Senator SARBANES. I will be very brief. I just want to make sure that I understand the statutory framework that we are dealing with here.

As I understand it, under FCRA, most State credit reporting laws are not preempted unless there is a specific inconsistency between the FCRA and the State law. And that we have also enumerated certain exceptions in which there is a preemption of any State law differing with the Federal provision.

Is that correct?

Mr. BEALES. Yes, sir.

Senator SARBANES. Okay. Now, if the preemption were allowed to expire, you testified earlier that you might anticipate that States might act in one or another of these areas in which they heretofore have been preempted.

Presumably, if you were asked, you could indicate the areas that you thought were most likely in which State action might take place if they weren't blocked out from doing so because of the preemption requirements.

Would that be the case?

Mr. BEALES. One could look-there is an analysis like this that has been done that I am not familiar with the details of.

One could look at the kinds of proposals that have been made in State legislatures and get some sense of where the States might be active and where they might not.

Senator SARBANES. Who did that analysis to which you made reference?

Mr. BEALES. It was done by the Information Policy Institute. This is the study that is ongoing on the effects of losing different kinds of information from the credit reporting system.

Senator SARBANES. Could you provide that study to us?

Mr. BEALES. It is not complete yet. I believe their intention is to provide it to you as soon as it is complete.

Senator SARBANES. And one could take this list of what might be anticipated if there were not preemption and look it over and make some judgment as to which of those possible actions seem to be worthy in terms of protecting the consumer interest.

And those standards could be incorporated into the Federal law, could they not?

Mr. BEALES. Certainly. Certainly.

Senator SARBANES. That would maintain a national uniform system with respect to credit, so you would not have this fractionating that people are talking about, but would, in effect, constitute a reexamination of the preemption areas in terms of making a judgment whether we were fully keeping ahead of what needed to be done to provide reasonable consumer protection.

Could we not engage in such a process?

Mr. BEALES. You certainly could.

Senator SARBANES. Does the FTC have any plans to do so?

Mr. BEALES. We have had an ongoing process of trying to look at what kinds of changes might make sense, where balances might be struck differently.

And at this point, the staff has not made any recommendations to the Commission and the Commission doesn't have any recommendations.

But it is something that we are very interested in. It certainly is an alternative to change nothing, is to strike a slightly different but still uniform national balance between the conflicting interests. Senator SARBANES. This supposed conflict between the consumer protection, particularly responding to new and changed circumstances, and a uniform national market, need not be any conflict at all if the consumer protection is provided to a national standard. Would that be correct?

Mr. BEALES. I think if it is done uniformly by Congress, and preemptively, so that it is not subject to another round of changes that States would make subsequently, then, clearly, that would preserve the uniform market and the question would be, is that particular change a good change or not?

Senator SARBANES. Yes, the reasonableness of the change.
Mr. BEALES. Right.

Senator SARBANES. But that would get you away from this, it seems to me, some effort that is being made as though we only have a Hobson's choice here.

Chairman SHELBY. Right. Exactly.

Senator SARBANES. Between fractionating the uniform market or addressing some of the problems that consumers are encountering, which, upon a reasonable examination, one could conclude something needs to be done about them. And that would be a way of doing something about them and sustaining the uniform national market.

Is that not the case?

Mr. BEALES. That is the case. For Congress to make a different but uniform change would certainly do that.

Senator SARBANES. Thank you very much, Mr. Chairman.
Chairman SHELBY. Senator Bennett.

Senator BENNETT. Thank you. Mr. Beales, I do not quite understand the market for the services of the three providers.

There are now only three credit bureaus that you go to?

Mr. BEALES. There are three large repositories. There are hundreds of credit bureaus. Most of them are small credit bureaus for purposes of the Act. Most of them are small and local or specialized in some particular market in some way.

But there are three that qualify under the Act as, "national credit bureaus."

Senator BENNETT. So as far as we are concerned, there are really only three.

Mr. BEALES. For most purposes, that is right.

Senator BENNETT. You do not oversee the others.

Mr. BEALES. We do.

Senator BENNETT. Oh, you do.

Mr. BEALES. We do. And we have brought cases involving some of the others. Resellers, for example, are regulated as credit bu

reaus.

I think, in thinking about the statute, it is important to remember that there are all the others because sometimes things that would make sense for the big three wouldn't work at all for some of the other people.

And that is why they are important.

Senator BENNETT. That is very helpful. And I hadn't understood that before.

Can you provide us for the record with a breakdown of volume between the big three, if we can call them that, and then all of these others?

What percentage of the volume of credit reporting is involved with the others, if you have it off the top of your head? If not, you can provide it.

Mr. BEALES. I do not. We will look and see if we can provide it. If it we can provide it, it will be from industry data and not from anything we know.

Senator BENNETT. Okay.

Mr. BEALES. But we would be happy to look and see whetherSenator BENNETT. What would you be surprised if it were more than?

Mr. BEALES. I do not know if there is a more than that would surprise me.

[Laughter.]

In terms of volume, it clearly is dominated by the big three.
Senator BENNETT. Okay.

Mr. BEALES. The others are specialized and important in their own way, but they are small players in the overall market.

Senator BENNETT. Okay. Let's deal with those three, then.

All right. I am a retailer. In addition to taking Visa cards and MasterCard and Discover card and all of these others who have taken a lot of the burden of my credit operation away from me, I nonetheless maintain an in-house credit operation. I offer credit to my customers.

