Congressional Hearings
WHO'S KEEPING SCORE? HOLDING CREDIT BUREAUS ACCOUNTABLE AND REPAIRING A BROKEN SYSTEM
Congressional Hearings
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Congress: House of Representatives
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| AUTHORITYID | CHAMBER | TYPE | COMMITTEENAME |
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| hsba00 | H | S | Committee on Financial Services |
[House Hearing, 116 Congress]
[From the U.S. Government Publishing Office]
WHO'S KEEPING SCORE? HOLDING
CREDIT BUREAUS ACCOUNTABLE
AND REPAIRING A BROKEN SYSTEM
=======================================================================
HEARING
BEFORE THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTEENTH CONGRESS
FIRST SESSION
__________
FEBRUARY 26, 2019
__________
Printed for the use of the Committee on Financial Services
Serial No. 116-3
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
___________
U.S. GOVERNMENT PUBLISHING OFFICE
35-632 PDF WASHINGTON : 2019
HOUSE COMMITTEE ON FINANCIAL SERVICES
MAXINE WATERS, California, Chairwoman
CAROLYN B. MALONEY, New York PATRICK McHENRY, North Carolina,
NYDIA M. VELAZQUEZ, New York Ranking Member
BRAD SHERMAN, California PETER T. KING, New York
GREGORY W. MEEKS, New York FRANK D. LUCAS, Oklahoma
WM. LACY CLAY, Missouri BILL POSEY, Florida
DAVID SCOTT, Georgia BLAINE LUETKEMEYER, Missouri
AL GREEN, Texas BILL HUIZENGA, Michigan
EMANUEL CLEAVER, Missouri SEAN P. DUFFY, Wisconsin
ED PERLMUTTER, Colorado STEVE STIVERS, Ohio
JIM A. HIMES, Connecticut ANN WAGNER, Missouri
BILL FOSTER, Illinois ANDY BARR, Kentucky
JOYCE BEATTY, Ohio SCOTT TIPTON, Colorado
DENNY HECK, Washington ROGER WILLIAMS, Texas
JUAN VARGAS, California FRENCH HILL, Arkansas
JOSH GOTTHEIMER, New Jersey TOM EMMER, Minnesota
VICENTE GONZALEZ, Texas LEE M. ZELDIN, New York
AL LAWSON, Florida BARRY LOUDERMILK, Georgia
MICHAEL SAN NICOLAS, Guam ALEXANDER X. MOONEY, West Virginia
RASHIDA TLAIB, Michigan WARREN DAVIDSON, Ohio
KATIE PORTER, California TED BUDD, North Carolina
CINDY AXNE, Iowa DAVID KUSTOFF, Tennessee
SEAN CASTEN, Illinois TREY HOLLINGSWORTH, Indiana
AYANNA PRESSLEY, Massachusetts ANTHONY GONZALEZ, Ohio
BEN McADAMS, Utah JOHN ROSE, Tennessee
ALEXANDRIA OCASIO-CORTEZ, New York BRYAN STEIL, Wisconsin
JENNIFER WEXTON, Virginia LANCE GOODEN, Texas
STEPHEN F. LYNCH, Massachusetts DENVER RIGGLEMAN, Virginia
TULSI GABBARD, Hawaii
ALMA ADAMS, North Carolina
MADELEINE DEAN, Pennsylvania
JESUS ``CHUY'' GARCIA, Illinois
SYLVIA GARCIA, Texas
DEAN PHILLIPS, Minnesota
Charla Ouertatani, Staff Director
C O N T E N T S
----------
Page
Hearing held on:
February 26, 2019............................................ 1
Appendix:
February 26, 2019............................................ 103
WITNESSES
Tuesday, February 26, 2019
Begor, Mark, CEO, Equifax........................................ 5
Boundy, Craig, CEO, Experian North America....................... 8
Brown, Jennifer, Associate Director, Economic Policy, UnidosUS... 81
Brown, Thomas P., Partner, Paul Hastings Law Firm................ 84
Mierzwinski, Edmund, Senior Director, Federal Consumer Programs,
U.S. Public Interest Research Group............................ 83
Peck, James M., President and CEO, TransUnion.................... 6
Rice, Lisa, President and CEO, National Fair Housing Alliance
(NFHA)......................................................... 78
Wu, Chi Chi, Staff Attorney, National Consumer Law Center (NCLC). 79
APPENDIX
Prepared statements:
Begor, Mark.................................................. 104
Boundy, Craig................................................ 111
Brown, Jennifer.............................................. 113
Brown, Thomas P.............................................. 123
Mierzwinski, Edmund.......................................... 138
Peck, James M................................................ 155
Rice, Lisa,.................................................. 168
Wu, Chi Chi.................................................. 179
Additional Material Submitted for the Record
Waters, Hon. Maxine:
Written statement of Starn, O'Toole, Marcus & Fisher......... 225
Written statement of the National Apartment Association and
the National Multifamily Housing Council................... 283
Written statement of the National Association of Consumer
Advocates.................................................. 285
Written statement of the National Association of Federally-
Insured Credit Unions...................................... 288
Written statement of the National Housing Law Project........ 290
Garcia, Hon. Sylvia:
Written statement of various undersigned consumer, civil
rights, and advocacy groups................................ 293
UnidosUS Fact Sheet dated December 2018...................... 295
Begor, Mark:
Written responses to questions for the record submitted by
Representative Beatty...................................... 299
Written responses to questions for the record submitted by
Representative Lynch....................................... 302
Mierzwinski, Edmund:
Written responses to questions for the record submitted by
Representative Beatty...................................... 303
Written responses to questions for the record submitted by
Representative Foster...................................... 306
Peck, James M.:
Written responses to questions for the record submitted by
Representative Lynch....................................... 308
Written responses to questions for the record submitted by
Representative Beatty...................................... 310
Rice, Lisa:
Written responses to questions for the record submitted by
Representative Foster...................................... 313
Written responses to questions for the record submitted by
Representative Beatty...................................... 314
Wu, Chi Chi:
Written responses to questions for the record submitted by
Representative Foster...................................... 316
Written responses to questions for the record submitted by
Representative Beatty...................................... 318
Written responses to questions for the record submitted by
Representative Lynch....................................... 320
WHO'S KEEPING SCORE? HOLDING
CREDIT BUREAUS ACCOUNTABLE
AND REPAIRING A BROKEN SYSTEM
----------
Tuesday, February 26, 2019
U.S. House of Representatives,
Committee on Financial Services,
Washington, D.C.
The committee met, pursuant to notice, at 10:05 a.m., in
room 2128, Rayburn House Office Building, Hon. Maxine Waters
[chairwoman of the committee] presiding.
Members present: Representatives Waters, Maloney,
Velazquez, Sherman, Meeks, Clay, Scott, Green, Cleaver,
Perlmutter, Foster, Beatty, Heck, Vargas, Gottheimer, Gonzalez
of Texas, Lawson, San Nicolas, Tlaib, Porter, Axne, Casten,
Pressley, Ocasio-Cortez, Wexton, Lynch, Gabbard, Adams, Dean,
Garcia of Illinois, Garcia of Texas, Phillips; McHenry, Wagner,
Posey, Luetkemeyer, Huizenga, Duffy, Stivers, Barr, Tipton,
Williams, Hill, Emmer, Zeldin, Loudermilk, Mooney, Davidson,
Budd, Kustoff, Hollingsworth, Gonzalez of Ohio, Rose, Steil,
Gooden, and Riggleman.
Chairwoman Waters. The Committee on Financial Services will
come to order. Without objection, the Chair is authorized to
declare a recess of the committee at any time.
Today's hearing is entitled, ``Who's Keeping Score? Holding
Credit Bureaus Accountable and Repairing a Broken System.'' I
now recognize myself for 4 minutes to give an opening
statement.
Today, this committee convenes for a hearing on repairing
the nation's broken credit reporting system, and holding the
major consumer credit bureaus accountable. In October of 2017,
committee Democrats convened a Minority Day hearing on ensuring
the integrity of our country's consumer reporting system, and
safeguarding consumer data. As ranking member of the committee,
I invited chief executive officers of Equifax, Experian, and
TransUnion to that hearing. All three declined to appear and
testify.
I must share that since that time, I have met with at least
two of the chief executive officers. So this hearing with the
CEOs from the major credit bureaus is long overdue.
In 2017, Equifax experienced a data breach that exposed the
sensitive, personally identifiable data of approximately 148
million individuals, around half of all Americans.
In 2015, Experian discovered a breach that affected 15
million consumers who applied for T-Mobile service.
In 2013, all three major consumer credit bureaus, including
TransUnion, identified unauthorized access to sensitive data
that they held relating to high-profile individuals.
Consumers did not choose to entrust these companies with
their personal information. And they do not have the option
today of choosing a different company to maintain their
consumer credit data records by having their information
deleted from the major credit bureaus' databases, even
following these egregious breaches.
To make matters worse, three of the major consumer credit
reporting bureaus have used this breach of consumer data and
consumer trust to sell products they themselves are marketing
as identity theft protection. It certainly appears they are
capitalizing on consumers' fear and desperation despite the
fact that there are many free tools that consumers can use to
protect their credit.
These data breaches are deeply troubling because credit
bureaus collect reams of information on millions of Americans.
The more information they collect, the more people are at risk.
When that information is not properly protected, even worse
than credit bureaus vacuuming up of consumer data is a lack of
control that consumers have over this data. If a consumer is
dissatisfied with one credit bureau, they can't take their
business to a competitor.
To credit reporting bureaus, consumers aren't consumers;
they are commodities. This commodification of consumers and
their personal data is a core reason why our nation's consumer
credit reporting system is broken. In this broken system,
credit reports are routinely filed with errors that are
difficult for consumers to correct, negative information stays
on for periods much longer than its predictive value, and
medical debt continues to harm the credit standings of
otherwise creditworthy consumers. These problems are pervasive
in the credit reporting system.
Credit ratings directly impact how much we pay for a car
loan, whether or not we can get a mortgage, and, in some cases,
whether or not we can get a job. America's consumers deserve
better than this. That is why, for several Congresses, I have
put forth my bill, the Comprehensive Consumer Credit Reporting
Reform Act. My bill is intended to repair the existing system
by shifting the burden of removing mistakes from credit reports
onto credit bureaus and furnishers and away from consumers,
placing limits on credit checks for employment purposes, and
reducing the time period that negative items can stay on credit
reports, among other reforms.
Today, we will also discuss legislation to protect innocent
consumers who have been affected by the Federal Government
shutdown from having their credit damaged. While these are all
critical reforms to the existing system, I believe that we need
to ask whether the system is so beyond repair that we need to
completely rebuild the entire consumer credit reporting sector
to truly put consumers first.
With that, the Chair now recognizes the ranking member of
the committee, the gentleman from North Carolina, Mr. McHenry,
for 5 minutes for an opening statement.
Mr. McHenry. I want to thank the chairwoman for yielding,
and I want to thank you for holding this hearing.
I do agree with you, Chairwoman Waters, that this hearing
is a long time in coming, and is necessary.
The system is broken. While the credit scoring system
provides us with a foundation, and it allows millions of
Americans to access credit quickly and efficiently, the credit
reporting system is in need of major repair.
The Fair Credit Reporting Act (FCRA)--the principal statute
of governing the industry and I would dare say creating and
enhancing the standing of the three before us today--was
written for another time, a pre-internet era. There is no
better example than the oligopoly that was created than the
three that are sitting before us here today.
Our credit reporting system should be well-served by
increased competition. It should allow for innovation that
mirrors the changes we see in the financial services space
generally and society more dramatically. The dispute resolution
process should be more consumer-friendly, and more user-
friendly. A clear regulatory regime should be instituted. The
chairwoman and I have drafted legislation over the years to
modernize FCRA and create a better process for consumers.
While our approaches may be very different, we both know
that we need to find a way that works better for the people we
represent. Part of our focus should be to understand what
happens to the massive amount of data that flows into credit
bureaus.
The reality today is that if you have a credit file, your
information probably is on the dark web. That is a result of
the Equifax data breach of last year which put two out of every
five American's most sensitive personally identifiable
information at risk. Moreover, for me, the breach demonstrated
the complacency and the technological inadequacies of a
corporation that in many cases knows more about the people
generally than it does about themselves. That is unfortunate.
So it is incumbent on each of us to understand where the
data goes, how it is used, how it is protected, and how we can
more efficiently determine its accuracy.
And let us not forget that while the system works for many
American households, millions more have no or very thin credit
histories leading to inaccuracies. We need to assess whether or
not the information that is collected is still predictive of a
consumer's ability to repay loans. I think that is an important
discussion for this hearing.
One of the best ways to help people rise above the poverty
line is to allow them to build more thorough financial records.
That means expanding the information that is collected that
consumers can build so that they can be deemed creditworthy.
The bottom line is that we must do more in striving for
innovation and a more consumer-facing process. I think that
means more competition. I think that means not simply
nationalizing these three before us or creating a government
bureau to do it but having greater competition, forcing
industry to compete for consumers' participation and for
opportunities to enhance their bottom line over the long term.
I hope today's conversation is a productive one. I thank
both panels, both that are already here and those that are in
the audience waiting for the second panel, I thank them for
their testimony and for their time on this important matter.
Chairwoman Waters, thank you for holding this hearing. I
hope that we can work together to build a consensus on ways
forward to enhance what was an important statute in 1970, but
is in much need of reform. With that, I yield back.
Chairwoman Waters. Thank you very much. The Chair now
recognizes the subcommittee chair, Mr. Meeks, for 1 minute.
Mr. Meeks. Thank you, Chairwoman Waters, for calling this
most important hearing. With my 1 minute, I will be very brief,
framing what I see as the three fundamental issues for us to
consider today and going forward.
First, consumer reporting agencies behave like de facto
utilities but are not subjected to oversight or regulations
comparable to that of utilities. CRAs capture data on two
thirds of the American population and nearly every household.
It is nearly impossible to circumvent them and the industry is
concentrated in just three companies.
Second, consumers or the data, the source of conflicts but
not the clients; the entire industry is built on capturing,
analyzing, quantifying and trading consumers' personal
information yet consumers don't even own their own data and
have very limited access to it.
And third, errors and imperfect information impact the
working poor disproportionately by depriving them of access to
credit and at times hurting their ability to get a job or be
approved for rent or a better apartment.
Thank you. And I look forward to questioning the witnesses.
Chairwoman Waters. Thank you very much. We will now turn to
our witnessesw.
Today, we have two panels. I want to welcome the first
panel: Mr. Mark Begor, CEO of Equifax; Mr. James M. Peck,
president and CEO of TransUnion; and Mr. Craig Boundy, CEO of
Experian North America.
Mr. Begor was named chief executive officer of Equifax in
April 2018. Mr. Begor previously served as managing director in
the industrial and business services group at Warburg Pincus, a
private equity firm based in New York City. And prior to that,
Mr. Begor spent 35 years at General Electric.
Mr. Peck joined TransUnion in December 2012 as president
and chief executive officer. Prior to TransUnion, Mr. Peck was
at Reed Elsevier, a FTSE 100 company where he served as CEO of
the LexisNexis Risk Solutions business from 2004-2012.
Mr. Boundy is CEO of Experian North America. He joined
Experian in November 2011 as managing director of Experian U.K.
and Ireland. Prior to joining Experian, Mr. Boundy was CEO of a
U.K.-based management and information technology consulting
firm.
Each of you will have 5 minutes to summarize your
testimony. And without objection, your written statements will
be made a part of the record. When you have 1 minute remaining,
a yellow light will appear. At that time, I would ask you to
wrap up your testimony so we can be respectful of both the
witnesses' and the committee members' time.
Mr. Begor, you are now recognized for 5 minutes to present
your oral testimony.
STATEMENT OF MARK BEGOR, CEO, EQUIFAX
Mr. Begor. Chairwoman Waters, Ranking Member McHenry, and
members of the committee, thank you for the opportunity to be
here today. I am Mark Begor, and I have served as chief
executive officer of Equifax since last April.
Let me begin by expressing my personal regret for the
disruption that our 2017 cyber attack caused on millions of
Americans.
I am here today because we recognize there are things we
can do better. Credit reporting agencies like Equifax are
trusted to protect personal data we hold to help consumer's
access credit, and to help financial institutions make risk
decisions. By having their credit data at Equifax, consumers
have access to more affordable credit through loans that are
regulated by Federal and State laws.
Last year in the U.S., Equifax delivered 2.3 billion
consumer credit files to lenders. And during this hearing
today, with the help of lenders, nearly a million transactions,
including mortgages, credit cards, apartment rentals, and auto
loans will be completed.
As you well know, consumers are at the core of what we do.
And Equifax is taking significant steps to become a more
consumer-focused credit bureau.
Since the 2017 cybersecurity incident, Equifax has invested
more than $80 million to assist impacted consumers. When we
announced the incident in September of 2017, we offered an
identity theft protection and credit monitoring service free
for all Americans, regardless of whether they were impacted by
the cyber incident.
Last November, when that service was coming to an end,
Equifax decided, voluntarily, to extend that protection for
another year. Going forward, we are investing over $50 million
to make it easier for consumers to interact with us, both over
the internet and in our call centers. We are simplifying our
online dispute process, improving our phone systems, and
reducing the time to answer phones.
We want to make sure that we are the consumer-friendly
bureau at every step of the way. Credit bureaus, lenders, data
furnishers, and consumers all share an interest in maintaining
accurate credit data.
The current regulatory framework requires credit reporting
agencies to promptly investigate any dispute or inaccuracy, and
also expects that lenders provide credit reporting agencies
with accurate information. Let me be clear, a single error on a
consumer's credit report is one error too many.
And I understand how frustrating it can be for a consumer
to feel helpless when dealing with a credit bureau like
Equifax. When I hear stories about consumers who have
difficulties dealing with us, it strengthens my resolve to push
Equifax further to improve our consumer support.
I would like to conclude by reinforcing our focus around
data security. We are committed to building a culture, within
Equifax, where security is a part of our DNA. And I have made
it a personal commitment that we will be an industry leader
around data security.
We have added experienced senior leaders and board members
to enhance our security and technology skill sets. And in 2018
we added nearly 1,000 incremental IT and security professionals
to our team. I also want you to know that we are putting our
money where our mouth is. We are increasing our technology and
security budgets by 50 percent, totaling $1.25 billion between
2018 and 2020.
We recognize that part of being an industry leader is
actively sharing our security learnings and best practices.
Last year we established a number of meaningful partnerships
that will raise the bar for the entire security community by
leveraging our joint learnings.
We look forward to continuing collaboration around security
in 2019, and beyond. To close, I would like to thank Chairwoman
Waters for holding this hearing.
Equifax is committed to our mission to help consumers
manage their financial lives in a secure way. We are investing
unprecedented resources in technology, security, and people, as
well as making it easier for consumers to manage their credit
reports with Equifax. Thank you, again, for the opportunity to
testify, and for your dedication to American consumers.
[The prepared statement of Mr. Begor can be found on page
104 of the appendix.]
Chairwoman Waters. Thank you, Mr. Begor.
Mr. Peck, you are now recognized for 5 minutes to present
your oral testimony.
STATEMENT Of JAMES M. PECK, PRESIDENT AND CEO, TRANSUNION
Mr. Peck. Chairwoman Waters, Ranking Member McHenry, and
distinguished members of the committee, thank you for the
opportunity to appear before you today. My name is Jim Peck,
and since 2012 I have been fortunate to be the president and
CEO of TransUnion.
TransUnion is a global company headquartered in Chicago
with nearly 4,000 employees in the United States, and over
7,000 worldwide. Consistent with our mission, we seek to help
people through the power of information. We strive to ensure
fairness for consumers in the marketplace, and help our
businesses identify underserved markets and mitigate business
risks.
Our work helps ensure that the economy is built on a solid
credit foundation. I believe in TransUnion's mission, and will
continue to be proud of the progress the company has made under
my leadership after I retire from my position on May 8th.
Many people at TransUnion have introduced innovative new
products to advance financial inclusion, and enable more
consumer access to free credit information and education, and
substantially enhance the company's cybersecurity program.
We appreciate the committee's foresight in asking how we
can make the credit system even better. We particularly
appreciate the chairwoman's leadership on these issues.
The credit bureaus and all entities who provide the
information included in the system have a primary objective of
ensuring that the information is accurate.
TransUnion processes more than 2 billion credit updates to
our database monthly, and matches these to more than 230 credit
active Americans. While we achieve accuracy in almost every
instance, given the extraordinary volume of the information we
receive, it is inevitable that sometimes errors occur.
We recognize that no statistic of excellence matters to an
individual who has been impacted by an error on their credit
report. We work hard to prevent errors, and to address them
quickly and efficiently when they occur. We hold ourselves
accountable. We learn from our mistakes. And we try to improve
every day.
We know that inaccuracies in credit files are most often a
result of incorrect information provided to the credit bureaus
by data furnishers, or of legitimate disagreements between
consumers and lenders. That is why we continue to invest to
simplify the process for consumers to resolve disagreements
with their lenders.
I would also like to share some suggested improvements that
TransUnion believes would further reduce inaccuracies and
consumer disputes, and increase financial inclusion.
First, more timely reporting of key credit events like loan
payoffs could enhance credit report accuracy, and resolve
issues before consumers need to dispute them. Second, the
process for reporting of student loan information should be
enhanced to provide better support for our nation's student
borrowers. Third, stakeholders should expand the use of
alternative data such as positive cell phone data and utility
payment data, as this has the potential to substantially
increase the credit eligible population.
Through innovative solutions incorporating alternative and
trended data, TransUnion has helped over 60 million credit
invisible or credit-disadvantaged people gain greater access to
credit, many on significantly better terms, and some for the
very first time.
TransUnion also believes that individuals should have
access to their credit information, and should be empowered to
lock or freeze their credit wherever and whenever they choose.
We are proud of the fact that each year over 166 million
Americans have taken advantage, either directly or through our
partners, of free access to their TransUnion credit
information.
Critically, I want to finish my remarks today by discussing
what we at TransUnion consider an absolute imperative: the need
to keep consumers' data safe.
I can confirm that TransUnion has not had a material event
that has resulted in the loss of consumer credit information.
Virtually every industry in government is under perpetual
attack by ever-evolving and more sophisticated cyber criminals,
and faces new vulnerabilities that need to be addressed. Ours
is no different.
TransUnion follows the guidelines of the National Institute
of Standards and Technology (NIST). We have significantly
ramped up resources and capabilities over the last six years
and are consistently upgrading systems to keep pace. We would
support and participate in a task force of government and
private industry to work collaboratively against cyber crime.
In closing, I am proud of the innovations TransUnion
continues to bring to the marketplace to expand credit to
millions of hardworking people. Thank you for the opportunity
to testify here today and I look forward to your questions.
[The prepared statement of Mr. Peck can be found on page
155 of the appendix.]
Chairwoman Waters. Thank you Mr. Peck.
And Mr. Boundy, you are now recognized for 5 minutes to
present your oral testimony.
STATEMENT OF CRAIG BOUNDY, CEO, EXPERIAN NORTH AMERICA
Mr. Boundy. Chairwoman Waters, Ranking Member McHenry, and
members of the committee, I am Craig Boundy, CEO of Experian
North America, and I thank you for inviting me here today. I
appreciate the opportunity to discuss Experian's important
work, our efforts to make consumers a central focus of our
business, and how we are investing to improve the credit
reporting system.
Let me begin by stating why credit bureaus exist and how
consumers benefit. Credit bureaus accurately compile
individual's payment histories from creditors so that lenders
can use this data to make better lending risk decisions. Good
lending decisions for credit cards, autos, and mortgages mean
fewer defaults, and fewer defaults mean lower costs of credit
for consumers and greater availability of consumer credit
across the economy.
Credit bureaus help stabilize the safety and soundness of
the nation's consumer lending sector. What we hear most often
from consumers, Members of Congress, and regulators is that
everyone wants us to focus on three clear objectives: ensure
the information we hold on consumers is secure; make credit
reports accurate; and manage a data dispute system that is easy
for consumers to use.
Experian has clearly heard and responded to this call, and
significantly shifted its focus to the consumer. The number one
priority of Experian is keeping consumer information safe and
secure.
We began increasing our investments in data security well
before the Equifax breach and we continue to do so. Experian is
committed to achieving the highest possible levels of data
security and integrity and will continue to work on our own
initiative and with our regulators to find opportunities for
improvement.
We support enactment of a Federal data security standard
and breach notification law and have supported such since 2005.
Experian also supports the committee's goal of helping
underserved consumers. Many consumers may not have a mortgage
or credit cards, but they do make rent, telephone, and utility
payments.
Experian recently announced an opportunity for consumers to
include certain information from their bank accounts onto a
credit report. This free program, called Experian Boost, allows
consumers to opt in to sharing utility and telephone payment
information directly to their credit files and improve their
credit score, including their FICO score.
A consumer can grant permission to contribute information
from their banking accounts including the length of time
accounts have been open and frequency of activity. This is
particularly helpful to consumers who are new to credit or have
had financial challenges.
We want to work with the committee to find more ways to
expand financial inclusion. Experian also supports the
committee's goal of enhancing the accuracy f credit reports.
We believe the best way to achieve and maintain
improvements on behalf of consumers is through a robust and
continuously supervised examination program administered by the
Consumer Financial Protection Bureau (CFPB).
This program should continue to focus on ongoing
improvements by both credit bureaus and lenders as well as
other entities that furnish information to credit bureaus or
use information from credit bureaus.
We are equally focused on data accuracy. Our goal is to
reach as close to 100 percent accuracy as is possible. We have
invested heavily to move closer to achieving that goal.
Our data quality team of more than 100 people manage a
rigorous process of vetting data sent to us by lenders. We
apply more than 400 data error checks on each record submitted
by a lender and summarize a report back to the lender each
month.
If data provided to us by a lender does not meet our
standards, we reject it. An important component of accuracy is
to make credit reports accessible for consumers to review and
easily dispute data.
In March of last year, Experian introduced a new online
dispute portal, including a mobile optimized version to make it
easier for consumers to submit disputes and to receive the
results of those disputes.
I would like to close by saying that Experian is proud of
the improvements we have made. Our employees come to work every
day wanting to help and empower consumers to create a better
future for themselves. We are committed to the continuous
improvement of our business for the benefit of consumers,
lenders, and the economy.
Thank you for inviting to me to testify. I look forward to
answering your question.
[The prepared statement of Mr. Boundy can be found on page
111 of the appendix.]
Chairwoman Waters. Thank you very much. I now recognize
myself for 5 minutes for questions.
Mr. Begor, I understand you were not at Equifax when the
mass data breach happened in 2017, but you run the company now,
so I have a few questions for you. Equifax initially offered
one-year free credit monitoring for those affected by the data
breach.
The company then offered a second year of free credit
monitoring, but instead of providing the service yourselves,
you sent these customers to Experian for their services.
Consumers had to sign up by January 31, 2019, and if they
didn't, I understand that the initial credit lock they had on
their data expired. So how many consumers signed up for the
second year service, and can a consumer, watching this hearing
who may have been affected by your company's data breach, still
sign up for the free credit monitoring?
Mr. Begor. Thank you, Chairwoman Waters. Just to correct,
we offered that free credit monitoring after the data security
breach to all Americans, not just those who were impacted by
the data security breach. And at that time, 4 million Americans
took advantage of that free credit monitoring service.
As you pointed out, we extended the credit monitoring
service in November of 2018 for another year. We decided to use
Experian to provide that service versus Equifax and I don't
have the exact number of how many are still using that service,
but I will get back to you with that data.
We are not offering today any new credit monitoring to
impacted Americans, but as there's the ability for consumers,
if they want, to freeze their account. They can do it for free
using the Senate Bill 2155 that was put in place last
September. And we also offer a free lock and alert product. It
is an Equifax-only product to lock your--
Chairwoman Waters. Thank you. Thank you very much. I want
to understand why you referred them to Experian.
Mr. Begor. Madam Chairwoman, we moved the service over to
Experian because we believed that was a more appropriate way
for that service to be provided in our discussions with some of
the regulators that we were working with.
Chairwoman Waters. Despite the fact that Equifax is a
bureau providing these services, you are saying that in the
case of the breach, you didn't have the expertise, the ability
to handle your own consumers?
Mr. Begor. Chairwoman Waters, it really wasn't the
expertise. We moved very quickly to offer that service right
after the data security breach.
Chairwoman Waters. Then why did you refer them to Experian?
Mr. Begor. As I mentioned earlier in my comments, in our
discussions with the regulators that we are talking to, the
discussion was they thought it was more appropriate for a third
party to provide those services than Equifax.
Chairwoman Waters. How many consumers signed up for the
second year of services?
Mr. Begor. As I mentioned a minute ago, Chairwoman Waters,
I don't have that number at my fingertips. I believe it is
somewhere in the neighborhood of 2 million moved over to the
Experian service.
Chairwoman Waters. Can a harmed consumer still sign up for
the free credit monitoring services?
Mr. Begor. They cannot.
Chairwoman Waters. Why not?
Mr. Begor. The consumers who decided to take advantage of
it, we think we took care of them in September and the fourth
quarter of 2017, the 4 million who did sign up.
And as I started to say, we also offer a free lock and
alert product where they can lock their credit file for free
with Equifax using a mobile application and that is available
to all Americans at no cost.
Chairwoman Waters. So, what you are basically saying is,
you took care of all harmed consumers and you don't need to
expand it or do more?
Mr. Begor. I didn't say that, Chairwoman Waters. What I did
say is that, we took advantage of all Americans who wanted to
take care of it, whether they were impacted or not, in the
fourth quarter of 2017, so we opened it up to every American
who was available, and as there are other services available to
consumers who want to lock their credit file, either through
each of the three bureaus, through Senate Bill 2155, a free
freeze, and then with Equifax our online and mobile application
of locking--
Chairwoman Waters. Okay, I only have a few seconds left and
I want to know, Mr. Begor, your company sells Equifax Complete
Premier, which your website describes as, and I quote, ``Our
most comprehensive credit monitoring and identity theft
protection product.'' But why should consumers pay $19.95 a
month when a lot of what is being offered can be done for free?
Mr. Begor. I am not sure I understand the question,
Chairwoman Waters, about--you know consumers have a choice
whether they want to take advantage of that product and that is
a product available not only from Equifax, but the other credit
bureaus as well as multiple other sources of credit protection
is available on the marketplace for consumers who want to avail
themselves of it.
Chairwoman Waters. I don't think that is a sufficient
answer to my question, but my time is up and I am going to give
Ranking Member McHenry an opportunity to have his 5 minutes of
questions. Thank you.
Mr. McHenry. Thank you, Chairwoman Waters. And witnesses, I
would like to thank you for being here today. I have read your
testimony, and we have reviewed it. One thing is clear to me:
not one of you discussed in your testimony increased
competition in the industry. You don't even reference
competition with one another.
In fact, Mr. Begor, you stated that millions of Americans
have benefited from the efficient structure of FCRA. Yet, what
I see here is an oligopoly, right? We have three of you not
really competing and the consumers are the ones who are losing
out. I think that is a problem.
That state of limited competition has real ramifications.
So, how does an oligopoly protect consumers?
Okay, I will take that as an answer. So each of you
reference in your testimony that you have an efficient way--a
very quick, simple way to lock your credit, if somebody is
concerned about, for whatever reason, their credit file being
stolen or accessed by other folks. Is that correct? Do you all
have a very quick, easy process online for that?
Mr. Begor. That is correct.
Mr. Peck. Yes.
Mr. Boundy. Yes.
Mr. McHenry. Okay. And all of you have referenced the
changes in Senate Bill 2155. Some of you have referenced the
fact that we talk about synthetic identity fraud for kids,
right? And you all enable parents to lock kid's credit scores,
their children's credit, correct?
Mr. Begor. That is correct.
Mr. Peck. Correct.
Mr. Boundy. Yes.
Mr. McHenry. And you would encourage parents to do that if
they have concerns?
Mr. Begor. That is correct.
Mr. Peck. Correct.
Mr. Boundy. Yes.
Mr. McHenry. So, let us compare those two processes. You
have this innovative process you talk about in which Americans
can freeze or lock their credit with a simple click and anyone
listening can go on the website right now, to any of three
websites, it is a click and they advertise this. I am a parent
of 2 children, and one is 4 ears old. She hasn't told me she
has a credit card yet. The 13-month-old, I am concerned about,
though.
[laughter]
But I looked at your process to freeze my child's credit.
And while I can very easily and efficiently click through a
process and do it online to lock my credit, for my child's I am
required to get a copy of my Social Security card, my driver's
license, their birth certificate, a copy of both of my
children's Social Security cards--I'm sorry, my birth
certificate, not just my child's, my birth certificate as well,
a copy of my child's birth certificate, as well as their Social
Security card, documentation either through a birth
certificate, court order or lawfully executed power of attorney
or foster care certification that my wife and I are their
parents.
