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THURSDAY, JUNE 12, 2003

Cloutier, C.R., President, MidSouth National Bank, Lafayette, LA, Chairman,

Independent Community Bankers of America

Courson, John A., Chairman, Mortgage Bankers Association

Fishbein, Allen, General Counsel, Center for Community Change
Gambill, Harry, Editor Publisher, CEO, TransUnion LLC
Hendricks, Evan, Editor, Privacy Times
Hildebrand, Scott, Vice President, Direct Marketing Services, Capital One

Financial Corporation
Loban, George B., Co-Chairman and President, FSF Financial Corporation

and First Federal FSB, Hutchinson, MN, on behalf of America's Community

Banker
Manning, Robert, Caroline Werner Gannett Professor of Humanities, Roch-

ester Institute of Technology

Moskowitz, David, General Counsel,

Wells Fargo Home Mortgage

Pickel, A.W. III, President and CEO, Leader Mortgage Company, Lenexa,

KS, President-Elect, National Association of Mortgage Brokers

Plunkett, Travis B., Legislative Director, Consumer Federation of America

Vadala, Michael, President and CEO, The Summit Federal Credit Union,

on behalf of the National Association of Federal Credit Unions

Wong, Martin, General Counsel, Global Consumer Group, Citigroup, Inc.

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Courson, John A.:

Written response to questions from Hon. Rubén Hinojosa Gambill, Harry:

Written response to questions from Hon. Rubén Hinojosa Loban, George B:

Written response to questions from Hon. Rubén Hinojosa Moskowitz, David:

Written response to questions from Hon. Rubén Hinojosa Pickell, A.W. III:

Written response to questions from Hon. Rubén Hinojosa Vadala, Michael:

Written response to questions from Hon. Rubén Hinojosa Fannie Mae, prepared statement

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THE ROLE OF FCRA IN THE
CREDIT GRANTING PROCESS

Thursday, June 12, 2003

U.S. HOUSE OF REPRESENTATIVES,
SUBCOMMITTEE ON FINANCIAL INSTITUTIONS AND

CONSUMER CREDIT
COMMITTEE ON FINANCIAL SERVICES,

Washington, D.C. The subcommittee met, pursuant to call, at 10:11 a.m., in Room 2128, Rayburn House Office Building, Hon. Spencer Bachus (chairman of the subcommittee) presiding.

Present: Representatives Bachus, Royce, Lucas of Oklahoma, Capito, Tiberi, Feeney, Hensarling, Brown-Waite, Barrett, Hart, Renzi, Miller, Sanders, Maloney, Watt, Meeks, Gutierrez, Waters, Velaquez, Hooley, Hinojosa, Lucas of Kentucky, Crowley, Israel and Davis.

Chairman BACHUS. [Presiding.] Good morning.

Our hearing today is another installment in a series of hearings the subcommittee is holding with respect to the Fair Credit Reporting Act. The provisions in FCRA that guarantee a single national standard with respect to many of the FCRA provisions are set to expire January the 1st of 2004. As I Stated last week, my primary focus throughout this debate will remain on providing consumers and the economy with the strong protections and benefits of the law.

At our last hearing, we had more than twenty witnesses. They described why and how FCRA is important to consumers, and the economy as a whole. Today we will focus on the credit granting process and the role of FCRA in facilitating the most robust credit market in the world.

The process of applying for a personal loan, car loan or even a credit card has become increasingly simple. The consumer fills out a brief application, and within a matter of minutes, the consumer will know whether he or she has qualified for credit. The Chairman of the Federal Trade Commission, Timothy Muris, has referred to this as the miracle of instant credit. Even the mortgage underwriting process has become much less complicated, as millions of Americans are demonstrating each month.

Today, new homeowners can spend more time picking out new curtains and wallpaper, because they spend less time on mortgage paperwork and stress. It should be obvious that these improvements in the credit-granting process benefit consumers.

Our witnesses today will provide us with the complete picture of how FCRA operates as part of the credit-granting process. Our first panel will focus on how lenders assist millions of Americans in realizing the dream of home ownership. Just as importantly, we will also learn how a credit reporting agency, commonly known as a credit bureau, facilitates the credit-granting process.

The first panel will also include witnesses representing consumer groups. Our second panel will review the credit-granting process in a broader scope. We will hear from representatives of a credit union, smaller banks, a large bank and a credit card issuer. Each will describe how the FCRA affects their ability to make credit widely available to American consumers.

