms. Wu
presented today. In fact, everything suggests just the
opposite.
Chairwoman Capito. The gentleman's time has expired.
Mr. Renacci. Thank you, Mr. Turner.
Chairwoman Capito. Mr. Scott?
Mr. Scott. Thank you, Madam Chairwoman.
Mr. Pratt, I want you and Mr. Anderson to help me with
something here. I am having difficulty understanding why, Mr.
Pratt, you would be opposed. Why are the credit bureaus opposed
to the requirement to remove within 45 days these medical bills
up to $2,500 that have been paid, that have been settled? I do
not understand why you are--what the problem is here. Maybe you
and Mr. Anderson can help me sort through that.
Mr. Pratt. From our perspective, there are two parts to
that, Congressman, so thanks for the question. The first part
of that is a credit history on the broad scale, if we begin to
go down this road of saying let us delete data when paid then
candidly consumers would change their behavior on a large-scale
basis and decide to only bring bills current when they know
they have to apply for the next loan with Mr. Anderson. And
then, they have a high credit score. And then, they can revert
back to not paying bills.
In the broad picture, a credit history is a history of
bills paid. It is a history of debts owed. It is a history of
missed payments, but also on-time payments. But you lose
history if you begin to eliminate something at the point of
payment or eliminate something at the point that the account
has been brought current again. That is why it is a credit
history, not just the immediate snapshot of who you are right
now. So, that is one concern.
The other concern is there is no science yet that tells us
why we should delete an accurate paid medical debt that has
been reported to the credit bureau file. There is no science
that shows that it is not predictive. In fact, the score
developers that have testified on this subject in different
panels at different times have said that the presence of debt
collection trade lines is predictive.
So, if nothing else, we should hit the pause button and
have a thorough and empirical discussion. I applaud Professor
Spector who has said several times the study we should have is,
dot, dot, dot. We have no study. We have no empiricism. This is
a ready, fire, aim kind of approach saying just intuitively
this must be okay.
Mr. Scott. Mr. Anderson, how do you respond to that?
Mr. Anderson. I would say that this is a scalpel approach
that could help Americans today where we need help. We do not
need time for more studies. Basically what happens is there is
no slippery slope. There is no--there is a big difference
because medical debt is unique. And where it is unique is if
you go take out a mortgage, an auto loan, or a student loan,
you get a monthly bill. It is very descriptive of how much you
owe and when the due date is.
There are no monthly payments on medical bills. You do not
get a monthly statement. When the consumer finds out about it
is when it goes to the collection agency. Before that, it is
not a bill. This is a bill. The insurance is supposed to cover
it. So, there is no slippery slope when it comes to this.
Mr. Scott. And with the fact, Mr. Pratt, that this bill
clearly keeps this narrowly focused on medical bills at the
$2,500 level. Doesn't that address your concerns? There is no
slippery slope if we have that criterion in the bill.
Mr. Pratt. The precedent we have to address first is
whether or not the data is predictive. And if that data is
predictive, it should stay in the credit report as part of the
underwriting decision. And that is the science we do not have
today, but which I believe is readily available and easily
obtainable. But it is not the science we have today.
We should not be making an intuitive decision about what
should or should not be deleted, whether it is this particular
item that may be more unpopular than others because it is
associated with debt collectors, or whether it is the 30-, 60-
or 90-day missed payment on a traditional credit card. We must
have the science first in order to make the logical decision.
We do not have it yet.
Mr. Anderson. And Congressman, it is my understanding--and
there was a detailed study done by the Federal Reserve in 2003
where they said that medical debt was atypical and was not
predictive of the way you pay your bills. And also, they stated
that 85 percent of medical debts were under $500. We are not
talking about big debts.
Mr. Pratt. They made no conclusion about--they drew no
conclusion about the predictive nature of the medical debt,
although they did do a data quality study and they did point
out that they highlighted that medical debts were one of the
areas where perhaps more study was necessary. But they made no
conclusions as described by Mr. Anderson.
Mr. Scott. Thank you.
Ms. Wu--I see my time is about to expire--okay.
Mr. Renacci [presiding]. Thank you, Mr. Scott.
I recognize Mr. Manzullo for 5 minutes.
Mr. Manzullo. Thank you.
You do not have to do the studies. When I practiced law, I
probably put 1,000 people through bankruptcy. And I can tell
you, people do not plan to have their kids hit by cars and end
up with medical bills.
And people like my wife, who was hospitalized because of
cancer 6 years ago, do not plan to have a letter sent to her
while she is still in the hospital threatening to turn her over
to the credit reporting agency unless she paid the bill in
advance. There is nothing predictive about the fact that people
have accidents or people get sick and they have to go to a
hospital or doctor and the medical bills get put on there.