And your efficient process, every single one of you, the
three of you, have a process by which we use the United States
Postal Service to mail photocopies to you of this sensitive
information.
So why is it that when it is protecting my data, it is an
efficient process and why is it such an inefficient process
using an antiquated analog paper system to protect kids? Why
isn't it as simple as a click? And how do I know that those
documents are secure when I mail them to you?
You also reference the fact that those documents will not
be returned to the sender. So with nearly a million kids
exposed to synthetic identity fraud each year, you have made
this process needlessly slow because you don't think it is in
your corporate interest to make the process more efficient nor
is there competition for you to add in some better way for
parents to do this.
So how do I know that your system takes these paper copies
and ensures that they are delivered to the right and
appropriate department? The information on these pieces of
paper is being protected through a secure chain of custody? And
the paper copies and information are being destroyed at the end
of the process?
This is an enormous amount of trust there. So the
frustration I have here is I don't see that vibrant competition
which is needed for this industry to actually help consumers in
the way that the law should instruct. That is why we need to
update the law. That is why we need more competition and simply
taking you a three down to one and putting you in government is
not the solution either.
So we need to make sure there's competition so that
consumers actually can win and parents can have a more
efficient way to protect their kids. I yield back.
Chairwoman Waters. Thank you very much. The gentlewoman
from New York, Ms. Velazquez, is recognized for 5 minutes.
Ms. Velazquez. Thank you, Madam Chairwoman, and let me
start by thanking you for holding this important hearing. I
would like to address my first question to the entire panel.
Concerns about credit reporting errors, stolen credit
information and identity theft have caused consumers to
purchase additional credit monitoring services and other like
products from all three of your companies.
For example, Experian's CreditWorks Premium program allows
consumers to check their credit reports everyday from all three
of your companies and charges consumers $4.99 for the first
month and then $24.99 for each additional month.
Do you think developing products like this to help
consumers guard against your own negligence and then turning
around and selling them back to the consumer at an
extraordinary markup allows you to profit in part from your own
deficient practices? Mr. Begor?
Mr. Begor. Yes, Congresswoman, we offer a product similar
to that but I think as the Congresswoman knows, there are also
many avenues that consumers can use to protect their data.
You know one is the free freeze that is available through
Senate Bill 2155 last September and in Equifax's case, many
Americans have taken advantage of that. And as I mentioned in
my testimony, we also rolled out a free for life product
separate from the freeze. It is a phone-enabled tool that a
consumer can lock their credit file and then open it up at
their discretion--
Ms. Velazquez. Thank you.
Mr. Begor. So it gives--
Ms. Velazquez. Thank you.
Mr. Begor. --them full control--
Ms. Velazquez. Thank you.
Mr. Begor. --over their--
Ms. Velazquez. Thank you.
Mr. Begor. --credit file.
Ms. Velazquez. Mr. Peck?
Mr. Peck. Yes, what we are very proud of is I think we have
created a business model that over 160 million Americans a year
are getting access to free scores, free monitoring through
companies like Credit Karma and others and in addition to that,
they are also getting credit education.
Ms. Velazquez. Thank you. Mr. Boundy?
Mr. Boundy. Yes, thank you, Congresswoman. With Experian
you can come online and you can get access to credit monitoring
and your credit report for free and I think this is an
important step as well as being able to freeze your credit
report--
Ms. Velazquez. So Mr. Boundy, can you please answer me,
what makes your product so much better that requires you to
charge $25 compared to the $5 in the first month?
Mr. Boundy. The first thing it covers is that there are
costs involved in providing the product. For example, the cost
of helping consumers remediate--
Ms. Velazquez. What is extraordinary about your product the
second month compared to the first month? Why do you go from $5
to $25 to fix deficiencies that you created in the first place
that could cost me my ability to access credit?
Mr. Boundy. Our products are used by many people in the
U.S. and they enjoy the service we provide that helps prevent
them or cope with data breach that occurred to other, companies
unrelated to any of the credit bureaus.
Ms. Velazquez. But can you answer me why such a big
difference, between $5 and $25, do you understand what it means
for low-income families, consumers, what does it represent, $25
a month?
Mr. Boundy. I do and one of the things I want to come back
to is we do offer a free product that consumers can take
advantage of as well.
Ms. Velazquez. Again, this question is for all three of
you. In March 2017, the CFPB produced a supervisory report
which found that CRA lacked quality control policies and
procedures to test reports for accuracy, had inconsistent
practices for vetting furnishers, and had insufficient
monitoring and oversight of the furnishers once they were
approved to provide data. So my question is, how do each of you
ensure the accuracy of the reports you are producing and test
the veracity of information furnishers are providing to you.
Yes, sir?
Mr. Begor. Yes, Congresswoman, as I mentioned in my
testimony, we believe one error is one error too many in any
credit report. We have an extensive team of data quality people
who are auditing furnisher's inputs. And as I mentioned in my
testimony, we are investing heavily in our dispute process to
make it easier for consumers when they identify a dispute to
help them get it fixed.
Ms. Velazquez. And what are the oversight procedures that
you have in place?
Mr. Begor. As I mentioned, we have a very extensive data
quality team and when we identify a furnisher that is providing
inaccurate data to us, we will stop taking that data into
Equifax.
Ms. Velazquez. And what are your procedures for taking
action against any furnisher that fails to comply with your
established requirements?
Mr. Begor. We will stop taking their data, Congresswoman.
Ms. Velazquez. So, what is the maximum number of times a
furnisher's data can be rejected by your company before you
stop accepting information from them?
Mr. Begor. That is something, Congresswoman, I don't have
at my fingertips, I would be happy to come back to you with
that data.
Ms. Velazquez. Would you please submit it in writing?
Chairwoman Waters. The gentlelady's time has expired. We
must move on. The gentleman from Florida, Mr. Posey, is
recognized for 5 minutes.
Mr. Posey. Thank you, Madam Chairwoman, and thank you,
gentlemen, for appearing here today. I have a two-part question
and it is for each of you and we can go left to right.
Your testimony touches on synthetic identity fraud. And so
my questions are, what steps can we take to curb this type of
fraud and what role do Social Security numbers play in
synthetic identity fraud? And obviously is there a more
technologically advanced approach that we could or should be
taking?
Mr. Begor. Thank you, Congressman. I think as you know that
is a growing problem and it has been around for a long time.
Not only for the credit bureaus but for financial institutions
at large were attacked daily by fraudsters posing as
individuals like yourself or your constituents trying to access
the personal information that we have. We have invested heavily
in multifactor identification to make sure that we know you are
you when you are trying to access your credit bureau data.
But even with that, we have a small number of those
fraudsters that actually are successful in accessing our data.
With regards to your question about the Social Security number,
we are a member, along with I believe the other credit bureaus,
of the Better Identity Coalition that was formed I believe a
year ago looking at alternatives to the Social Security number.
But to me, the real approach is just having more rigor
around identification of the individual when they are trying to
access sensitive information.
Mr. Posey. Okay, thank you. Mr. Peck?
Mr. Peck. Thank you, Congressman. So, the problem of
synthetic identification isn't just a credit industry problem,
it is a problem all through the United States and around the
world and I think we need to do multifactor authentication. I
think we ought to think about, even a government task force
that includes our industries, but other technological
industries and comes up with new ways to check for identities.
And I think we have to acknowledge that the Social Security
number, while it is a fine identifier, it is not really
something that can be used by itself as an identity check. So
we need to augment that and admit that it has kind of served
its purpose and now use the new technologies available, maybe
biometrics, to come up with an even better two-factor
authentication.
Mr. Posey. Okay, thank you. Mr. Boundy?
Mr. Boundy. Congressman, thank you for the question, I
think it is an important one. Clearly, it's something we are
all very concerned about and I think we would be very happy to
work with the committee and suggest some ideas to further
improve the way that we all address the threat of synthetic
identity fraud.
Mr. Posey. What would happen to the availability and the
cost of credit if we eliminated entire categories of debt from
credit scores?
Mr. Begor. Oh, I think that is an excellent question,
Congressman. We are big believers as are, most importantly, the
financial institutions that are making those credit decisions
that more data and accurate data results in the best consumer
decision. And eliminating types of data from consumers, our
view and I think the financial institution's view, could raise
the borrowing cost for all consumers, which is why we believe
accurate and complete information is most important.
Mr. Posey. Okay. Mr. Peck?
Mr. Peck. Congressman, I agree, more and different kinds of
data, like we have suggested. So, utility data, cable bill
data, cell phone data, these are the kinds of data that can
quickly get someone who may have stumbled, to prove again that
they are back on the right track and they are a good borrower,
so I would consider that first.
With regards to taking off data, I think that is something
that the industry should study and understand the implications
of, and once they understand it, we can make an informed
decision of whether we should do that or not.
Mr. Posey. Thank you. Mr. Boundy?
Mr. Boundy. Congressman, thank you. I think it is important
that we are able to have the correct and accurate information
on a credit report that allows as many people as possible to
gain access to credit and that is why we have launched the
Experian Boost product, which allows consumers to directly
contribute information onto their own credit file for free.
Mr. Posey. Okay. Thank you, gentlemen. Madam Chairwoman, I
yield back.
Chairwoman Waters. Thank you very much. The gentleman from
New York, Mr. Meeks, is recognized for 5 minutes.
Mr. Meeks. Thank you, Madam Chairwoman. Let me ask all of
you this question first. Would you agree with the statement
that, while consumers may be the clients of your data providers
and data users, consumers are not, in fact, your primary
clients, but really just principally the source of data?
Mr. Begor. Do you want me to start, Congressman?
Mr. Meeks. Yes, sir.
Mr. Begor. Thank you, Congressman. As I said in my oral
testimony that is not how we view it and certainly not how I
view it since I joined Equifax last April. We believe the
consumer is central to who Equifax is and I have been very
clear internally and externally that our goal is to be a
consumer-friendly credit bureau and we are investing heavily in
the consumer, including $50 million in new technology to make
it easier for consumers to access their credit file and also,
most importantly, to process disputes that they may have on
their file.
Mr. Meeks. So, let me ask you this question and then I will
go to Mr. Peck after that. Who owns the data? Do you own the
data or do the consumers own the data? Who owns the data?
Mr. Begor. There's no question, Congressman, it is the
consumer's data.
Mr. Meeks. So, if it is the consumer's data, then where and
how does the consumer control that data? For example, if the
consumer decides that he or she wants to opt out entirely from
having their information tracked by your companies, if they do,
what is your estimate about such a person's ability then to
access credit or quickly comply with a background check?
Mr. Begor. I think as the Congressman knows, the credit
bureau system that we have in the United States is the envy of
many countries around the world. Consumers today do have the
ability to freeze their file and that gives them control to
decide if they want to lock their file from access by any
financial institution and then they can unlock it at their
discretion. And as I mentioned, Equifax also rolled out a
mobile application called Lock and Alert that gives them even
more control to actually lock and unlock when they are out
getting a new car.
Mr. Meeks. Would the consumer have to pay for that?
Mr. Begor. They do not, Congressman. As I mentioned, it is
offered for free and it is free for life to all Americans.
Mr. Meeks. Okay. And the question then is, would the
consumer, and I will go to Mr. Peck for this question--when you
are agencies, you control oftentimes, particularly for poor
people, the determination of whether or not they can get a job.
Sometimes because they look at their credit rating, et
cetera, to make the determination whether they can get a job or
not, and my concern then is, for that poor person who is trying
to get a job and then they are declined, them having access and
being able to go through and look through their own data in a
timely form so they can get the job. What does your company do
to make sure that happens so that is not an additional expense
to a person who's already struggling?
Mr. Peck. Thank you, Congressman. If I understand that
question, if a credit report is the reason a consumer doesn't
get a job, the employers are required to tell them what
information in that credit report caused them not to get the
job. And then there is also the avenue of free access to your
credit report through one of many, many avenues today to look
at that report.
Mr. Meeks. So, because what I am trying to drive at, when a
dispute arises, who, other than the consumer, is tasked with
advocating on the consumer's interest and position? Is there
anybody?
Mr. Peck. Congressman, when a consumer has a dispute, they
submit it to, in this case--if it were to TransUnion, they
would submit it to TransUnion, one of many avenues.
We have an obligation within 5 days to acknowledge that and
get that to the lender who is--or whomever is causing the issue
and then we have an obligation to get back with them within, I
think, it is 30 days. It ends up--our statistics show that we
get back with them within 5 days, 25 percent of the time.
Mr. Meeks. But there's no other advocate? Because what
happens oftentimes, especially with someone who is poor and
they are trying to make their life better, there is a
statement, and I don't whether any of you have been poor
before, but there's a statement that James Baldwin made, that
anyone who was ever struck with poverty knows how extremely
expensive it is to be poor, and the individual who is poor
can't get a job, then they have to end up paying for not having
access that others have then suffers. And they are never going
to climb out of this poverty that they are fighting to get out
of.
And because of the lack of competition that Ranking Member
McHenry and Chairwoman Waters were talking about, they have no
place else to go and it seems as though the three of you
basically can control that, and that person therefore is out of
a job and cannot climb their way out of poverty. I yield back.
Chairwoman Waters. The gentleman's time has expired. The
gentleman from Missouri, Mr. Luetkemeyer, is recognized for 5
minutes.
Mr. Luetkemeyer. Madam Chairwoman, I think the gentlelady
from Missouri is up next. She has an emergency she needs to
attend to, so I am going to--I will reserve my time for later
if you will allow her to take her 5 minutes now.
Chairwoman Waters. The time is granted to the gentlelady
from Missouri, Mrs. Wagner, for 5 minutes.
Mrs. Wagner. I thank the Chair for her courtesy, and I
thank my colleague from Missouri for his kindness also. I thank
the chairwoman for hosting this hearing today, to examine the
current state of America's credit reporting system.
Consumer protection and monitoring the accuracy of credit
scores is an issue that is critically important to my
constituents and certainly to everyone across the country.
Mr. Begor, we know that one of the best things that cyber
security professionals can do is to band together, sharing
advice and expertise about what works and what doesn't.
How has Equifax been helping the broader, I will call,
chief information security officer community?
Mr. Begor. Thank you, Congresswoman. As I mentioned in my
earlier testimony this morning, it is one that we have taken on
quite strongly since the data security breach in September of
2017, not only with our competitors; we are sharing what we
have learned from the cyber security breach internally inside
of our industry and with our financial partners and others that
have been impacted.
We have forms that we set up in many communities and our
SISO and technology teams are really sharing quite openly what
we have learned of what happened at Equifax, and more
importantly, how we are investing the $1.25 billion of
incremental investment we are making between 2018 and 2020,
really sharing that with others quite openly, because we
believe this a war that is not going to end.
That not only are the credit bureaus, but every financial
institution, every company in the United States and government
agency is attacked daily by fraudsters in nation states that
are trying to attack our data and security.
Mrs. Wagner. And building on that, Mr. Begor--and we are
grateful for your leadership, you have been a breath of fresh
air at Equifax--could you tell me a little bit more about how
your workforce has changed since the 2017 cyber security
incident?
I understand that you have a larger security team, but tell
me more about what you have done to ensure that you have hired
employees with the right expertise and how you have drawn in
new talent.
Mr. Begor. Yes, as you well know, we have added resources
in St. Louis and Atlanta, which are our two principal centers
in the United States. As I mentioned in my earlier testimony
this morning, we have added 1,000 incremental people in the
United States, which is almost a 20 percent increase in our
U.S. workforce and that is part of that $1.25 billion
incremental spend we are going to do around technology and we
have attracted the very best.
We really believe people are going to differentiate how we
operate in security and technology and that is we have had such
a high priority in bringing in new and strong talent.
Mrs. Wagner. Thank you. Mr. Peck, how would eliminating
accurate predictive information from the risk underwriting in
your reports impact consumers and lenders?
Mr. Peck. If we eliminate--thank you for the question,
Congresswoman, I want to make sure I understand it. If we
eliminated accurate and correct information. If we eliminated
the wrong information I think, as we look at the performance of
bureaus around the world who have attempted this stuff, the
actual cost of lending has increased substantially, to the
consumer because they have no way of differentiating between
the different--
Mrs. Wagner. Ultimately, the consumer is going to pay.
Mr. Peck. That is what we have seen. That is why we
strongly suggest that we look at ways to bring in more
information, especially things like cell phone payment data and
other utility-type data that we all deal with. There was a CFPB
study that just came out that showed people in rural and highly
urban areas are much more positively affected by bringing that
data in because it brings them back into good standing, or back
into the credit community much more quickly than relying on the
traditional forms of credit reporting.
Mrs. Wagner. Mr. Peck, briefly, in what ways does a
consumer have control over their data at TransUnion?
Mr. Peck. At TransUnion, we believe that we are the
stewards of the data. The consumer can lock and unlock, freeze
or unfreeze their data. They can even opt out of the data when
it is used for firm offers of credit, which is a form of
marketing. So they have complete control of when it is used.
Mrs. Wagner. Thank you, Mr. Peck. Briefly, Mr. Boundy, how
does Experian try to help people from diverse communities
thrive in your corporate environment?
Mr. Boundy. Congressman, thank you for the question. As an
employer, diversity inclusion is a really important part of how
we run our organization. It is something I am very proud of and
I know all of our employees are very proud of, whether it is
from allowing teams to form individual clubs--let them create
communities or employee resource groups that allow them to
recognize the community that they represent, or how we recruit
our staff. It is a very important part of how we run our
company.
Mrs. Wagner. Thank you very much. My time has expired. I
thank everyone for their courtesy. And I yield back.
Chairwoman Waters. Thank you very much. The gentleman from
Missouri, Mr. Clay, is recognized for 5 minutes.
Mr. Clay. Thank you so much, Madam Chairwoman. There are
quite a few Missourians on this panel. But let me ask the three
of you, and I want to read a quote from a recent story in--this
is from Francis Creighton, President and CEO of the Consumer
Data Industry Association--legislation that are negatively
impacting them. And we think that is really problematic.
So my question to the three of you is: is that problematic
for consumers to be able to challenge something on their
report, have it removed, or at least bring it to your
attention? And does it indicate that the industry may need a
shift in culture because you are putting up quite a bit of
resistance to changing the culture that you now operate under,
as far as credit reporting bureaus.
And understand, the question is about the impediments and
barriers that you put in front of people who are trying to
close the family wealth gap, or trying to close the gap in home
ownership. So that is the impact that your scores have on
families. So let me start with you, Mr. Begor. Does the
industry need a shift in culture?
Mr. Begor. Congressman, as I mentioned in my oral testimony
this morning, you know, our culture is shifting. We have always
been strongly focused on the consumer. It is a real priority
for me to really support consumers. And as you talk about
errors on credit files, we are really enhancing the processes
and the focus around helping a consumer because there's a lot
of angst.
If they are trying to get a new mortgage, or an auto loan,
or a school loan and there's an error on their credit file, we
are obligated to help them fix that. And if the error is an
error, than get it fixed so they can improve their credit score
and their credit standing.
Mr. Clay. How easy is it for a consumer to come to your
company and say, hey, this is a mistake. And how long does it
take for them to get that taken off their report, or get it
corrected?
Mr. Begor. Congressman, it--as I mentioned in my oral
testimony, we are investing $50 million in the coming months to
enhance our capabilities to have mobile online access. As the
ranking member talked about, having to send documents through
the mail--actually send them through the web to us in a secure
way, and we have--there are regulations on how quickly we have
to respond.
You know, we respond--I think it is 25 percent, roughly,
within the first 7 days, resolve that dispute, over 50 percent
in the first 14 days. And we are obligated to complete that
process within 30 days.
Mr. Clay. Okay. Mr. Peck, is there resistance to a cultural
shift in your industry?
Mr. Peck. Thank you, Congressman. I think our culture is,
very much, shifted towards the consumer. No one wins when
there's an inaccurate report, especially the consumer. And so,
we have tried, especially over the last 4 or 5 years, to put
processes in place that are really easy for the consumer to do.
So for example, right on their credit report, we have a
button where they can say, if you are disputing this just press
this button. What are you disputing? Not only our own service,
but in services like Credit Karma. And we believe that has
actually driven up the amount of disputes that we have had, or
people just asking questions about their credit to improve it.
I would suggest, as it was in my testimony, that--
especially in the area of student loans, the reporting process
is very confusing. I think it is known that it is confusing,
and it does not help the--you know, the first time--you know,
these are the people paying back their loans for the first
time. And we would love to work with this committee on doing
something about that.
We also think that all data is not alike. So if someone is
paying off their loan and they know they have a mortgage coming
so maybe they want to pay off their auto loan, having that
record show much more quickly as paid would reduce disputes,
but also make that person's life easier.
Mr. Clay. Okay.
Mr. Peck. So we would strongly love to work--
Mr. Clay. Before my time runs out--
Mr. Peck. --together on that.
Mr. Clay. Mr. Boundy, has your company made a difference in
the number of disputes? Have they gone down, or is the culture
the same?
Mr. Boundy. Congressman, I think our company has made a
significant shift towards concentrating even more on the
consumer, whether that is making it easier for consumers to
dispute. Our new online dispute portal really does that. Or
mostly importantly, I think allowing consumers to contribute
information themselves that improve their credit score.
Mr. Clay. Okay. My time has expired. I yield back.
Chairwoman Waters. And now the gentleman from Missouri, Mr.
Luetkemeyer, is recognized for 5 minutes.
Mr. Luetkemeyer. Thank you, Madam Chairwoman. Gentlemen,
thank you for being here today. I just want to make a couple of
comments here.
It is very important for a lender to be able to understand
the risks they are about to take. And lenders want to lend
money. They don't make any money unless they lend it. But in
order to make an accurate decision of whether to do it or not,
you have to really analyze the risk that they are taking when
they lend that money.
And so, for your business to be a part of their lending
decision is very important, and to have the accurate
information is extremely important. I know that there have been
some discussions today about some of the things you have done,
and how you have improved your process and your data.
But I would like to ask you a couple of questions and go
down the line to each one of you, can you give me an example--
we will start with Mr. Begor there--of an individual that you
have helped as a result of some of the new programs that you
have instituted?
Mr. Begor. Thank you, Congressman, that is a great
question. In our communities where we have large employment
centers like Atlanta and St. Louis, we are actively involved
with local charities that are doing credit consulting, credit
coaching and one experience has been brought to my attention of
a woman who was unbanked.
She was receiving her paychecks via a debit card. As you
know, there are fees associated with that and through the
coaching and our partnership with this agency, we were able to
help her learn about how to open a checking account, how to get
into the formal financial system and she actually then
graduated into getting a credit card and it is those elements
to trying to help that we are really quite supportive of.
Mr. Luetkemeyer. Mr. Peck?
Mr. Peck. Congressman, thank you for the question. I will
talk about something in the broad sense and maybe specifically.
We introduced a product that included trended data, so over a
30-month period, you could see not only what a person's account
was but actually how they are paying it and that ended up
having a large impact on helping people who are maybe starting
from a bad spot in their credit to more quickly prove that they
are acting financially responsible.
The same effect happens with alternative data and I keep
quoting the CFPB study that just came out that has a higher
impact on rural areas and highly urban areas. And our studies
show that 60 million people have either gone from credit
invisible to visible or they have improved their credit score.
A specific thing that just happened, and someone copied me
on a consumer note that they had sent to--through the dispute
process and she was asking us, can you help me get my auto loan
paid off? It is been paid off but it hasn't been reported yet
and I am applying for a mortgage.
And so what we are suggesting is that all transactions
aren't the same. If we could work together to help the
furnishers understand that perhaps those kinds of transactions
make them happen more quickly, you can really help consumers in
a tangible way.
Mr. Luetkemeyer. Thank you. Mr. Boundy?
Mr. Boundy. Congressman, thank you for the question. This
is something that is really important to me and all of our
employees. I thought it would be useful to maybe tell you about
Janine. Janine is a married working mother of six from Ohio. We
helped her at Experian get a fresh start with her credit life
through our credit educator program. She got into trouble with
her credit during college and began to associate her debt with
anxiety, clearly very concerning and she needed to talk to
somebody about her personal situation.
We partnered with a community organization and we referred
her into our credit educator program. Over months of working
through this, she was able to improve her credit score by 150
points. That is a very significant improvement for her. It
allowed her to take out an auto loan and refinance her
mortgage.
And if I may, I will just read a brief quote from her. In
her own words she said, ``I did not think I had any leverage
but this program gave me confidence to apply what I knew and
push forward to settling into a better life with better
credit.''
Mr. Luetkemeyer. Thank you. You know one of the things that
I think Mr. Peck you made the point here a minute ago with
regards to as people's circumstances change their ability to
pay also improves. So in other words, they maybe change jobs or
maybe they had a child move out of the household so they now
have more money to be freed up to be able to do things and
those things can be reflected on your credit scores as you see
an improvement in them suddenly for certain reasons.
How often do you go back and check your data and study it
to make sure it is accurate? Anybody? Mr. Peck?
Mr. Peck. So, accuracy is the most important thing we do
and what we really do is check for accuracy as it comes in and
we spend a tremendous amount of dollars and time on the
matching algorithms which we think we have some of the best in
the business and we also spend a tremendous amount of energy
and time working with the furnishers to make sure that they are
submitting--that they are good furnishers, they are submitting
data in the right format and they are not sending anomalous
data. So if all of a sudden their data starts looking funny or
wrong, we get back with them.
Mr. Luetkemeyer. Thank you. My time has expired. Thank you,
Madam Chairwoman, I yield back.
Chairwoman Waters. Thank you very much. I now recognize the
gentleman from Georgia, Mr. Scott, for 5 minutes.
Mr. Scott. Thank you very much, Madam Chairwoman. Mr.
Begor, how are you? Let me ask you this going back for a minute
with Equifax and the breach. First of all you are a Georgia
company and I love Georgia.
Mr. Begor. We do too, Congressman.
[laughter]
Mr. Scott. I know we do. And so we want to make sure the
record is clear in terms of how we have moved to correct the
breach situation. I think it is very important for the
committee to know that you were not CEO at the time of the
breach. You are relatively new at Equifax. You have assumed
this position, I think, only about 10 months ago. Is that
correct?
Mr. Begor. It is, Congressman.
Mr. Scott. So it is sort of like we have a new sheriff in
town. And I want to commend you for the leadership that you
have provided in cleaning up the mess. You have invested $1.2
billion in getting new technology to correct and make sure the
breach never happens again. You have hired over 1,000 highly-
qualified tech professionals to make sure of that.
And you have provided retribution and retention and help
for all of those customers, 148 million, who need the help and
the retribution to make sure they are clear. So I want to tell
you, job well done there, but we have a bigger issue here.
According to the CFPB's report, of all the complaints that
have been registered by consumers, they have not been the
breach, they have been on inaccurate reporting and so I want
you to comment on that because you have an issue there.
I want to know, and I think the committee wants to know,
what are the steps that you are taking to address this issue of
inaccuracy? As Chairwoman Waters pointed out in her opening
statement, it is devastating to folks who are trying to get
jobs, or student loans, so what are you doing to correct that?
Mr. Begor. Thank you, Congressman, and thank you for your
comments. As I mentioned in my oral testimony this morning, we
think it is an important issue and I was very clear that one
credit report error is one too many and we are really doubling
down on our focus on the consumer.
We are investing heavily in our consumer interfaces so we
can improve the ease for consumers to process a dispute. And as
you pointed out so correctly, when a consumer has an issue with
their credit file, and I think it is been talked about a bit
this morning, there's a lot of angst with that consumer. So we
have a lot of sympathy to having better trained call center
representatives, better technology to process the dispute to
help them because they are generally trying to complete a new
financial transaction whether it is a car loan or a mortgage.
Mr. Scott. But here is where I am having difficulty. This
process, I think it is what you refer to as the dispute
resolution process, and it goes on and on. Sometimes, these
consumers have to even go to court. Who is going to pay for
that when it has been the credit agencies' fault, merging
files, mistaking information, and in order to get that cleared,
they have to go to court, which means they have to get a
lawyer, they have to pay all these costs, what are we doing on
that point?
Mr. Begor. Thank you, Congressman, you know it is very rare
that a consumer would have to go that far as to go to court--
Mr. Scott. But some are.
Mr. Begor. And they do, Congressman, and you are correct.
We don't want any consumer to have to go down that avenue; we
want to solve it for the consumer quickly and that is our
focus. And the other thing we want to do is when we are not
able to solve and those few instances where they do go to court
we want to learn from that and then fix our process so it
doesn't happen again.
Mr. Scott. Do you not think it might be worthwhile to find
a way to be helpful to--for the cost if they have to go to
court? You say it is very few, but fair is fair. They didn't
make the mistake, the credit agency, Equifax--or any of the
others made that mistake. Wouldn't that be something that would
be worthy of consideration that if it has to go to court, then
let us find a way to help that consumer out? He is already
suffering from the mistake that you and the credit agencies
made.
Mr. Begor. Congressman, your point is 100 percent correct.
You know, our focus is to resolve those with the consumers
quickly so that the consumer can complete their financial
transaction as I mentioned in my testimony, my goal is to be a
consumer-friendly credit bureau and to enhance our customer
service.
Chairwoman Waters. Your time has expired. Mr. Huizenga is
recognized for 5 minutes.
Mr. Huizenga. Thank you, Madam Chairwoman. So looking at
the history of why this industry came into existence, it really
was to try to ease availability for credit, right? Into a
broader scale, and I do believe that the products that have
been put forward have significantly helped to ensure that
credit is more available to millions of consumers.
And I know, having a small family business background--my
grandfather started in construction in the 1930's, and I now
run the family sand and gravel operation--that over the
decades, credit has been a significant issue.
What I am concerned about I think as the ranking member had
talked about is sort of where are we in the industry since FCRA
hasn't been really touched since the 1970's and I want to know
what has been done to modernize and adopt the new technologies?
And I guess specifically I want to go quickly on this
National Institutes of Standards and Technologies updated its
cyber framework last spring and the FTC safeguard rules require
firms have measure to keep in place customer information. So if
we just quickly go down the line, Mr. Boundy do you comply with
both NIST framework and the safeguard rules?
Mr. Boundy. Yes, we do.
Mr. Huizenga. Yes, Mr. Peck?
Mr. Peck. Yes, we do.
Mr. Huizenga. Yes, Mr. Begor?
Mr. Begor. Same, yes, we do.
Mr. Huizenga. Okay, and have you conducted an independent
audit of your cyber security platform?
Mr. Boundy. We are constantly reviewing both internally and
externally looking at external accreditations like ISO 27001
that we hold or PCI accreditations to make sure that our
information security is up to standard.
Mr. Huizenga. But not an independent audit at this point?
Mr. Boundy. External audits are carried out.
Mr. Huizenga. I'm sorry?
Mr. Boundy. External audits that are achieved to carry out
those accredited--
Mr. Huizenga. Okay. Mr. Peck?
Mr. Peck. Yes, we do external audits.
Mr. Huizenga. Mr. Begor?
Mr. Begor. As you might imagine, Congressman, following the
cyber incident of 2017 there have been multiple external
reviews of our cyber security protections both by ourselves as
well as by government agencies
Mr. Huizenga. Okay. And should Congress pursue legislation
to codify Federal data and security and consumer notification
standards?
Mr. Boundy. As I said in my opening testimony, Congressman,
I think it would be something we would support, that there
would be a national data breach standard and notification
approach.
Mr. Huizenga. Okay. Mr. Peck?
Mr. Peck. Yes, I agree they should.
Mr. Begor. We also support that at Equifax.
Mr. Huizenga. Okay, well I do believe that we need some
updates and reforms, not some, we need some significant
elements of that as--again as Mr. McHenry had talked about
earlier, I am a bit concerned that the reforms that the Chair
has put forward may go a little far afield on that and,
specifically, the draft suggests eliminating entire categories
of debt from credit scores.
And I am curious, what would--knowing that the history of
how this evolved, how the industry evolved, what would be the
impact of this and what would happen to the availability and
cost of credit to consumers? Mr. Boundy?
Mr. Boundy. Well, I think we would--it is something we
would need to study in more detail, but just in principle, I
think they are probably two, one would be it could negatively
impact a lenders ability to assess risk and second is that it
has the risk of increasing the cost of consumer's access to
credit.
Mr. Huizenga. Mr. Peck, quickly?
Mr. Peck. Congressman, in my view we should study it and
make sure it is statistically and empirically sound, we know
what our conclusions are if we take certain things and maybe
reduce them from 7 to 4 years. At the same time I think we
should make the same effort to see if more information will
actually help improve the scores, so I think that would help
modernize the system as you discussed.
Mr. Huizenga. Mr. Begor?
