service as Committee Staff Director under Senator Phil Gramm, said something in a speech that struck a chord with me. He noted that identity theft is not a problem of too much information. It is a problem of too little information. And by this, he meant that identity theft happens when creditors lack the necessary information to assess the credibility of an applicant.

It is often argued that a uniform national credit system is our best tool in the fight against identity theft, and in some sense, Mr. Harrison, who will testify before the panel today, confirms this by describing the additional problems he encountered in trying to sort out fraud related to his checking account where no centralized system similar to the Big Three credit bureaus is in place.

On the other hand, I am deeply troubled by the apparent conflict between Mr. Harrison's written testimony and the claims that the credit bureaus and national credit system are the answer to identity theft. He appears to have done absolutely everything right, followed all the rules, contacted the right organizations, and the results have, nevertheless, been devastating. I am also troubled by reports that even when a consumer takes the time to put a fraud alert on his or her account, those alerts may sometimes be ignored. So, I want to make it perfectly clear that I continue to believe that a single national system provides a critical opportunity to address identity theft. And yet we have a responsibility to the hundreds of thousands of victims of identity theft to make sure that we fine-tune our system so that it does not take years to correct a credit record. That is wrong, and that is not what Congress intended.

What I think is most important, though, is that we do not make FCRA the straw man for identity theft. The worst thing we can do is jeopardize millions of Americans' access to credit so we can claim to have done something about this terrible crime.

So, Mr. Chairman, I look forward to hearing today's witnesses, and I thank you once again for holding this hearing. Chairman SHELBY. Thank you, Senator Johnson. Senator Dole.

STATEMENT OF SENATOR ELIZABETH DOLE Senator DOLE. Mr. Chairman, I want to thank you for holding this hearing today on identity theft and its relationship to the Fair Credit Reporting Act. Identity theft, as you mentioned, is frequently cited as the fastest growing crime in the Nation. However, precise statistics are not available to properly gauge the full extent of the problem since an estimated 40 percent of identity theft cases are believed to involve friends or family members and are never reported.

Identity theft is a problem that has grown increasingly more prevalent in the past few years. According to the Federal Trade Commission, my alma mater, identity theft was the top consumer complaint received last year, with the rate of complaints and inquiries increasing at an alarming rate with the widespread use of Internet technology. There are currently over 1,700 cases of stolen identity per week that are being reported.

Fighting fraud and protecting the security of personal information is a topic that unites financial institutions and consumers.

Each group is harmed by fraudulent use of personal information. Financial institutions are the victims of fraud because the financial institution is usually liable for any losses suffered as a result of the fraud. Consumers obviously suffer unnecessary inconvenience and insecurity as a result of fraud, and they can be exposed to additional crimes such as identity theft. Furthermore, at least a portion of financial institutions' fraud losses can be expected to be passed on to consumers in the form of higher prices. There can be no doubt that when fraud is committed, everyone loses.

With the December 31 expiration of important provisions of the Fair Credit Reporting Act, we have the responsibility to examine problems within the system that have been harming both consumers and financial institutions. It is my hope that in addition to reauthorizing the Fair Credit Reporting Act, we can take strong steps toward combatting and preventing identity theft.

I certainly want to thank our witnesses for joining us here today. I look forward to working with my colleagues to address the problem of identity theft in our work to reauthorize the Fair Credit Reporting Act this year.

Thank you.

Chairman SHELBY. Thank you, Senator Dole.

Senator Corzine.

STATEMENT OF SENATOR JON S. CORZINE

Senator CORZINE. Thank you, Mr. Chairman, and I commend you for holding this hearing. I welcome our witnesses and look forward to hearing their testimony and responses to questions.

This is an important juxtaposition, the Fair Credit Reporting Act and identity theft, which is one of the many issues that we need to address here. Identity theft, I think, plays a central role, if not vital part, in this reauthorization, which I fully support. I think this problem has been acknowledged by just about everyone-consumers and most financial institutions and others who look at it from a law enforcement standpoint-that there is a real stake that we need to address inside the concept of FCRA. And I think everyone acknowledges that identity theft is one of the single largest sources of consumer-related problems that the FTC deals with on a regular basis.

