Vague Law Permits Misuse of Credit Data, House Panel Is Told

As special adviser for consumer affairs to President Bush, Bonnie Guiton is well versed in complaints about the credit industry. But it didn’t really hit home until her request for extra credit was turned down because a charge card had been issued in her name to someone else.

Earlier this year, Guiton called the problem to the attention of Orange-based TRW Credit Data, the firm that issued her credit report. TRW corrected the error, and Guiton assumed the matter was settled. But she was wrong.

“Visiting a credit bureau just this week, I discovered that inaccurate, negative information was still there,” Guiton told the consumer affairs subcommittee of the House Banking, Finance and Urban Affairs Committee on Wednesday. “Apparently the fact there was inaccurate information on my report had not been disseminated to other bureaus.”

Guiton said her experience was representative of the problems faced by millions of American consumers as the increasing sophistication of the nation’s credit information industry eclipses the protections provided by the Federal Credit Reporting Act of 1970.

Guiton, one of 15 witnesses to testify before the House panel, encouraged lawmakers to mandate new consumer education measures and to place limitations on the use of credit information to generate mailing lists and consumer profiles--a recent innovation that has caused a “proliferation of the invasion of privacy,” in the words of one witness.

In fact, representatives of other consumer protection groups testified, a typical consumer may be the subject of files kept by each of the three major credit bureaus: TRW in Orange County; Equifax Inc. of Atlanta, Ga., and Trans Union Corp. of Chicago.

Among them, the three credit giants have 400 million records on 180 million people. In addition, about 200 smaller, independent bureaus compile consumer credit files. And even that is not the end of the credit trail.

“On a daily basis,” said Elgie Holstein, executive director of the Bankcard Holders of America, “the personal financial information stored in credit bureau files is sliced, diced and sorted using a variety of sophisticated programs to generate mailing lists and consumer profiles.”

Those so-called pre-screening programs, several witnesses said, violate the letter and law of the 19-year-old federal credit law, which was adopted to protect personal privacy of credit information.

But the Federal Trade Commission, which is responsible for enforcing the Fair Credit Reporting Act, has not halted the practice, mainly because of the vague nature of the law.

The act forbids credit agencies from sharing credit data with anyone but an authorized customer. The law grants consumers the right to review their credit records and to receive notice of credit investigations. But it allows agencies to authorize sales of credit information to any customer who has a “legitimate business need” to review it.

Said Edmund Mierzwinski, a consumer lobbyist with the U.S. Public Interest Research Group: “This opacity has resulted in a situation in which the industry has dangerously expanded its sphere of influence over the control, use and sale of personal information, while federal oversight has not kept pace with changes in the marketplace.”

Representatives of the credit industry argued, however, that only minor revisions in the law are needed. “We believe that the Fair Credit Reporting Act stands as one of Congress’ most successful products,” said Edward A. Barbieri, vice president and general manager of TRW Credit Data. “It has worked extraordinarily well in protecting the interests of the financial consumer and of the credit grantor for some 20 years.”

Added John Baker, senior vice president of Equifax: “It has stood the test of time.”

Consumer activists and credit agency officials agreed on one aspect of the reform movement--education.

“From our experiences, the vast majority of consumers are not aware of their rights and do not concern themselves until they are confronted with a problem,” said G. Douglas Edwards, president of Kentucky-based Credit Bureau Systems Inc. “Most certainly, greater emphasis could be placed on education of consumers.”

“Apparently, consumers rarely understand the implications of the blanket authorizations they sign when they apply for credit, insurance or a job,” said Guiton, the presidential adviser. “Most consumers don’t even understand a credit reporting agency’s function and, of those who do, most believe there is a single (credit reporting agency) for their community, or even for the whole country.”