Mr. Begor. Congressman, just reinforcing what has already
been said by the other two witnesses is that we believe more
data and accurate complete data is really in the interest of
all Americans that are accessing credit.
Mr. Huizenga. Mr. Boundy, you had talked about this, I
think in your opening statement, that actually Experian offers
the opportunity to add information, to opt in by consumers, is
that correct?
Mr. Boundy. Thank you, Congressman, yes we do. We have
recently launched a product called Experian Boost, designed to
do what it says, which is to give consumers the opportunity to
boost and increase their score by adding information
themselves.
Mr. Huizenga. And so does that maybe buttress what the
other two gentleman here were talking about sometimes maybe
more information that is put in by consumer might help that?
Mr. Boundy. Yes, I think what this does is let us offer to
consumers the ability for them to add new information that we
don't currently have that will positively impact their score.
Mr. Huizenga. My time has expired so I appreciate the
opportunity.
Chairwoman Waters. Thank you. The gentleman from Texas, Mr.
Green, is recognized for 5 minutes.
Mr. Green. Thank you, Madam Chairwoman. And I thank the
witnesses for appearing and I appreciate what they have said
with reference to their efforts to atone, but I do have some
questions that relate to some other things that may have
occurred. Is it true that Equifax executives sold $1.8 million
in company stock, or thereabouts, before the breach was
announced?
Mr. Begor. Congressman, I don't have the exact number but
there were a number of executives who sold stock before that
breach was announced--
Mr. Green. If I may, because time is of the essence, would
you say that it was at or near or around or approximately $1.8
million?
Mr. Begor. Again, Congressman, I don't have the number at
my fingertips but I would be happy to come back to your office
with that.
Mr. Green. Well, I will be happy to tell you that I have it
at my fingertips, and it seems to me that you have been
naughty. Is it true that at or around the same day the breach
was announced, there was an attempt to limit damages by way of
a congressional hearing? And I am talking about the 148 million
consumers who had their precious priceless information
breached. Is it true there was a congressional hearing to limit
or cap damages?
Mr. Begor. I am not familiar with that, Congressman.
Mr. Green. Well, I am. Have you opposed capping damages
such that your liability would be limited to some number,
perhaps $500,000?
Mr. Begor. Not since I have been a part of Equifax. No, I
have not.
Mr. Green. Okay. Are you aware that there were efforts to
limit damages?
Mr. Begor. I was not aware, Congressman.
Mr. Green. Is it true that the credit bureaus are not
liable for the information that you purvey, generally speaking?
Mr. Begor. Is that directed at me, Congressman?
Mr. Green. Yes, sir.
Mr. Begor. I am not sure how to define the term
``liability.''
Mr. Green. Well, let me help you. If you have information
that is inaccurate, is it true that you would say to the public
that the person who gave us the information is the person who
bears the responsibility for the liability?
Mr. Begor. I think as I mentioned earlier, it is our view
at Equifax that we have a central role when there's inaccurate
information to both auditing it when it comes in from the
furnishers or the financial institutions--
Mr. Green. Do you agree, if I may, do you agree that the
liability or litigation is something that you would contend
belongs to the person who gave you the information--furnished
the information?
Mr. Begor. Congressman, I am not a lawyer so I really can't
give a perspective on the liability. I can tell you that we
feel an obligation and it is central to how I am running the
company to ensure that we are working--
Mr. Green. Well, if you feel an obligation, permit me to
ask this: Do you give notice to the users of your information
that there may be as much as 20 percent of it that is
inaccurate?
Mr. Begor. We don't give notice. It is on the CFPB's
website of what the disputes are that are processed so it is
available to the public.
Mr. Green. I understand but do you, as the purveyor of the
information, do you accord notice indicating that, ``Our
business model is flawed. We use inaccurate information?'' Do
you let consumers know that you have a flawed business model?
Mr. Begor. Congressman, as I mentioned in my testimony
earlier and this conversation, our focus is on accurate data
and I said also--
Mr. Green. Our focus however is on inaccurate data. That is
my job. I take my job seriously, I am sure you take yours
seriously.
Mr. Begor. Yes, I do.
Mr. Green. Inaccurate information hurts. I have dealt with
constituents who have not been able to get a mortgage because
of inaccurate information. Why would I assume, given that you
have been naughty you haven't been nice.
Why would I assume that you are now going to repent, that
you have seen the error of your ways and that you want to atone
and you want to self-regulate? I see no reason to do it. I
support the legislation that the chairwoman has presented. It
is time for change. I yield back the balance of my time.
Chairwoman Waters. The gentleman from Colorado, Mr. Tipton,
is recognized for 5 minutes.
Mr. Tipton. Thank you, Madam Chairwoman, and witnesses, I
appreciate you taking time to be here today. Mr. Boundy, in
your testimony you note that placing an emphasis on the
accuracy and credit reporting benefits both the consumers and
financial institutions, leading ultimately to better consumer
protections and lending outcomes. In your testimony you suggest
that the credit bureaus help stabilize the safety and soundness
of the nation's consumer lending practices. Can you make a
statement in regards to statutory change that is being proposed
by the chairwoman and what kind of customer information is
being required in those statements to be able to stay on the
consumer's credit is report? Is that going to be able to
distort the financial information or would it enhance it?
Mr. Boundy. Congressman, I think if I understand your
question, we support the committee's overall goals of
continuously improving the accuracy of credit reports but the
information that is currently held in the credit reports does
allow us to help be part of assuring consumer lending takes
place appropriately in the United States.
Mr. Tipton. So would you actually recommend a little bit of
caution in terms of putting in statutory requirements in terms
of some of that information? Would it inhibit maybe some of the
ideas that you are putting forward for the opt in program for
the utility bills, for the payments that you are making on real
estate and otherwise coming in?
Mr. Boundy. Thank you, Congressman. I think what is
important to understand about the Experian Boost Program is
that it is a consumer opt in program so that is something that
any consumer can take part in if they want to but our industry
does rely on voluntary contribution of information so I am
always concerned that anything that could impact the accuracy
of the information that we hold and allow us to support
consumer lending in the United States.
Mr. Tipton. Great. Mr. Peck, I noted that you wanted to
kind of chime in a little bit in terms of what Mr. Boundy was
talking about on the Experian Boost Program, in terms of some
of the opt ins. Did you want to speak to that issue?
Mr. Peck. I did. Thank you, Congressman. I was going to
bring up a different point. TransUnion came out with trended
data well before the other two. We came out with certain kinds
of alternative data well before the other two. Experian has
come out with this product that we are now working very hard to
match and build and I just wanted to point out that is an
example of competition in this industry where we really are
pushing each other to come up with really interesting
technology solutions that help the consumer. That was the point
I was going to make.
Mr. Tipton. Great. I appreciate that. I represent a lot of
rural Colorado. Main street businesses, small communities, the
ability to be able to use some alternative methods to be able
to actually qualify that you have an ability to be able to
repay is something that is admirable. Have you had fair buy-in
in terms of these opt in programs? Are people taking advantage
of it, Mr. Boundy?
Mr. Boundy. Yes, they are indeed. We only launched the
Experian Boost Program recently and already a large number of
consumers are opting in because they see the benefit to them.
Mr. Tipton. Great. Mr. Peck?
Mr. Peck. We don't have that product in place at this time,
Congressman, but we are working on it. But we have gone about
it with something we call trended data that has been in the
market for awhile. That and our alternative data products, as I
said before, have actually increased the number of credit
visibles or improved the credit scores of the number--of the
credit disadvantaged of 60 million people.
Mr. Tipton. Thanks. Mr. Begor, you talked quite a bit about
your company's desire to be able to get some of the dispute
resolutions accelerated. You have cited a number of dollars
that are being put in. Would you maybe expand a little bit on
what those dollars are actually translating into, in terms of
making that dispute resolution a real reality for consumers?
Mr. Begor. I thank you, Congressman, and as I said earlier
in a couple of comments this morning, we believe that our
central goal is to support the consumer and this is consumer
data that we protect and when there's one dispute, it is one
dispute too many.
Our $50 million of investment over the coming months is
really going to be around to enhance the technology between us
and the consumer to make it easier for them to file a dispute,
easier for them to see the dispute in process, when do we have
it, when it goes back to the furnisher or financial
institution, when it is back with Equifax, what is the
resolution? And we really view ourselves as an advocate for the
consumer.
Mr. Tipton. Great. Thank you. I will yield back, Madam
Chairwoman.
Chairwoman Waters. Thank you. The gentleman from Missouri,
Mr. Cleaver, is recognized for 5 minutes.
Mr. Cleaver. Thank you, Madam Chairwoman. And I thank the
witnesses for being here. Did you bring any of your staff with
you? Did any of you bring any staff?
Mr. Begor. Excuse me, I couldn't hear the question,
Congressman.
Mr. Cleaver. Did any of you bring any staff with you?
Mr. Peck. Yes.
Mr. Begor. Yes.
Mr. Boundy. Yes.
Mr. Cleaver. Are they in here?
Mr. Peck. Yes.
Mr. Begor. Yes.
Mr. Boundy. Yes.
Mr. Cleaver. Are they behind--right behind you?
Mr. Peck. Yes, some are right behind us.
Mr. Cleaver. Can you just raise your hands please? Thank
you.
I am not as sanguine about the high level of diversity that
somebody mentioned earlier, but let me go to something else. I
don't want to suggest that it is easy to do what you are doing,
when you have approximately 200 million adults, with your--that
you handle with your credit files, it is difficult and 10,000
furnishers, the people who provide information.
But, what I am having some difficulty with is the fact that
I am not sure that there is the urgency to clean up this whole
system as it should be, and that leads to one other thing that
is connected with that. Is the only difference between the
three of you, the three credit bureaus, the process--the
difference in the process--in the way you process information?
Is that the only difference?
Mr. Begor. Congressman, if you would like, I will start?
Mr. Cleaver. Yes.
Mr. Begor. I think there are a lot of differences between
the three credit bureaus. As you pointed out, central to our
business is managing the 250 to 260 million American's credit
files that we have responsibility for.
But, there are differences you have heard this morning
about some of the technology we have, some of the tools that we
are using with consumers and that is what really makes my view
this very--a very competitive industry, because we are
investing to provide more tools for consumers and for our
customers with the financial institutions in order to be an
integral part of the U.S. economy.
Mr. Cleaver. Okay, I am glad you said that. So why do we
need all three? Can somebody, in just a short period of time,
tell me why we need all three? Okay good, that is what I
thought.
[laughter]
So--I'm sorry.
Mr. Begor. Well, we are looking at each other, Congressman,
and deciding who would answer, so I will be happy to take that
first.
Mr. Cleaver. Well, no, you answered it.
Mr. Begor. Okay.
Mr. Cleaver. I think what you said earlier is one answer,
but can the other two respond, Mr. Peck and Mr. Boundy?
Mr. Peck. Yes, Congressman, so there are actually hundreds
of CRAs. There are specialty CRAs that deal in different kinds
of data that we don't deal in. We happen to be the three
national CRAs that have evolved over time. I think having more
than one creates substantial competition between us.
Mr. Cleaver. What is the competition?
Mr. Peck. We are competing for the ability to actually
provide the best information on a consumer as possible, both to
the consumer and to the businesses that are trying to lend to
the consumer.
Mr. Cleaver. But when you say competitor, does that mean
somebody has a choice?
Mr. Peck. Congressman, they do have a choice. The lenders
have a choice and the consumers do have a choice, if they want
to use one of our particular services--
Mr. Cleaver. To the exclusion of the others?
Mr. Peck. --for certain things to the exclusion of the
others.
Mr. Cleaver. But what information would you have for credit
that the other two would not have?
Mr. Peck. I don't know if you want to get that one? But, we
have access to certain utility information that others might
not have because of relationships we formed. We have certain
access to rental information that others might not have because
of the relationships we have formed.
We have access to trended data because we have been saving
it over a 30-month period that the others may not have. So,
that is an example of the kinds of data we might not--
Mr. Cleaver. So, Mr. Boundy, the three of you are
competitors? Is that right?
Mr. Boundy. Congressman, I have six-and-a-half thousand
employees here in the U.S. who are proud every day to come to
work, to do a great job for the consumers they serve and the
customers that we serve and that is what we concentrate on in
our business.
Mr. Cleaver. Yes but--okay, nobody answered my question.
Madam Chairwoman, I apologize. Nobody answered the question. I
just need you to point out why we need three agencies and you
say you are competitors and none of you said anything to prove
you were creditors. Thank you.
Chairwoman Waters. The gentleman's time has expired. Mr.
Williams from Texas, you are recognized for 5 minutes.
Mr. Williams. Thank you, Madam Chairwoman. Thank you all
for being here, and as a small business owner, and as a
capitalist, I might add, I know firsthand the value of complete
and accurate credit reports in making sound business decisions.
For those of you who are not aware, I am a car dealer. I
have been a car dealer for 50 years, my family for 79 years. We
work with lenders to see what terms they can offer prospective
buyers to finance one of our cars. The lender's ability to
offer risk-based pricing is essential in any business that
relies on lending and financing.
So, Mr. Boundy, can you elaborate on what Experian has done
to improve the accuracy of credit reports since the CFPB began
supervising and examining your company? And I have questions,
so we will go here, okay?
Mr. Boundy. Congressman, absolutely. We have a large team
of employees who concentrate on improving the accuracy of data
and applying a range of rigorous checks, over 400 of those
checks.
And, in fact, if the people providing the information don't
meet our standards, we end up terminating them. We have
terminated over 100 of those data furnishers over the last 3
years and now we are moving to make sure the consumers can add
information onto their own credit file, make sure they can walk
onto your lot and walk off with a car straightaway.
Mr. Williams. Okay, as a small business owner and a
capitalist, as I said, I am going to get as many people into
new cars as possible, as long as the lender is willing to give
out loans.
Now whether a person is buying a car, a private jet or even
a cow, the lender needs to be paid back in order to continue
offering lines of credit to other people in the community.
A deal is a deal in America and people need to pay their
debts. I am worried that this committee is going to go down a
path where lenders are receiving credit reports that have been
scrubbed of all negative credit information. Mr. Peck, can you
go into some detail, quickly, about the potential risk of
removing damaging information from a person's credit history?
Mr. Peck. Thank you, Congressman. So if we would blindly
remove information, there could be unintended consequences. And
so, whenever you are going to do something like that, even when
you add information, you need to prove that it, statistically
and empirically, will do the job it is intended to do.
So the danger is, if you remove something without thinking
through the negative implications, you could increase the cost
of credit to everybody because, ultimately, when people don't
pay back their loans, the cost of credit goes up.
Mr. Williams. I agree totally. Mr. Begor, in your testimony
you mentioned that Equifax has been investing substantial
amounts into technology and security. Can you, quickly,
elaborate on these investments, and how they are making
consumer data much more secure so we do not have a repeat of
the data breach?
Mr. Begor. Yes. Thank you, Congressman. As I mentioned in
my oral testimony this morning, it is our goal to be an
industry leader on data security. And that $1.25 billion we are
investing in 2018, 2019, and 2020, incremental to our normal
spend is all focused on bringing the very best technology into
Equifax that is available anywhere in industry.
And whether it is perimeter security, encryption
technology, bringing some of our systems into the newest forms
of technology, that is really the focus of that investment, so
we can be an industry leader around data security. We know that
we are entrusted with protecting that data, and we take it very
seriously.
Mr. Williams. Thank you. One of the things we have been
talking about is complaints. And I just made a note here that
we can't get complaints confused with not paying your bills.
That is just a statement that I have. Before my time ends, I
wanted to ask each of you a yes-or-no, simple question. We can
start on the left. Do you think that the government can
establish a credit reporting agency that is better than each of
your representative companies?
Mr. Begor. No.
Mr. Peck. No.
Mr. Boundy. No.
Mr. Williams. It would cut out competition is what it would
do. We have talked a lot about that. And then, finally, I want
to ask each one of you, are you a capitalist or a socialist? We
will start here on the left.
Mr. Begor. Congressman, a capitalist with a soft heart.
Mr. Peck. I would lean more towards being a capitalist.
Mr. Boundy. Congressman, I am proud to run a business in
the United States with six and a half thousand employees that
come to work every day to do a great job.
Mr. Williams. Well, thank you. Just in closing, I want to
thank all of you for what you do. Being a person in the lending
business, your reports are important to us, not only to the
sellers, but to the consumers. So thank you for that. I yield
my time back.
Chairwoman Waters. The gentleman from Colorado, Mr.
Perlmutter, is recognized for 5 minutes.
Mr. Perlmutter. Gentlemen, thank you for your testimony,
and just a couple of questions. Mr. Cleaver was asking, why
shouldn't there only be one of you? My question is, why aren't
there more of you?
Let's talk about the secret sauce, the FICO scores where
somebody came up with an algorithm, and you guys modify these
algorithms. I don't understand them. Why aren't there more of
you? Why are there only three of you? And that is the problem
that I see. And that is why you are getting some extra scrutiny
here. Mr. Begor, why aren't there more than three of you?
Mr. Begor. Congressman, you know, first off, we have tried
to portray this morning, I think, in some of our comments that
there's intense competition between the three of us. And the
$1.25 billion investment that we are making is a very sizable
amount. As Mr. Peck testified a few minutes ago, there's more
than the three of us. There are hundreds of data furnishers and
credit reporting agencies that have different types of data
that are in the industry.
Mr. Perlmutter. Mr. Peck, but why, today, are there just
three of you? Whenever we talk, it is always TransUnion,
Equifax, and Experian. Full disclosure, I am an Experian
customer. I am one of the, sort of, three areas. They sell data
to the masses. They sell data or they provide services to
creditors. And then they sell back to me so that I can see what
my credit score is from month to month to month. But why are
there only three of you?
Mr. Peck. That is a good question, Congressman. Over time,
the three have emerged. And it was largely a kind of geographic
thing. But if you really look at the industry overall, there
literally are hundreds of CRAs that are looking at different
ways to collect different kinds of information. They are
regulated by the FCRA. There are also many, many analytics
firms. You mentioned FICO.
Virtually every lender has their own scores as well. So
there's, I think, very intense competition, which has been
fueled by, for example, FinTechs, who get access, by the way,
to all of this information that the big banks--I think the big
banks, and I can't remember the number, but they hold the
majority of the data. The CFPB has those numbers.
If they weren't sharing that information into a credit
bureau system like this, community banks, other small banks,
FinTechs, would not be able to compete. They wouldn't get that
information. And I think, over the last 3 or 4 years, that has
driven a substantial increase in the amount of newer and better
products that have gotten in the hands of all different kinds
of people.
Mr. Perlmutter. But let me just stop you. So the fact that
there are only three--well, three major consumer banks. There
may be these minors, but when I think of credit bureaus, you
are the three that I think of. And I think everybody up here,
Democrats and Republicans, you are it.
And so, when there's a breach it is big. When there is a
credit breach--when there's a credit breach, it is big. When--
you know, and--and I said this to Mr. Boundy, he was in to see
me a week or so ago, you know, here I am. I think I have--
should have really good credit. I screwed up on something. I
paid the wrong amount. Chase cashes the check. But then,
unbeknownst to me, you know, reports it as a short check, that
I haven't paid enough.
And all of a sudden my wife comes in and says, hey, my
credit score just dropped like a rock. You know, and I am
going, I think everything's fine. So then you start calling.
And you talk to the credit bureau. And then they send you to
the bank. And you get the low person on the totem pole.
I guess, the thing that really gets all of us is the fact
that even if you have good credit, and you screw up once, it
seems to have a really bad effect on your credit, which could
hurt you for a long time to come. So I am a little bit happy to
hear about this other product that you have, Mr. Boundy. So if
I gave you my utility bills, how's that going to help me fix it
when I screw up?
Mr. Boundy. Congressman, thank you for the question. The
way that the Experian Boost product works is it allows you to
go online for free, and take information from your bank
accounts and contribute that directly onto your file, and
increase your score as a result of proven payment history, for
example, of your utility bill.
Mr. Perlmutter. Okay. I understand where the chairwoman is
going here, though, with wanting to look into this situation
because we really only have three. There may be smaller
varieties out there. But the fact is you have a ton of
information on all of us. When something goes awry even it is
because of what I did. It was my mistake. But something small
that I fixed right away. I have not been able really to repair
in two years now and I hear about it from my wife on a pretty
regular basis, because she had impeccable credit until I
screwed up.
So the effects that you guys have is long-lasting and
across the board and there is a real desire on our part to make
sure that there is good communication between you and the banks
and all of us to help us do a better job. I yield back.
Chairwoman Waters. Thank you. The gentleman from Georgia,
Mr. Loudermilk, is recognized for 5 minutes.
Mr. Loudermilk. Thank you, Madam Chairwoman. Thank you all
for being here. Being a former business owner, mistakes and
errors happen. None of us are perfect. We do not live in a
perfect world, but the mistakes that happen in your business do
have a profound effect because it affects the livelihood of
individuals.
Mr. Peck, I will start with you and ask, when there's an
error on a credit report, that is information that is provided
to you by a creditor of some type, right?
Mr. Peck. Most often a creditor, yes.
Mr. Loudermilk. Okay. When somebody--a consumer notices
through something like Credit Karma or something like that and
they contact you, do you have any way of assisting--or do you
attempt to assist the consumer in cleaning it up and how to
clean it up?
Mr. Peck. Yes. If they dial into us we answer the call in
30 seconds. If they dispute online, which is becoming more
prevalent, we take in their data. They have an automatic way to
upload the documentation that supports their dispute. We get in
contact with the furnisher or the lender and we try to help
them resolve that dispute.
Mr. Loudermilk. So if the lender--do they have a timeframe
that they are supposed to respond by?
Mr. Peck. Yes, if they don't respond within 28 days, then
we close the dispute in favor of the consumer.
Mr. Loudermilk. Okay. Does Equifax do the same?
Mr. Begor. We do, Congressman. And as I mentioned in my
testimony, we are investing more dollars to make that even
easier for the consumer to process that dispute, quicker call
response time because we know it is an anxious time for the
consumer when they see an error on their credit report.
Mr. Loudermilk. How long, let us say when they claim their
report up, how long does it take to reflect in their credit
rating? Is it immediate? Is there usually a time after the 28
days or whatever?
Mr. Begor. I'm sorry?
Mr. Loudermilk. Let me ask--do you have a timeframe as
well?
Mr. Begor. It happens almost automatically.
Mr. Loudermilk. Okay.
Mr. Begor. In a kind of overnight fashion. When that
dispute is repaired, it will update their credit scores and go
all the way through the system.
Mr. Loudermilk. Okay, Mr. Boundy?
Mr. Boundy. Yes, Congressman, it would very be similar
practices from Experian.
Mr. Loudermilk. Okay. How long has this been in place--this
type of, Mr. Peck, of customer assistance and the timeframes?
Mr. Peck. So the process of consumer dispute has been in
place since the FCRA legislation came out. In my view, over the
last 5 years, 7 years, the dispute process has improved
substantially because of the use of online tools. I think the
credit bureaus frankly have gotten much more focused on doing a
better job at it.
Mr. Loudermilk. Okay, thank you. I appreciate that. Mr.
Boundy, I did a little research on complaints before this
hearing and from what we found out Experian had about 95,000
complaints to the CFBB since 2012. Does that sound about right?
Mr. Boundy. I don't know the exact number, Congressman, but
I think that sounds about right.
Mr. Loudermilk. When we ran the numbers--that sounds kind
of high but when we ran the number that is about 0.5 of 1
percent of your customers which actually sounds pretty good
when it comes to customer satisfaction. Mr. Begor, do you guys
track customer satisfaction ratings at all?
Mr. Begor. We do. In our call center we do call recordings
to coach our call center associates on how to be strong in
customer service and we are focused on improving that service.
Mr. Loudermilk. Okay. Well, I don't envy the position you
are in. I think as my colleague, Mr. Williams, said, it is
important to actually helping keep our interest rates down but
it is a frustrating process when you do have something wrong.
My grave concern over where we are going with all this is the
government getting more engaged in it because quite frankly the
agency that has the lowest customer satisfaction rating in the
entire United States of America is the United States
Government, by far.
At the bottom is the Veteran's Administration and Treasury.
Now if they would adopt the same procedures that you have for
resolving disputes, I think that would go up because we
regularly deal with constituents who, with the VA, who has data
that is wrong about a veteran that we have sent the right data.
We have some who are now on their 13th year trying to correct
that information.
I have constituents who are on their fifth and sixth year
trying to correct data with the IRS in the Department of the
Treasury. We have the same thing with the housing agency, with
HUD. Those are the three of the lowest of the lowest and so my
concerns is as Congress goes forward is while there are issues
definitely with these agencies that need to be corrected, are
we just going to make them worse by getting the government
involved. With that, Madam Chairwoman, I yield back.
Chairwoman Waters. The gentleman from Florida, Mr. Lawson,
is recognized for 5 minutes.
Mr. Lawson. I thank you very much and welcome to the
committee. The question that I have is a certain segment of the
population does not have access to credit and I might say not a
certain section but a large section. This means that they do
not have a credit score. As all of you know, no credit score is
just as bad as low credit score.
How can we utilize alternative proofs of someone's ability
to pay--approve a payment included utility bill, cell phone
bills, and maybe even cable bills to determine what kind of
credit score, and all of you all can respond to that because in
certain segments of society, people do anything sometimes to
pay their utility bill, cable bill and so forth but they still
might have a really bad credit score. How do you handle that
situation?
Mr. Begor. Congressman, I will go ahead and start. We
believe that one of the roles we play is really helping those
disadvantaged Americans who don't have access to the
traditional credit file. There are upwards of 26 million
Americans who are not in the credit system. There are another
close to 19 million who have what they call a thin file,
meaning they are in the credit bureau but they have no trade
lines, meaning they don't have any financial records.
So like our competitors, we are constantly looking for
alternative data like cell phone, like utility payments, like
rental payments that we can bring into our financial partners
and really help in that credit decisioning for that consumer
who is not in the traditional financial system.
Mr. Peck. Congressman, my answer would be very similar to
Mr. Begor's. It is--we are trying to find information--
information or payment data on things that people are using in
their regular everyday life, wireless phones, cable, rental,
that shows a sustained ability to discipline themselves to pay
for those things and then that does find its way into the
credit score and increases their access to credit.
Mr. Boundy. Congressman, thank you for the question. I
think you are absolutely right, in fact if you want to do that
at Experian you can do that straightway today. You can come to
Experian.com, you can select to boost your score, you can add
that information immediately onto your credit file, your score
will immediately reflect and increase as a result of that if it
is appropriate. In fact I heard about one consumer increasing
their score by over 70 points.
Mr. Lawson. Thank you very much. My other question is, you
know, when I was in college, I was very popular my senior year;
everybody wanted to give me a credit card. As a result of
getting all those credit cards, 2 or 3 years later when I was
trying to get a home, it was a situation where they said I had
missed a couple of payments.
It was causing a problem. I have probably over 100,000
students throughout my district in 4-year institutions and
community colleges and so forth and they have a lot of things
going on in terms of using credit cards to make payments. Do
you all take that into consideration 2 or 3 years later when
you have a score that you are trying to apply for different
things and the credit starts to reflect some of those options
that they made? Anyone can respond to that.
Mr. Begor. I will go ahead and start. Congressman, as you
may know, credit scoring systems that we use and the financial
institutions use really the predictive nature of a missed
payment that is 2 years ago, 3 years ago, 4 years ago, 5 years
ago, is less relevant and becomes less a part of that credit
decision. Something that is missed last week, last month, you
know in a recent period, is much more weighed into that credit
decision.
Mr. Lawson. Right, quickly, because of all the hurricanes
that we had, this Hurricane Michael you know in Florida and a
lot of things happened, and are still going to happen with
people's credit, and so forth, how do you weigh in on that?
Mr. Begor. Congressman, as you may know, in the situation
of a hurricane we will work with the financial institutions to
make sure they understand the impacted consumers or another
natural disaster we have actually are doing the same thing with
regards to furloughed government workers from the recent
government shutdown and we also offered free credit reports to
the furloughed government workers so they could really
understand where they may have missed a payment and helping
them communicate that to the financial institution.
Mr. Lawson. Does anyone else care that I have about 10
seconds left?
Mr. Peck. I was more or less, Congressman, going to answer
the same way. The example is with the recent government
shutdown it is advertising that there is help available, we had
professional counselors counseling the people who might have
been affected on how to talk to their furnishers or their
lenders. We talked to the lenders and said here's what you can
do to indicate that this person wasn't really late on a
payment.
Mr. Lawson. Okay, I yield back.
Chairwoman Waters. The gentleman from Ohio, Mr. Davidson,
is recognized for 5 minutes.
Mr. Davidson. Thank you, Madam Chairwoman, and I thank our
witnesses and thank you for the work you do to make sure that
our consumers have access to credit. Mr. Peck, would you agree
that it is accurate that the purpose of credit rating agencies
is to help those who would extend credit to consumers to
accurately assess risk of default or timely repayment?
Mr. Peck. Yes I would, I would also say it is to help
consumers have kind of an independent view of who they are
without regard to race, religion, or gender.
Mr. Davidson. Thank you. Mr. Boundy, a topic that is very
near and dear to me and to millions of Americans and a big part
of why all three of you are here today is data privacy. The
E.U. has moved forward with their own data privacy legislation
called the General Data Protection Regulation or GDPR for
short. Are you familiar with GDPR?
Mr. Boundy. I am familiar with it in principle.
Mr. Davidson. Thank you, in response, your U.K. branch said
preparing for GDPR has had a significant impact on U.K.
organizations in terms of cost and effort. Do you still agree
with that statement?
Mr. Boundy. I agree with the statement that we made.
Mr. Davidson. So, clearly it is a dynamic change to privacy
laws for Europe, and I am particularly curious about how the
GDPR's consent regime which requires that processing can only
occur if the data subject gives informed and unambiguous--I
understand--a clear and affirmative act establishing a freely
given specific informed and unambiguous indication of the data
subjects agreement to the processing of personal data related
to him or her such as by written statement including by
electronic means or oral statement.
To me, that is potentially legally confusing, and I am sure
it caused a lot of changes for your company as it has for many
others. But it is very different than the opt out regime that
we have in the United States under Gramm-Leach-Bliley. How do
credit reporting agencies then lawfully process personal data
under GDPR and should that be a model for the United States
legislation?
Mr. Boundy. Well, Congressman, it is a complex topic, but
in fact there are a great many similarities between the way
that the GDPR legislation is applied to the credit bureaus and
the financial system in, for example, the United Kingdom, as
well for the FCRA here in the United States.
Mr. Davidson. Okay, so at the end of the day it is
inconsequential then if we just go with the GDPR for the U.S.,
you guys would be for that?
Mr. Begor. Congressman, I am not sure I necessarily agree
with that. There are a lot of protections already in place
today, and for example the Senate Bill 2155, it was passed last
September, it allows a consumer to freeze their file for free--
you know gives a consumer a lot of control--
Mr. Davidson. But that is not the same as consent to all
the data that is in it. So it is a very different legal
framework for the U.S. and I am sure that all of you are aware
that the U.S. is contemplating future privacy legislation, and
I am very passionate that we get it right. And I am just
curious how it would impact.
I trust that it would impact you quite appreciatively, I
don't think it is accurate to downplay the seismic shift that
GDPR had in privacy framework by saying well it is essentially
what we have in America; it is not. The underlying premise is
very different. I think, you know, the other big thing is who
ultimately at each of your organizations is responsible for
security? Mr. Begor?
Mr. Begor. It would really be me. The chief security
officer reports to me, and also reports to the board. We have a
special technology committee and the individual has a dual
report.
Mr. Davidson. Thank you. Mr. Peck?
Mr. Peck. It would be me.
Mr. Davidson. Absolutely. Mr. Boundy?
Mr. Boundy. It would be me.
Mr. Davidson. I am so encouraged to hear you say that, and
that is just so nice to hear that the buck stops here, that
everything happens or fails to happen ultimately comes up to
the chief executive. Since those have been incredibly valuable
and increasingly prominent role the org charts of organization,
Mr. Begor could you highlight how your organization has changed
the role and responsibility for your system?
Mr. Begor. Prior to the data security breach, our chief
security officer worked for our general counsel and that was
changed right after the data security breach and I continued
with the--
Mr. Davidson. Thanks. Any big changes for either of your
organizations?
Mr. Peck. From the technology officer and to me. It is a
highly technical job. It has no place reporting into the legal
department. It also is a culture and so you need this person to
have direct access to your head of audit and also to your
chairman of the board.
Mr. Davidson. Thank you. Mr. Boundy?
Mr. Boundy. No major changes other than it is an incredibly
important job to have in an organization. In fact, the
accountability sits with every employee in our company to
ensure the security.
Mr. Davidson. Thank you. My time has expired and I yield
back.