The other problem is this: There are people who have
professions where they sit down with people who have had major
hospitalizations such as my wife and go through the medical
bills finding all the errors. I have a degree in law, an
undergraduate degree. My wife is a microbiologist, and she has
an advanced degree in that. We could not figure out her bills.
It was absolutely outrageous.
And then, one of the credit reporting agencies a few months
ago arbitrarily started charging $19 a month that showed up on
our Visa bill. We have no idea where that thing came from. And
so, the consumers in this country are fighting an unknown
enemy.
I had a situation where we went to a store and the guy
said, would you like to take out a credit card? Fine; it was a
major store. And 10 minutes later, he said it was rejected. So,
I went back and I talked to the manager. He said, we cannot
tell you why it was rejected. I said, I will sue you under the
Federal Credit Reporting Act. Guess what happened? They had
turned in the wrong Social Security Number.
So, it is time after time after time after time again
things turn up on the credit report that people have no idea
are on there. And I just think saying that in your statement on
Page 13 it is wrong to conclude that because some debts are not
chosen that the debt is not relevant and predictive, that is
correct. It is not predictive.
The other part of the report talks about elective
surgeries. Elective surgeries are not considered medical debt
either by the American Society of Plastic Surgeons or by the
IRS. And so, that is not even part of this.
If someone wants to have liposuction and does not pay for
it, that does not go in as a medical debt itself.
Mr. Pratt. Under the FCRA, it does though, by definition
amended in 2003, yes, sir.
Mr. Manzullo. It does not go on there?
Mr. Pratt. It does. It doesn't matter what the IRS does,
but under the FCRA, ``medical information furnishers'' was a
term established in 2003, and it does. So, those are another
subpart of all the types of debts reported that could
potentially end up on a credit report.
Mr. Manzullo. But in any case, you have a valid point. If
somebody gets elective surgery and they do not pay the bill,
that should go onto the report.
Where you do have a valid point is on Page 15 talking
about--and I can see your big picture here and that is the cost
of the administration. It makes sense, but I think that in the
drafting of the language and perhaps the regulations whenever
somebody pays off a bill that is less than $2,500 there would
have to be a form that would be sent into the credit reporting
agency to have that removed anyway.
So that form should state something on there that makes it
very definitive that it is indeed the medical bill and that the
credit reporting agencies could rely on that. That would allay
your fears on Page 15 about that. And I thank you for bringing
that up because that is something always to take into
consideration.
But I just--as somebody who has been involved in filing
bankruptcies--I have friends back home with $160,000 worth of
medical bills. That was it. And they filed bankruptcy because
they had no idea what to do. That is not predictive. His son
had cancer.
Mr. Pratt. The only question I have, and it is for others
who may not be sitting at this table, what I was trying to say
earlier in the testimony is that if there is a lawful and
accurate outstanding debt, a banker probably wants to know that
because it is part of the total debts that consumer owes,
regardless of how difficult the underlying circumstances were
that arose.
And so a banker may very purely say it is still a safety
and soundness question. What other debts does the consumer
have? Not whether or not the debt was a result of buying a big
screen TV or the debt was the result of a medical procedure.
That is the challenge we have. And one of the voices we do not
have full and completely here at the table is the lending
industry to help us understand--
Mr. Manzullo. I do not think that is necessary--okay. My
time has expired. Thank you.
Mr. Renacci. Thank you, Mr. Manzullo.
Mr. Carney for 5 minutes.
Mr. Carney. Mr. Chairman, Mr. Ellison has asked if he could
go next, and I would like to defer to him and then pick up
after that if that is okay with you?
Mr. Renacci. Mr. Ellison?
Mr. Ellison. Thank you, Mr. Chairman, and thank you, Mr.
Carney.
Dr. Turner and Ms. Wu, we are all here together because we
care about making sure that low-income people have a chance
too. The question is, how do we do it? Does adding more data to
the file help or does it hurt? That is the big question.
So, Dr. Turner, you have brought forth a lot of empirical
evidence that I find persuasive. But then, Ms. Wu came forth
and showed, I think, three different utilities that show that
late payments were more frequent than your data might suggest.
I want to give you both a chance to square these numbers
and maybe explain them a little bit. Who wants to go first?
Ms. Wu. Thank you, Congressman Ellison. I certainly
appreciate the sentiment behind the bill and the sentiment that
we want to improve access to credit for low-income consumers,
affordably priced, responsible credit of course. I think there
are ways of doing so.
One of the things I would like to emphasize both in my
testimony and my--written and oral testimony is that we do not
oppose voluntary opt-in methods for supplying utility data.