The numbers bear that out. According to the FTC, reported instances of identity theft rose phenomenally, 88 percent in 2002, to 380,000 from 220,000 in 2001. And almost everyone acknowledges those numbers understate the reality of the problem that exists. The costs are staggering. Out-of-pocket costs for victims of identity theft skyrocketed from $160 million in 2001 to $343 million last year. Those are numbers that are based on reported elements.

I can tell you that in New Jersey there have been multiple instances of organized crime-related elements involved in identity theft as well as the individual consumer being put at risk, several rings that worked up and down the East Coast, and it is actually quite a recognized concern of consumers in my community.

Simply put, our consumers are losing the battle against identity thieves, and when they lose, I think we all lose in our economy. And I think all of us know that about 70 percent of our economy is driven by consumers.

While Congress has taken some important steps in this area, most notably by making it a Federal crime in 1998, some individuals in financial services have taken voluntary initiatives-the truncating of credit card numbers, for instance, which I commend. I think there is more that can be done.

Next week, I plan on introducing legislation to address the problem of identity theft. The Identity Theft Notification and Credit Restoration Act is based on three key principles-disclosure, prevention, and credit restoration. By the way, I hope to be able to work with others in refining this and making it meet the needs of what, I think, is a major problem in our Nation.

First, it requires financial institutions to make timely disclosures to individuals, credit reporting agencies, and law enforcement when their information has been breached, either computerized or paper records, and compromises that personal information of those financial institutions' customers.

Second, the bill requires credit reporting agencies, upon notification of the breach, to place "fraud alerts" in the credit files of affected individuals. This red flag will alert issuers of credit to undertake enhanced preauthorization procedures prior to issuing credit in the name of the individual who has a fraud alert on their credit file.

Finally, the bill provides victims of identity theft with access to four credit reports the year following the theft of their identity to ensure that inaccurate and credit damaging information resulting from the identity theft does not end up on their credit file, ruining their ability to operate in our economic system. The bill improves the ability of all consumers to monitor the content and accuracy of the information contained in their individual credit file by providing them with access to one free credit report per year.

Mr. Chairman, many, including some of the witnesses here, have articulated that one of the best ways to fight identity theft is by empowering consumers with more information and greater awareness of the risks and that this problem is growing. I think the bill that I am suggesting will do just that.

I look forward to working with you and the other Members of the Committee with regard to this very important issue. Chairman SHELBY. Thank you, Senator Corzine.

Senator Crapo.

STATEMENT OF SENATOR MIKE CRAPO

Senator CRAPO. Thank you, Mr. Chairman. I, too, want to thank you for holding this hearing.

As I am sure everyone here knows, the Fair Credit Reporting Act and the issues that surround it are going to be very central to the activity of this Committee this year and critical to our efforts to make sure that the proper protection of our credit system in this country is accomplished. And part of that is going to be addressing the question of identity theft.

I suspect that that may be one of the easier parts that we address because it may be one where we find the most consensus among us as to whether there is an issue and how to approach it. But, nonetheless, it will be one of the more important aspects of what we do.

This last weekend, I happened to be in a hotel, and late at night I was flipping through channels, and it is interesting that Senator Johnson mentioned Sandra Bullock in "The Net" because, lo and behold, there it was on television. And at the time, I wondered, if the media is picking up on the issue of identity theft by either noticing what we are doing in Congress and following our lead, or whether we are following their lead and they are bringing the public's attention to it. Then I wondered perhaps it was just a coincidence, but I doubt it.

The fact is that across this country, whether it is here in Congress, among the consuming public, or in financial institutions, identity theft is becoming an increasingly large issue. I think as we approach the issue, we want to make certain that we do it in the context of recognizing the value of our system of credit in this country today, and not blaming our system of credit but recognizing that the strength of the Fair Credit Reporting Act and what we have in America in terms of the way we approach and manage credit is a strong part of our system that needs to be protected and that can be used as the system by which we achieve the objectives to protect against identity theft.