Chairwoman Waters. The gentlewoman from Virginia, Ms.
Wexton, is recognized for 5 minutes.
Ms. Wexton. Thank you, Madam Chairwoman, and thank you to
the witnesses for joining us here today. I represent Virginia's
10th District, which is just across the Potomac in Northern
Virginia, and it has a very high concentration of Federal
employees and contractors who were negatively impacted by the
shutdown.
Now that the shutdown's over, most of my constituents are
back at work, but the challenges they are facing still remain.
I am sure you all are aware of that. Prudential Financial
recently conducted a survey of Federal employees to see how
they were affected financially by the shutdown.
The survey found that more than a quarter of them missed a
mortgage or rent payment because of the shutdown, 13 percent
missed a student loan payment, and nearly half fell behind on
their bills in general.
So, I would inquire of you gentlemen, if you observed any
increase or spike in negative credit reporting among folks whom
you either have identified as Federal employees or contractors,
or that you know are in the region where there are a lot of
such employees. I inquire of the panel.
Mr. Begor. Congresswoman, thank you for that question. As I
mentioned in my oral testimony and my comments earlier, we have
great sensitivity to any American who is impacted by any issue,
whether it is a hurricane, a wildfire or, in this case, the
government shutdown.
We announced on February 1st that we were offering free
credit reports for all impacted government workers. We also
increased the staffing of our call centers and really made sure
they were ready and available to take those inbound calls to
help coach the impacted government workers about how to work
with their financial institution.
And, as the Congresswoman probably knows, there's an
ability to put a note on your credit file to really highlight
that you were impacted in that way and that credit file goes to
the financial institution as part of the underwriting process
for a new loan, a new auto loan or a credit card.
Ms. Wexton. Just following up on your response, Mr. Begor,
as a part of the process, if they did, for example, pay a
mortgage payment late or miss a rent payment, that is something
that would show up as an adverse event in their credit score,
is that correct?
Mr. Begor. That is correct.
Ms. Wexton. Okay, they would have an option to attach an
explanatory statement, but it would not, ultimately, help the
score that they get.
Mr. Begor. That is correct. And they also have the
opportunity, which we coach them on, is to talk to their
financial institution to really make sure they understand why
they missed it and really go through that avenue.
Ms. Wexton. I think we know why they missed it, because
they weren't getting paid. Now, Mr. Boundy, you testified
earlier in your prepared remarks that you vet the data provided
by the furnishers, is that correct?
Mr. Boundy. Yes, Congresswoman, that is correct.
Ms. Wexton. Is that data--does that vetting process involve
the consumers themselves?
Mr. Boundy. That vetting process that I was talking about
in my testimony involves our employees and our data quality
team, putting it through about 400 checks for accuracy. Of
course, every consumer is able to access their report for free
and check their own information as well.
Ms. Wexton. But, before that data is entered into your
system, is there any vetting that involves the consumer? Or
does it just involve the furnishers and double-checking Social
Security number, date of birth, geographic location?
Mr. Boundy. The information that I was talking about in my
testimony is reviewed by our own staff for its accuracy and put
through a range of rules and checks to make sure that it is as
accurate as possible.
Ms. Wexton. But, does it involve the consumers themselves?
Mr. Boundy. That process does not involve the consumer.
Ms. Wexton. Now as far as consumer directed or inquiries to
a person's credit report, whether they be by a furnisher or a
creditor or the consumer themselves, does the number of
inquires cause it--does an increased number of inquires cause a
decrease in the overall creditworthiness score?
Mr. Peck. I can answer that. So, there are hard inquires
and soft inquires. When the consumer themself is making an
inquiry to take out credit, and they make a repeated series of
many all at once, that can decrease the score when it is a soft
inquiry, meaning they have checked their own credit score,
meaning they have maybe been part of a predetermined offer of
credit, that is a soft inquiry, it would not count against--it
shows up in their credit report, but does not count against
their credit score.
Ms. Wexton. So, for example, Mrs. Perlmutter, the spouse of
the gentleman from Colorado, she apparently likes to go on the
credit reporting bureaus and check her score with regularity,
is that an adverse event that would impact--
Mr. Peck. No, that would be a soft inquiry and the reason
we keep track of it is we are federally--our regulation says we
have to be able to tell her every time somebody, including
herself, checked her score, and it is called a soft inquiry.
Ms. Wexton. Thank you very much. The dispute process--those
generally arise when the consumer is denied credit, is that
correct? Would you say that is an accurate time that it would
be?
Mr. Peck. I think that is--
Chairwoman Waters. The gentlelady's time has expired.
Ms. Wexton. Thank you.
Chairwoman Waters. The gentleman from Tennessee, Mr.
Kustoff, is recognized for 5 minutes.
Mr. Kustoff. Thank you, Madam Chairwoman, and I do want to
thank all the witnesses for being here today for this important
hearing. Mr. Peck, if I can go to you, in your statement you
talked about at TransUnion alternate data helping 60 billion or
some odd credit invisible or you--I think you may have termed
it credit disadvantaged customers gaining access to credit by
supplementing traditional credit with new insights that reflect
broader payment behaviors. My question is, have you seen any
type of, for lack of a better way of putting it, negative
impact from doing this or from these new insights?
Mr. Peck. Our studies have shown that these impacts are
very, very positive. I would have to go back to look at the
report to see if there was any kind of negative impact, but
that is something we would be willing to share with you,
Congressman.
Mr. Kustoff. Thank you. Do you see any potential risks by
doing this?
Mr. Peck. Congressman, I think the risk would be that the
furnishers are doing this on a voluntary basis, and so because
they are doing it on a voluntary basis, if there is a negative
impact, then they would have to be able to respond to us.
And, I think, that is part of the conversation this
committee needs to have as we look for more and more sources of
alternative data. We have to encourage the suppliers of this
kind of alternative data that they are going to have to comply
with the FCRA in order to supply the data.
Mr. Kustoff. And when you talk about encouraging those
suppliers, are you saying reluctance, or are you saying
openness, or how would you characterize it?
Mr. Peck. Congressman, that is a good question. I would
characterize it as that we likely receive more negative data on
these types of things than positive data. And the positive data
is what really makes a difference to people. Of course, the
negative data makes a negative difference to people.
And so, to really get a full profile, let us say, of the
modern American who has a cell phone, who's paying their cable
bill, making rent payments, perhaps, because they can't afford
a home right now. You want all of that positive data to be part
of a credit report.
Mr. Kustoff. Thank you, Mr. Peck. If I can, I would like to
open this up. And I think there is a difference of opinion, in
terms of how we approach credit reporting modernization. The
legislation drafted by the chairwoman approaches reform by
making it easier for consumers to address issues with credit
scores by creating processes to remedy mistakes and remove
adverse findings. My question, I guess, Mr. Boundy, is to you.
Do you have any concern, whatsoever, that this might raise
costs? And would it protect consumers seeking credit?
Mr. Boundy. Congressman, thank you for the question. I
agree with the aims of the committee, which are to improve
people's access to credit, and the accuracy of credit reports.
This is really important.
One of the reasons that I have talked about that we have
launched the Experian Boost product is to find ways to access
that different information, and allow consumers to increase
their credit score. So I am always concerned about anything
that could impact the consumer's ability to access credit, and
the cost-effectiveness with which a financial institution can
provide the credit.
Mr. Kustoff. Do you think it could adversely affect the
cost to the consumer?
Mr. Boundy. I think removing some information, if it is
proven to be very predictive, could impact the cost.
Mr. Kustoff. And do you have any idea, the extent that it
could affect the cost?
Mr. Boundy. I don't have any idea of exactly what that
would be, but I would be very happy to work with the committee
and get back to Congress with more details on that.
Mr. Kustoff. If you could look and try to analyze what you
think the cost would be to the consumer and get back to me, I
would appreciate it. Mr. Begor, if I could, to you as well, the
same question and the same premise. Do you have an opinion,
from your standpoint, whether that could affect cost,
ultimately, to the consumer?
Mr. Begor. Similar to Mr. Boundy's testimony, that, you
know, we believe that more data is going to be more valuable
for all Americans, and including alternative data is important.
But first and foremost, having accurate data is quite critical.
And that is the focus that we have in our internal processes,
and also making it easier for consumers to process disputes.
And I think, as the Congressman knows, in the last 5-plus
years, the CFPB has been very active, both, with us, and
furnishers around the accuracy of data.
Mr. Kustoff. But would that, ultimately, affect the cost to
the consumer?
Mr. Begor. It could. And it could impact the cost to all
consumers if the wrong data was removed from a--the data files.
Mr. Kustoff. Thank you very much. I yield back the balance
of my time.
Chairwoman Waters. The gentlewoman from Michigan, Ms.
Tlaib, is recognized for 5 minutes.
Ms. Tlaib. Thank you, Madam Chairwoman. Hi, how are you
guys? I always feel like--I don't know if it is because I am
new, or--but I feel like it goes so long, and the monotone is
the same, and I know the chairwoman wouldn't like me to ask all
of us to stand up and stretch, but I do appreciate this. This
is a really critical issue in my district. I represent part of
Detroit, but also these Wayne County communities. And we
actually have the largest car insurance rates in the nation.
In one of my ZIP codes, I think the average is over $5,000.
And my question is, do you, as agencies--and I am pretty sure
it is a yes--transmit credit scores to car insurance agents--
industry?
Mr. Begor. Yes, we do.
Mr. Peck. Yes.
Mr. Boundy. Yes.
Ms. Tlaib. What does a credit score say about the person's
driving history, or their potential for accidents? Anybody,
Mark, James, Craig, you can call me Rashida.
Mr. Begor. Congresswoman, I can't really respond to how an
insurance company uses the data. Maybe one of the other CEOs
could.
Mr. Peck. I can't really respond either, Congresswoman,
other than that it is just one of many, many factors that goes
into deciding how much the cost of insurance is for an
individual.
Mr. Boundy. Yes. I don't have a different answer,
Congresswoman.
Ms. Tlaib. Yes. So one of the things that I have talked to
the chairwoman about, and some of my colleagues, is--you know,
I have a resident. She worked at Beaumont Hospital in Michigan
for over 25 years, steady income, great credit score--decent.
As soon as she retired, obviously her fixed income--her
income got lower. It impacted her credit score. She had no idea
until she got her increase in her car insurance rate. And it
went up over $400 or $500. And it is still going up almost
every single year.
And she called them, and she asked what was the problem--
what was the issue? I haven't gotten in a car accident in 55
years. Not one ticket. You know, she went to work, came back,
and now she just goes grocery shopping, or she sees her family.
She is an incredibly responsible driver. And their answer was
her credit score dropped.
And she said, I don't understand how that impacts my
driving record. And I asked this--all of you is, you know, I
want to introduce a bill that basically says that you can't
provide credit scoring--a credit score to the car insurance or
the automotive--the auto insurance industry because there is no
connection with somebody's driving record and what their credit
score is. And I would like to hear from you all. And I know
this is a risky answer, but would you support something like
that?
Mr. Begor. Congresswoman, I really can't give an opinion on
that because I don't know enough about how the insurance
industry uses this data. And I think, as Mr. Peck pointed out,
I am sure it is one of multiple data sources they use,
including, you know, the driving record of the individual. But
again, I am not skilled enough to provide an answer.
Mr. Peck. Congresswoman, I would encourage you to dig into
it, and ask--
Ms. Tlaib. I intend to.
Mr. Peck. Exactly--and I imagine you do, but exactly how
are you calculating the difference in scores that would impact
a driver's rating, which is, as you know, what drives their
insurance rate.
Mr. Boundy. Congresswoman, it is a complex issue that
sounds like it is definitely worthy of further study.
Ms. Tlaib. So I read somewhere that some in the car
insurance industry feel that if their credit score is lower,
the likelihood of them committing a crime is higher--a crime of
fraud. And if you read and dig deep, many experts say, well,
wait a minute, you are punishing somebody for being low income
because most people's credit score is not because they haven't
paid a bill.
Some it is because they haven't got access to credit. And
like you talked about some of the services. And so, for my
folks, I have the third poorest congressional district in the
country, it is not because somebody forgot to pay a bill, or,
like one of my colleagues, paid a little bit less than he was
supposed to.
It is because they have no access to really bringing up
their credit score, or to--to any equity. And so, it is
something that is very disturbing because in Michigan there is
no real transit system. The only way to get around, to get into
a job--70 percent of folks in the City of Detroit actually work
outside--like 60 percent work outside of the City of Detroit.
So they have to drive somewhere. And more and more of our
residents are driving without car insurance because of this
issue around credit score--with the use of credit score. And
so, I want to bring that to your attention. And I hope that you
all will work with me and many of my colleagues who will be in
full support of saying we have to restrict the use of credit
scoring as a basis or a circumstance for auto insurance
companies as a driving record standard. Thank you so much for
your time. And thank you, Madam Chairwoman. I yield back.
Chairwoman Waters. Thank you very much. The gentleman from
Tennessee, Mr. Rose, is recognized for 5 minutes.
Mr. Rose. Thank you, Chairwoman Waters, and thank you to
the three witnesses on the panel today. The proposed
Comprehensive Consumer Credit Reporting Reform Act, I assume
all three of you are familiar with the terms of that proposed
legislation?
Mr. Begor. Yes.
Mr. Rose. As I understand it, credit bureaus the three
organizations that the three of you represent, have pushed for
alternative credit information from entities such as
telecommunications and utility companies, yet many of those
companies, as I understand it, are reluctant to provide
consumer payment data because it might subject them to the Fair
Credit Reporting Act. Is that a similar concern that you would
have?
Mr. Peck. I would say generally in discussions that would
be true, Congressman.
Mr. Rose. The legislation institutes new requirements on
furnishers including the establishment of a new regime for
reinvestigations upon request by consumers at an appeals
process following such reinvestigations. I am not convinced
these changes would incentivize more companies to furnish data
to credit bureaus. Does this have the potential and this is a
question for all three of you, does this have the potential to
undermine the mission of growing the number of qualified
borrowers in the United States? Mr. Begor?
Mr. Begor. I think, as the Congressman knows, the furnisher
system in the United States today is a voluntary system and it
is one where a financial institution makes the decision to
contribute their data to the three credit bureaus and our view
is that there is a very rigorous process today to really to
manage the disputes.
I think you heard in my testimony that we want to take that
even to another level and really improve the customer focus
that we have in supporting consumers when they have an error or
dispute on their credit file.
Mr. Peck. Yes, I really cannot add much more to that view;
it is the same view.
Mr. Boundy. You know Congressman, I would be concerned
about anything that meant we didn't have an accurate
representation of a consumer and therefore helped them get
access to credit.
Mr. Rose. Would lowering the amount of time that adverse
credit information stays on a report tend to result in a higher
cost to consumers, to borrowers?
Mr. Peck. Congressman, thanks for the question. I will
reiterate my view. I think when we start talking about taking
things on and off credit reports, we should actually do the
statistical analysis because we can, as an industry, to
determine what would happen and that would include the lenders
and if it were to result in, you know, more defaults that cost
would ultimately be passed on to the consumers through higher
interest rates.
Mr. Rose. Is it safe to say that financial institutions buy
credit reports in order to accurately price the credit risk of
an individual?
Mr. Begor. That is correct, Congressman.
Mr. Rose. So surely there is room for debate on specifics
of how to deal with disputed information on a credit report,
but it seems clear to me that mispricing credit risk is the
root cause of many defaults. Would you agree with that?
Mr. Begor. Congressman, I would. That is really what
financial institutions to charge to do is really assess the
credit risk of an individual consumer when they are renting, a
mortgage, a loan or any other financial transaction.
Mr. Rose. My experience personally is that government is
rarely good at doing anything, and so my general approach to
whether government should be telling us how to evaluate credit
risk or whether the private market should be helping us figure
out how to evaluate credit risk is that I want to always place
my bet on the private market.
So I commend your companies for the service that you do to
the American public by helping our financial institutions
adequately assess the risk of we as consumers, and we come
forward to them and I hope that this body does not get carried
away with trying to substitute whatever agenda it might be
pursuing for making sure that you are able to act to adequately
access the information and provide it to your consumers that
would allow them to fairly and accurately price credit so that
all of us in turn can continue to work in a credit industry and
existing in one, which is frankly the envy of the world in
terms of properly assessing risk.
Thank you for being here today. I yield back the balance of
my time.
Chairwoman Waters. The gentleman from California, Mr.
Sherman, is recognized for 5 minutes.
Mr. Sherman. We have an amazing consumer credit system in
this country. It would have been unheard of 100 or 200 years
ago. Ordinary working people borrowing hundreds of thousands of
dollars when they buy a home; tens of thousands when they buy a
car; borrowing from people they have never met.
That can happen because you do your job and we want to make
the credit reporting system better but we should respect that
having a credit reporting system is what allows people to get
loans and while we will curse a situation where we are denied a
loan unfairly, where through inaccuracy it is amazing to have a
system where ordinary people can get loans from folks they have
not met.
I want to focus on the gentleman from Equifax. You had 145
million records stolen. As far as I know, we still don't know
who hacked your system or what they used the information for.
They obviously put tremendous effort into hacking you. And then
they don't seem to have used that information unless they are
perhaps a foreign spy agency that only was interested in the
records of a few dozen or hundreds of American intel personnel
looking for the one who is in desperate need of cash.
Do you have any insight at all as to why somebody would
spend such tremendous effort and it would be the effort of a
whole team of individuals to hack you and then not use the
proceeds of what they got? Mr. Begor?
Mr. Begor. Thank you, Congressman, for the question. You
are correct in that our forensic efforts internally watch the
dark web quite closely since the cyber security incident and we
have seen no instances as you pointed out where the data has
been used in any fashion. Typically when data like this is
stolen, it will be used and sold on the dark web for identity
theft purposes and we haven't seen any instances of that. It is
difficult for me to give--
Mr. Sherman. Well, there are 145 million Americans whose
data was stolen, and a somewhat smaller number whose data
wasn't stolen. Everybody is subject to some identity theft. Are
the people whose identity was stolen from you subject to more
identity theft, so far, than the people who weren't?
Mr. Begor. We haven't seen any instances, Congressman, of
increased identity theft related to our data. We are able to
watch that on the dark web and to date we haven't seen that.
Mr. Sherman. Okay. For a while you were providing some free
credit monitoring, you have stopped?
Mr. Begor. That is not correct, Congressman. We offered
free credit monitoring right after the data security breach in
2017, not only for those who were impacted, but every American,
regardless if they were impacted or not. And in November of
2018, when that one year was up, we voluntarily extended it for
another year.
Mr. Sherman. For only those people who had signed up or
what about people who didn't sign up yet?
Mr. Begor. Just for those who had already signed up,
Congressman.
Mr. Sherman. So, only 2 million out of 145 million signed
up? What about the other 141 million, can they get anything?
Mr. Begor. There were actually 4 million who signed up
right after the data security breach--
Mr. Sherman. Four million, okay. So, that still leaves 139
million, can they get anything?
Mr. Begor. Correct. And we have other services, like the
free freeze, where a consumer can freeze their credit bureau,
which protects that.
Mr. Sherman. Now, I might want to freeze because my data
was stolen from your network, but I would want to freeze with
you and your two colleagues up there. Do I have to pay money to
them to get that freeze?
Mr. Begor. You do not. As the Congressman may recall,
Senate Bill 2155 that was passed last September provides a free
freeze for all Americans and then Equifax also has a free for
life product that we rolled out, right after the data security
breach, that is a mobile application to lock and unlock your
credit file.
Mr. Sherman. Okay, a number of us including the chairwoman,
Mr. Meeks, et cetera, have legislation to focus on those
employees of the Federal Government and contractors who weren't
getting paid during this shutdown or, god forbid, the next
shutdown.
It is my understanding that some of you are footnoting the
disclosure and saying, hey, this person didn't pay their
electric bill, but by the way, they are a Federal employee and
the Federal Government wasn't paying them. But that is a
footnoted disclosure is better--isn't as good as no disclosure
at all. It is my understanding that you would need legislation
to simply make it like it never ever happened.
Do you support legislation that would instruct the credit
rating agencies to expunge from the record the non-payment of
bills by Federal employees who weren't being paid during the
period of time they weren't being paid and for a month or two
after? I will go down--which of you support the legislation?
Which of you oppose?
Mr. Begor. Congressman, I will start. We don't think the
legislation is necessary, because there are other tools in
place to support those impacted government employees.
Chairwoman Waters. The gentleman's time has expired.
Mr. Sherman. I will ask to just get a yes-or-no answer from
the other two.
Mr. Peck. We would support the legislation.
Mr. Boundy. We don't think the legislation is necessary,
because there are other tools.
Mr. Sherman. I yield back.
Chairwoman Waters. The gentleman from Wisconsin is
recognized for 5 minutes.
Mr. Steil. Thank you. We all want to ensure that consumers
have access to credit and transparency and accuracy of those
reports is critical. And so, where there are errors, you are
called upon to make those corrections. And all three of your
companies operate around the globe, is that correct?
Mr. Peck. Yes.
Mr. Begor. Yes.
Mr. Boundy. Yes, that is correct.
Mr. Steil. And so, in each of those jurisdictions there are
different rules of the road that are implying and determining
what records are accessible, what records are available and
have a significant impact on a borrower's ability to access
credit, correct?
Mr. Peck. Correct.
Mr. Begor. Yes.
Mr. Steil. And those systems are obviously different across
the globe, and I would love to tap into your experience and see
a number of those countries have experimented recently in
different areas of how those credit reportings are available.
Could you comment, maybe Mr. Peck, on what has been done in the
foreign markets that has harmed consumers' access to credit
that we have seen globally?
Mr. Peck. Thank you for the question, Congressman. Without
saying which country--but I would willing to come and talk to
you specifically.
Mr. Steil. That is fine.
Mr. Peck. There have been some that have over a several
year period just not forgiven the debt, but forgiven any record
of the debt on anyone's credit report. And I won't say chaos
ensued, but it was very hard then to determine who to lend to,
and so the cost of debt went up substantially in those areas.
In other countries where they have tried to replicate a lot
of the regulation that this body has passed here, the FCRA and
others, they are building a middle class and it is really
probably one of the most satisfying things about my job at
TransUnion is watching groups of people, whether it is
microlending or otherwise, be able to get access to loans to
clothe their children, to ultimately be able to send their kids
to schools and it is built on the fact that we are able to
report information when consumers take out the loan to get them
to opt into the system, just like the FCRA.
Mr. Steil. So, this example where the country came in with
a law that said they are going to wipe out historical records,
actually when you socialize that and you remove that, you are
actually damaging people who have good credit history.
Mr. Peck. It did damage the economy for some period of
time.
Mr. Steil. Mr. Boundy, Mr. Begor, have you seen other
examples of countries that have put in place laws that more or
less are socializing that credit risk?
Mr. Begor. I think Mr. Peck outlined it well, the same
thing that we have seen in some countries. From my perspective,
the U.S. credit bureau system is the envy of the world. The
system that we have and the way that it operates, so the depth
of the data, the furnishers that provide the data and how it is
used is really the envy of every country that I meet with.
Mr. Boundy. I don't have any other good examples that
spring to mind, Congressman.
Mr. Steil. Okay, so I think the walk-away there is that the
more we have records that are accurate, the more reliable data
we have, the better we are to be able to properly access risks
and give people those opportunities to obtain the loans that
they need to go about their life. Thank you very much. I yield
back my time.
Chairwoman Waters. The gentleman from Illinois, Mr. Garcia,
is recognized for 5 minutes.
Mr. Garcia of Illinois. Thank you, Madam Chairwoman, and
thank you all for your testimony. My question is for Mr. Begor.
In your testimony you stressed that Equifax understands the
financial stress suffered by Federal employees, contractors,
and their families during the shutdown. And you mentioned that
your firm has announced a free credit report service for those
affected by the shutdown.
One week before this free credit report service was
announced, a coalition of consumer and civil rights groups
wrote to you and to other CEOs testifying today to urge that
credit bureaus, ``institute a special program of credit report
relief for employees of Federal contractors and employees of
small businesses affected by the shutdown.'' I would ask
unanimous consent that that letter be entered into the record,
Madam Chairwoman.
The measures that consumer groups recommended went beyond
just a free credit score, however, and included the opportunity
to have negative information removed from their credit reports
if consumers could prove that they had lost income due to the
shutdown.
So, question, Mr. Begor, did Equifax take the
recommendation of these consumers and civil rights advocates
into consideration when it implemented the free credit report
service, and if so, why hasn't their full recommendation been
followed?
Mr. Begor. Congressman, thank you for the question. We did
receive those inquires as well as a letter from Chairwoman
Waters asking us to do the same thing. We responded quickly
through the free credit report and we offered more than the
free credit report. As Mr. Peck talked about earlier, like in
TransUnion, we trained our call centers associates to be ready
for those inbound calls from the impacted consumers.
And I would also highlight that this is one instance of
where we are trying to give the right humanitarian effort when
there's a hurricane, or a wildfire that impacts consumers and
impacts their ability to pay, we do the same thing.
With regards to taking data off of the credit file, we
don't have the ability to do that. That is done by the
furnisher or the financial institution, they own that data,
they are the ones who are responsible for it and as I mentioned
earlier in my testimony, we really work with the consumer, the
individual who is impacted and really give them the coaching to
talk to their financial institution about what was impacted as
well as if they would like to put a note on their credit file
about their situation which will be shared with the financial
institution for future transactions.
Mr. Garcia of Illinois. Thank you. Mr. Peck and Mr. Boundy,
why haven't your firms offered any credit relief measures to
those affected by the shutdown or am I missing something?
Mr. Peck. Congressman, I believe we did offer this similar
relief as we offered to the regular employees. Specific to
taking negative information off their credit report, we
discussed with the furnishers and the affected parties that
they called that there could be something called a forbearance
code put on the credit report, that was--that is the only
avenue we had to educate and to do something about that.
Mr. Garcia of Illinois. Mr. Boundy?
Mr. Boundy. Congressman, we do and have been offering free
credit reports and free credit monitoring to anybody impacted,
either employee or contractor, and have also worked with the
lenders to provide the opportunity to miss a payment, what Mr.
Peck referred to, a forbearance code. And we put clear
education on our website on how people can do that as well.
Mr. Garcia of Illinois. Thank you. I think the fact that
none of your firms voluntarily implemented the credit relief
measures for those affected by the shutdown beyond the free
credit reports offered by Equifax underscores the need to do
more and that is why I am proud to be co-sponsoring with
Chairwoman Waters, a bill creating a mechanism to identify
those adversely affected by shutdowns and to restrict credit
rating agencies from including adverse credit profiles for the
duration of a shutdown plus 90 days. I yield back the rest of
my time, Madam Chairwoman.
Chairwoman Waters. Thank you. The gentleman from Texas, Mr.
Gooden, is recognized for 5 minutes.
Mr. Gooden. Thank you, Madam Chairwoman. Thank you
gentlemen for being here, I know you are busy, and we
appreciate your time. The Office of Personnel Management, as
you may or may not know, was responsible for a data breach and
lost 21.5--I believe is the number give or take--identities
were basically stolen, which leads me to question if the U.S.
Government can't protect classified employee's data, then how
could the private industry possibly do a better job?
Especially if we create a single entity that is collecting
all this credit data. So I would ask you Mr. Begor, what all
have you learned from the data breach that you have recovered
from at Equifax and can you guarantee that this won't happen
again?
Mr. Begor. Congressman, you raise an excellent question,
and I assured in my testimony earlier this morning that from
our perspective this is a war that every company, all three of
the credit bureaus, every financial institution, every
government agency faces and whether it is a fraudster or a
nation state that we are attacked. I get alerts now as a part
of our new security protocols every time someone tries to
penetrate our perimeter. And I get them virtually every day.
So this is a war that is not going to end. What we have
learned from it is that we just have to continue investing in
it. And we are putting record amounts into our technology and
security, as I mentioned in my testimony, a 50 percent increase
in our spending. It is an area that we have to all be diligent
on.
Another important point that I look at from this
perspective is we don't have any trade secrets around security,
meaning we want to share everything we are learning with our
competitors, which we do. But also with government agencies, we
have had our CSO meet with government agencies here in
Washington, with our customers and we think sharing is quite
important.
The last part of your question is, can I guarantee it will
never happen again? I don't think anyone could ever guarantee
that. What I can guarantee you is that we are taking every step
possible to make sure it doesn't happen again.
Mr. Gooden. Thank you, and I want to move along to
diversity. Some of my colleagues across the aisle mentioned
diversity earlier today, one of them was even so brazen as to
ask the members of your staff to raise their hands and then he
rendered a judgment on his perception of your diversity or lack
thereof, based on what I perceive to be his analysis based on
their appearance, which I think is appalling. I certainly
couldn't have gotten away with that, so I will ask you Mr.
Begor, could you make a comment and discuss diversity in your
organization and the progress you all have made?
Mr. Begor. Congressman, was that to me first?
Mr. Gooden. Yes, sir.
Mr. Begor. Yes, diversity is a real priority for me. As you
know, I have only been at Equifax since April but we have taken
strong steps.
We have a strong ethnic diversity, 35 percent of our
workforce--36 percent actually is ethnic diverse and 44 percent
of our organization are women. On my leadership team, I have
four female direct reports and five either ethnic or gender
diversity and on our board, 30 percent of our board is women.
And just one last point, I talked about the thousand people
we have added in the last 12 months or so, as we have grown out
our organization, that thousand people is actually more diverse
than the average because we are bringing more diverse talent.
We are big believers that we should have an organization that
looks like the communities that we work in and the customers
that we represent.
Mr. Gooden. I appreciate your testimony, and also I would
like to apologize to any staff for my colleague's comments
earlier. I appreciate you all being here. I yield back.
Chairwoman Waters. Thank you. The Member is not here to
respond to what you just accused them of, and so I would like
to just have everyone remember that everyone is elected here
and they have a right to their opinions and their right to use
their time as they see fit, and so in the future, it would be
good if you could direct your comments to the Member so the
Member can respond to you.
Mr. Duffy. And if I could, Madam Chairwoman, Mr. Gooden
asked his questions to the panel--it would help to ask--
Chairwoman Waters. Excuse me, Mr. Duffy, I have not
recognized you for any time. The gentlewoman from California,
Ms. Porter, is recognized for 5 minutes.
Ms. Porter. Hello, thank you all for being here, I would
like to start with Mr. Begor, and my question for you is
whether you would be willing to share today your Social
Security number, your birth date, and your address at this
public hearing?
Mr. Begor. I would be a bit uncomfortable doing that,
Congresswoman, if you would so oblige me, I would prefer not
to.
Ms. Porter. Okay, could I ask you why you are unwilling?
Mr. Begor. Well, it is sensitive information, I think it is
sensitive information that I like to protect and I think
consumers should protect theirs.
Ms. Porter. If that sensitive information were provided at
this public hearing, what are you concerned could happen?
Mr. Begor. I think like every American, Congresswoman, I
would be concerned about identity theft. I am actually a victim
of identity theft. It happened 3 times in the last 10 years to
me, twice now with my tax returns and once, you know, as a
consumer of someone opening up fraudulent credit accounts in my
name. Somehow they got my Social Security number, my date of
birth, and my address and then changed the address and opened
up the account. So I think like all Americans, we are concerned
about that.
Ms. Porter. So my question then is, if you agree that
exposing this kind of information, information like that, that
you have your credit reports creates harm, therefore you are
willing to share it, why are your lawyers arguing in Federal
court that there was no injury and no harm created by your data
breach?
Mr. Begor. Congresswoman, it is really hard for me to
comment on what our lawyers are doing--
Ms. Porter. Also respectfully, excuse me, but you do employ
those lawyers, and they do operate at your direction or your
counsel and they are making these arguments in court arguing on
the record--I have the minutes here from the court case--that
there was no--that this case should be dismissed because there
is no injury and no harm created by the disclosure of people's
personal credit information.
I understand you as I would, to believe that that
information--that the exposure of that information--I asked if
you would give it to the committee and you understandably said
no, would in fact, create a harm. So I guess I would ask you to
please look carefully at what your lawyers are doing and the
arguments that they are making because I feel they are
inconsistent with some of the helpful testimony that you have
provided today.
And my second question is, the breach occurred in September
2017, is my understanding, and is it correct that in April of
2017, a cyber risk analysis firm and science rated your breach
risk likelihood at 50 percent over the upcoming year? So there
was a firm that rates the likelihood of breaches and yours was
rated at 50 percent. Are you aware of that fact?
Mr. Begor. I am not familiar with the fact you cited,
Congresswoman.
Ms. Porter. Do you know what your current breach risk
rating is?
Mr. Begor. I don't have it in front of me, no.
Ms. Porter. Could you find someone to follow up and provide
that information?
