FR Doc 04-13482

[Federal Register: June 15, 2004 (Volume 69, Number 114)]
[Notices]
[Page 33387-33391]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr15jn04-47]

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FEDERAL TRADE COMMISSION

Public Comment To Aid Staff in Preparing the FACT Act Section
318(a)(2)(C) Study

AGENCY: Federal Trade Commission.

ACTION: Notice and request for public comment.

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SUMMARY: The Federal Trade Commission (the ``Commission'' or ``FTC'')
is conducting a study of the effects of requiring that a consumer who
has experienced an adverse action based on a credit report receives a
copy of the same credit report that the creditor relied on in taking
the adverse action, as required by the Fair and Accurate Credit
Transactions Act of 2003 (FACT Act or the Act). The Commission is
requesting public comment on a number of issues to assist in
preparation of the study.

DATES: Public comments must be received on or before July 16, 2004.

ADDRESSES: Interested parties are invited to submit written comments.
Comments should refer to ``FACT Act section 318(a)(2)(C) Study, Matter
No. P044804'' to facilitate the organization of comments. A comment
filed in paper form should include this reference both in the text and
on the envelope, and should be mailed or delivered to the following
address: Federal Trade Commission/Office of the Secretary, Room H-159
(Annex M), 600 Pennsylvania Avenue, NW., Washington, DC 20580. Comments
containing confidential material must be filed in paper form, as
explained in the Supplementary Information section. The FTC is
requesting that any comment filed in paper form be sent by courier or
overnight service, if possible, because U.S. postal mail in the
Washington area and at the Commission is subject to delay due to
heightened security precautions. Comments filed in electronic form
(except comments containing any confidential material) should be sent
to the following e-mail box: FACTAStudy@ftc.gov.

[[Page 33388]]

The FTC Act and other laws the Commission administers permit the
collection of public comments to consider and use in this proceeding as
appropriate. All timely and responsive public comments, whether filed
in paper or electronic form, will be considered by the Commission, and
will be available to the public on the FTC Web site, to the extent
practicable, at http://www.ftc.gov. As a matter of discretion, the FTC makes

every effort to remove home contact information for individuals from
public comments it receives before placing those comments on the FTC
Web site. More information, including routine uses permitted by the
Privacy Act, may be found in the FTC's privacy policy, at http://www.ftc.gov/ftc/privacy.htm
.

FOR FURTHER INFORMATION CONTACT: Carolyn Cox, Economist, (202) 326-
3434, Federal Trade Commission, Bureau of Economics, 601 New Jersey
Avenue, NW., Washington, DC 20580.

SUPPLEMENTARY INFORMATION:

I. Background

A. Current Requirements Under the Fair Credit Reporting Act

Section 615 of the Fair Credit Reporting Act currently requires
parties who take an adverse action on the basis of information
contained in a consumer report to provide consumers with an adverse
action notice that, among other things, contains the name, address, and
telephone number of the consumer reporting agency that furnished the
report, that notifies the consumer of his or her right to receive a
free copy of a consumer report from the consumer reporting agency, and
explains his or her right to dispute with the consumer reporting agency
the accuracy or completeness of any information in that report. Section
615 provides no time limit within which the notice must be supplied. As
a practical matter, however, most creditors who are required to supply
an adverse action notice by the Equal Credit Opportunity Act [section
202.9 of Regulation B, 12 CFR 202.9] , which requires notification
within 30 days [section 202.9(a)(1) of Regulation B, 12 CFR
202.9(a)(1)], combine the FCRA and ECOA notices.
A consumer who requests a copy of his or her credit report
subsequent to receiving an adverse action notice may receive a credit
report that looks different than the one that the creditor relied on in
making its decision. For example, the report that the consumer receives
may contain more up-to-date information or be in a more consumer-
friendly format. In addition, if the creditor and the consumer each
provided different identifying information to request a copy of the
report, then the reports received by the two parties may differ. This
difference could, for example, be due to errors in transcription by
clerks or differences in the amount of the identifying information
provided. In some instances, the creditor may even receive multiple
reports from a single consumer reporting agency on an individual
consumer, while the consumer only receives one report. Thus, the report
that the consumer receives and the report that the creditor receives
and relies on may differ.
In contrast, a consumer who experiences an adverse action regarding
employment obtains a copy of the same consumer report that the party
taking the adverse action relied on. Section 604 (b) (3) (A) of the
FCRA notes that, except under certain circumstances, ``in using a
consumer report for employment purposes, before taking any adverse
action based in whole or in part on the report, the person intending to
take such adverse action shall provide to the consumer to whom the
report relates--(i) a copy of the report; and (ii) a description in
writing of the rights of the consumer under this subchapter, as
prescribed by the Federal Trade Commission, under section 609 (c)(1)
[section 1681g(c)(1) of this title].'' \1\
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\1\ The exceptions have to do with interstate truckers [section
604 (b) (3) (C) of the FCRA, 15 U.S.C. 1681b(b)(3)(C)] and
investigations of workplace misconduct [section 603(x) of the FCRA,
15 U.S.C. 1681a(x)].
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B. Study Required by the FACT Act