It seems to me that the Fair Credit Reporting Act and our credit system in this country is a big part of the solution, not a part of the problem that we are facing here. And I look forward to working with the other Members of the Committee on this issue. I, too, am putting together an approach to this issue legislatively, and I look forward to working with Senator Corzine and others who are going to be addressing this because it will be one piece of a very big part of our approach to the credit system of our country this year that is critical to consumers, financial institutions, and, frankly, to the strength of our economy.

Thank you.

Chairman SHELBY. Thank you, Senator Crapo.
Senator Dodd.

STATEMENT OF SENATOR CHRISTOPHER J. DODD

Senator DODD. Thank you very much, Mr. Chairman, not only for holding this hearing, but also for your leadership on this issue. I have enjoyed working with the distinguished Chairman of this Committee on issues involving privacy for a long time, and I am grateful, along with others here. But the people who may be most grateful are the ones who are not sitting on this panel but others out there, and you are going to hear from some of them today. Some witnesses have been through almost Kafka-esque situations in terms of their credit problems and the like.

You are going to hear from a constituent of mine, Captain John Harrison, retired from the U.S. Army, a story that will be hard for you even to imagine what he has gone through, but rather remarkable what has happened to him and others. So, I thank you very, very much.

Just to share a couple of thoughts, identity theft is a matter, obviously, of great concern to consumers across the country, and it is clear to me that we have to do more to help consumers safeguard their financial and personal identities. Being financially secure used to mean, in the United States, that you had enough money

in the bank to see you through a rainy day. Unfortunately, today being financially secure has another meaning as well. It means that you have the ability to stop the improper use of your financial records, and you have the power to prevent misuse of your name, your financial history, and your good reputation.

I understand that there are more than 1,300 identity theft victims in my State alone, a small State, 3.5 million people each year. As the story you will hear from Captain Harrison will attest, identity theft can have devastating consequences on the personal and professional lives of its victims. For those who have been caught in the tangled web of other people's lies, the need for reforming the financial system so that it can better respond to identity fraud is perfectly clear. I want to publicly thank Captain Harrison. It is not easy. It is hard enough to go through what he has been through, but now to come to a public place and talk about what happened to you requires a certain amount of courage. And I admire people who are willing to do that, to stand before us and tell us what has happened to them.

I also want to thank Mike Naylor, Mr. Chairman, and thank you for asking him to be a witness here today. Mike works with AARP and has done some excellent work in identifying possible solutions to the current identity fraud problem. And for truth in advertising, Mike Naylor is my former Legislative Director, many, many years ago. He has been in the private sector for a lot of years and just recently joined AARP. But I think you will find his testimony worthwhile.

In my view, consumers should be able to seek financial services without fear. Consumers should be able to rest assured that their private financial information will be responsibly maintained by those who have been entrusted with that information. Companies that collect consumer financial information must be able to responsibly handle that information, and such information should not be negligently published or even intentionally shared without consumers' consent.

Furthermore, consumers should not only have the right to know how their personal financial information is being used, but should also have the right to say no to sharing that information.

In recent years, we have taken steps to empower consumers with control over their own financial information. The Financial Services Modernization Act, also known as Gramm-Leach-Bliley, for example, enhanced consumer protections and for the very first time made financial institutions accountable for notifying consumers about their right to opt out of sharing nonpublic, personally identifiable information with nonaffiliated third parties.

The Gramm-Leach-Bliley Act requires financial institutions to notify consumers of their privacy policies and any plans to share personal information with another party. And while these safeguards are an important step toward ensuring consumers' financial security, I believe much more must be done to afford consumers greater control over their own financial privacy.

Let me also underscore the point that our colleague from Idaho, Senator Crapo, has made. I think it is also the balanced side of this thing. The credit system has worked tremendously well to ensure us a strong economy in this country, and striking the balance here