Mr. Begor. I would be happy to, Congresswoman.
Ms. Porter. Okay. My next question is you--I know that you
have spent considerable resources on improving your cyber
security. I wanted to move to Mr. Boundy and Mr. Peck and ask
if they could share what kind of investment--dollars and cents
please, if you could--you are making or as a percentage of your
revenue. Whatever's easiest for you--within the last year? How
much of your resources are you devoting to the issue of
cybersecurity?
Mr. Peck. We spend about a half-a-billion dollars a year on
our cyber security and IT systems.
Mr. Boundy. We spend just over a billion dollars a year on
information security and technology in our organization.
Ms. Porter. Wonderful. And then my last of the remainder my
time, I just wanted to say, Mr. Begor, I wanted to compliment
you, because when you began to release your Lock and Alert
system, one of the things that you did is you removed the
mandatory arbitration provision that you have in your general
terms of service that applies when you deal with businesses,
you removed that lock and alert terms of service, and I
appreciate you recognizing the mandatory arbitration in that
kind of product would be inappropriate. So thank you for doing
that.
My last question to the panel is--this may end being a
comment given the lack of time. But we see Visa policing
merchants if merchants have a lot of fraud and a lot of
chargebacks, they keep track of that ratio. And if you are a
merchant who is routinely having fraud occur, then what they do
is they don't let you take Visa cards, you are not allowed to
process Visa cards.
Could you think about applying a similar framework to hold
your furnishers accountable? Thank you, and I yield back the
remainder of my time.
Chairwoman Waters. The gentleman from Virginia, Mr.
Riggleman, is recognized for 5 minutes.
Mr. Riggleman. Thank you, Madam Chairwoman, and thank you
gentlemen for being here today and thank you for your staff for
being here today too. Some of my questions might be a little
different, I have a different background. I think that a lot of
people here based on the fact that in my 26 years of combined
DOD service and being a CEO, I have been able to weatherize
data and protect data, so bear with me on some of these
questions and I promise I am going somewhere with this.
I am going to start with Mr. Begor. So as you know, as was
well documented in 2017, Equifax was a victim of the largest
cyber attack in history. You inherited the situation and have
already acknowledged today that as CEO, you are ultimately
responsible for the organization. Can I get your commitment
today that you and Equifax will continue working with consumers
to ensure damage from that breach is mitigated to the fullest
extent?
Mr. Begor. We are doing that as we speak, Congressman.
Mr. Riggleman. Right, and there have been some questions
from my colleagues that I found interesting, because I do
promise everybody here, if I got your Social Security number,
date of birth, place of birth and your address, I got you and I
think that is one of the things as we go forward here, these
questions actually are going to have a point, and a reason as
to why some of the other people aren't here, that I would love
to talk to in the future.
So right now on the panel today, we have witnesses from
Equifax, TransUnion, and Experian, and I have a question for
you and it is sort of broad. But if we had a panel of every CEO
in the country today, if we asked each of the CEOs what is
their biggest fear, what is their biggest concern for the
organization, what do you think the answer would be? Any one of
you can go first.
Mr. Peck. Cyber breach.
Mr. Riggleman. You know that, right. It really is. Even
having a DOD company on the side that I had, our biggest issue
was actually cyber breach based on technologies that we have,
but also based on the people with the type of information we
have for HR resources and things of that nature. So we are
definitely in agreement on that. And I would say, given your
response as an increase in frequency and scale of data
breaches, I believe this Congress and the committee should work
through and to address. The reason that I am so interested in
this is because this is not to be the last cyber attack on any
critical infrastructure, and I don't know what the definitions
are, but I almost think that credit reporting agencies are
critical infrastructure based on the data that you hold.
So as I listen to colleagues on both sides of this aisle
about FCRA, the proposals before us today could be considered
more than a comprehensive reform to the system. So as I am
going back and forth, even though I am so--I would say directed
on protecting data, what I also did on weaponizing data was
looking at cascading effects with the law of unintended
consequences.
Let me give you an example as we go forward. We had
somebody here talking about Social Security numbers and I
believe the Chair was talking about Social Security numbers and
credit, or credit scores as they relate to clearances,
specifically military clearances. I just have this to say about
that: they are exactly; right credit scores do affect
clearances. Mine was checked in a background check every year
and I was polygraphed on it.
But I would say there is an opposite thing here, and I
would humbly submit that the more data that you have actually
protects those in the military by ensuring that you don't have
people to credit risk because of the people that scare me half
to death when I am actually serving beside them.
So on that note, based on more data, I would think the more
data that you have, the more that you can involve, and I would
love to talk to guys about graph databases in the future
between relational and graph; I think that is why we need you
to protect this data, because it is so much more than just
having the data and credit scores, it is everybody's personal
information that I can attack at will and I can. So you know as
we go forward, I have something here that I just want to point
out then I have a question then I want to go in a little bit
more.
All this stuff here is technical and I am not going to go
into that because I get a little excited and I nerd out on this
so I do apologize to everybody here, because this is what I
have done for so long, but Richard Cordray, I think he was the
former CFPB Director under President Obama said that without
credit reporting and credit scoring it would be harder for
financial service providers to assess and manage credit risk
and the supply of credit would be more expensive, more erratic,
and more constrained.
In about, well I am just going to say for me, when I am
looking at this right now, we do have the most robust system
and since I took way too much of my time getting excited about
this, I have one more question of why I was asking you those
questions and I would actually ask the committee and everybody
here is why don't we have the actual data providers here,
because the questions I want to ask are how that data is
actually transmitted, and how you all coordinate with those
data providers. Is it encrypted in rest? Is it encrypted in
transit?
Do you guys have a standardized methodology for actually
protecting that data and identifying breaches because some of
the questions we got here I wonder if it is proprietary
because, sir, Mr. Begor, you said that you guys were sharing or
there's an ability to share data and I would love to know in
the last 15 seconds if you have a rolled up infrastructure that
is proprietary or are you guys sharing actually off-the-shelf
software for fast-time breach identification?
Mr. Begor. Congressman, as you might imagine it is a
combination of both. There are some fantastic technologies,
cutting edge technology out there that we are using. We are
also augmenting it ourselves and we are sharing everything we
are doing with our customers, our competitors, and government
agencies so they can learn from it. We think this is a war that
we all face and it is not going to end.
Mr. Riggleman. Next time, I would love to talk to the data
providers with you all specifically to know what kind of
security--
Chairwoman Waters. The gentleman's time has--
Mr. Riggleman. Thank you, Madam Chairwoman.
Chairwoman Waters. The gentleman from New Jersey, Mr.
Gottheimer, is recognized for 5 minutes.
Mr. Gottheimer. Thank you, Madam Chairwoman. Thank you all
for coming before the committee today and while I appreciate
the steps you all have taken to prevent future data breaches at
your companies, I am concerned that there's still room for
error and a need for consumer reporting agency reform. The
consumer reporting agencies, as you all know, hold an immense
amount of personal data as we have talked about today, and it
is clear that there must be enhanced oversight with regard to
cyber security at consumer reporting agencies and overall.
Beyond cybersecurity, I have heard from many of my
constituents--I live in Northern New Jersey--that dealing with
your websites can be clunky and confusing and as some have
mentioned today and having to create three separate accounts
and log into three separate websites to freeze their credit and
handle disputes is slow and cumbersome.
People deserve a faster, more streamlined process. It is
why I am working on legislation that will give people the power
to easily freeze their credit if they find suspicious activity
across the agencies and find and fix mistakes and would give
consumers more control of their credit information and also
increase cybersecurity at the credit reporting agencies.
My question, if--and I still, as we have talked about, find
the manner in which Equifax disclosed the breach absolutely
appalling like many have and I am sure everyone in the room,
including the three of you agree with me that there are fixes
that need to take place. This is not a Democrat or a Republican
issue at all, this is 147 million Americans from New Jersey to
South Carolina to Southern California were affected. And while
there's a lot to be angry about, the amount of time that passed
between the discovery of the breach and the public finding out
of that breach is the most disgraceful and disserving I think
to many of us.
So I would love to hear from each of you and I know you
have touched on this a bit, but can you explain to me more the
internal guidelines you have put in place, all of you because I
know I am sure you have each studied these breaches to properly
notify consumers if this happens again and how long will it
take next time to notify those consumers and what do we do
about this? And I will start with Mr. Begor, if that is okay
with you?
Mr. Begor. Thank you, Congressman.
Mr. Gottheimer. Thank you, sir.
Mr. Begor. It is an excellent question and you know our
goal at the time and I can talk more about what our goal is
going forward is to notify consumers, government agencies,
regulatory agencies, you know when there's an event like this
as quickly as we can, but as completely as we can. And as you
know, a situation of the magnitude of what happened at Equifax
in 2017 is incredibly complex.
It took time to really detail through who was actually
impacted, what data was actually accessed so we could--I say
we, so the team could have the proper notification. But going
forward, our goal is to do it as quickly and as completely as
we can.
Mr. Gottheimer. And do you--just a quick question about
that--feel that there is a--the lag--I know that you don't
always immediately notify. Is it because you are concerned that
you get to the bottom of it first and how much time--when
should the notification really occur? How do you make that
decision?
Mr. Begor. It is a great question, Congressman, and it
really is situational. You know it is--what we want to do is
notify those consumers who are impacted so they know if they
were a victim of a breach and it does take time to work through
the forensics on what was actually exfiltrated and how did it
happen. Our goal is to notify those consumers first and
foremost as quickly as possible.
Mr. Gottheimer. Mr. Peck?
Mr. Peck. Thank you for the question. When the Equifax
breach happened, we kind of found out about it when everyone
else found out about it. Our goal is to get with the right
government entity as quickly as possible and we ended up having
conversations of--well, I could relate to you not--not here but
maybe later--with some high level folks who were wondering, did
you have one too? What is going on? And you must not, because
you haven't told us, right? And we said, of course not or we
would have told you, because they can help us with
understanding what might have happened.
Our goal in notifying consumers is as soon as possible. We
have--you have the same issues. You have to find out who was
affected, how to notify them, et cetera. So it is as soon as
possible.
Mr. Gottheimer. Mr. Boundy?
Mr. Boundy. Thank you, Congressman. Yes, I will go the
course to notify consumers as soon as it is possible and with a
full amount of information.
Mr. Gottheimer. And the soon as possible question is--but
obviously that is if you are a consumer you feel like you
should know right away because every day that goes by is
possibly a breach and someone is misusing your credit, right,
for nefarious purposes. So I think that is always the challenge
we all have is what should that time be, how long, and what do
we do about it?
Mr. Boundy. I think that is right and I think it is
absolutely right that a consumer should be expected to be
notified as soon as it is practical and possible.
Mr. Gottheimer. Okay, thank you all. I yield. Thank you.
Mr. Sherman. [presiding]. I now recognize the gentleman
from Ohio, Mr. Gonzalez, for 5 minutes.
Mr. Gonzalez of Ohio. Thank you, Mr. Chairman. I really
appreciate everybody being here today. I don't envy the
situation that unfolded at Equifax. It was terrible for the
American people to have that level of a breach but obviously
the credit reporting agencies are critically important to our
society. I think we talk a lot about income and equality. I
think one thing we don't talk enough about is wealth and
equality and the effects that having--or not even having any
access to credit have on an individual's ability to build
wealth for their families.
I want to go through a quick line of questioning. So if I
could summarize sort of the testimony today and the answers
from the three gentlemen, the argument that I am hearing a lot
of is there are actually more than three of us. I think a lot
of us are saying, hey this is an oligopoly, and there are
actually more than three of us and we do, in fact, compete
aggressively. Would that be a fair characterization?
Mr. Begor. I would say it is more than fair, yes.
Mr. Peck. Yes.
Mr. Gonzalez of Ohio. Okay, so quickly, in the last fiscal
year, could you each say, and you are all public companies;
this isn't proprietary, how much revenue you made as a company?
Last Fiscal Year?
Mr. Begor. In global revenue?
Mr. Gonzalez of Ohio. United States.
Mr. Begor. United States is $2.3 billion.
Mr. Peck. Our global number is $2.3 billion. Let me get
back to you on just--we have a combination of businesses in the
U.S. that I would have to add up.
Mr. Boundy. Congressman, our global revenue is about $4.8
billion.
Mr. Gonzalez of Ohio. Okay. So in the--there are more than
three of us line of questioning--are there any other domestic
competitors that compete anywhere near that scale from a
revenue standpoint? Near let us say 50 percent, that come even
half as close as you do?
Mr. Peck. Congressman, I would say there are people in the
information business that approach this size of the business,
certainly FICO has a very large business and they are playing
right in the middle of everything we do.
Mr. Gonzalez of Ohio. Okay, so maybe FICO. So I will
basically take that as it is you guys and FICO are in there. So
I will kind of check that as an oligopoly by most definitions.
And then--we do compete aggressively. Mr. Begor, in your
testimony when you talked about the breach, you said that you
were funneling customers to Experian as a result of that
breach, is that roughly what you were saying?
Mr. Begor. Congressman, I don't recall using the term,
``funneling.'' For the first year after the data security
breach we provided a credit monitoring service for free, for
all Americans including those who were impacted. After the
conclusion of that year we made a decision to voluntarily
extend it for another year, and we contracted with Experian to
provide that second year of service.
Mr. Gonzalez of Ohio. So Experian provided the service--
your competitor provided the service?
Mr. Begor. Correct--at our expense.
Mr. Gonzalez of Ohio. Okay. I come from a variety of
backgrounds--professional football is one of them. I know a
little bit about competition, and I would suggest that that is
not competition in the way that we typically describe it.
And so to me I think it is fairly obvious that what this
industry needs is a lot of reform, and reform that would
inspire more competition--real competition and not the kind
where you are scratching each other's back. And, that way I
think we can extend credit to more people.
So back to the original thing I said on wealth inequality
and the ability to extend credit to different communities, in
your written testimony, Mr. Begor, you talk about NeuroDecision
technology as a machine learning technology that you are using
to expand credit. Can you talk a little bit--and you can take
the remainder of my time--about the success of that program,
and how you see machine learning playing in to the idea of
expanding credit to more families?
Mr. Begor. Thank you, Congressman. You know, we are big
believers in two things--one is that more data is going to be
good for every American, so that is point number one.
Point number two is that technology using technology to
access that data to decision it, to create algorithms is also
going to be better for Americans and for the financial services
industry and we have invested heavily in our NeuroDecisioning
technology--it is a patented technology that we got a patent on
earlier this year.
And it is one that allows a financial services company to
really use that to go through various databases--ours, theirs
and third-party databases in order to make decisioning, to
really help extend credit to more people.
Mr. Gonzalez of Ohio. Thank you, and I yield back.
Chairwoman Waters. The gentleman from Minnesota, Mr.
Phillips, is recognized for 5 minutes.
Mr. Phillips. Thank you, Madam Chairwoman, and thank you to
each of our witnesses. You have each spoken about commitments
to becoming more consumer-friendly which is of course, why we
are all here. So to that end, I took the time to download apps.
I looked for first, Equifax's, and strangely enough, Experian's
app came up first for me.
So I downloaded it, and it was very easy. I must commend
you and I appreciate that. Simple information, it was done in a
minute. I identified my credit score, accounts that have been
opened, accounts that have been closed--my debt capacity. But
then I found that dreaded red arrow that we all know, and it
says number of your--you have at least one account with a
missed payment or derogatory indicator.
But I couldn't find a way to identify what that was, and my
first question to each of you is upon notification that you
have something that has degraded your credit score, how does a
consumer like me actually identify what that is? What is the
easiest, fastest, most expedient way to do so? Starting with
you, Mr. Boundy?
Mr. Boundy. Thank you for the question. I think I am not
familiar exactly with you would do it in the detail on our app
in terms of going past the red arrow, but--
Mr. Phillips. There is nowhere--yes, there is nowhere to go
past the red arrow. Lots of information--specific account
information, but when you see a red arrow that indicates you
have something that degraded your score, there's nowhere else
to go.
Mr. Boundy. I normally would advise consumers at that stage
to look at their individual report and on there you can see the
specifics of any of the negatives impacting your score.
Mr. Phillips. Okay, just not on--so if you order the actual
paper report you see it, but not on the app? Because that is
what I did, I looked at my credit rating--comprehensive credit
rating.
Mr. Boundy. I would need to double check, Congressman, on
that.
Mr. Phillips. Mr. Peck, for your organization, how does one
identify specifics that degrade your credit score?
Mr. Peck. Sir, there's an application we have built called
Credit View, which once you get in to it, will give you
suggestions on what you can do differently to change your
credit score, and--
Mr. Phillips. Is there a cost associated with that?
Mr. Peck. If you go to Credit Karma you can get that for
free, and many other banks are also offering that for free.
Mr. Phillips. For your product, does one have to pay to
identify it?
Mr. Peck. You know what, I don't believe it is in our True
Identity product.
Mr. Phillips. Okay.
Mr. Peck. I don't believe it is there.
Mr. Phillips. So I have to go to a third party to identify
what that arrow or degradation is?
Mr. Peck. Yes, you do.
Mr. Phillips. Okay. Mr. Begor?
Mr. Begor. Congressman, as you probably know, most
consumers in the process of applying for new financial
transactions, if they are denied credit they will get a credit
report for free and that is generally when they will engage
with us around something on their credit report that is
impacting their credit score.
And they will call us in the call center, or they will
process if there's an error that they think is incorrect on a
payment that was applied by a financial institution they will
process that dispute either online to us, or through our call
centers. And that is generally how a consumer will engage with
us around a error on their credit report.
Mr. Phillips. Okay so, going back to you, Mr. Boundy--I see
my red arrow which indicates there's something there. Is there
anything that would preclude this app, or website from simply
linking to what that red arrow is? Considering all the wealth
of information that you do so quickly and thoughtfully present
to me?
You understand what I am trying to get to--what troubles
me, and I have tried this in the past, and I hear from
constituents all the time what troubles them so is they don't
have a perfect credit score they cannot identify why. And in my
estimation neither of your organizations are making it terribly
easy to identify that. Is there a better way to do so?
Mr. Boundy. Congressman, thank you for highlighting this. I
think it is something we will have to look into in more detail
because I think what you are saying is correct; it should be
easy for them to access and be able to see that.
Mr. Phillips. Okay. And if the answer is that you have to
purchase that information, the notion of buying is something
that troubles me, and of course a lot of consumers. I yield
back.
Chairwoman Waters. The gentleman from Wisconsin, Mr. Duffy
is recognized for 5 minutes.
Mr. Duffy. Thank you, Madam Chairwoman. Welcome everybody,
good afternoon. Do the three of you all know each other from
before today's hearing? You guys have met before?
Mr. Peck. By phone with--
Mr. Duffy. First time in person then, you are all meeting?
Mr. Peck. This is the first time. Yes.
Mr. Begor. Not for me, Mr. Chairman. We met by phone and
Mr. Boundy and I met face to face.
Mr. Duffy. Okay. Great. So this--since you are here
together because it is wonderful that we can lock our credit,
it is a great service that you provide. But it would be even a
better service if the three of you could collaborate together
and just give us one app that I can lock all three of you on.
And if you guys could talk about that amongst yourselves at
a coffee break that would be great because I think that would
really help the American people very quickly lock and unlock
and I know you guys have the technology and the friendship.
You have enjoyed the hearing today, I know. So I would love
it if you would work on that. Will you work on that? I will try
to get an answer?
Mr. Begor. Yes, Congressman.
Mr. Peck. Yes, we will work on that.
Mr. Boundy. Yes.
Mr. Duffy. Great. Okay. Let's talk about the lawsuit, Mr.
Begor. You are being sued because of the breach, is that right?
Mr. Begor. That is correct. Yes, Congressman.
Mr. Duffy. And is it fair to say that to your knowledge
monitoring the dark web and you haven't seen any of this
information that was--that was breached being used against
American citizens. Is that fair to say?
Mr. Begor. To date, Congressman, since the breach, all of
our forensic analysis is done internally. We see no evidence of
that.
Mr. Duffy. And so thus far no American has been damaged
from the breach, is that correct?
Mr. Begor. Is that a question, Congressman?
Mr. Duffy. Yes.
Mr. Begor. You know I think there's no question that
consumers have been concerned with a data breach of the size of
Equifax, which is why we are so sensitive about providing the--
Mr. Duffy. No, I know you are but--
Mr. Begor. Data protection.
Mr. Duffy. But no one is having their identity stolen
because of your breach as of yet?
Mr. Begor. Not that we have been able to identify,
Congressman.
Mr. Duffy. But you are being sued?
Mr. Begor. Correct.
Mr. Duffy. And the allegation is that you are defending
your company and saying there hasn't been damage as of yet and
we have a class action lawsuit where trial lawyers will
probably take 35 or 40 percent of the cut and no one has been
damaged?
I just want to make that point. I think it is a fair
argument to make. And if there was damage you will probably be
held accountable. But at this point there has been none. Was it
a nation state that hacked you?
Mr. Begor. We don't know who the criminal or nation state
was that did this attack on a U.S. company on U.S. consumers.
We don't know who it is, Congressman.
Mr. Duffy. But you think it is a nation state?
Mr. Begor. I don't have a real opinion on it. We are
working closely with the authorities. That started right after
the data security breach and we know they are working hard to
figure out who these criminals were, who the nation state was.
Mr. Duffy. I would note that there are several reports in
the media that it was China that did this to you and I am sure
you probably don't want to comment on that. But again, I think
it reiterates and underscores the point that China has not been
an ally, has not been a friend, and we don't know how they are
going to use this information on us. You provided free credit
monitoring, is that right?
Mr. Begor. That is correct, Congressman, not only to those
who were impacted but to all Americans.
Mr. Duffy. To the whole country. Right? To everybody. And
you are required to provide one year by law, is that correct?
Mr. Begor. Each law varies by State. As you may know--
Mr. Duffy. S.2155, did that require you to provide
monitoring?
Mr. Begor. I don't believe, Congressman, S.2155 included--
Mr. Duffy. What did S.2155 require you to do?
Mr. Begor. That is the free freeze bill. It allows
consumers to do a free freeze at no charge with the credit
bureaus.
Mr. Duffy. I will just note that most of my friends across
the aisle voted against that, by the way. Just to note for the
group. I only have 1 minute, 20 seconds left. The three of you
collect data and try to provide useful information to companies
that want to extend credit to Americans, right? And your
business model is having the best and most accurate data
possible, right? Is that fair?
Mr. Begor. Correct.
Mr. Duffy. Are you trying to screw the American people? Are
you trying put bad information inside credit reports so people
can't get credit?
Mr. Begor. No, of course not.
Mr. Duffy. Are you trying to use data to make poor people
poorer, to keep them from getting homes, or are you trying to
say I am going to get the best data so the best credit
decisions can be made by our customers?
Mr. Begor. That is correct. Yes.
Mr. Duffy. And if you don't have good data, frankly, you
are not very good companies are you? And you might lose
clients, you might lose revenue. Fair enough?
Mr. Begor. That is correct.
Mr. Duffy. And if someone gives you bad data, you are just
the collector of the data; why would you be liable if someone
provides you bad information. Wouldn't it be fair to say that
if a bank gave me bad information, that would be the bank's
fault, not necessarily mine? You are just the collector or the
aggregator of the data. Is that fair to say?
Mr. Begor. I think, Congressman, as I testified earlier, we
also have an obligation to audit the data that comes in to
ensure that it is accurate, that is coming with furnishers, and
obviously provide the consumers real access when they have an
error that they identify.
Chairwoman Waters. The gentleman's time has expired. The
gentlewoman from Iowa, Ms. Axne, is recognized for 5 minutes.
Mrs. Axne. Thank you, Madam Chairwoman, and thank you to
the panel for being here today. I appreciate your time to
discuss this important issue. My question is to you, Mr. Peck.
Earlier today you said that no security breach had happened
within your organization because you are consistently updating
your system.
Yet, just this past November in Hong Kong, which was just a
few months ago, you were forced by the Hong Kong banking
authority to suspend online services over a personal data
security flaws.
This was identified after a local newspaper easily accessed
personal data of the city's leader and finance minister. You
said you haven't had a security breach because you are
consistently upgrading the system. My question is how can you
say that this wasn't a security breach?
Mr. Peck. Yes. Thank you for the question, Congresswoman.
This was, in our view, an attempt of fraud where the
credentials of these three people were stolen and they were
able to access the system and get the data only for them and
the choice to shut down the system was ours because we are
going to upgrade the authentication more in line with what we
are doing in the United States.
Mrs. Axne. I appreciate that. So if I am hearing you
correctly, they were able to access the data of not just the
city leader and finance minister but others as well?
Mr. Peck. No.
Mrs. Axne. But the reporter actually got in and saw their
personal data.
Mr. Peck. He stole their identities and after many, many
repeated attempts was able to see the individual data of just
one person each.
Mrs. Axne. So you wouldn't consider that a security breach,
entering your system and being able to access information about
an individual's personal information and financial information.
You don't consider that a security breach?
Mr. Peck. I would not consider that a material security
breach.
Mrs. Axne. Okay, I would consider that a security breach.
As an owner of a digital design firm as well, my question would
also be, why weren't you using two factor authentication in
Hong Kong?
Mr. Peck. We weren't able to put two factor authentication
in Hong Kong. We are doing that right now, Congresswoman.
Mrs. Axne. Well, I am glad to see that you are doing that.
You know as somebody who used two factor authentication just to
run for my office here and you know were able to implement that
very readily, I would assume that with the size of your
organization and that your security within your IT would be up
to date to make sure that those things happen. I appreciate
that you are trying to move forward with it, but I would,
absolutely, consider that you had a security breach and that
you weren't well prepared for that.
My question, then, would be to all of you here, do you
think it is realistic to think that there won't be any future
data breaches? I know you are investing heavily, Mr. Begor. Mr.
Peck, you said you haven't had any material damages. Mr.
Boundy, it sounds like you said you are also making some
investments in things like your Boost program. Let's talk about
what you think is going to happen in the future. Are there
going to be more data security breaches?
Mr. Begor. Congresswoman, as I testified a couple of times
this morning, this is a war. It is a war every company faces.
It is a war every government agency faces, whether you are a
credit bureau, a financial institution, or an industrial
company. There are criminals and nation states that are
attacking us.
And as I also said, I get alerts, virtually, multiple times
per week, of our perimeter being attacked, and us preventing
those attacks. We believe we have to continue to invest, number
one, in this technology to protect ourselves.
And second, is the sharing of the ideas around how to
protect yourself we think is quite important. And I have
brought--I came into the company with the approach that there
are no trade secrets around data security. So we are sharing
with our customers, with our competitors, and everyone.
Mrs. Axne. So would you say we could look forward to more
security breaches, or no?
Mr. Begor. Congresswoman, I was asked a question earlier
about whether--I don't know what the exact wording was, but
could I guarantee it won't happen again. Of course not.
Mrs. Axne. Okay. Mr. Peck?
Mr. Peck. I think we can expect that there's going to be a
constant attack on all of our systems.
Mrs. Axne. Mr. Boundy?
Mr. Boundy. Congresswoman, I think there are constant
attacks on all of our systems.
Mrs. Axne. So with cybersecurity and attacks on our
systems, what percentage of your revenue, and what percentage
of your profitability are you putting into cybersecurity and
making sure that you protect these systems? Any one of you can
answer that.
Mr. Peck. As we have discussed before, for TransUnion we
put about $500 million into our overall IT systems.
Mrs. Axne. And can you tell me what percent of your
operating expenses that is? What percent of your revenue that
is, profitability?
Mr. Peck. It would be, roughly, 30 percent--well, not 30
percent, 20-some percent of our revenue.
Mrs. Axne. Twenty-some percent of your revenue, and what
percent of your profitability?
Mr. Peck. We make about $297 million a year in profit.
Chairwoman Waters. The gentlelady's time has expired.
Mrs. Axne. Thank you.
Chairwoman Waters. The gentleman from Kentucky, Mr. Barr,
is recognized for 5 minutes.
Mr. Barr. Thank you, Madam Chairwoman. And thank you for
holding this hearing. Gentlemen, thank you for your testimony
today. Let me start with Mr. Boundy and work our way down the
panel. Briefly, each of you, describe a world in which credit
reporting agencies do not exist.
Mr. Boundy. Thank you, Congressman. I think if I was to
describe that, I would describe a world in which credit was
very expensive and difficult for consumers to access.
Mr. Barr. Mr. Peck?
Mr. Peck. Thank you, Congressman. I would describe a world
where there wouldn't be any competition among the banks, and
the biggest banks would maintain all of the information on the
consumers that they were able to take in. And they would be
able to market to them exclusively. And so, there wouldn't be
as many competitive products.
Mr. Barr. Mr. Begor, as you answer the question, could you
also, kind of, add a little bit to what it would mean for the
consumer?
Mr. Begor. Yes. From my perspective, Congressman, I think
it is a great question because I think we play a critical role
in the U.S. financial ecosystem, and as I travel the world, our
credit reporting system and infrastructure is the envy of most
markets around the world. The lack of a system like we have
today would increase costs for everyone, and constrain, in my
view, credit for everyone.
Mr. Barr. Well, I appreciate the answers because,
obviously, this industry serves a vital role, in terms of
providing the infrastructure that is the predicate for the
provision of affordable, accessible financing for consumers
throughout this economy. Having said that, we have identified
some issues and some problems, and I appreciate some of the
measures that your industry is taking to correct some of those
issues.
Let me ask you about the--kind of, follow-up with Mr.
Kustoff's line of questioning, particularly with regard to
credit invisibles and alternative data as a potential solution
for credit invisibles.
What are the impediments, if any, to always taking into
account cell phone bills, utility bills, rental payments, what
are the existing impediments that would inhibit you all from
expanding on your programs that are taking alternative data on
a voluntary basis, and making that data kind of a standard part
of your assessment because as you all have testified, the more
data the better, in terms of accuracy. And any one of you can
answer that question.
Mr. Boundy. Congressman, I think with our Experian Boost
program that I have talked about today, we are able to work
with consumers to allow them to contribute that information
directly onto their credit file, whether it be cell phone or
utility payments, and see an immediate benefit to their credit
score. And I think that is really important.
Mr. Barr. But that is voluntary, correct?
Mr. Boundy. That is right. So I think the impediment, as
you would describe them, would be our ability to get the
completeness of the data across a large number of consumers.
Mr. Barr. Right. Why wouldn't your firms do that as a
matter of course--try to obtain the information more
frequently?
Mr. Boundy. We are constantly working in industry to find
appropriate sources of data to add and make sure the consumers
are able to get the best access to credit. But it is voluntary
for organizations to provide that information to us.
Mr. Barr. Any other feedback on that?
Mr. Begor. No. I would agree with Mr. Boundy that, you
know, our focus--and I am sure it is for TransUnion also, is to
continue to look for more data sources because we believe more
data is going to help more consumers, particularly those who
are less advantaged.
Mr. Barr. Some of the concerns, what we have heard is--on
medical bills, especially unforeseen medical bills, as not
particularly predictive, or of future creditworthiness. Has
your industry taken a look at that, in terms of, maybe, a
catastrophic healthcare situation that results in non-payment
that blemishes a credit history, but that wouldn't normally be
a solid indicator of future creditworthiness? Has the industry
taken a look at that issue?
Mr. Peck. Yes, Congressman, good question. I don't have the
exact data. But one of the previous agreements we have made is
to take off credit that is under a certain age. Take off--not
credit, but missed payments on medical, and/or if the insurance
company was supposed to pay for it and just hadn't paid for it,
it doesn't go on a credit report. And we would certainly be
willing to look into other avenues to reduce those kinds of
negative information.
Mr. Barr. Now, final question. In the world of modern
technology and diverse consumers coming from different
financial backgrounds, it is our understanding that the credit
bureaus only recognize five basic dispute types. Can you verify
this? And would it be better if the industry would, with more
particularity, categorize disputes with greater detail than
just five large categories? Would that assist you in your
assessments, any one of you, Mr. Begor?
Mr. Begor. Congressman, I would have to look into that and
get back to you. I am not sure--
Mr. Barr. Anyone? Mr. Begor?
Mr. Begor. Congressman, I would have to look into that and
get back to you. I am not sure about the right answer on that.
Chairwoman Waters. The gentleman's time has expired.
Mr. Barr. Thank you.
Chairwoman Waters. At the request of our witnesses, the
committee will stand in recess for 10 minutes.
[recess]
Chairwoman Waters. The committee will come to order. The
gentlewoman from North Carolina, Ms. Adams, is recognized for 5
minutes.
Ms. Adams. Thank you, Madam Chairwoman, and thank you for
holding this important hearing today. I am just going to go
straight to my questions. I have been back and forth between
committees. Mr. Begor, is Equifax still running the ACI Assist?
Does it also use any legacy systems or any custom built systems
over 10 years old?