The FACT Act was signed into law on December 4, 2003. Pub. L. 108-
159, 117 Stat. 1952. Section 318 (a) (2) (C) of the Act requires the
FTC to examine ``the effects of requiring that a consumer who has
experienced an adverse action based on a credit report receives a copy
of the same credit report that the creditor relied on in taking the
adverse action, including--(i) the extent to which providing such
reports to consumers would increase the ability of consumers to
identify errors in their credit reports; and (ii) the extent to which
providing such reports to consumers would increase the ability of
consumers to remove fraudulent information from their credit reports.''
Section 318 (a) (3) specifies that the Commission ``shall consider the
extent to which such requirements would benefit consumers, balanced
against the cost of implementing such provisions.'' \2\
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\2\ Section 318 (b) notes that ``Not later than 1 year after the
date of enactment of this Act, the Chairman of the Commission shall
submit a report to the Committee on Banking, Housing, and Urban
Affairs of the Senate and the Committee on Financial Services of the
House of Representatives containing a detailed summary of the
findings and conclusions of the study under this section, together
with such recommendations for legislative or administrative actions
as may be appropriate.''
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We believe it is significant that the Act requires the FTC to study
only the effects of a consumer receiving a copy of the ``same credit
report that the creditor relied on'' following an adverse action.
Although ``credit report'' is a commonly-used non-technical term for
``consumer report,'' because the provision refers also to
``creditors,'' we interpret the study to encompass only the use of
consumer reports in credit transactions. Of course, consumer reports
are not only used to determine credit eligibility; they may also be
used for the purposes of reviewing an account or making decisions
involving insurance, employment, or government benefits.\3\ Consumer
reporting agencies may also provide reports to persons who have a
``legitimate business need'' for the information, such as a landlord
deciding whether to rent an apartment to a consumer.\4\ The scope of
the study, however, would not include situations in which these other
users of consumer reports rely on a consumer report in taking an
adverse action.
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\3\ FCRA section 604(a)(3); 15 U.S.C. 1681b(a)(3).
\4\ FCRA section 604(a)(3)(F); 15 U.S.C. 1681b(a)(3)(F).
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Although the FACT Act requires the FTC to study ``the effects of
requiring that a consumer * * * receives a copy of the same credit
report * * * relied on'' following an adverse action, it does not
specify who would be responsible for supplying a copy of the credit
report or the manner in which it would be supplied. In particular, the
Act does not specify whether the consumer reporting agency or the
creditor would be required to supply the consumer with a copy of ``the
same credit report'' or the manner by which they should fulfill the
requirement. For example, a creditor could send a copy of the credit
report or a notification of the consumer's right to receive a credit
report from them, along with each adverse action notice. Alternatively,
a consumer reporting agency could comply with a requirement to supply
the same report relied on by a creditor in taking an adverse action to
consumers who experience an adverse action by sending a copy of the
report to consumers (regardless of whether they will experience an
adverse action) at the same time that they send a copy to the creditor,
or by responding to requests of consumers who experience an adverse
action related to credit and request a copy of their report.

[[Page 33389]]

The Act also does not define ``the same credit report that the
creditor relied on,'' and it is not clear in all situations what the
term means. For example, in the case of a creditor who uses a credit
score to evaluate a consumer's creditworthiness, the ``same'' report
could consist of only the score itself or it could also include all of
the information that was used to derive the score. Likewise, if a
creditor received multiple scores concerning an individual, the
``same'' report could mean only the score or scores that the creditor
chose to use or all of the scores the creditor received. In addition to
issues regarding the content of the report, providing the ``same''
report to consumers as to creditors also raises issues concerning the
format of the report. If the report that the creditor relies on is
received in an electronic file that can only be understood using
queries made through a specialized software package, would the ``same''
report consist of the unintelligible electronic files, or might it
consist of a reporting of the information contained in the files in
some new, more consumer friendly format? The costs and benefits
associated with providing the consumer a copy of ``the same report''
depend on what one means by the term ``the same report.''

