The Federal Trade Commission has issued a report to Congress containing studies on credit report accuracy and completeness required by the Fair and Accurate Credit Transactions Act of 2003 (FACTA). FACTA, which was enacted in December 2003 and amends the Fair Credit Reporting Act (FCRA), required the FTC to conduct an ongoing study of the accuracy and completeness of consumer credit reports and to report on four specific topics related to credit report accuracy.
The FTC’s report states that the accuracy and completeness of credit report data is essential to consumers. Credit reports are used to make critical decisions about a consumer’s level of risk in providing various goods and services. Although credit reports enable creditors to quickly and accurately decide whether to provide these products and services to consumers, inaccuracies in report data can harm consumers, causing them to lose certain benefits or causing them to pay higher costs for them.
The studies address proposals in Section 318 of FACTA and analyze the following: (1) the effects of requiring the nationwide consumer reporting agencies (CRAs) to match more points of consumers’ personal identifying information, such as a consumer’s name, Social Security number, or address, to ensure that the correct consumer is matched with the correct credit file; (2) the effects of requiring that a consumer who has been denied credit based on information in his or her credit report receive a copy of the same credit report on which the creditor based the adverse action; (3) the effects of requiring that consumers be notified when negative information has been added to their credit reports; and (4) whether there are any common financial transactions not generally reported to the CRAs that would provide useful information in determining a consumer’s credit rating. The FTC also is conducting an ongoing, 11-year study of the accuracy and completeness of consumer report information as required by Section 319 of FACTA. This report includes the first of several interim reports on the ongoing study.
To complete the studies, the FTC interviewed numerous outside sources, including consumer advocacy groups, the CRAs, and furnishers and users of credit report information; sought and reviewed public comments; and held a roundtable meeting of experts.
Regarding the four specific Section 318 proposal studies, the FTC’s report provides the following conclusions:
Data Matching Proposal: The FTC explains that if a CRA assigns consumer data to the wrong file, it can create a “mixed file” that includes information about more than one consumer. Alternatively, if a CRA mistakenly creates a new file for a consumer who already has a file in the system, it creates a “fragmented file.” The FTC concludes that, if the proposed matching requirement were implemented, data would be less likely to be assigned to the wrong file, and therefore there likely would be a reduction in “mixed” files. On the other hand, the FTC’s report indicates that the proposal may also lead to an increase in “fragmented” files, which would make consumer reports less complete.
“Same Report” Proposal: The FTC concludes that consumers could benefit from the proposal in situations where a creditor received the wrong consumer’s report or multiple reports. At the same time, the report notes that in many cases the “same report” would be less useful to consumers than the full file disclosure that they can currently obtain, and the proposal could pose potential identity theft risks. The report notes that several new FACTA requirements, including requiring CRAs to notify credit report users when a consumer’s address “substantially differs” from the address on file, may be more effective in remedying this concern.
Negative Information Notice Proposal: The FTC concludes that the costs of providing these notices could be significant, and sending unsolicited notices to consumers could open additional avenues for fraud and identity theft. The FTC suggests that an opt-in system in which consumers could choose to receive negative information may achieve the proposed requirement’s goals without significantly elevating costs. The report notes that the market has begun to provide credit monitoring services that offer similar benefits.
Common Unreported Transactions Study: The FTC concludes that there are several types of transactions that could be useful in evaluating a consumer’s creditworthiness, including rent and utility payments. The report notes that there are currently barriers to reporting these payments, some of which might be addressed at the state level.
The FTC’s report states that the findings and conclusions of each of the agency’s studies indicate that legislative and administrative recommendations are not appropriate at this time, and that it is premature to adopt the proposals listed in Section 318. As one reason, the report notes that many of FACTA’s new requirements should enhance the accuracy and completeness of credit reports, and the full impact of these changes will not be apparent for some time. The report also notes that, as credit reports gain prominence and consumers become more aware of the need to check their accuracy, the market appears to be responding to some of the concerns expressed in Section 318. The FTC will continue to address these issues in its ongoing accuracy and completeness study.
The Commission vote authorizing staff to issue the report to Congress was 5-0.
Copies of the Commission’s report are available from the FTC’s Web site at http://www.ftc.gov and also from the FTC’s Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580. The FTC works for the consumer to prevent fraudulent, deceptive, and unfair business practices in the marketplace and to provide information to help consumers spot, stop, and avoid them. To file a complaint in English or Spanish (bilingual counselors are available to take complaints), or to get free information on any of 150 consumer topics, call toll-free, 1-877-FTC-HELP (1-877-382-4357), or use the complaint form at http://www.ftc.gov. The FTC enters Internet, telemarketing, identity theft, and other fraud-related complaints into Consumer Sentinel, a secure, online database available to hundreds of civil and criminal law enforcement agencies in the U.S. and abroad.
Gerard R. Butters
Bureau of Economics
Bureau of Consumer Protection