If a consumer knows they have been paying on time and wants
to show a lender, look, I am a good risk because I know I have
been paying on time, we certainly are not opposed to that. We
would support that.
What we are concerned about is the one third of energy
assistance consumers in States like Massachusetts and Ohio,
probably all over the country who have trouble with their
utilities because utilities are uneven.
You are from Minnesota. You know in the cold weather
months, those bills go sky high--$300, $400 a month. People
have trouble paying that for a few months, but then they catch
up. And we are concerned that those spikes of late payments are
what is going to hurt low-income consumers if we have regular
monthly utility reporting. And that is why we are concerned,
and we want more data.
We would like to see more data based on FICO. The studies
that have been done so far have been based on VantageScore.
FICO and VantageScore are two different systems. And FICO is
the score that the CFPB itself says 90 percent of lenders use.
So, let us see the data from FICO.
The data we have is not from us. It is from utility
regulators. It is public. You can go to the Web site of the
entire utility commission--
Mr. Ellison. Ms. Wu?
Ms. Wu. Yes?
Mr. Ellison. Let us let Dr. Turner get in.
Mr. Turner. Let me respond. First of all, I will address
the question that was actually asked, as opposed to what was
answered.
The reason why there is variance is that there is a sleight
of hand here in the representations. First of all, we look at
low-income households, not energy assistance recipients.
There is high school logic for the SAT. Joe wears a hat.
All baseball players wear hats. Is Joe a baseball player
necessarily? Energy assistance people are a subset of low-
income people. Not all low-income people are energy assistance.
The other bit is the actual--the statistics she is citing
are 61 days and up. They are above 60; they are not 60 and
below. Thirty and below is 2 percent in ours; 60 and below is
2.2 percent. There are a lot more. We have 13.8 percent at 90
and above, right? So, actually our numbers are very consistent
with the statistics. So, there is that.
Second of all, the study we released with the Brookings
Institution in fact looks at four FICO models. It is not
VantageScore. We looked at 10 commercial grade scorecards from
two bureaus, from SAS, from a major lender and from FICO. So,
let me put that myth to rest once and for all.
Let me give you an opportunity to ask other questions.
Mr. Ellison. I want to be quick because I actually have to
run, unfortunately. So many things scheduled at the same time.
But I do want to ask about the National Consumer Telecom &
Utilities Exchange (NCTUE). Are you all familiar with that? Are
you familiar with that, Ms. Wu?
Ms. Wu. I have a passing familiarity.
Mr. Turner. I am very familiar with it.
Mr. Ellison. Okay. It gets late utility and telecom
information on 80 percent of consumers. Does the--my staff
loves acronyms; I apologize. Does NCLC have concerns about
NCTUE's practices?
Ms. Wu. I have a passing familiarity with the database that
you are talking about. It is a database that utilities do
report to. From what I understand, it is not in the mainstream
credit bureau reports that you might get--especially for a job
or for insurance. It is a specialty database.
Mr. Ellison. I am over? Okay. Can he finish his answer?
Okay.
Mr. Turner. The NCTUE is a comprehensive database of fully
reported utility and telco payment data. It is used in
combination with credit reports when people apply for utility
and telco services. And in a competitive deregulated
environment, it is actually used in the eligibility
determination.
The questions that we have raised for this floor and others
is in fact if it is used for eligibility determination, it
should be an FCRA-regulated database. There are proclamations
that it is such, but I know from firsthand accounts from
discussions with contributors to that, that they are told that
it is not an FCRA-regulated database.
And when a decision is made about pricing or requiring a
security deposit or the amount of the deposit and eligibility
to the plan, if there is inaccurate data in there that results
in what is known as an adverse action, the consumer is not
notified. So, we have expressed ongoing concerns about that.
Now, having said that, if that information can get reported
we would actually really like that to be in a consumer's credit
profile to help build credit access.
Mr. Renacci. Thank you, Mr. Ellison.
Mr. Carney for 5 minutes.
Mr. Carney. Thank you, Mr. Chairman. I am not really
comfortable unless I am going last anyway, since it is where I
usually am.
I would like to go back to this last conversation about
your differences of opinion on the data and what they say in
terms of how it would affect low-income consumers. Obviously,
the objective of the bill, as Mr. Ellison stated, is to
increase access to credit for these folks. And clearly, Dr.
Turner, you and Ms. Wu disagree with this.
I think Ms. Wu's point is that providing access to utility
payment information is going to create problems--more problems
for people than it will be a positive thing. Is that an
accurate description of your view?