We will hear from other witnesses describing some potential pitfalls of the credit-granting process. I, for one, am particularly interested in how the national standards established by certain provisions of FCRA relate to the credit-granting process. For example, I am interested in learning whether FCRA has facilitated a national credit market and whether having a national system is beneficial

More importantly, if the national uniformity in place today were replaced with a patchwork quilt of inconsistent State laws, would consumers face a less convenient and more expensive credit-granting process?

I want to thank Chairman Oxley, Ranking Member Frank and Mr. Sanders for working with me on FCRA re-authorization. I believe the bipartisan cooperation that we have had on this important issue to date has been helpful in the debate.

Today, we have accommodated all four of the minority witness requests.

I look forward to our witnesses' testimony on how the FCRA facilitates the most advance credit underwriting process in the world and how it benefits consumers.

The Chair now recognizes the ranking member of the subcommittee, Mr. Sanders, for any opening statement he would like to make.

[The prepared statement of Hon. Spencer Bachus can be found on page 68 in the appendix.]

Mr. SANDERS. Thank you very much, Mr. Chairman, for convening this very important hearing. We have an excellent panel of witnesses. And I look forward to hearing from them all.

I will be running in and out because of other commitments. But I will be listening attentively to what all of our witnesses have to say.

What I have been hearing from the banking and credit card industry is that consumers have never had it so good, that consumers are reaping billions of dollars in savings due to lower interest rates and that consumers have a much easier time accessing credit.

It may be true that the credit card industry and the CEOs have never had it so good. According to the FDIČ, credit card lenders and the banking industry reported record-breaking profits in the first quarter of this year while revenue from credit card fees have increased dramatically, from $7.3 billion in 1994 to $23.9 billion in 2001.

So I think one of the areas, Mr. Chairman, that we are going to want to take hard look at is what is going on with credit card fees, not just interest rates. And fees now account for 31 percent of credit card industry income. And that is an issue, I think, that needs a lot of study.

Is gaining access to credit a good thing? Well, obviously, it is in many instances, but sometimes it is not. According to Dr. Manning, credit card debt has skyrocketed, from approximately $51 billion in 1980 to over $610 billion in 2002. At the same time that consumers are bombarded by a record 5 billion credit card solicitations. Now, that is an incredible number.

My understanding is, and somebody else can do the arithmetic, that the American people receive 5 billion credit card applications a year. And I suspect my son receives about half of them. Not his father, but my son.

And the largest increase in credit card debt is among consumers making $10,000 a year or less. Three-fourths of college students use their student loans to pay their credit card bills. And the average credit card debt per consumer has risen from $10,000 in 1998 to $12,000 in 2002, which is not good.

Mr. Chairman, there is another issue that I certainly am going to be focusing on today, and I hope you will, as well. And there were major stories in The New York Times, ABC World News, Washington Post on what I consider to be a scam, and nothing less than scam. And that is, as part of the 5 billion solicitations that take place each year, the credit card companies say, Well, sign up with us, 3 percent interest rate. Not a bad deal. Somebody signs up for 3 percent interest rate. Suddenly, three months later, they are paying 25 percent, 29 percent interest rate. What happened?

Did they not pay their credit card payments on time? Were they late? Did they default? The answer is in every instance, they may well have paid what they owed the credit card on time, but perhaps they borrowed some money, went to the bank as the result of an illness in the family, borrowed some more money. Maybe they were late paying an auto loan two months before. Maybe 3 years ago. they were late on their mortgage, and out of nowhere their interest rates have skyrocketed.

This is a scam. It is causing severe problems for large numbers of credit card borrowers in America, and it is something that we want to address.

So, Mr. Chairman, this is an important day. We have got a lot of excellent panelists. And I thank you very much for working with us to bring those panelists here.

I would yield back the balance of my time.
Chairman BACHUS. Thank you.

Are there other members who wish to make an opening statement?

Ms. Hooley?
Oh, Mr. Gutierrez, I am sorry.
Mr. GUTIERREZ. Thank you, Mr. Chairman.

Well, I am happy to be here today to discuss the role of FCRA in the credit-granting process. A major concern I have is the increased use of the insurance scores and the lack of information about these scores available to consumers. I think we should research the increased use of credit-based insurance scoring and excessive negative impact it is having on the consumer's ability to purchase insurance coverage. Low credit scores can prevent some

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