On what basis would I make a choice between the three? Is there, indeed, viable competition between them? And does that competition to tell you where I am going-does that competition drive them, each one, to be more accurate than the other two, more responsive than the other two, prettier reports, fancier colors? What is the competition between the three of them?

Mr. BEALES. I think the competition is mostly about the breadth and depth of the information that they can provide, that it is based on—and different bureaus have made different choices about where they try hardest to build relationships with furnishers, who are ultimately the source of data.

One bureau may have stronger relationships in one geographic area than in another and a different bureau may have adopted a different competitive strategy.

Senator BENNETT. Is there any evidence of users switching from one to the other, deciding that the services from credit reporting agency A somehow do not meet my needs as well? Are there salesmen calling on users to say, switch to my brand?

Again, what I am driving toward is that if there is, indeed, a market competition here, it is going to drive each one to be as accurate as possible because the worst thing you could do, it would seem to me, would be to be in the business of reporting credit information and be wrong and thus lose customers.

Now, do, in fact, customers shift and move from one to the other? Mr. BEALES. I think customers do shift and move. I think there is competition in this market in a very effective way. I think there

are market incentives for accuracy and the competitive pressures are part of it.

However, I also think creditors care much more about some kinds of mistakes than others. They really do not want to miss bad information because, if they do, then they are going to get burned with losses.

It matters less to the creditors who are buying the reports if they are missing good information about you because they are not going to suffer losses in the same magnitude.

So, I think there is a role for Federal oversight, for regulatory oversight of accuracy. But I think there are also important market incentives to keep the information as accurate as possible.

Senator BENNETT. Okay. Thank you very much. I am a great believer in the market and the power of the market. And I think that may be a greater policeman-I am going to lose this user if I do not do a good job-than, gee, I have to check with my lawyer to make sure that I am complying with every one of the regulations out of the FTC.

Chairman SHELBY. Senator Schumer.

STATEMENT OF SENATOR CHARLES E. SCHUMER

Senator SCHUMER. Thank you, Mr. Chairman. I want to thank you for holding these hearings. You have been involved in this issue a long time.

Back in 1995, I guess, you and Senator Bond, the bill that you sponsored, set the stage for all of this. And I thank you for that. This area seems dull to people. But the bottom line is that probably the credit markets have more effect on people than the equity markets, even though we spend a lot more time on the equity markets around here.

So, I think it is an important hearing and we have to be really careful about it.

Just to make a point, I think it would be really bad to fractionalize these markets. We all know that. There should be a national market.

My view, an attempt to make it better, that risks fractionalizing them, and you have to be real careful. But that doesn't mean that, as you keep the markets national, you cannot improve a bit of regulation.

I do not think we have that much variation here, although I would warn my colleagues, in an attempt to open up, to move into new areas, if we risk not keeping this Act intact, we run a real danger.

I take it that you would agree with that.

Mr. BEALES. The Commission hasn't taken a position on preemption or not. I think the risks of fractionalization are very real.

Senator SCHUMER. What would outweigh them in a national credit market, other than the fact that the Commission hasn't taken a position?

[Laughter.]

Mr. BEALES. I think there are benefits from State experimentation, if you will, in different approaches that may work better in some particulars. And I think that is the trade-off.

And as I say, the staff hasn't made a recommendation. The Commission hasn't taken a position on how we think that balance should be struck at this point.

Senator SCHUMER. And do you think the two are irreconcilable, that you cannot have a national law and still allow some State experimentation?

Mr. BEALES. no, I do not think they are irreconcilable. And I think the existing statute allows State experimentation in many areas. But not in some.

Senator SCHUMER. And are there any that come to mind where we should allow experimentation where we do not now?

Mr. BEALES. Among the existing preemptions?

Senator SCHUMER. Yes.

Mr. BEALES. No, there is none in particular I would single out. Senator SCHUMER. Good. You also, I guess, and this relates to the question I was asking—I think you would agree-well, let's quote Chairman Greenspan, somebody I have a lot of respect for. He says:

Limits on the flow of information among financial market participants or increased costs resulting from restrictions that differ based on geography, may lead to an increase in price or a reduction in the availability of credit, as well as a reduction in the optimal sharing of risk and reward.

As a result, I would support making permanent the provision currently in the Fair Credit Reporting Act that provides for uniform Federal rules governing various matters covered by the FCRA and would not support allowing different State laws in this area.

Now, as a careful student of Greenspan-speak, on that one, there is not a lot of Paul Volcker cigar smoke floating around.

[Laughter.]

He's pretty clear. Do you again, I am not asking you to the outcome here, given the constraints of the Commission. But do you share his concern that limits on information flow could, "Lead to an increase in price or a reduction in the availability of credit?"

Mr. BEALES. That is certainly the risk. The Commission's testimony quotes Chairman Greenspan saying essentially that, minus the conclusion.

I think we agree that that is the risk. That is what is at stake here.

Senator SCHUMER. Okay. Let me ask you about two specific issues that I care about, that we might, as we look forward on FCRA, want to involve ourselves with. I, at least, will be careful about the admonition that we do not want to let this whole deal lapse.

Identity theft. On this one, I have been very concerned with identity theft. We have had a lot of problems in my State with it.

But you can look at the glass being half full or half empty in terms of FCRA as it relates to identity theft. Some would say that our credit reporting system makes it easy to steal identities. And others would say that the system makes it easier to detect, catch, and remedy identity theft.

Do you have a view on that?

Mr. BEALES. I think there is important senses in which they are both right.