FTC Testifies on Efforts to Ensure Credit Report Accuracy, Prevent ID Theft, and Improve Credit Score Transparency

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The Federal Trade Commission today told the U.S. House Subcommittee on Financial Institutions and Consumer Credit of the Committee on Financial Services about the steps the FTC has taken to follow through on legislation aimed at ensuring the accuracy of consumers’ credit reports, preventing identity theft, and giving consumers a better understanding of their credit scores and what they mean.

David Vladeck, Director of the FTC’s Bureau of Consumer Protection, testified that the FTC has completed most of the projects required by the Fair and Accurate Credit Transactions Act of 2003. The agency has put rules in place ensuring consumers’ access to free annual credit reports and enhancing their rights to dispute errors in their reports, and it has conducted a study on the way credit scores are used in pricing car insurance.

As noted in the testimony, the FACT Act amended the Fair Credit Reporting Act, which governs consumer reporting agencies, companies that furnish them with information, and companies that use credit reports. Because credit scores are important to understanding the rates consumers pay for credit cards, mortgages, auto loans, and insurance, Congress wrote into the FACT Act a consumer’s right to purchase a credit score, and a requirement that certain mortgage lenders provide a free score to home loan applicants. The FACT Act also directed the FTC, alone or with other agencies, to develop about 20 rules, guidelines, compliance forms, and notices, and to conduct nine studies and issue reports to Congress. Some recently completed actions include the following:

Amendments to the Free Credit Report Rule: Since 2004, the FTC’s Free Credit Report Rule has empowered consumers to get free annual credit reports. Subsequently, consumers have been confused by advertising for “free credit reports” tied to the purchase of products or services such as credit scores and credit monitoring. Many consumers confuse these commercial offers with the federally mandated free credit report they are entitled to at AnnualCreditReport.com. To address this problem, under the Credit CARD Act of 2009 the FTC revised the Rule to require “free” credit report ads to clearly disclose that they are not the federally mandated free reports. The FTC also required nationwide credit reporting agencies to delay advertising for products and services through AnnualCreditReport.com until after consumers have received their free report. This rule takes effect on April 2, 2010, with certain provisions for TV and radio ads taking effect on September 1, 2010.

Furnisher Rules: These rules call on companies that furnish information to consumer reporting agencies to improve the accuracy of information they provide. They also give consumers the right to dispute errors in their credit reports directly with the furnishers of the information, in addition to disputing errors with consumer reporting agencies. The rules take effect July 1, 2010.

Risk-Based Pricing Rules: Effective January 1, 2011, certain creditors must notify consumers when their credit report information has been used to provide them less favorable terms than other consumers. As an alternative to providing risk-based pricing notices to specific consumers, the Rules allow creditors to provide a free credit score, and information about that score, to all consumers. Either way, consumers will get more information.

The testimony also described the FTC’s efforts to improve the transparency of credit scores. For example, the FTC helps consumers understand credit scores and how they are used, such as with the guide, Need Credit or Insurance? Your Credit Score Helps Determine What You’ll Pay. In addition, the FTC is researching the impact of credit-based insurance scores. The FTC anticipates that upcoming reports it will issue on this subject will improve the transparency of information about credit scores in the insurance industry.

The Commission vote authorizing the testimony was 4-0.

The Federal Trade Commission works for consumers to prevent fraudulent, deceptive, and unfair business practices and to provide information to help spot, stop, and avoid them.  To file a complaint in English or Spanish, visit the FTC s online Complaint Assistant or call 1-877-FTC-HELP (1-877-382-4357).  The FTC enters complaints into Consumer Sentinel, a secure, online database available to more than 1,800 civil and criminal law enforcement agencies in the U.S. and abroad.  The FTC s Web site provides free information on a variety of consumer topics.

(FTC File No. P104802)

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