II. Request for Public Comments

The Commission is seeking comment on all aspects of the proposed
requirement that a consumer who has experienced an adverse action based
on a credit report receives a copy of the same credit report that the
creditor relied on in taking the adverse action. The Commission
specifically requests comment on the questions noted below, but these
questions are intended to assist the public and should not be construed
as a limitation on the issues on which public comment may be submitted.
Responses to these questions should cite the numbers and subsection of
the questions being answered. For all comments submitted, please submit
any relevant data, statistics, or any other evidence upon which those
comments are based.
The Commission requests that, as a threshold matter, parties
explain how they define ``the same report that the creditor relied
on.'' In addition, in answering the questions please use both the most
restrictive and the most expansive definition possible and feel free to
comment on how your answer would change if an alternative definition
were used. For example, in instances where a creditor used a credit
score, under the most restrictive definition, the ``same report'' would
consist of only the score, while under the most expansive definition,
the ``same report'' would include the score and the underlying data in
a consumer-friendly format. Thus, in instances where a creditor used a
credit score, the Commission seeks comment on the benefits and costs
under these two scenarios, but welcomes comment on additional scenarios
that might arise if an alternative definition were used.
The Commission notes that the term ``adverse action'' has a
specific definition under the FCRA. In particular, in terms of credit,
the term adverse action ``has the same meaning as in section 701(d)(6)
of the Equal Credit Opportunity Act [Section 1691(d)(6)] of this title
* * *.'' Thus, the term adverse action means ``(i) a refusal to grant
credit in substantially the amount or on substantially the terms
requested in an application unless the creditor makes a counteroffer
(to grant credit in a different amount or on other terms) and the
applicant uses or expressly accepts the credit offered; (ii) a
termination of an account or an unfavorable change in the terms of an
account that does not affect all or substantially all of a class of the
creditor's accounts; or (iii) a refusal to increase the amount of
credit available to an applicant who has made an application for an
increase.'' Therefore, situations that trigger a risk-based pricing
notice would not be considered an ``adverse action'' for the purposes
of this study. The Commission requests that comments use ``adverse
action'' as it is defined under the FCRA, but welcomes parties to opine
on how a more expansive definition of the term ``adverse action''
(e.g., one that included situations that trigger a risk-based pricing
notice) would impact specific scenarios.

A. Extent to Which the Proposed Requirement Would Benefit Consumers

1. How does the credit report received by the creditor currently
differ from the information that consumers receive from a consumer
reporting agency when they request a copy of their credit report in
response to an adverse action notice?
a. What are the different types of consumer reports that are used
by a creditor (e.g., credit score, ``in file'' credit report,\5\ merged
credit report)? To what extent are credit scores, as opposed to ``in
file'' or merged credit reports, relied on by creditors in making
decisions regarding the extension of credit? To what extent do
creditors rely on two or more types of consumer reports (e.g., a credit
score, an ``in file'' credit report, and/or a merged credit report) in
their decisions on whether to extend credit? Does the form in which the
credit file information is revealed to creditors differ significantly
among creditors? If so, how?
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\5\ The term ``in file'' credit report refers to a set of
information that a party (e.g., creditor or reseller) receives from
a credit reporting agency in response to a request for information
about an individual.
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b. How frequently are multiple ``in files'' and/or multiple credit
scores received in response to a request for information on a single
individual? How are multiple ``in files'' and/or multiple credit scores
treated by parties in their credit granting decisions?
c. Does the creditor use all of the information that it receives in
response to a request for information on an individual, or, in certain
situations, does it use only a subset of that information? For example,
if a reseller or a creditor receives multiple ``in files'' does the
creditor rely on all of the ``in files'' in making its credit granting
decision, or does it screen the ``in files'' to determine which files
it will rely on in making its decision? What are the situations in
which the creditor relies on a subset of the information in its credit
granting decision?
d. Are credit scores based on more information than that which
appears in a file that is disclosed to consumers? For example, is
information used that is blocked or suppressed from the consumer's
file?
e. Do consumers ever receive multiple file disclosures in response
to their request to see their credit file? If so, how often does this
occur?
f. What factors account for the differences in the consumer report
that is relied on by a creditor versus the credit report that is seen
by a consumer who requests a credit report after receiving an adverse
action notice? In particular, are there differences due to (i)
differences in the time at which the credit report is requested, (ii)
differences in the format in which a credit report is presented to a
consumer versus a creditor, or (iii) differences in the identifying
information that is used to request a credit report? Are there
differences due to the matching technologies used to respond to
requests for information by the consumer versus the user of a consumer
report? If the same identifying information was used by the creditor
and the consumer to request a credit file and if the requests were
placed at the same time, could the creditor receive multiple ``in
files'' while the consumer only receives one file? Are there
differences due to other factors? If so, what are these factors and why
do they result in different credit reports being relied on by the
creditor