Mr. Begor. I don't know the answer to the question on 10
years old, Congresswoman. I know we have some technology that
is in that range that is quite old and that is part of our
$1.25 billion investment that we are making in 2018, 2019, and
2020 to replace that legacy infrastructure with a state of the
art technology. Some of that was completed last year. It is
completing as we speak, as we go through 2019 and 2020.
Ms. Adams. Thank you. Have you taken any steps to
strengthen your internal protocols and overall cyber security?
Mr. Begor. Congresswoman, we have taken many steps to
increase our overall protocols. We have a totally new security
organization. As I mentioned earlier in my testimony, the Chief
Security Officer (CSO), reports directly to me and to the board
which is quite different. We also installed an element of our
bonus system. The top 3,000 employees in Equifax receive a
bonus and 25 percent of that bonus is tied to our security
improvements. It is quite unique in corporate America and it is
only punitive, meaning it can only go down in your bonus if you
don't meet our goals in improving our security.
Ms. Adams. Thank you. What can CRAs do better to facilitate
reduction of disputes and improve handling of disputes caused
by debt collectors, and how often do you conduct an independent
review of the evidence?
Mr. Peck. So I want to make sure I got the question,
Congresswoman, what could we do better to reduce disputes--
Ms. Adams. What can you do better to facilitate reduction
of disputes and improve handling of disputes that are caused by
debt creditors and how often do you conduct an independent
review of the evidence?
Mr. Peck. If there was one thing we could do to help
reduce--or maybe two--but one area where we are having a
disproportionate amount of disputes is in student loans. The
way student loans are reported to us are just--it is incorrect
and we can't do anything about it and I think it has kind of a
disproportionately bad impact on the student borrowers. So that
would be the one thing I--and we are focusing on it and we are
working on it. But we would welcome the help of this committee
to do that.
Ms. Adams. All right. The other gentlemen?
Mr. Boundy. Yes, thank you, Congresswoman. We work all the
time to review every individual furnishing and the information
they are providing and try and find ways to make sure that the
information we are receiving from them is accurate and try and
minimize the disputes that way. Also working with consumers to
allow them to contribute their own information that they feel
is appropriate onto their consumer reports is another important
step we are taking.
Ms. Adams. One last question: What steps are you taking to
mitigate against discrimination and abuse in the reporting of
consumer data to your systems? Mr. Begor? Mr. Peck?
Mr. Peck. Could you repeat the question?
Ms. Adams. What steps are you taking to mitigate against
discrimination and abuse in the reporting of consumer data to
your systems?
Mr. Peck. And when you say, ``discrimination,'' you mean?
Ms. Adams. Well, some people have been victimized by
predatory or discriminatory loans and those kinds of things.
Mr. Peck. Sure, okay, thank you for the question. We do
keep track of the way our furnishers are reporting data and if
we see a consistent abuse then they are no longer furnishers of
our data.
Ms. Adams. Mr. Begor?
Mr. Begor. The same, Congresswoman. We have an active audit
process set with our furnishers.
Ms. Adams. Yes, sir?
Mr. Boundy. Yes, we are the same for Experian.
Ms. Adams. Okay. Does your policy tend to favor consumers
who have been victimized or the entity engaged in the harmful
practice? Mr. Begor?
Mr. Begor. Congresswoman, I would say we are focused on
both. We want to be an advocate for the consumer if they have
been impacted in some way and then we are very aggressive about
auditing the furnishers to make sure their data is accurate.
Ms. Adams. Okay, Mr. Peck, quickly?
Mr. Peck. That is correct. We monitor the furnishers and if
we see repeated bad behavior, we take action and we just don't
take their data any more.
Ms. Adams. Thank you, gentlemen. Madam Chairwoman, I yield
back.
Chairwoman Waters. The gentleman from Indiana, Mr.
Hollingsworth, is recognized for 5 minutes.
Mr. Hollingsworth. Good afternoon. I appreciate everybody
being here. I wanted to take a step back. There have been a lot
of specific examples, a lot of specific questions asked but I
am a big believer, coming from the private sector, in just the
alignment of incentives, so let's talk about the incentives
that have been structured here.
I took a little bit of a break and got the opportunity and
looked at the market cap for Experian at $24 billion, Equifax
at $13 billion, and TransUnion at about $12 billion and then I
thought, gosh, how much of that is really faith in your ability
to deliver a great product with accurate data that provides
good predictive power to those lenders, right? So I wondered,
and got out my old dusty accounting text book and looked up
what a book value was, and then calculated the book value for
each of that: for Experian, it is about $2.2 billion; for
Equifax, it is about $3 billion; and for TransUnion, it is
about $1.8 billion.
So you own some stuff, right, but at the end of the day
much of the value in each of your companies is the ability for
this product to provide good predictive power for lenders and
have accurate data. So I wondered if you might just speak for
minute or two, each of you, and say what impact it would have
on the $4 billion or $5 billion in revenue, on the $20 billion
or $11 billion or $13 billion in market cap if this data was
found to be inaccurate or was found to not have good predictive
power. Because we in Congress think that we are breaking new
ground here, like we are the first people to ever come up with
the idea that this data may be inaccurate or it may not provide
predictive power.
But people who have tens of billions of dollars at stake in
these transactions, whether they are the ones making the loans,
whether they are investors providing you capital, they have a
lot more at stake in running the analysis to test those things
and to see whether there's a great amount of inaccurate data or
whether there's a lack of predictive power. So I wondered if we
might just talk about what might happen if, gosh, your
customers found out that much of this data is inaccurate.
Mr. Begor. Do you want me to start, Congressman?
Mr. Hollingsworth. Yes.
Mr. Begor. Yes, I think you are right on the mark. There's
no question that the financial institutions look at all three
credit bureaus--and I will speak about Equifax--wanting to have
a broad array of data and accuracy is fundamental, right? To
them. And without that accuracy, if they thought we were
inaccurate, they would move their business from Equifax to
either Experian or TransUnion or one of the other credit
reporting agencies that are a different scale.
Mr. Hollingsworth. Yes. And I think that is--and you have,
to your knowledge, these lenders probably check that. Right?
They are spending billions of dollars with you and the other
firms every single year to get access to this, and to make sure
that they have the opportunity to understand that individual,
the best that they can before they make the loan, they are
probably checking that after the fact to make sure that it is a
wise spending of their money, right?
Mr. Begor. That is correct, Congressman, and they check it
intensely.
Mr. Hollingsworth. Yes. More intensely probably than we can
in a six-hour hearing of asking questions.
Mr. Begor. They have hundreds of people at each institution
who are making sure they have the most accurate data so they
can make the best decision for that American consumer.
Mr. Hollingsworth. So your business model demands accuracy.
Your business model demands predictive power and you have tens
of billions at stake in making sure that you get to those
outcomes for your consumer, for your customers, but also for
those individual borrowers?
Mr. Begor. Correct.
Mr. Hollingsworth. Anything you guys want to add as well?
Mr. Peck. I would echo those things, Congressman. I think
they value that and our ability to protect the data.
Mr. Hollingsworth. Right.
Mr. Boundy. Congressman, I think it is a great analysis and
I absolutely agree.
Mr. Hollingsworth. Well, great. What I wanted to come back
to, and just summarize, and then I will yield back my time is
we ask a lot of great questions here, right? And a lot of
specific examples are thrown out. They have 100 examples about
how there are inaccuracies, you have 100 examples of
inaccuracies that were corrected and those individuals went on
to get the credit that they deserve.
But I think the points that are being made here is one, you
have every incentive to do that on your own. You think about
that every day. I am sure you wake up every day saying how can
we make this product better for our customers, better for
lenders, and so you are trying to root out those inaccuracies
as well. You don't need a government regulator to tell you we
want this to be the most accurate data because your customers
and the lenders demand it and you have tens of billions of
dollars at stake.
And I think the second point that you guys have very
articulately made over and over again is without this, in the
absence of a credit bureau, in the absence of this research
that you guys are providing, individual lenders have to do this
about individual consumers every single time. The cost of doing
that would make the cost of borrowing prohibitive for many
borrowers.
This is about enhancing credit availability to more and
more Americans, and a correct, robust, and full data set gives
you the opportunity to do that. And if we begin to tamper with
that data and say we are going to remove the bad things but we
are going to keep the good things, then lenders are going to
quickly realize that we have skewed the data and they are no
longer going to be able to rely on that data in order to get
the lowest cost of capital for those individual borrowers.
Instead, everyone's cost of capital goes up. So I
appreciate the fact that you are here talking about the
business that you do and that you don't just do this out of
benevolence but you are doing it because you're incentivized in
your very business model to deliver accurate, predictive,
powerful results. Thank you for being here today.
Chairwoman Waters. The gentlewoman from Massachusetts, Ms.
Pressley, is recognized for 5 minutes.
Ms. Pressley. Thank you, Madam Chairwoman, and thank you to
my fellow committee members for their robust line of
questioning. Many of my questions have been asked and answered.
I want to thank all of you for being here. And as someone who
has a name that is often mispronounced, I did just want to get
clarity. Is it ``Begor'' or ``Begor?''
Mr. Begor. Sorry. I will answer to just about everything
but my mom goes by ``Begor.''
Ms. Pressley. Okay, ``Begor.'' I want to get it right. All
right. So we have spoken a great deal about what we consider to
be, based on the security breach, the collateral damage, the
lack of trust and sense of security by your customers, by
consumers and what we haven't spoken about, when we are
thinking about collateral damage and sort of accountability, we
know that everyday Americans are punished and suffering in
terms of their opportunity for social and economic mobility and
bare necessities, often for things outside of their control.
So here we have spoken about the impacts of the shutdown
and natural disasters, we have spoken about medical debt. You
were talking about data furnishings from those who may have
predatory practices such as our for-profit colleges and
universities, which I want to pick up on that in a moment. But
what is unclear to me is considering the impact of this data
breach on 143 million people throughout the country, what was
the accountability to your company? Was anyone fired from the
board?
Mr. Begor. Congresswoman, there was a lot of
accountability. The CEO left. As you know, I am new starting in
April. We have a new chief security officer, a new technology
leader, we have changed out two of our board members since the
data security breach, including a woman who was elected on a
Friday who's a data scientist, which will be a terrific
addition to our board.
And then we are investing incredible amounts inside the
company to bring ourselves to industry-leading capabilities
around data and security. My testimony this morning talked
about the $1.25 billion, which is a 50 percent increase in our
technology and security spend that we will be doing in 2018,
2019, and 2020.
Ms. Pressley. Again, I just wanted to make sure that I have
that data point correct. It was my understanding from my quick
read that there were folks who retired or perhaps were forced
to retire but not who were actually let go. And I just want to
know if anyone was fired and held accountable for this breach
as a way to restore the faith in your consumers and customers.
Mr. Begor. Congresswoman, there was a lot of
accountability. The entire senior leadership team in 2017 did
not receive a bonus. Zero. So that was accountability to that
leadership team. As you know, I was not there at the time. I
joined in April, 10 months ago. And then the individuals you
could describe, you know, retirement or left the company, but
they are no longer employed by Equifax.
Ms. Pressley. All right. Well, you know, I do just think
ultimately if the goal here is to treat people and customers as
consumers and not as products, then we can't in any way be
complicit to executives who are turning a profit there
unscathed when there are customers who are still struggling to
recover from the damage that your company caused. I will move
on. I just wanted to pick up on--you said that if you received
data, if it is furnished from those that have participated
repeatedly in predatory practices that you no longer accept
data from them.
Are there any companies that you could use as an example
and evidence of that?
Mr. Peck. Congresswoman, I can't name them right now. But I
would be happy to come back to you with my staff and let you
know the names.
Ms. Pressley. Okay. Specifically, I worry about those who
have been victims of the deceptive business practices and
predatory marketing of some for-profit colleges and
universities really ensnared in a downward spiral of--of
defaulted loan, and poor credit, that they are digging out from
for decades through no fault of their own because they have
been victimized. So at this time, you can't speak to any for-
profit college or university that you are no longer accepting
data from?
Mr. Peck. No, but I can have my staff reach out to your
staff and we will provide that to you.
Ms. Pressley. Okay. And then, what about for those who are
the victims of domestic abusers, which impacts their credit? Is
there any recourse or anything you do specifically for them,
again, outside of their own control, any avenue or recourse for
those, no? Okay. Thank you, I yield back.
Chairwoman Waters. The gentlewoman from New York, Ms.
Ocasio-Cortez, is recognized for 5 minutes.
Ms. Ocasio-Cortez. Thank you, Madam Chairwoman. And thank
you to our three witnesses here today. I know it has been a
long day, so I appreciate you all coming. For clarification,
there are no other credit bureaus at a similar scale, aside
from the three major credit bureaus you three represent, is
that correct, Mr. Peck?
Mr. Peck. Yes. That is correct.
Ms. Ocasio-Cortez. And all three of your bureaus--Equifax,
Experian, and TransUnion--are for-profit corporations, is that
correct? Yes. So, virtually, every credit score in America is
managed by the three of you in some way--touched or managed by
the three of you in some way, shape, or form, Mr. Begor?
Mr. Begor. Congresswoman, you used the term, ``credit
score.'' There are lots of different organizations that create
credit scores, financial institutions do it on their own. We do
some. There's a company called FICO that does some. But we are
central to that in the data that we house and in creating those
scores.
Ms. Ocasio-Cortez. So what would you say or how would you
characterize the package of data that U.S. bureaus, and the
three of you, essentially, have--have the most amount of market
share over? How would you characterize that--like, how would
you characterize what you have the most market share over?
Mr. Begor. I am not sure I understand the question,
Congresswoman.
Ms. Ocasio-Cortez. So the differentiation--if you could
explain to folks, the differentiation between the score and,
for example, the reporting that you all provide.
Mr. Begor. As the Congresswoman knows, we house the data
from furnishers. Financial institutions provide it to us. We
all have similar data, but all three bureaus are different in
the data that they possess. And then, the data is provided to
financial institutions and other organizations for decisioning,
generally, around financial products like a mortgage, a loan--
Ms. Ocasio-Cortez. Great.
Mr. Begor. And, you know, our view is to have accurate and
complete data.
Ms. Ocasio-Cortez. Great. So as the three of you
representing these three bureaus, you are responsible for an
enormous amount of consumer data for virtually anyone who has a
credit score in the United States?
Mr. Begor. Is that for me, Congresswoman?
Ms. Ocasio-Cortez. Yes.
Mr. Begor. Yes, sorry.
Ms. Ocasio-Cortez. Okay.
Mr. Begor. Yes, that is correct. You know, we have a real
responsibility there. And there are about 250 to 260 million
Americans who are in our credit file.
Ms. Ocasio-Cortez. Thank you.
Mr. Begor. There are about 60 million who are not.
Ms. Ocasio-Cortez. Thank you. Okay, so I do have a question
here regarding these incentives. You stated earlier that you
believe that consumers own their own data. And I agree with
that. I thank you for taking that position because I believe
that as well. Do consumers or everyday people ever explicitly
consent to giving their data to you?
Mr. Begor. Is that for me again, Congresswoman?
Ms. Ocasio-Cortez. Yes.
Mr. Begor. Sorry. There is not a consent by the consumer to
give us the data.
Ms. Ocasio-Cortez. So consumers own their data, but credit
bureaus collect their information without their consent?
Mr. Begor. That is correct, Congresswoman. But as we talked
about earlier in the testimony, there are a number of tools
available to consumers to--
Ms. Ocasio-Cortez. To correct it.
Mr. Begor. ----really control their data, and freeze it--
Ms. Ocasio-Cortez. Right.
Mr. Begor. --or lock it.
Ms. Ocasio-Cortez. But there is no way that they can
prevent you from collecting it. And so, I see here, you know,
credit scores are life-altering pieces of information. And
monitoring credit is incredibly important. And yes, we have
seen here, by reports issued by this committee, that one in
five consumers have had an error on their credit report.
There are about 60 members on this committee. That means 12
members here, either currently or in the past, have had an
error on their credit report. You know, if parachutes had a one
in five error rating, I don't think a lot of people would go
skydiving. And now we are talking about people's homes. We are
talking about their ability to get a job.
We are talking about people assessing whether they would be
a good janitor based on their credit score. Mr. Peck, your
largest customers for the bureau are creditors and lenders, is
that accurate?
Mr. Peck. Yes, banks.
Ms. Ocasio-Cortez. Banks and lenders. So those banks and
lenders stand to, generally, profit more from higher interest
rates, and those with the marginally lower tax score than
someone else. Would that be correct?
Mr. Peck. Congresswoman, I wouldn't necessarily think so. I
think they profit most when they are able to put the right
products into the people's hands in the right way, and not
ignore a whole population.
Ms. Ocasio-Cortez. I got you. So when we talk about putting
consumers first--and again, I applaud the priority of putting
consumers first in this, especially in the amount of breaches.
My one question is how are bureaus--in what ways are bureaus--
or are bureaus financially incentivized to put the needs of
consumers ahead of the needs of creditors, Mr. Begor?
Mr. Begor. Congresswoman, as I testified, you know, we
believe central to what we do is really protecting consumer
data, and allowing consumers access so it is accurate. And we
are investing heavily to allow consumers to have easier access
to that when they have an issue with their credit file so we
can be an advocate for them, and help them get it fixed with
the furnisher or financial institution.
Ms. Ocasio-Cortez. Thank you.
Chairwoman Waters. The gentlewoman's time has expired. The
gentleman from Guam, Mr. San Nicolas, is recognized for 5
minutes.
Mr. San Nicolas. Thank you, Madam Chairwoman. I would like
to thank the panel for joining us today. I am having a lot of
nostalgia up here because I used to be in the banking industry.
And I remember around 10 years ago, printing out my Equifax
reports, and sitting down with my consumer loan applications,
and doing my underwriting to figure out whether or not we were
going to be giving out the credit.
And, you know, going on this trip down memory lane, I
remember that when I looked at credit reports there were a lot
of consistencies when it came to what you see there, and what
ultimately becomes the creditworthiness of the individual
applying. And it is not just what you see, with respect to the
consumer. But it is what you see with respect to who is
pursuing that consumer.
And I noticed that some of the applicants who are less
favorable candidates for credit oftentimes had some of the same
companies that were pursuing them for so many years. And as I
sat back and I reflected on this, I realized that while we do
these credit reports and these credit scores, we are always
rating the consumers--we are rating their behavior or rating
their choices. And that is fair, I think that is fair. But I
think that what we also should be doing since we are
aggregating all this data is rating the lenders.
If we are getting all this data together, we can easily
aggregate a score on all the lenders and all the banks. And we
can aggregate whether or not a particular bank has an egregious
number of 30 day, 60 day, or 90 day violators versus one that
doesn't.
We can do an aggregation of whether or not a bank has a
longer or shorter banking relationship history with the
customers that it has, or is the kind that just picks up
customers and dumps them very quickly.
We can aggregate the errors, and create a score on lenders
and whether or not they are violating a lot of the credit
reporting standards with respect to accuracy. And I think that
this is something that I am hoping the panel can consider as a
public service, even--aggregating our data not just on the
consumers themselves, from the lenders also and coming up with
a lender score.
So when I am evaluating a credit card, it is not just
whether or not it is cash back, or points, but whether or not
this lender actually has a good scoring with respect to--I
don't know, the aging of their accounts? Or a good scoring with
respect to how they go about handling 30, 60, 90 day
violations.
So I was wondering--because my colleagues' line of
questioning kind of made it very clear that consumers are not
consenting to the aggregation of their data and the algorithms
that result in their scoring, would there be anything that
would restrict the aggregation of the data, with respect to the
lenders and your companies coming up with a lender score that
consumers can look to be able to determine whether or not they
want to do business with those lenders?
Mr. Begor. Do you want me to respond to that one,
Congressman?
Mr. San Nicolas. Yes, please.
Mr. Begor. Yes, my apologies. I think that is an
interesting idea, particularly around the data accuracy--I
think as all three of us have testified we have rigorous
programs in place to audit the data that is coming in to us,
when a furnisher has a history of inaccurate data we take
actions, and no longer accept that data. So I think it is an
interesting idea to look in to how else we might use that
information around the accuracy of data.
Mr. Peck. I would agree with that, in that the CFPB has
some jurisdiction, Congressman, over predatory lenders, and we
would encourage them to take their role as well.
Mr. Boundy. Thank you, Congressman, it is an interesting
idea--one we will certainly look in to.
Mr. San Nicolas. Thank you, I think that it could really
create some interesting dynamics. Because once the lenders
realize that their behavior is going to get scored, that might
result in a change of the behavior.
It might result in them being less aggressive in dinging a
credit score for a 30-day delinquency, instead making an extra
effort to try and work with the customer to get back on track.
And those kinds of things would be a win-win for everybody.
We would have less consumers having their credit getting
hit, and we would have better customer service for individuals.
And we would have a scoring system that works both ways in the
industry, not just with respect to finding the customers for
the lenders, but also with respect to finding the lenders for
the customers. I yield back, Madam Chairwoman. Thank you very
much.
Chairwoman Waters. The gentlewoman from Pennsylvania, Ms.
Dean, is recognized for 5 minutes.
Ms. Dean. Thank you, Madam Chairwoman. I am Madeleine Dean
from Pennsylvania and I know there has been a lot of
conversation today--in particular about the Equifax data breach
of 2017. And while it affected more than 148 million Americans,
included among those were 5.4 million Pennsylvanians.
It is an extraordinarily high percentage of Pennsylvanians.
It is regarded as one of the largest data breaches in our
nation's history, exposing millions of people's personal
information. And so you might understand that I have a feeling
that my consumers back home in Montgomery and Berks counties
might be surprised by the answers about accountability that my
esteemed colleague brought forth.
The people moved on based on retirements that people
suffered because they didn't get one year's bonus. When we are
talking about massive data breaches, such as the 2017 breach
which can have life-long consequences for the consumers.
So I will say to you that just--I throw this out to you to
say, and I know you were not there at that time. And your
stewardship has been touted as important in bringing to the
fore. But I would ask you to rethink that, and rethink
accountability. Passing on a year's bonus, I don't think will
impress people whose personal data was taken--and could have
life-long consequences.
So in a follow-up to what the chairwoman asked a long time
ago, which was, according to Consumer Reports, Equifax's free
service--monitoring service, trusted ID premiere expired as of
just January 31st of this year. I believe your answer was, you
don't plan to renew that, is that correct?
Mr. Begor. I'm sorry, Congresswoman, we did extend it
voluntarily for another year to the impacted consumers.
Ms. Dean. Okay. And that will be free to the consumers?
Mr. Begor. Yes, Congresswoman.
Ms. Dean. Okay, and beyond that, what is the plan for
February of 2020?
Mr. Begor. We haven't made a decision on 2020, we will take
that into consideration when we get closer to that date.
Ms. Dean. I appreciate that, and I would urge you to
continue that. If the consequences remain for the consumer,
then they shouldn't have to pay for protecting their
information. Something else I wanted to look at, because it is
unclear to me is the notion of credit locking--so if all three
of you could help me with this?
I think that each of you offer credit locking services, if
you could describe the difference between credit freezing and
credit locking? Is it in-house, or is it a third-party? What
does it cost the consumers? And is any of that information
whether it is credit locked in-house, or in a third-party
situation, is it in any way sold, transferred, shared in any
way? So that is a layer of questions, I apologize but--
Mr. Peck. Sure, I will start. So at TransUnion we have a
credit lock and a credit freeze. And the reason we have both is
we were offering a free credit lock before we were required to
offer something called a free credit freeze. We already had it
built and offered. It is part of our free, True Identity
product which also offers credit monitoring, insurance if you
lose your identity.
When the freeze requirement happened we just took the
same--essentially the same technology and built a free freeze
product, and it is--you can get it in the form of an app, or
online, or by phone. So they are exactly the same
functionality--it is all inside, we don't sell it--do anything
with it.
Ms. Dean. All in-house? No sharing? I don't--beyond
selling, is there any sharing of it?
Mr. Peck. No, we don't share it. We don't--like, other
people can't get at it and say, oh, I know this person's thing,
they just know they can't pull that individual's credit report
Ms. Dean. And yours is free. Is that true also, Mr. Boundy?
Mr. Boundy. Credit Freeze's products are free.
Ms. Dean. Okay.
Mr. Boundy. And once a file is frozen, then the information
doesn't leave our organization.
Ms. Dean. But how about the credit lock?
Mr. Boundy. Credit Lock is a product that is basically--it
is similar in functionality, but it is included in a
subscription product that we have.
Ms. Dean. And what is the cost?
Mr. Boundy. There are a range of different price points,
depending on exactly the nature of the bundle that you choose.
But the Credit Freeze product that is available to everybody is
free.
Ms. Dean. But Credit Lock is something you also promote and
is probably, maybe you believe, more effective, otherwise, why
would we have it? What is the cost to an ordinary consumer?
Mr. Boundy. It would depend on the particular product. You
can get a family plan that would allow a number of people in a
family to be included, or you can take an individual
subscription for that product.
Ms. Dean. Is it a monthly fee?
Mr. Boundy. It is a monthly subscription. But the Credit
Freeze product is free to everybody.
Ms. Dean. And just give me a range. What is the monthly
subscription fee?
Mr. Boundy. It might be say $19.99, might be a typical
range. But that would include other features as well. It just
includes it within that capability.
Ms. Dean. And it is to protect me, the consumer, against
what?
Mr. Boundy. Well, included in the product will be things
like scanning the dark web to see whether your information is
out there and it is for sale. It would be an example of
something else that would be included.
Chairwoman Waters. The gentlewoman's time has expired.
Ms. Dean. Thank you very much. Thank you, Madam Chairwoman.
Chairwoman Waters. The gentleman from Illinois, Mr. Casten,
is recognized for 5 minutes.
Mr. Casten. Thank you, Madam Chairwoman. And thank you all
for your patience and time today. My first question is on data
breaches and really on national security. We have, as a
nation--when I say ``we,'' I am talking about the United States
Government--an exceptional intelligence community and security
forces that are monitoring a tremendous amount of incoming
information from state actors, non-state actors, more often
than not, one masquerading as the other.
And we have the ability to monitor. And when those attacks
come in on government resources subject to jurisdiction in the
situation, we have the ability to pursue either defensive or,
in some cases, offensive strategies. As you all know all too
well, we increasingly live in a world where the value of data
held on private servers is sometimes more valuable than the
information on public servers.
My question for all, and recognizing this is a public
hearing, I am not expecting you to be fulsome in this is, you
have all talked at length about the defensive measures that you
have taken, in response to hacking. Are you taking any active
offensive measures? And to the extent you are, are you
coordinating with our various national security agencies in the
course of doing that?
Mr. Begor. Do you want me to start, Congressman?
Mr. Casten. Yes. And again, with recognition to be brief, I
just would like to understand if--
Mr. Begor. Sure. You know, we cooperate with the
authorities. And after our data security breach in 2017, we
quickly engaged with all the appropriate authorities at the
Federal and State level. And we are confident they are working
hard to really find out who were the criminals or nation states
that committed this crime against Equifax and American
consumers.
When you talk about offensive actions, one of the things we
do very aggressively is hire third parties to try to penetrate
our exterior. I view that as offensive. Another one that--
Mr. Casten. I mean, reaching out to the people who are
coming in. So in other words, we as a government can take
active measures to try to disrupt those foreign networks.
There's a concern I have personally of, as people are coming--
you--if I were in your shoes--I was a CEO for 16 years--I would
be inclined to punch back. But this is--becomes a national
issue. So are you reaching out to those networks?
Mr. Begor. We are trying to share them with the authorities
when we see instances of whomever the criminal is. As I
mentioned in my testimony a couple of times this morning, we
are also trying to share with each other. We really believe
this is something that can't be solved as one company, one
government agency.
So we are trying to be very transparent with everything we
have learned. This is a war that we all participate in. Every
company, all three of us here, government agencies, other
companies in the United States, really have to work together to
defend ourselves. And that is why we are trying to very
transparent about everything we are learning and doing.
Mr. Casten. Okay. I wanted--I have one more question, so I
want to stay on the time. But just to--in general, I am taking
that as not specifically on the active side. And just yes or no
from the other two of you.
Mr. Peck. No, we are not taking an offensive position.
Mr. Casten. Okay.
Mr. Boundy. No.
Mr. Casten. Okay. Second question, I mentioned that I am
new to this job, as you can tell by how late I am in the
questioning. I was a CEO of a couple of energy companies for a
long time, and I now find myself in middle management. I have a
deep respect for the profit incentive and how it drives you to
do good things.
I also have a deep respect, having worked in an industry
that is a public utility, that there is always a challenge with
aligning the profit incentive with the social incentive.
You all provide a public utility, and I thank you for that.
Our credit markets depend on you all doing what you do. You
also primarily earn your revenue from lenders rather than
consumers.
And I am sure you have thought about this, but to the
extent hat your profit incentive is at odds with the social
purpose that you need to serve, that creates tension that, at
some level, we all have to step in.
So my question for you is, can you discuss where you see
that tension and what measures, if any, you can take,
independent of regulation, to better align your profit
incentive with the incentive facilitate access to credit?
Mr. Begor. Congressman, I think I have testified a couple
of times this morning that we have a real priority about
putting consumers first, giving consumers control over their
credit file, either with the freeze in S.2155 or, in our case,
a lock and alert product that is free for life to consumers.
And those kinds of investments are investments that we are
making because it is the right thing to do. It is something
that is right for the consumer, but it is also something our
customers want us to do, meaning the financial institutions.
Mr. Peck. And Congressman, I would just add, accuracy is
the most important thing that we can do, along with protecting
consumers' data. And so, we are completely aligned in that
case, and it is the best thing for the consumer. And finally,
the idea of financial--
Mr. Casten. If I could just clarify, though. Your
consumer--there is the consumer--the consumer who deems credit,
your customer's primarily the lenders.
Mr. Peck. Well, Congressman, when the consumer has the data
accurate about them, it is also best for them because they get
into the right products. You couple that with the idea of
financial inclusion where we are looking more for--for more
different kinds of data that especially serve the underserved
communities, which I talked about, rural areas, or high urban
areas, I think we are actually all aligned in our objectives.
Mr. Boundy. Congressman, I think--
Chairwoman Waters. The gentleman's time is up.
[laughter]
Mr. Casten. Thank you.
Chairwoman Waters. And you may respond to him in writing. I
would suggest that you do that. Thank you very much. We are
going to have a second panel, but before I do that, I would
like to thank our first panel of witnesses for their testimony
today.
After hearing the testimony from the CEOs before us today,
I am more concerned than ever about the state of our consumer
credit reporting system. I am troubled to the point where I do
think that we need to start thinking about how we reimagine it
and rebuild it from the ground.
And so, I thank you for being here, I have appreciated the
time that you put in today, and we will be introducing
legislation, and we will interact with you as we formulate that
legislation to see what we can do to protect our consumers more
and strengthen the entire system. Thank you very much.
[recess]
Chairwoman Waters. I would like the second panel to please
come forward and take their seats: Ms. Lisa Rice, president and
CEO, National Fair Housing Alliance; Ms. Chi Chi Wu, staff
attorney, National Consumer Law Center; Ms. Jennifer Brown,
associate director for economic policy, UnidosUS; Mr. Edmund
Mierzwinski, consumer program director, U.S. Public Interest
Research Group; and Mr. Thomas Brown, a partner of the law
firm, Paul Hastings.
Each of you have 5 minutes to summarize your testimony.
With 1 minute remaining, a yellow light will appear. At that
time, I would ask you to wrap up your testimony so we can be
respectful of both the witnesses' and the committee members'
time. And without objection, your written statements will be
made a part of the record.
Ms. Rice, you are now recognized for 5 minutes to present
your oral testimony.
STATEMENT OF LISA RICE, PRESIDENT AND CEO, NATIONAL FAIR
HOUSING ALLIANCE (NFHA)
Ms. Rice. Thank you. Chairwoman Waters, and members of the
committee. Thank you so much for inviting me to speak about the
need to overhaul our credit reporting and scoring systems. The
National Fair Housing Alliance has worked to address how the
U.S. credit system restricts access to consumers of color since
our inception 30 years ago.
Our work with industry partners and our network of over 200
community and State-based organizations gives us unique
insights into how credit markets function and impact our
underserved consumers.
How our society collects and uses consumer data, as it
relates to the provision of financial services, has always been
slanted against people of color. Our credit scoring and
automated underwriting and pricing systems are fueled by
algorithms that rely on data that is infused with, and reflects
a discrimination that is replete throughout our financial and
housing markets.
While credit repositories capture all types of data from
myriad sources, they do not capture information that explains
the impact of discrimination and racial inequities. Moreover,
repositories adopt policies that favor the provider of the
credit data over the consumer, even when the entity has engaged
in discrimination or fraud.