Ms. Wu. Yes. We are concerned that reporting utility data
on a monthly or regular basis will create more records of late
payments, especially--
Mr. Carney. Okay.
Ms. Wu. --for low-income consumers.
Mr. Carney. So, it would have the opposite effect of the
intention of the bill.
And Dr. Turner, you have a--your view is different than
that. Could you restate it again and mention the information or
your study that you have done? I did not follow the last part
where you compared your 30-day, 60-day, to what Ms. Wu was
saying. It sounded like the same thing, in which case it would
be a net wash.
Mr. Turner. Let me clarify. Again--
Mr. Carney. It could be that I just do not understand the
data. And maybe, you will have to give us the study so we can
look at it and--
Mr. Turner. Sure. All of our studies are freely available
online at perc.net.
Mr. Carney. Perfect.
Mr. Turner. And we would be happy to come in at any point
and discuss this in more detail with you or your staff. The
reality is we have a very large sample of over 5 million
individuals who have fully reported utility trade lines for 1
year or more. And this is compared to an analytic sample of
over 8 million. So, we are talking big numbers here.
Mr. Carney. Right.
Mr. Turner. And we are talking about actual experiences,
not hypothetical: what may happen; what could happen; what has
happened. This is retrospective analysis. And again, the
largest net beneficiaries are low-income Americans, members of
minority communities, younger and elderly Americans. The
ratios--
Mr. Carney. So in some ways, it is counterintuitive. But
the study is what the study is, right?
Mr. Turner. The numbers are what the numbers are.
Mr. Carney. Right. Okay.
Mr. Turner. The ratio for those of the lowest income tier
who increase credit access versus those who decrease is 27-1.
That is in the lowest income tier.
Mr. Carney. Okay.
Mr. Turner. So, I--again, this is empirical--
Mr. Carney. Thank you. Yes, I have to move on because my
time is running out.
On the medical debts thing, I have a similar experience to
Mr. Manzullo on medical debts, which I will not get into. So I
agree with the notion that this is a nonpredictive and--does
everybody support that piece of legislation other than Mr.
Pratt? Everybody does.
Mr. Pratt, again, hone in on the reason that you do not for
me, please?
Mr. Pratt. I think it starts with a broader question, which
is when we look at the section of the Fair Credit Reporting Act
it says data will stay on the file for a period of time--
Professor Spector referenced it, Section 605.
Any time somebody is going to ask a new question and say
most data that is adverse to me is going to stay on the file
for 7 years. And then Congress periodically will ask a
question, and this is good. And Congress will say maybe this
piece of data should be treated differently.
So, in this case, that is what we have. We have this piece
of data; a paid medical account reported by a third party debt
collector should be dropped off the credit report 45 days from
the data of payment and notification to the bureau.
Our first question is, is there science around that to show
that that is a good result for a product, a--if you go to the
preamble, if you go to the findings of Congress when the FCRA
was enacted, it spoke to this central premise of having enough
data to make sure that safe and sound lending decisions could
be made.
So, my first question is not this absolutely must be wrong,
we can resist this forever; there is no way to get to a better
answer. My answer is--my point is we better have some good
science around this before we start unpacking--
Mr. Carney. So, you would like to take a look at the issue
first?
Mr. Pratt. I think the issue has to be explored.
Mr. Carney. Fair enough. Okay.
Mr. Anderson, you are jumping out of your chair.
Mr. Anderson. I am jumping out of my chair. Out of this, I
did a personal study of 5,100 people; 2,200 of them had at
least one medical collection. Mind you, my average conventional
FICO score is 763. My average FHA FICO scores is 706.
What is more important about my study is that it mirrors
the Federal Reserve study that 11.5 percent of medical
collections were paid and 88.5 percent were not paid. If we had
an 88.5 percent default rate in the housing market, what would
we have?
Mr. Carney. I think it is a function of our health care
payments system more than anything else.
Mr. Anderson. Yes. And so basically, creditworthy borrowers
are not going to hurt their credit because of a small item of
$100 or $200.
Mr. Carney. My time is up. But I want to thank everybody
for being candid and for disagreeing with one another. This has
been a very lively and interesting panel. Thanks very much.
Mr. Renacci. Thank you, Mr. Carney. And I also want to
thank all of the witnesses for your insight, and your
testimony. It was very informative.
The Chair notes that some Members may have additional
questions for this panel, which they may wish to submit in
writing. Without objection, the hearing record will remain open
for 30 days for Members to submit written questions to these
witnesses and to place their responses in the record.
This hearing is now adjourned. Thank you.
[Whereupon, at 5:00 p.m., the hearing was adjourned.]

A P P E N D I X

September 13, 2012

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