[[Page 33390]]

versus the consumer? Please describe in detail the source of any
differences.
g. What information do consumer reporting agencies require
consumers to provide to obtain a copy of their credit report? What
information do consumer reporting agencies require creditors to provide
to obtain information on an individual? To the extent that there are
differences in the credit report seen by the creditor versus the
consumer due to differences in identifying information, are these
differences due to (i) differences in the amount of information that is
required (e.g., a creditor is not required to provide the middle name
of the individual, but the consumer is required to provide a middle
name), (ii) differences in the completeness of the information (e.g.,
the consumer reports his name as John Doe, Jr., but the creditor
reports only John Doe), (iii) typographical errors (e.g., social
security number or name is typed in incorrectly by the creditor), or
(iv) something else? Please describe in detail the source of any
differences, as well as the extent to which they occur.
2. What current problems exist when the consumer receives a report
that is different in form or content from the report relied on by the
creditor? Please provide examples of specific situations in which
consumers would benefit from the proposed requirement that a consumer
who has experienced an adverse action based on a credit report receives
a copy of the same credit report that the creditor relied on in taking
the adverse action.
a. Do the problems arise primarily from differences in the scope of
the information seen by the creditor versus the consumer, differences
due to the time at which the report is requested, or both? For example,
are the concerns related to situations in which a consumer does not
know what information led to the adverse action because the information
is already corrected by the time the report is normally seen by the
consumer? Or, is it more likely that any problems come from a situation
where the creditor has information in a consumer report or in multiple
``in files'' that actually pertains to another individual?
b. Would the proposed requirement increase the ability of consumers
to identify errors in their credit reports? If so, how?
c. Would the proposed requirement aid consumers who seek to have
the adverse action decision reversed because of inaccuracies or
incomplete information in the credit report relied on by the creditor?
d. Would the proposed requirement aid consumers who seek to obtain
credit from other parties following an adverse action?
e. Would the proposed requirement increase the ability of consumers
to identify identity theft and/or remove fraudulent information from
their credit report? If so, how?
f. Is the proposed requirement, in and of itself, sufficient to
generate the benefits noted above, or are other requirements also
necessary (e.g., credit report must be provided by a certain party at a
certain time in the credit granting decision process) in order for the
benefits to be generated? If so, what additional requirements are
necessary?
g. Would the proposed requirement generate benefits other than
those noted above? If so, what benefits would likely be generated?
3. What information would consumers gain if they receive the same
credit report that the creditor relied on in taking the adverse action?
a. Is there any information that appears in the report that the
creditor relied on that is not currently reported to consumers, that,
if corrected or deleted, would improve the consumer's ability to obtain
credit?
b. Is there any information that appears in the report that the
creditor relied on that is not currently reported to consumers that
would enable the consumer to detect if he/she is a victim of identity
theft, or if he/she continues to be a victim of identity theft?
c. Is there information that appears in the report that the
creditor relied on that is not currently reported to consumers that
generates benefits other than those noted above? If so, what additional
information generates the benefits and what are the benefits?
4. Are there situations in which the consumer already has an
opportunity to see a copy of the credit report that the creditor is
relying on prior to the creditor taking an adverse action? In
particular, what is the extent to which this situation occurs in the
mortgage industry?
5. Are there situations in which the consumer already receives a
copy of the credit report that the creditor relied on in taking the
adverse action, after the action is taken? In particular, what is the
extent to which this situation occurs in the mortgage industry?