Finally, repositories do not collect rental housing payment
information that can result in expanded access to quality,
sustainable credit for underserved groups. Our country has a
dual credit market that stems from historical and current
discrimination which taints the data housed in the credit
repository systems.
Housing policies established from the inception of this
nation were expressly designed to assist whites in gaining land
and homeownership rights while simultaneously denying people of
color the same opportunities. Federal agencies like: the Home
Owners Loan Corporation, which by collecting millions of pieces
of data developed an infrastructure for systemizing red lining
in our financial markets; and the Federal Housing
Administration, which used race-based policies and weaponized
data against communities of color, denying them from obtaining
credit and homeownership opportunities while simultaneously
generating trillions of dollars in wealth for white Americans.
Federal agencies along with private actors demanded the
segregation of residential communities and actively worked to
disinvest those areas with higher concentrations of people of
color. In my written testimony, there is an illustration of
America's separate and unequal credit system. The tan side
reflects the non-traditional or sub-prime market where entities
like check cashers and pay day lenders operate, when consumers
access credit in this space it does not in year to their
benefit. Many operators in this space do not report positive
payment behavior to the credit repositories, however they do
report negative information to the system.
Non-traditional credit providers are less regulated than
mainstream credit providers and are more apt to develop
products that are not safe or sustainable or are designed to
push borrowers into delinquency. Non-traditional creditors are
also highly concentrated in communities of colors while there
are banks and credit unions located in African-American, Native
Indian, and Latinx communities. We continue to see differences
in credit scores high to residential segregation. People living
in communities of color are more likely to be credit invisible
and have lower credit scores.
This is because data is not innocuous. Although
discrimination is a common occurrence in the housing sector,
there are over 4 million instances of discrimination each year.
The bias in our markets is not accounted for in the way credit
data is collected or utilized. This means that data is tainted
and often manifests harmful outcomes for consumers. When credit
repositories gather data, they do not simultaneously ascertain
if a consumer has obtained credit from a predatory,
discriminatory or abusive debtor for the purposes of
ameliorating negative fallout.
I have four suggestions for potential solutions. The first
is that credit reporting systems must be revamped to merit
consumers and creditors alike, in an equal fashion. The second
is that adverse information related to discrimination, fraud,
and abuse must be removed from our credit repository system.
The third is that rental housing payments should be reflected
in the credit repository system. The fourth is that if a
provider of data--a lender--does not report positive data into
the system, any negative data emanating from that provider must
not be captured.
[The prepared statement of Ms. Rice can be found on page
168 of the appendix.]
Chairwoman Waters. Thank you. Ms. Wu, you are now
recognized for 5 minutes to present your oral testimony.
STATEMENT OF CHI CHI WU, STAFF ATTORNEY, NATIONAL CONSUMER LAW
CENTER (NCLC)
Ms. Wu. Chairwoman Waters, Ranking Member McHenry, and
members of the committee, thank you for inviting me to testify
today. I am testifying on behalf of the low income clients of
the National Consumer Law Center. So by my estimate, this is
the sixth time I have been before Congress talking about abuses
by the credit bureaus. Of course, it is an honor each time to
be invited, but it is really terrible that I, my predecessors
at NCLC, and other consumer advocates such as the fine folks on
this panel have had to come back so many times to talk about
the same issues.
We have complained many times about mixed files, where the
credit bureaus mix up information of two different people. Such
as Tammy Brown of North Carolina who was wrongfully tagged with
the bankruptcy of another Tammy Brown from Indiana. Mixed files
are something that Senator William Proxmire considered the
father of the Fair Credit Reporting Act, complained about in
1968. It often occurs because credit bureaus don't match the
information using the full Social Security number of consumers
but rely only on seven out of the nine digits resulting in
mismatches.
Another problem we've complained about before is what
affected Peggy B. of Missouri, whom the credit bureau tagged as
deceased. Imagine being denied credit and sent condolence
letters about your own death when you are very much alive.
These errors affect millions of consumers. According to the
Federal Trade Commission, one in five consumers has a verified
error in their credit report and 5 percent have errors serious
enough to be denied or pay more for credit. Five percent is
unacceptable. It means 10 million Americans have seriously
damaging errors in their credit reports and what is worse is
what happens when consumers try to fix these errors.
They run into the Kafkaesque nightmare of the credit
bureaus dispute system. In 2009, our report, ``Automated
Injustice'' described how the dispute system was a travesty.
That all the credit bureaus did was send the disputes to third-
party vendors, sometimes off-shore, who simply turned them into
two or three digit codes maybe with a line of text and sent the
codes to the creditor or debt collector who supplied the
information. And then the credit bureau always accepted what
the creditor or debt collector responded even if it is clearly
contradicted by the evidence like a court judgment or a police
report.
Now in the last 10 years there has been some improvement
due to examination and supervision of the credit bureaus by the
Consumer Financial Protection Bureau--although with the new
leadership, we're always concerned about backsliding, as well
as settlement in 2015 with the credit bureaus obtained by 30
attorneys general. But as documented in our new report released
just yesterday called, ``Automated Injustice Redux,'' problems
with accuracy and getting errors fixed still very much
frustrate consumers like Tammy Brown and Peggy B. And they also
frustrate the over one quarter million consumers who filed
complaints with the Consumer Bureau against Equifax, Experian,
and TransUnion, where credit report issues were the top
category of complaints in 2017 and 2018.
We need a better system and wholesale reform, which is why
we supported Chairwoman Waters' Comprehensive Consumer Credit
Reporting Reform Act in 2017, and we support her new draft
currently being discussed.
The other perplexing thing about the credit reporting
system is how it doesn't distinguish between consumers with
poor financial management and those who missed bills because
they were unlucky.
They got sick. They lost their job. They were impacted by a
natural disaster or they missed a month's pay due to being a
Federal contractor affected by the government shutdown. In his
written testimony, Mr. Peck said that credit reports reflect
good choices and hard work.
So does that mean the Federal workers made bad choices and
were lazy? No, I don't believe so, and that is why we support
Chairwoman Waters' Protecting Innocent Consumers Affected by a
Shutdown Act being discussed.
I know others will talk about the Equifax data breach but I
wanted to note one fact revealed by a report from the last
Congress by the House Oversight Committee, that the computer
systems used by Equifax to process credit reporting disputes
was the very system hacked in the data breach and part of the
problem was that this was an antique legacy system built in the
1970s. Now we know why we have been having the same complaints
over and over again for the past 40 years because the credit
bureaus have been using the same systems for the past 40 years.
One last point about credit invisibility, it is certainly
an issue. But the Credit Access and Inclusion Act has an
inclusion act passed in the last Congress is the wrong way to
go about it because all it does is preempt State consumer
protections for the privacy of utility customers.
And it will impede States trying to regulate the
problematic practices of tenant screening agencies. By the way,
the CEO's of the credit bureaus keep asking for more data.
These are the same companies that had their data stolen and
have high error rates. I don't know if we want to give them
even more of our data. I thank you for the opportunity to
testify and look forward to your questions.
[The prepared statement of Ms. Wu can be found on page 179
of the appendix.]
Chairwoman Waters. Thank you very much. Ms. Brown, you are
now recognized for 5 minutes to present your oral testimony.
STATEMENT OF JENNIFER BROWN, ASSOCIATE DIRECTOR, ECONOMIC
POLICY, UNIDOSUS
Ms. Brown. Thank you. Good afternoon, and thank you,
Chairwoman Waters, Ranking Member McHenry, and distinguished
members of this committee for inviting me to testify today. My
name is Jennifer Brown. I am the associate director of economic
policy at UnidosUS. UnidosUS is the largest national Hispanic
civil rights and advocacy organization in the United States.
For over 50 years, we have worked to advance opportunities for
Latino families so that they can achieve economic stability
through our network of nearly 300 affiliates in 35 States, the
District of Columbia, and Puerto Rico. For more than 2 decades,
UnidosUS has published reports, testimony, and has engaged in
advocacy on issues that support strong, fair housing and
lending laws and increased access to financial services.
This statement through information and stories from our
affiliates focuses on how credit scores are still largely
associated with income and wealth and how it perpetuates the
racial wealth gap. Credit invisibility occurs most frequently
in communities of color, low-income neighborhoods, in younger
populations, and among immigrants. Credit scores are used for
many non-lending purposes including applications for
employment, housing, utility services and even health
insurance. First, I would like to take some time to discuss
credit scores. Delores from Pennsylvania told us that a high
credit score opens the door. A low credit score, they take away
the keys.
Credit scores are supposed to be an objective measure of an
individual's creditworthiness, free from the bias that has
historically determined who can and cannot access credit and on
what terms. Yet credit scores are still largely associated with
income and assets exacerbating long-standing wealth disparities
between different races and ethnicities. Communities of color
have had lower incomes and therefore they have lower credit
scores. This is confirmed by a report from the Federal Reserve
that found that the average credit score of black Americans was
approximately half that of whites and the average credit score
of Latinos was more than 1/3 less than whites.
Second, I would like to discuss credit invisibility. Miguel
from California told us, if I have income and the ability to
pay shouldn't that determine if I can pay off a loan? According
to the Consumer Financial Protection Bureau, 45 million
Americans or 19.3 percent of all consumers are credit
invisible, have thin credit files or lack a recent credit
history. Credit invisibility, according to the Consumer
Financial Protection Bureau (CFPB) occurs most frequently in
communities of color, in low-income neighborhoods, in younger
populations, and among immigrants. Among the factors that
contribute to credit invisibility is that the credit scoring
models rely on formulas and algorithms that fail to consider
cultural norms such as reluctance to debt, reliance on cash,
failure to account for other--other ways to pay for making on
time payments.
Third, I would like to take a moment to discuss the
consequences of being credit invisible. Henry from California
told us, since I don't have a credit history my only option to
turn on my gas and electric was to give a down payment of $500.
That is a lot of money. Credit scores were originally intended
to be used by lenders to access whether to approve a customer
for credit. Today however, credit scores or credit histories
are used for many non-lending purposes including getting a job
serving frozen yogurt, to obtaining federally subsidized
housing, establishing an account with a utility provider, and
even signing up for health insurance.
If we continue to rely on credit bureaus as gatekeepers who
can determine whether a person can obtain a job, put a roof
over their heads, stay warm in the winter or cool in the
summer, or secure healthcare for themselves and their families,
the credit rating system will need to reflect a more accurate
and transparent depiction of the creditworthiness of all
Americans. Without this accuracy and transparency, the credit
ratings agencies will remain, as Carla in Pennsylvania told us,
the ``original gangsters'' because they have their own system.
In conclusion, I hope this testimony provides the committee
with information on why we should fix the credit scoring system
so it is not largely associated with income and wealth. Make
the system more inclusive to communities of color, low income,
neighborhoods and younger populations. Limit credit scores for
credit purposes and prevent credit scores from being used as
screeners for employment, housing, utility services and health
insurance. Thank you.
[The prepared statement of Ms. Brown can be found on page
113 of the appendix.]
Chairwoman Waters. Thank you very much. Now, Mr.
Mierzwinski, you are recognized for 5 minutes to present your
oral testimony.
STATEMENT OF EDMUND MIERZWINSKI, SENIOR DIRECTOR, FEDERAL
CONSUMER PROGRAMS, U.S. PUBLIC INTEREST RESEARCH GROUP
Mr. Mierzwinski. I was going to commend you, Madam
Chairwoman. That is just exactly how you say it. Chairwoman
Waters, Mr. McHenry, members of the committee, I am Ed
Mierzwinski and I am with the U.S. Public Interest Research
Group a non-profit, non-partisan consumer advocacy group. I
want to point out a few highlights from my testimony today.
First of all, every action by Congress to reform the credit
reporting system was proceeded either by a scandal, a State
action, or both. So in 1970, the original hearings were held to
create the Fair Credit Reporting Act because Equifax, then
going by Retail Credit Company, was running a--so many
complaints were coming in about its investigations of people
applying for insurance.
There were so many lawsuits against the company that
Congress took notice, and passed the original FCRA. Then during
the first big wave of consolidation, States and the FTC began
investigating the credit bureaus in the late 1980s. Congress
held a hearing.
I testified for the first time in 1989 before the committee
and in 1992 a bill was ready to go to the Floor and in fact
went to the Floor to reform the credit bureaus. But in
committee, the industry had won an amendment reversing the way
that the original consumer credit laws, Truth In Lending fair
credit reporting and all the rest had said that any State law
that is stronger is not in conflict. The industry won an
amendment. We could not get rid of it on the Floor. Former
Representative and Chairman Henry B. Gonzalez and his members
then took the bill off the Floor and it did not pass until 1996
with limited preemption only, not the total preemption that the
banks and credit bureaus sought.
But in the meantime, in Vermont, where TRW, the predecessor
to Experian, had said that 3,000 people, almost everybody in
the town of Norwich, Vermont, had not paid their credit bills
and not paid their taxes when they had. Vermont and California
passed new laws and seven States passed free credit report
laws. The Federal 1996 amendments came about the time that
identity theft became a problem, a big problem.
So in 2003, Congress didn't fix identity theft but it
extended free credit report rights nationwide and did give the
banks extended preemption but also allowed States to pass
identity theft laws and so between 2003 and 2018 every State
passed a data breach notice law and a credit freeze law.
Before the passage of the vaunted S2155, several States in
2018 had passed new amendments to their credit freeze laws
making them free. So the industry came to the committee on the
Senate side and said, let us get the free freeze into S.2155
but let us make it preempt the States. So every single time we
have had a scandal where the States act first, then Congress
finally acts and not necessarily as well as the States did.
The mistakes in credit reports from PIRG's first study in
1990 credit reports were public enemy number one at the Federal
Trade Commission. That was based on a FOIA report. Throughout
1990 to today, our studies have shown that credit reports are
the number one complaint. You have seen it on the big jumbotron
here in the committee that the Big 3 credit bureaus are still
number one, two, and three in complaints at the Consumer
Financial Protection Bureau.
By the way, at the bureau we have a public database. We
don't have to file FOIA's. I strongly urge you to ask the
Director of the CFPB when she comes in next month to keep the
public database public. One other point from our complaints, in
1990 I remember a consumer said, ``item remains confirmed by
source, what is this source?''
I concur completely with my colleague, Chi Chi Wu, and her
explanation of why the dispute system doesn't work and how your
bill would fix the dispute system that doesn't work. Because
the bureaus and the furniture creditors are running a con where
they say their computers match so it must be okay. It isn't and
we quote several ``item remains'' stories from the CFPB
database in my comments.
We could talk about Equifax for my entire 5 minutes but my
written testimony goes into great detail about how the cover--
I'm sorry, the clean up, and that was a Freudian slip there,
but the clean up was almost worse than the problem because of
the way they botched it. Finally, I want to point out that
going forward, we would like to work with the committee on
other issues related to privacy. The credit bureaus are data
brokers. They are the only regulated data brokers because all
the rest of the thousands of data brokers don't meet the
definition of a credit bureau or credit report. We need to fix
that. Thank you.
[The prepared statement of Mr. Mierzwinski can be found on
page 138 of the appendix.]
Chairwoman Waters. I am going to take a moment here to
advise Members that votes have been called on the Floor. We
will complete our witness opening statements now and then
recess for votes. The hearing will resume immediately following
the Floor votes. So Mr. Brown, we are going to hear your
testimony, but I want the Members to know that the votes have
been called and then we will be back. Please proceed.
STATEMENT OF THOMAS P. BROWN, PARTNER, PAUL HASTINGS LAW FIRM
Mr. Brown. Thank you, Chairwoman Waters, Ranking Member
McHenry, and members of this august committee for holding this
hearing and inviting me to testify. I want to make clear at the
outsetthat I am here speaking in my individual capacity. I am
not here representing the firm of which I am the co-chair, its
Fintech practice, nor any of its clients, and I am not being
paid to be here. I am speaking on this topic because it is a
subject in which, as I explained to a cousin this weekend, I
have a passionate interest and that interest arises from two
things.
One, I taught a class on and off at UC-Berkley Law School
for 10 years where I met a member of this committee,
Congresswoman Porter, who is as much an expert in the FCRA as
any of the people you have heard testifying here today, and
two, from work that I have done on a pro bono basis for CFSI
and others around the problem of financial health for all
Americans. I am happy to answer questions about my testimony at
length.
I do want to use the time in my opening to discuss three
issues that I have heard come up over the course of the many
hours that we have all been sitting here: data ownership;
competition; and innovation. So let us start with data
ownership. I don't believe that data ownership is a useful
framework for thinking about the problems that arise with
respect to consumer privacy generally or the Fair Credit
Reporting Act.
Data is an intangible asset and like any intangible asset
it is difficult for a single person to possess. In the sense
that you can possess an instance of data but that--use of that
instance of data does not deprive other people of use of that
data. And rather than focusing on ownership, I think the
Congress in connection with this area should focus instead on
eliminating harm to consumers from misuse of their information.
This committee actually has jurisdiction over two excellent
examples of how we protect consumers against harm from
information that relates to them. These are Reg. E and Reg. Z,
both of which protect consumers from the misuse of information
that is important to them, namely information related to their
accounts. I think focusing on the issue of data ownership is
misplaced.
So then let us talk about competition. Competition is a
subject that is near and dear to my heart. The last time that I
sat in this room, I was staffing a former Member, a former
Chair of the Federal Trade Commission. I am an anti-trust in
consumer protection litigator by background. I believe that
these things relate deeply to one another. And there are two
aspects to competition that I think have surfaced in today's
hearing that are worth discussing. The first, and this really
responds to a question that Congressman Duffy asked earlier is,
why can't all the bureaus get together and create a mechanism
that allows people to freeze their reports? Well, because
Section one of the Sherman Act makes it very difficult for
companies that are in competition with one another to
collaborate.
The operative language of--well the Sherman Act is
contracts, combinations and restraint of trade are prohibited.
And although it is not impossible, it is difficult for those
entities to collaborate, to offer products to consumers.
Now, there may be ways that the entities can collaborate
with respect to, for example, identifying furnishers that
provide inaccurate information on a systemic basis. There are
examples, as Congresswoman Porter observed earlier, from the
card industry where the card networks share information about
terminated merchants. That is a mechanism that has worked
reasonably well in policing bad activity on the part of
merchants in the payment industry and it is an idea that I
think is worth exploring here.
So what is the other dimension in which I think competition
is interesting. Well, it relates to the oligopoly structure
that has been a topic of discussion. As a product of the
University of Chicago where we see an industry that is not
organized in a way that we would expect. We should look among
other places at the underlying regulatory framework.
The FCRA, as I detail in my testimony, is extremely
technical and it serves as a barrier to entry into the space.
That takes me to the final issue, inclusion. I have 30 seconds.
I do believe quite passionately that to address the problem of
inclusion we do need to provide consumers with the ability to
provide information about themselves to people who are willing
to provide loans.
Congress has spoken on this issue through Section 1033 of
Dodd-Frank. The CFPB and the prudential regulators have not
taken the issue up. I believe that the committee should ask the
new Director of the CFPB about the Bureau's position on that
issue when she appears in a week.
[The prepared statement of Mr. Brown can be found on page
123 of the appendix.]
Chairwoman Waters. The committee will stand in recess.
[recess]
Chairwoman Waters. The committee will come to order. I now
recognize myself for 5 minutes for questions. I want to talk
about comprehensive reform. It is clear that Congress should
consider a number of actions to address concerns exposed by the
Equifax data breach, including accurate reporting, a dispute
resolution process that is unfriendly for our consumers, and
other systemic problems. Ms. Wu, if my comprehensive consumer
credit reporting reform bill were enacted into law, would you
briefly discuss how some of the provisions would be better for
consumers than current law?
Ms. Wu. Absolutely, and thank you very much for introducing
the comprehensive consumer credit reporting reform bill so many
times. First of all, the bill would provide for an appeals
right for consumers who have been frustrated trying to fix
errors in their credit reports. That would address the issue I
talked about how right now they deal with a Kafkaesque system.
It would reduce the impact of negative information from 7 years
to 4 years and that would help consumers with their credit
reports. It would allow them to remove the negative information
from predatory loans and for-profit school fraud. It would
provide for injunctive relief. They can ask a court to fix
their credit reports.
It would help deal with medical debt by preventing
information from going on for a full year, so that consumers
have the ability to fix all these errors that happened because
of insurance coverage and insurance denials. You know,
questions about what is this bill and also remove paid or
settled medical debt. And it would severely restrict the use of
credit reports in employment, which we think is entirely unfair
and has a racially discriminatory impact. It is such a great
bill and there is so much that I am probably missing a lot of
important points.
Chairwoman Waters. Go ahead.
Ms. Wu. It would do so much to help consumers. It would
require the CFPB to engage in a rulemaking on issues about
matching. As I mentioned before, one of the worst problems is
mixed files when you mix up two consumers. And it is because
credit bureaus have this incentive to be overly inclusive of
negative information. And so, they need to crack down on how
they match information, use all 9 digits of the Social Security
number or at least 8 digits, and maybe a full name and address.
By the way, the CFPB did get them at least to take off all
this public record and lawsuit and tax lien information because
they were having trouble making sure it was the right consumer.
That this Richard Smith, he was the actual Richard Smith who
was being sued because Social Security numbers don't show up on
court records. And so getting the CFPB to do a rulemaking to
make sure data is more accurate would be really helpful.
Chairwoman Waters. Thank you very much. Mr. Mierzwinski,
Ms. Brown or Ms. Rice, would you like to add to anything? For
example, should Congress consider giving the credit bureau
regulators similar powers that other regulators have with
respect to banks, such as the ability to remove senior
executives, limit the company's asset size, or even wind down
their operations if they repeatedly violate the law and harm
consumers? Now, you may not have thought about these particular
remedies but what comes to mind?
Mr. Mierzwinski. Well, Congresswoman, I think those are
great ideas. The banking regulators have the power to shut down
a bank, throw out a CEO or do a lot of things that the CFPB
cannot do, although the CFPB has more powers than the old FTC
did. And the old FTC did fight with one hand tied behind its
back for 40 years against the credit bureaus and their
mistakes.
But I would support looking at any of those improvements
because again, as many people have pointed out including the
ranking member here today, we have an oligopoly of three
powerful gatekeepers. We don't have any competition so we
should have more power over the credit bureaus. Thank you.
Ms. Rice. Congresswoman, if I could just add one of the
most important parts of the provisions of your law I think
relates to removing information from predatory lending and
abusive practices. As I mentioned previously, predatory lenders
are hyper concentrated in communities of color. This has grave
ratio disparities and the products that those lenders
perpetuated were unsustainable. They were designed to push
borrowers into delinquency and as we have mentioned before the
repository system does not rate the type of credit that the
person is getting. It infers that abuse onto the consumer.
Chairwoman Waters. Thank you very much. The Chair now
recognizes the distinguished ranking member, Mr. McHenry, for 5
minutes of questions.
Mr. McHenry. Thank you, Chairwoman Waters. I want to thank
the panel for staying. It is been quite a day, but I do
appreciate it and I appreciate your testimony as well. What I
would say is, I think what was interesting about the first
panel is no one seemed concerned in the panel that the Fair
Credit Reporting Act was outdated or in need of updating.
Right? Let's just go across the panel. Does FCRA need updating?
Ms. Rice. Yes.
Mr. Brown. Yes.
Mr. Mierzwinski. Yes.
Ms. Brown. Yes.
Ms. Wu. Yes.
Mr. McHenry. For the record, everyone says ``yes'' on the
second panel. We have four Democratic witnesses and one
Republican witness--not that that matters of your affiliation
but that is who requested your attendance. So getting into
that, why haven't we had more innovation? Why have we not had
more companies enter the picture? Why is it just the big three?
Mr. Brown?
Mr. Brown. I know that not everybody on the panel is going
to agree with my view on this but the prospect of taking on the
bureaus, even independent of the underlying regulatory regime,
is daunting. The businesses were described today and we have
been sort of seeing the slides. They have relationships with
thousands of furnishers who give them data. They process,
synthesize, and assemble that data and then sell it to a large
number of financial institutions.
Those incumbent customer relationships and information
sourcing relationships just on their own would be difficult to
challenge and then the underlying regulatory framework is from
the standpoint of thinking about launching a new full fledged
bureau is daunting. I think all of us here probably reasonably
well understand what the requirements are for a large-scale
bureau. We are all trained or at least many of us are trained
to par statutes but most of the people who are thinking about
launching a new FinTech business are not lawyers by nature.
They are engineers, and of all of the statutes that you are
going to tackle as an engineer, the FCRA would be at the bottom
of the list.
As I have mentioned in my written testimony, I do think
that there is evidence of innovation. It is just coming from
adjacent areas and I think that for--in thinking about--
Mr. McHenry. So where is their innovation?
Mr. Brown. I talk about a little bit about this in my
testimony but one area is in allowing consumers to furnish
information to people who will provide them financial services.
We see a range of companies that are offering such services,
many of which are trying to tackle and compete with some of the
predatory products that have been available for a long time. I
can rattle them off quickly. Companies like Earnin, Evein, Pay
Active and others that are introducing alternatives to payday
loans. We have seen it in the incorporation of cash flow data
in products offered by folks like Peddle and Opportune. All of
which are trying to find ways to provide consumers with the
ability to directly provision information that would not be
accessible through a credit report.
Mr. McHenry. Okay. So if you look at the consumer data that
these three groups have, the Social Security number as we have
heard in previous testimony and written testimony. Use of the
Social Security number and--and data surrounding that makes the
theft of that data even more detrimental to consumers. Right?
When a Democrat colleague of mine raised this question in
the first panel, two factor authentifications for basic
standards of tech, these companies have not complied with that.
What is your thought, just in this final minute we have, on the
utilization of the Social Security number as an identifier?
Would it be proper to step in and restrict that capacity for
these bureaus to use our Social Security numbers as a
identifier?
Ms. Wu. So the problem with the use of the Social Security
number, if I may, is not as an identifier but as a verifier or
authenticator. And it is really important to separate them out
because, take the example of Richard Smith. There are many
Richard Smith's, the former CEO of Equifax, in the United
States. There's only one Richard Smith with the Social Security
number ``123456789.''
Mr. McHenry. Sure.
Ms. Wu. In order to match data correctly, you need that
unique identifier. So it is not the use as an identifier. It is
used as a verifier because what it says is this person online
or over the phone can say, my Social Security number is
``123456789'' and that proves who I am. And that is the
problem. It is the use of an authenticator. We need different
and better authenticators--
Mr. McHenry. Does everybody agree?
Ms. Wu. Yes.
Ms. Brown. Yes.
Mr. Brown. Yes.
Ms. Rice. Yes.
Mr. Mierzwinski. Yes.
Mr. McHenry. All right. So that distinction between the two
should be an element of discussions we have as policy makers.
Ms. Wu?
Ms. Wu. Yes, absolutely.
Mr. McHenry. Okay.
All right. Thank you all for your testimony. Thank you for
your engagement, and thank you for caring about our
constituents and trying to protect them.
Thank you.
Chairwoman Waters. Thank you.
The gentleman from Missouri, Mr. Clay, is recognized for 5
minutes.
Mr. Clay. Thank you, Madam Chairwoman.
Let me start with Ms. Rice.
And thank you all for being here.
Ms. Rice, a large part of what the Congressional Black
Caucus seeks to do is eradicate the racial wealth gap. And
indeed, as my father, former Congressman Bill Clay, said, we
have no permanent friends nor enemies, just permanent
interests. And we must address this debilitating economic
disparity everywhere it exists, including in the credit
industry.
I hear conservative commentators and other people of that
ilk talk about how race is overblown, irrelevant, or doesn't
even exist. Your testimony presents demonstrable facts to the
contrary. Not only does race matter, but the question of race
to this day still impacts the ability of a black person to walk
into a retail outlet or try to buy a home.
Could you discuss the history of the Home Owners Loan
Corporation and how this and the FHA discriminated against
African-Americans and the dual credit market, which you
referenced in your testimony?
Ms. Rice. Thank you, Congressman Clay. I would be happy to
respond to your question, and thank you for it.
Throughout the entire history of the United States of
America, so even if you go back to the colonialization period
of our nation, our housing and finance policies have been
racialized. In other words, those who had access to the
benefits were, by and large--actually, sexualized and
racialized--white men, right?
So we start out with the colonialization period: White men
received 50 acres to 100 acres of land for every person in
their household, including slaves and indentured servants. And
that land was taken from indigenous peoples by militia and
given to those white households.
So fast-forward to the Great Depression, when the Federal
Government implemented two major housing entities, the Home
Owners Loan Corporation--the Home Owners Loan Corporation did
not invent redlining. Redlining already preexisted. But what it
did do was it said that we had to have policies that promoted
residential segregation. Remember, we are more residentially
segregated today than we were 100 years ago, largely because of
the policies that were perpetuated by the Federal Government.
So the Home Owners--
Mr. Clay. Which created the middle class in America,
correct, with government backstops of mortgages?
Ms. Rice. Yes. Those products that were developed by the
government through the HOLC program and the Federal Housing
Administration program provided opportunities for white
Americans to obtain quality, sustainable credit, and they
disclosed opportunities to people of color. And that is how the
middle class was basically built, through the development of
those two programs.
Now the problem and the challenge is because those programs
developed and implemented systemized ways of providing credit
to people, it fueled and exacerbated what we call the dual
credit market. And I have a graphic of that in my written
testimony.
The problem is we are still being impacted by this system
today. We still have this system.
So if you access credit on the tan side those credit
providers do not report positive payment to the credit
repositories. But if you access credit on the blue side your
positive payment is reported to the credit repositories.
In a perverse arrangement, your negative information if you
are accessing credit on the tan side--that negative information
is reflected in the credit repository system. And so you see,
you have a good chance if you are accessing credit here to get
a deflated--a poor credit score, but you also have a higher
chance of being credit invisible because the positive payments
are not reported to the credit repository system.
Mr. Clay. And, Ms. Wu or Mr. Mierzwinski, can you tell me
how do we break the culture of this? How do we help families
build wealth?
Ms. Wu?
Ms. Wu. Well, one issue is the fact that credit scores
reflect this racial wealth gap, and we use credit scores and
credit reports in ways that they shouldn't be used, like for
employment, or for insurance, or for tenancy. So one way to
stop the cycle is to stop using the data that actually reflect
discrimination.
Another way is to look at different kinds of data that has
less disparate impact.
Mr. Clay. My time is up. I have to yield back.
Chairwoman Waters. Thank you very much.
Mr. Clay. Thank you.
Chairwoman Waters. I now recognize Mr. Scott, the gentleman
from Georgia, for 5 minutes.
Mr. Scott. That would be going to the other side, but
there's no other side.
Let me just ask you, this morning when we had the chief
executives here and I was very much awakened to something I was
only dimly aware of, and that was this--what do we call it, the
dispute resolution process. And I want to talk about that for a
moment.
We were able to discover this morning that even if it is
proven that it was the agency, the credit agency, who was at
fault, who made the mistakes within the reporting--wrong
birthdate, whatever--we pointed out where that costs jobs, it
costs education loans, it costs lending, it just causes a
whole--we are a credit-based economy. And it just surprised me
and concerned me that even when the credit agency itself is at
fault in these, do you all think it is right if they have to
take this dispute resolution all the way up to the courts? They
have to hire a lawyer? They have to go through that? And it is
not their fault.
It just seems to me that we ought to address that. And
Chairwoman Waters has a bill, the Comprehensive Consumer Credit
Reporting Reform bill, and I think it is something we ought to
address here because I don't think that is right. And I think
that we ought to do it in a way that will bring the credit
agencies to the table, and put the right kind of language in
there.
It doesn't have to be the final language, but it could be
language that would get their attention, because too many of
these errors are taking place. It is the number one issue that
the Consumer Financial Protection Bureau--it is at 60 percent
is on inaccuracies.
So I would like to get your comments on that. Do you think
I am right? Is it something for which we ought to be able to
draw up some kind of language?
If nothing else, it would get their attention to make sure
that these errors will stop, if it has to come out of their
pockets to help defray this court cost for a problem that they
caused.
Ms. Brown? Any of you? Do you think that is feasible or am
I being too tough on them?
Mr. Mierzwinski. Mr. Scott, I would say that the
Comprehensive Consumer Credit Reporting Reform Act includes a
very important solution to this, and that is to give people the
right to appeal disputes. Right now, disputes are a mess. We
tried to fix them in 1996; we tried to fix them in 2003; and
this bill includes a number of factors to fix them better.
But up until now, as Ms. Wu has testified in great detail,
you have a system that is gamed against the consumer. So that
would be my first advice.
Ms. Wu. And I agree absolutely that the credit bureaus need
to be brought to account on disputes. The Comprehensive
Consumer Credit Reporting Reform Act would do that.
It is even worse. Do you know that 40 percent of disputes
involve debt collectors, but they only provide 13 percent of
the account information in the system? So it is
disproportionately debt collectors.
And you have to figure, is a debt collector going to be
fair about removing mistakes or do they just simply want to
keep it on so they can get paid from whomever?
Mr. Scott. Well, one of the things I want to do is I think
this dispute resolution needs to be improved. And I would look,
and hopefully you all will take a more jaundiced eye at looking
at it and advising us on what steps we can take to strengthen
this aspect of Ms. Waters' bill. I know she is going to be
dealing with that, but--
Mr. Clay. [presiding].The gentleman's time has expired.
Mr. Scott. All right. No problem. Thank you.
Mr. Clay. I now recognize the gentleman from Illinois, Mr.
Foster.
Mr. Foster. Thank you, Mr. Chairman.
Well, I was interested that it has repeatedly come up in
this testimony that data errors are--a dominant source of them
are misidentification of individuals, and that the use of the
Social Security number as an identifier as opposed to an
authenticator is just something that we get wrong in this--in
this country, that--that we should be using it only as an
identifier.
And there is a group called the Better Identity Coalition--
are you familiar with this group? They are actually looking at,
you know, Mr. Mierzwinski--and I would be wondering--I guess I
can--if you could answer this with some time to think about it,
look over the recommendations of the Better Identity Coalition
and see if there are problems that you see from the consumer
point of view of taking their recommendations, which is
basically the suggestion that our country transition on how we
use the Social Security number and then use it more generally,
everything from IRS tax refunds going to the correct person and
just--there's a long list of things that--that could be
improved, and--to reduce identity errors.
And so I will be submitting a question for the record on
that.
And the second thing, Ms. Rice, you know, I represent
Joliet and Aurora, Illinois, and I looked over the redlining
maps that I think, what was it, Richmond University put online,
and accompanied by the just incredibly bigoted comments that
the people who designed the red lines put with each
neighborhood. And then I look over those neighborhoods and I
feel that I can see the fingerprints of that redlining in how
those are today. And it made me furious.
But my question, then, is one that relates to the business
of using neural networks and advanced algorithms to do credit
selection. And there's a problem here that isn't entirely the
fault of the companies that are doing this, which is that
because of this unjustified discrimination you have different
groups, different demographics have different amounts of
wealth, for example, and if you are in danger of missing a
payment it is very common that it is--if you have a wealthy
relative then you can go hit them up for some money so you can
actually make this month's payment.
And so as a result it is actually statistically true that
people with wealthier relatives, certain protected classes, in
fact, have better or worse statistical odds of defaulting on a
debt, and so that if the algorithms left to themselves will
then identify these protected classes and adjust their credit
ratings or--or the amount that they actually get charged for
statistically correct reasons.
And we have decided as a country that, okay, it might be
that a woman is a worse credit risk because she might get
pregnant and a man won't, and so as a result statistically
there's a difference, but we have decided as a country we are
not going to discriminate that way.
Then if you turn things loose to algorithms--and I was
looking over the--I guess it was the Equifax NeuroDecision
product that they are marketing. They use a wide variety of
information, and I would not--I am actually an artificial
intelligence programmer, so I actually understand how this
stuff can work. It will be very easy for the algorithms to
simply come up with a proxy for race, or gender, or all these
protected classes and effectively use that.
How do you solve this problem?
Ms. Rice. Well, there are a number of ways to solve the
problem. And one thing that I do want to point out to you,
which I have mentioned in my testimony, is just the point that
you are making, that data is not blind; it is not innocuous.
Researchers at Berkeley very recently did an analysis of
FinTech firms who only rely on algorithms for the decisioning
and the pricing, and what they found was that these FinTech
firms who only use algorithmic lending are discriminating
against African Americans and Latinos because they haven't
removed the discrimination from the system but really just
shifted the mode and the mechanism for discriminating.
It is estimated that these FinTech firms are charging
borrowers of color between $250 million to $500 million extra
per year because of the discriminatory pricing, and so--
Mr. Foster. Right. But, this is not a deliberate action by
the FinTech firms. It is a reflection of the reality--
Ms. Rice. Right. It is a reflection.
Mr. Foster. --that groups that have suffered
discrimination, they themselves and their relatives and
everyone else may have less money, and it is statistically
correct. These algorithms are not dumb. They identify the fact
that certain protected groups are better or worse credit risks.
But still as a society we cannot let that happen, and so we
have to tell the algorithms no.
Ms. Rice. It is more than that. It is more than just the
wealth factor, but you are absolutely right, the wealth factor
is a huge part of it.
Mr. Clay. The gentleman's time has expired.
I now recognize the gentleman from West Virginia, Mr.
Mooney, for 5 minutes.
Mr. Mooney. Thank you, Mr. Chairman.
My question is for Tom Brown, and I have a comment before
the question.
Mr. Brown, looked like you were wanting to jump in there,
so I am going to yield you a minute or whatever you need to
comment on that last discussion.
Mr. Brown. I wanted to provide a note of optimism,
Congressman Foster. I represented Upstart when they applied for
a no-action letter from the CFPB related to the inclusion of
new data in connection with underwriting models, and the
outcome of that process under Director Cordray was to grant
that no-action letter around the design of a compliance
management process that would identify and control for the
problem that you have identified. And I would be happy to talk
about that with you more, but I don't think it is as
pessimistic a picture as the one that has been portrayed.
Mr. Mooney. Thank you, Mr. Brown.
I know the intention of this legislation and numerous other
pieces of legislation that we have seen over the years is to
create more equity and help people. My concern is it has the
opposite effect: Adding these regulations, these restrictions,
these second-guessings, these requirements actually prevent
loans and credit from going to people who need it the most--
people with low-income scale, people who need the loans the
most.
So, Mr. Brown, what would happen--my question to you is
what would happen to the availability and cost of credit if we
eliminated entire categories of debt from credit scores?
Mr. Brown. It is highly likely that the reports themselves
would be less predictive and that that would increase the price
of credit or decrease its availability.
Mr. Mooney. And what would the effect on people be to that?
Mr. Brown. It would leave people will less access to
credit, and exacerbate some of the wealth disparities that have
been observed and discussed for several hours.
Mr. Mooney. Yes, so the goal of the bill would have the
opposite effect, like I said in my comments. Do you think that
is a fair portrayal of what--
Mr. Brown. I think that is fair, yes.
Mr. Mooney. Well, thank you.
Mr. Mierzwinski. Congressman, could I make a brief--
Mr. Mooney. I would like to yield my time--no. I would like
to yield my time to the Republican leader.
Mr. McHenry. Well, I thank my colleague for yielding.
I just want to ask this question to the whole panel, which
is, I said initially these three represent an oligopoly. And so
the basic definition of an oligopoly is that you have thin
providers, meaning--thin providers, and thus narrow competition
or no competition. So do you see competition between the big
three--do you, or not? So let me just restate my question: Do
you think the big three represent an oligopoly?
Ms. Wu. Absolutely. I think--
Mr. McHenry. Ms. Rice?
Sorry, I was--
Ms. Wu. Absolutely. They are an oligopoly. They are an
oligopoly whose customers are the creditors, not the consumers.
Mr. McHenry. Ms. Rice?
Ms. Rice. Yes.
Ms. Brown. Yes.
Mr. Mierzwinski. I totally agree, and I would add that
oligopolists are like monopolists. They extract monopoly rents,
meaning they make extra money without making innovations. And
the classic example would be this Equifax 1979 computer, or
whatever year it was, that they were using, the legacy systems.
Like AT&T with a--you could have any phone you want as long as
it is black.
And one more thing: They are following the Amazon,
Facebook, and Google playbook of buying up their competitors or
erstwhile potential competitors. So they are seeing who might
be a competitor and they are buying them up.
There was a big wave that ended up with three companies in
1992, and today those three companies exercise their power
first by extracting extra money, and second by buying up
anybody that might compete.
Mr. McHenry. Mr. Brown?
Mr. Brown. I think the market structure certainly is
consistent with the idea of an oligopoly. I hesitate as an
antitrust lawyer to label it as such without more
investigation, but on its surface there is evidence of
concentration and it is a relatively narrow market category.
Mr. McHenry. There was testimony in the first panel that
there are a great deal of folks who are in the same industry,
and therefore that represents competition. Do you all agree
with that assertion?
Mr. Brown. I think you are getting a technical answer to a
very technical question, which is that the scope of the FCRA,
in the sense of the number of discrete companies it covers, is
broad, so individuals who are providing background checks, for
example, can be covered by the FCRA.
When I look at this industry and I look for evidence of
innovation I see it as I indicated in my testimony, that it
comes from adjacent areas, not--not necessarily from within the
scope of--of what the FCRA regulates.
Mr. McHenry. Mr--
Mr. Mierzwinski. No, I would agree with Mr. Brown.
Ms. Wu. Yes, I would agree with Mr. Brown. Those are
specialty agencies; they are not in the same market as the
credit bureaus.
Mr. Clay. The gentleman's time has expired.
And I now recognize the gentlewoman from Michigan, Ms.
Tlaib, for 5 minutes.
Ms. Tlaib. Thank you, Mr. Chairman.
Thank you all so much for being here and for being such
strong advocates on this issue.
This is very, very close to many of the residents at home,
and I want you to know, Ms. Wu, when you mentioned disparate
impact it kind of hit something for me as a social justice
lawyer, but also when we all taut and praise the fact that we
passed the Civil Rights Act in 1964, we don't really fully
understand over the last 50 years how the courts got more
conservative and watered it down to where we can't even show
disparate impact as an element of getting--basically being able
to show discriminatory practices like the use of credit scoring
by the car insurance industry.
And many of the data I have been reading and information is
the auto industry uses this as saying, look, if they have a low
credit score the likelihood of them committing so-called fraud
is higher, basically saying if you are low-income or poor then
you must be some sort of criminal. And not only by $10, $20; we
are talking about hundreds of dollars, sometimes thousands more
dollars because of credit scoring.
What have your agencies--and I will start with you, Ms.
Wu--what has your agency done to try to combat the use of that?
Because it worries me. It is the auto insurance today, right,
and we talked about access to rent--to be able to be a renter
with your family, access to so many other things is so much
based on credit scoring.
Ms. Wu. Absolutely, Congresswoman, we totally agree. There
are huge racial disparities in credit scores. There are 20
years' worth of studies. Study after study after study shows
this.
And so number one, we think credit scores should not be
used for any non-credit purposes such as employment, insurance,
auto, home, or rental. This is what they call mission creep.
Credit scores were designed to evaluate credit, not whether you
are a good worker.
Because there is this myth out there that if you have bad
credit, you are a bad person, you are amoral. That is wrong.
If you have bad credit it is more likely you fell on hard
times, you lost your job, you got sick, you were affected by
the shutdown, a natural disaster happened. And we have to stop
beating up on these folks who just lack money and have had
financial troubles.
And so I think we need better ways, in terms of credit, of
evaluating people. And it is going to be hard because
everything financially related is going to show disparate
impact because it is all about structural racism. Racism is
baked into the cake of financial stuff in the United States,
right? And it is exactly as Ms. Rice described.
For someone from a white family, $100,000 in assets means
if you lose your job you can still cover your bill. But $6,000
or $8,000 in assets means you can't, and that shows up on your
credit score, and that means you can't get a job or your
insurance goes up and it is that much harder. And it is a
vicious cycle, and we have to break that vicious cycle.
Ms. Rice. And if I can answer your question specifically on
the insurance issue, so the National Fair Housing Alliance,
along with a number of our member organizations, when I ran the
Toledo Fair Housing Center, sued a number of insurance
companies for insurance redlining and for the application, the
discriminatory application of the insurance scoring mechanisms.
In one such case we actually tore apart the insurance
score, the algorithm that the insurance company was using--it
was their own proprietary system--and found that there were
ways that we could adjust the algorithm, taking out certain
variables and changing the weighting in other variables, that
actually increased the predictive power of the algorithm but
reduced the discriminatory impact.
We also work very closely with several insurance
organizations that we have had partnerships with for a number
of years, and we work with them on their proprietary scoring
systems to do the same thing. So we do a lot of disparate
impact testing to make sure that we are lessening the
discriminatory effect.
Ms. Tlaib. We are just running out of time to--I want you
to know, my first bill, the Justice For All Civil Rights Act,
is going to basically be able to say we have to--you can show
disparate impact to be able to get some sort of legal
resolution to this, because I feel like even with Chairwoman
Waters' bill, as well as other fixes that we try to have, I
find that the corporations and the industry will always find a
way to target people of color and low-income families, and I
feel like the only way is to always have this overwhelming
oversight no matter who's in control here and who's in the
body, but some sort of access for organizations like yours to
say and to show the disparate impact, to show the racial
structure that is there in the process.
But I want to thank all of you so much again for your
advocacy, and I yield my time back.
Chairwoman Waters. Thank you.
The gentlewoman from New York, Ms. Ocasio-Cortez, is
recognized for 5 minutes.
Ms. Ocasio-Cortez. Thank you, Madam Chairwoman.
Earlier today we had the CEOs of the three major credit
reporting bureaus here and these folks are responsible for the
credit reports and the credit reporting of virtually every
American. And I asked a question that was not answered--that
was not directly answered at all, which is given the fact that
these credit bureaus, the only in existence that are at--at the
level or of the size that they are at, they--given the fact
that they are--there are only for-profit corporations, that it
is only for-profit corporations that are managing and--and
responsible for these credit bureaus, their primary customers
are creditors; they are lenders; they are banks. All of--the
majority, the lion's share of their revenue comes from people
who are lending to everyday people.
Do you think, Ms. Wu, that given their current structure
and the just basic business model of credit--credit--credit
agencies, credit bureau agencies, do you think that they are
incentivized, structurally incentivized to protect consumers
more than creditors?
Ms. Wu. Absolutely not. Thank you for the question,
Congresswoman.
The credit bureaus are incentivized to favor the interests
of creditors over consumers, not the other way around. And the
perfect example of it is the broken dispute process.
The reason it was so Kafkaesque--that they just turn things
into codes and accept whatever the creditors say is it--number
one, it saves them money. At one point they were only paying 53
cents a dispute, so the disputes were a cost center and they
were trying to cut the price.
And also they always take the side of the creditors in a
dispute. It is like a judge who always rules for the defendant,
and they still do that.
If you saw the testimony of Mr. Peck, they don't make an
independent call. If the creditor says, I am right, even if the
consumer has a judgment or a police report, the creditor wins
all the time. And that is why an appeal right in Congresswoman
Waters' bill is so important.
Ms. Ocasio-Cortez. And so you would say that a credit
score--well, let's go back to the basics. What is a credit
score supposed to measure?
Ms. Wu. So a credit score technically was designed to do
one thing, which was to predict the likelihood someone would be
90 days late in a 2-year period. That is it. The fact that it
is used for anything else is a travesty because it wasn't
designed for that.
Ms. Ocasio-Cortez. So a credit score is supposed to measure
the likelihood of being 90 days late over a 2-year payment
period. Do you think that the current scoring algorithms and
structures are being designed with that specific metric in
mind?
Ms. Brown?
Ms. Brown. Absolutely not. Ms. Wu and I both wrote in our
testimony--in our written testimony--about how there is this
mission creep. It is literally pervading all of society today.
You can see it especially in the housing rental market, of
how you have the big three that were here today selling all of
your rental information packaged with your credit history in
order to determine whether or not you are a good renter.
Ms. Ocasio-Cortez. Ms. Brown, you bring up a really
important point, you are talking about mission creep--and folks
here on the panel feel free to weigh in as you see fit. My
question is, if they aren't developing scores with the original
mission in mind, what do you think the incentive or the credit
bureaus' mission actually is?
Mr. Brown. Well, so for what it is worth I--and this is a
point that I describe in my testimony, it is important to
distinguish between scores and reports.
Ms. Ocasio-Cortez. Right.
Mr. Brown. So the entities that were up here this morning
are collecting information that is then reported to people who
are underwriting. Those underwriters are going to either
develop scores or use their parties to develop scores--
Ms. Ocasio-Cortez. Thank you. Thank you for the
clarification.
So when it comes to reporting--my mistake. Thank you. When
it comes to the reporting, if they--if these reports are not
being generated with that incentive in mind, what is their
incentive? What do you think, whether it is consciously or
subconsciously, what do you think that these incentives--what
mission do they serve? What end point are they actually
resulting--
Ms. Wu. The mission creep and the incentive is to sell more
data. Sell more reports. Every report they sell is money.
Ms. Ocasio-Cortez. So they aren't as incentivized to
actually come up with the most accurate 90-day predictor
possible. They are incentivized to sell data.
Ms. Wu. That is right.
Ms. Ocasio-Cortez. And to collect as much data about each
and every single American.
Ms. Wu. That is right. You heard them. They want more data.
And more data. They want more. Give me more.
Ms. Ocasio-Cortez. And especially when they are--when
consumers don't even get to opt in, or choose, or offer consent
as to what data is being collected, we have an oligopoly of
three major corporations that are trying to collect as much
data as possible without consumer consent.
Chairwoman Waters. The gentlelady's time has expired.
Ms. Ocasio-Cortez. Thank you.
Chairwoman Waters. I now recognize the gentlewoman from
Massachusetts, Ms. Pressley, for 5 minutes.
Ms. Pressley. Thank you, Madam Chairwoman.
And again, I am in the unenviable position of being last or
close to, so I thank my committee members, again, for their
robust and thoughtful line of questioning, and I thank each and
every one of you for your commitment here today and every day.
Your testimony has been incredibly informative and also
impassioned.
I wanted to ask, since we talk a lot about the wealth gap,
and there are many ways that we talk about how to get at that,
and certainly there are stark disparities along racial lines.
And so I would be curious as to how much do you think this
current system is contributing to the wealth gap? And if you
were to give a three-point recommendation of how to address
these inequities, which I believe are either created by this
system or exacerbated by them, what would it include?
Ms. Rice. I would say the system perpetuates the wealth gap
for a number of reasons. Just one example, the dual credit
market that I showed you guys the illustration of recognized
that the subprime or nontraditional lenders are hyper-
concentrated in communities of color where there are a dearth
of mainstream--so you don't have banks and financial--and
credit unions in communities of color, but you have a plethora
of credit check-cashers, and payday lenders, and buy-here-pay-
here lenders who are all peddling abusive products, right, and
they are not reporting positive information to the credit
repository systems, and there's a reason for that.
So you have this system that is perpetuating racial
disparities and inequalities.
So, three things that we should do? One is adverse
information related to discrimination, fraud, and abuse should
be removed from the credit repository system.
Several years ago the DOJ dinged Bank of America for
discriminating to over 200,000 African Americans and Latinos,
pushing them into predatory loans when they really qualified
for prime loans. So that is 200,000 consumers who are having
negative information about them reflected in our credit
repository systems.
It is not accurate. It is discriminatory and it is
negatively impacting them. That information needs to be removed
from the credit repository systems.
Ms. Pressley. Absolutely. I know even in the district I
represent in Massachusetts, there have been something like
3,000 of those complaints based on erroneous data just in the
last 2 years alone. That is what we can quantify. So thank you
for that.
And to your point about access, now you would like to think
that when you have more you do better, but there's something to
be said for education and access. In full disclosure, when I
was an aide on the House side in my early 20s I still went
every week to cash my check at a check-cashing facility.
I did not have a checking account until I was much later
into my 20s because no one in my family or in close proximity
to me had a checking account, and for all the reasons that you
spoke to earlier, a reluctance to go into debt. We took great
pride in the number of things that we did pay for in cash. We
thought that was an honorable thing. And so I know what it is
to be underbanked and to be credit invisible, and what that
impact is generationally.
So could you speak a little bit as to how we might better
combat credit invisibility?
Ms. Brown. I can do that.
First off, you have to actually have access to institutions
and banking institutions. And you are not alone. We actually
published this Latino banking report in December of last year
that actually talks about how many people in this country are
banked, unbanked, or underbanked.
And so first you have to increase access to those
traditional banking institutions. And you have to lend credit
through those institutions in order to not fall into, second,
this alternative financial system that Ms. Rice discussed on
the left-hand side of her image. And then last, you have to
actually help people build their credit through secured cards,
through programs like our small-dollar loan program. You have
to actually help people get into the system and build their
credit in a positive manner.
Ms. Pressley. How do we guard against, then, predatory
behaviors in that? Because then we create another market and
not everyone is well-meaning in that, but--
Ms. Wu. Well, I just wanted to say that we need to be
careful in terms of alternative data. There's good data;
there's bad data. Bank account data has been promising. Some
other types of data like gas and electric bills can be
dangerous.
And also certain types of data make inequality worse--like
use of education, for example. You don't want to do that. And
unfortunately, I think Upstart uses education in its
underwriting. So that can be problematic, too.
Ms. Pressley. Thank you.
Chairwoman Waters. Thank you very much.
The gentlewoman from Texas is recognized for 5 minutes.
Ms. Garcia of Texas. Thank you, Madam Chairwoman.
Representative Pressley, you were not the last. I think I
am. We saved the best for last, I assure you.
Ms. Rice, I want to go back to you on your--thank you for
that history on people of color. And I just wondered, while the
history may not be the same, going forward is and currently is
the same.
So what impact do some of these predatory practices and the
lack of visibility in the have on Latinos, new Americans,
immigrants? My concern is moving forward. We can't fix what
happened in the past, but moving forward what impact--can you
talk about that in terms of the credit issues that we have?
Ms. Rice. I would be be happy to.
And I think the point of going through the history is to
explain how it is still impacting us today.
Ms. Garcia of Texas. Sure.
Ms. Rice. But going forward, so we know that Latinos and
African Americans and certain segments of the Asian populations
disproportionately access credit in this tan space because,
to--to Congresswoman Pressley's point, those are the only
credit providers in their communities.
Ms. Garcia of Texas. So all--the same chart applies to all
of them?
Ms. Rice. This is today.
Now, you access credit from a credit provider in this tan
space who does report information to the credit repositories.
You pay your bill on time. You never, ever, ever, ever miss a
beat, right? You are dinged in the credit scoring mechanism
because the credit scoring algorithm assumes that because you
are accessing credit in the tan space there's something wrong
with you, right?
The credit scoring algorithm doesn't understand that you
are accessing credit in the tan space because there are no
blue-space folks in your neighborhood. So it is dinging you,
the consumer, for the failure of the system. You can be dinged
in the FICO score up to 20 points for each time you are
accessing credit in the tan space.
Again, you are paying on time, never miss a beat, but your
credit score goes down just because of where you live.
Ms. Garcia of Texas. Got it.
To Ms. Brown, I do want to ask you the same question. And I
was curious about the study that you held up.
So are you all seeing or hearing any stories any
differently?
Ms. Brown. No, actually, and I was going to tell you the
rates in which Latinos are actually accessing alternative
financial services through our fact sheet here.
So in 2017--and by the way, this data is from the FDIC and
these are rosy statistics. In 2017, 32.4 percent of Latino
households used alternative financial services in the previous
12 months, so one in three.
Ms. Garcia of Texas. Did it describe which alternatives?
Just tell me it is not payday lenders.
Ms. Brown. We can get that information for you. The FDIC
does actually break down which one of the AFS that people use.
It is not just Latinos. This data is not Latino-specific.
It is actually any and all communities of color and also
whites.
Ms. Garcia of Texas. So when you say Latinos does that
include immigrants who may or may not have authorization to be
in this country?
Ms. Brown. It is not that one--the FDIC data does not
actually ask a foreign-born or citizenship question.
Ms. Garcia of Texas. Do the credit agencies do that?
Ms. Brown. I am not quite sure of the answer to that
question.
Ms. Garcia of Texas. I am sorry I wasn't here to ask that
question of the big three.
But I want to ask all of you, so I guess I was just really
thinking of the model of credit unions. We got tired of the
fees; we got tired of the banks. So we allowed credit unions to
form through employees, through nonprofits, through other
means.
So has anyone ever tried to do that in this arena?
Mr. Brown. Yes.
Ms. Garcia of Texas. In starting your own credit agency so
that we can kind of check on our own folks and take care of our
own folks and give them a break?
Mr. Brown. The history of the bureaus is that they started
as nonprofit associations.
Ms. Garcia of Texas. So they did?
Mr. Brown. Yes.
Ms. Garcia of Texas. So when did things get changed?
Mr. Brown. The evolution of the bureaus is sort of
fascinating and tied to the history of credit in the United
States. There's a great book, ``Financing the American Dream,''
by a professor at the University of Georgia, Lendol Calder,
that walks through it.
But the short story is that it shifted from retailers to
chartered financial institutions really over the middle part of
the last century, and the bureaus as we know them today really
developed in the late 1960s through the mid 1980s.
Ms. Garcia of Texas. Interesting.
Well, could I finish--so do you think we could just do that
again and just start with a white piece of paper and--
Ms. Wu. The problem is that lenders would have to accept
that data, and right now, we can't even get them to accept FICO
9, which reduces the impact of medical debt.
Ms. Garcia of Texas. But our credit unions would, and how
many millions of Americans go to credit unions and not banks
anymore?
Chairwoman Waters. The gentlelady's time has expired.
Ms. Garcia of Texas. Yes, ma'am. Thank you.
Chairwoman Waters. Thank you so very much.
Without objection, the statements and letters from the
following organizations are entered into the record: Americans
for Financial Reform and the 82 other consumer civil rights,
labor, and community organizations that joined their letter;
Consumer Reports; Public Citizen; and the National Association
of Consumer Advocates.
I would like to thank our witnesses from this, our second
panel, for their testimony today. And I am especially honored
and pleased to have and hear the comments of support for our
Comprehensive Consumer Credit Reporting Reform Act of 2019 and
our Protecting Innocent Consumers Affected by a Shutdown Act.
The Chair notes that some Members may have additional
questions for these witnesses, which they may wish to submit in
writing. Without objection, the hearing record will remain open
for 5 legislative days for Members to submit written questions
to these witnesses and to place their responses in the record.
Also, without objection, Members will have 5 legislative days
to submit extraneous materials to the Chair for inclusion in
the record.
I ask our witnesses to please respond as promptly as you
are able.
And with that, this hearing is adjourned.
[Whereupon, at 4:33 p.m., the hearing was adjourned.]
A P P E N D I X
February 26, 2019
GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[all]
| MEMBERNAME | BIOGUIDEID | GPOID | CHAMBER | PARTY | ROLE | STATE | CONGRESS | AUTHORITYID |
|---|---|---|---|---|---|---|---|---|
| Velazquez, Nydia M. | V000081 | 8073 | H | D | COMMMEMBER | NY | 116 | 1184 |
| Waters, Maxine | W000187 | 7840 | H | D | COMMMEMBER | CA | 116 | 1205 |
| Meeks, Gregory W. | M001137 | 8067 | H | D | COMMMEMBER | NY | 116 | 1506 |
| Sherman, Brad | S000344 | 7832 | H | D | COMMMEMBER | CA | 116 | 1526 |
| Clay, Wm. Lacy | C001049 | 8009 | H | D | COMMMEMBER | MO | 116 | 1654 |
| Lynch, Stephen F. | L000562 | 7974 | H | D | COMMMEMBER | MA | 116 | 1686 |
| Scott, David | S001157 | 7910 | H | D | COMMMEMBER | GA | 116 | 1722 |
| Cleaver, Emanuel | C001061 | 8013 | H | D | COMMMEMBER | MO | 116 | 1790 |
| McHenry, Patrick T. | M001156 | 8033 | H | R | COMMMEMBER | NC | 116 | 1792 |
| Green, Al | G000553 | 8165 | H | D | COMMMEMBER | TX | 116 | 1803 |
| Perlmutter, Ed | P000593 | 7865 | H | D | COMMMEMBER | CO | 116 | 1835 |
| Foster, Bill | F000454 | 7355 | H | D | COMMMEMBER | IL | 116 | 1888 |
| Himes, James A. | H001047 | 7869 | H | D | COMMMEMBER | CT | 116 | 1913 |
| Posey, Bill | P000599 | 7887 | H | R | COMMMEMBER | FL | 116 | 1915 |
| Luetkemeyer, Blaine | L000569 | 8017 | H | R | COMMMEMBER | MO | 116 | 1931 |
| Tipton, Scott R. | T000470 | 7861 | H | R | COMMMEMBER | CO | 116 | 1997 |
| Huizenga, Bill | H001058 | 7987 | H | R | COMMMEMBER | MI | 116 | 2028 |
| Stivers, Steve | S001187 | 8105 | H | R | COMMMEMBER | OH | 116 | 2047 |
| Duffy, Sean P. | D000614 | 8220 | H | R | COMMMEMBER | WI | 116 | 2072 |
| Vargas, Juan | V000130 | H | D | COMMMEMBER | CA | 116 | 2112 | |
| Gabbard, Tulsi | G000571 | H | D | COMMMEMBER | HI | 116 | 2122 | |
| Barr, Andy | B001282 | H | R | COMMMEMBER | KY | 116 | 2131 | |
| Wagner, Ann | W000812 | H | R | COMMMEMBER | MO | 116 | 2137 | |
| Beatty, Joyce | B001281 | H | D | COMMMEMBER | OH | 116 | 2153 | |
| Williams, Roger | W000816 | H | R | COMMMEMBER | TX | 116 | 2165 | |
| Heck, Denny | H001064 | H | D | COMMMEMBER | WA | 116 | 2170 | |
| Adams, Alma S. | A000370 | H | D | COMMMEMBER | NC | 116 | 2201 | |
| Hill, J. French | H001072 | H | R | COMMMEMBER | AR | 116 | 2223 | |
| Loudermilk, Barry | L000583 | H | R | COMMMEMBER | GA | 116 | 2238 | |
| Emmer, Tom | E000294 | H | R | COMMMEMBER | MN | 116 | 2253 | |
| Zeldin, Lee M. | Z000017 | H | R | COMMMEMBER | NY | 116 | 2261 | |
| Mooney, Alexander X. | M001195 | H | R | COMMMEMBER | WV | 116 | 2277 | |
| Davidson, Warren | D000626 | H | R | COMMMEMBER | OH | 116 | 2296 | |
| Lawson, Al, Jr. | L000586 | H | D | COMMMEMBER | FL | 116 | 2317 | |
| Hollingsworth, Trey | H001074 | H | R | COMMMEMBER | IN | 116 | 2327 | |
| Budd, Ted | B001305 | H | R | COMMMEMBER | NC | 116 | 2336 | |
| Gottheimer, Josh | G000583 | H | D | COMMMEMBER | NJ | 116 | 2338 | |
| Kustoff, David | K000392 | H | R | COMMMEMBER | TN | 116 | 2348 | |
| Gonzalez, Vicente | G000581 | H | D | COMMMEMBER | TX | 116 | 2349 | |
| Porter, Katie | P000618 | H | D | COMMMEMBER | CA | 116 | 2381 | |
| Axne, Cynthia | A000378 | H | D | COMMMEMBER | IA | 116 | 2395 | |
| Casten, Sean | C001117 | H | D | COMMMEMBER | IL | 116 | 2398 | |
| Pressley, Ayanna | P000617 | H | D | COMMMEMBER | MA | 116 | 2405 | |
| Tlaib, Rashida | T000481 | H | D | COMMMEMBER | MI | 116 | 2410 | |
| Phillips, Dean | P000616 | H | D | COMMMEMBER | MN | 116 | 2413 | |
| Ocasio-Cortez, Alexandria | O000172 | H | D | COMMMEMBER | NY | 116 | 2427 | |
| Gonzalez, Anthony | G000588 | H | R | COMMMEMBER | OH | 116 | 2430 | |
| Dean, Madeleine | D000631 | H | D | COMMMEMBER | PA | 116 | 2432 | |
| Rose, John W. | R000612 | H | R | COMMMEMBER | TN | 116 | 2441 | |
| Gooden, Lance | G000589 | H | R | COMMMEMBER | TX | 116 | 2445 | |
| Garcia, Sylvia R. | G000587 | H | D | COMMMEMBER | TX | 116 | 2450 | |
| McAdams, Ben | M001209 | H | D | COMMMEMBER | UT | 116 | 2452 | |
| Riggleman, Denver | R000611 | H | R | COMMMEMBER | VA | 116 | 2454 | |
| Wexton, Jennifer | W000825 | H | D | COMMMEMBER | VA | 116 | 2457 | |
| Steil, Bryan | S001213 | H | R | COMMMEMBER | WI | 116 | 2459 | |
| King, Peter T. | K000210 | 8064 | H | R | COMMMEMBER | NY | 116 | 635 |
| Lucas, Frank D. | L000491 | 8111 | H | R | COMMMEMBER | OK | 116 | 711 |
| Maloney, Carolyn B. | M000087 | 8075 | H | D | COMMMEMBER | NY | 116 | 729 |
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