B. The Cost of Implementing the Proposed Requirement

1. What are the various means by which the proposed requirement
that a consumer who has experienced an adverse action based on a credit
report receives a copy of the same credit report that the creditor
relied on in taking the adverse action could be implemented? What would
be the costs associated with implementing the proposed requirement via
these various means? Which party (creditor versus the consumer
reporting agency) can provide the same report that the creditor relied
on in taking the adverse action to consumers at least cost?
2. Why do consumer reporting agencies not currently give consumers
a copy of the same credit report that the creditor relied on in taking
the adverse action? What would be the costs to consumer reporting
agencies of requiring them to do so?
a. Is the data base that is maintained by a consumer reporting
agency kept in such a way that the consumer reporting agency can easily
reconstruct a credit report from a prior date? If not, what would be
the cost associated with requiring a change that would enable the
consumer reporting agency to do that?
b. Would a consumer reporting agency know what information is drawn
from a credit file by a creditor and the manner in which it is
displayed to them? If not, how costly would it be for the consumer
reporting agency to obtain this information?
c. Are there situations in which the cost of requiring the consumer
reporting agency to provide a copy of the same credit report that the
creditor relied on in taking the adverse action to a consumer who has
experienced an adverse action would be minimal and/or nonexistent? If
so, what are these situations?
3. Why do creditors not currently give consumers a copy of the same
credit report that the creditor relied on in taking the adverse action?
What would be the costs to creditors of requiring them to do so? Does
the cost vary depending on the credit granting situation (e.g.,
mortgages versus instant credit)? Are there situations in which the
cost of requiring the creditor to provide a copy of the same credit
report that they relied on in taking the adverse action to a consumer
who has experienced an adverse action would be minimal and/or
nonexistent? If so, what are these situations?
4. What would be the cost to consumers associated with obtaining a
copy of the credit report that the creditor relied on in taking the
adverse action in addition to or in lieu of the credit report that the
consumer currently receives if he or she requests one after receiving
an adverse action notice?
a. Would the proposed requirement lead consumers to mistakenly
conclude that there are inaccuracies in their credit reports? Would
giving consumers an

[[Page 33391]]

older version lead them to dispute inaccuracies that may have already
been corrected? What sort of costs might result from these disputes?
b. Would the proposed requirement make it more difficult for
consumers to determine if there are inaccuracies in their credit
report? Are there situations where a consumer who views the version
that the creditor has relied on might miss the opportunity to fix
inaccurate information that appears on the report after it was
requested by the creditor? What sort of costs (e.g., denial of future
credit) might result from these situations?
c. What would be the cost to creditors associated with retooling
their credit granting process to produce consumer friendly versions of
the consumer report that they relied on?
d. Would the proposed requirement make it more difficult for
consumers to determine if they are, or continue to be, a victim of
identity theft? If so, why?
e. Could the proposed requirement unintentionally increase identity
theft, particularly in situations where credit is denied because
identity theft is suspected or in situations in which multiple ``in
files'' or scores are received by the creditor in response to a request
for information on a single individual?
f. Could the proposed requirement raise privacy concerns in
situations in which multiple ``in files'' or scores are received by the
creditor in response to a request for information on a single
individual?

C. Additional Information

1. Do the experiences of other countries (e.g., Sweden) that have a
similar, but not identical requirement that consumers receive the same
report as that relied on by the creditor, inform our analysis here?
2. Do the FCRA's section 604 requirements regarding adverse action
in employment, where the consumer already receives a copy of the same
consumer report that the party taking the adverse action relied on
inform our analysis here?
3. What other additional information should the Commission consider
in studying the effects of the proposed requirement?
All persons are hereby given notice of the opportunity to submit
written data, views, facts, and arguments addressing the issues raised
by this Notice. Comments must be received on or before July 16, 2004.
Comments should refer to ``FACT Act Section 318(a)(2)(C) Study, Matter
No. P044804'' to facilitate the organization of comments. A comment
filed in paper form should include this reference both in the text and
on the envelope, and should be mailed or delivered to the following
address: Federal Trade Commission/Office of the Secretary, Room H-159
(Annex M), 600 Pennsylvania Avenue, NW., Washington, DC 20580. If the
comment contains any material for which confidential treatment is
requested, it must be filed in paper (rather than electronic) form, and
the first page of the document must be clearly labeled
``Confidential.'' \6\ The FTC is requesting that any comment filed in
paper form be sent by courier or overnight service, if possible,
because U.S. postal mail in the Washington area and at the Commission
is subject to delay due to heightened security precautions. Comments
filed in electronic form (except comments containing any confidential
material) should be sent to the following e-mail box:
FACTAStudy@ftc.gov.
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\6\ Commission Rule 4.2(d), 16 CFR 4.2(d). The comment must be
accompanied by an explicit request for confidential treatment,
including the factual and legal basis for the request, and must
identify the specific portions of the comment to be withheld from
the public record. The request will be granted or denied by the
Commission's General Counsel, consistent with applicable law and the
public interest. See Commission rule 4.9(c), 16 CFR 4.9(c).
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By direction of the Commission.
Donald S. Clark,
Secretary.
[FR Doc. 04-13482 Filed 6-14-04; 8:45 am]

BILLING CODE 6750-01-P