In the Press

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Financial Institutions--White House Said Planning FCRA Strategy; Johnson Says Business Community Divided

Wednesday June 18, 2003

By R. Christian Bruce

NEW Bush Administration officials may be meeting within the next two weeks to hammer out a clear policy position on whether to renew provisions in the Fair Credit Reporting Act that override conflicting state credit reporting laws, House Financial Services Committee Chairman Michael Oxley (R-Ohio) said June 17.

"I'm told they're going to meet within the next week or two to nail that down. That would be helpful," Oxley told reporters following remarks to the U.S. Chamber of Commerce. White House officials could not be reached to confirm or deny the report of those discussions. Oxley's remarks came on the same day that a policy group released a major study outlining key benefits of FCRA's uniform standards for consumers. Congress enacted those provisions in 1996.

Reauthorization of FCRA's uniform national standards is the top item on the financial services industry's agenda. The preemption provisions expire Jan. 1, 2004. Bankers and credit issuers say failure to renew those provisions could increase the cost of credit and complicate access to loans.

However, the administration has not said where it stands on the matter. Sen. Tim Johnson (D-S.D.), who also spoke before the U.S. Chamber June 17, told the group that strong support from the White House is vital, saying passage of a bill becomes harder as the months tick by.

"In the absence of strong leadership--and by that I mean leadership at the top ranks of the current administration--it's going to be difficult to achieve our goal by Jan. 1 of next year," Johnson said.

Johnson March 19 introduced the Economic Opportunity Protection Act (S. 660), a clean bill that would reauthorize FCRA's uniform national credit reporting standards. So far, the bill has not gained a single co-sponsor, a fact Johnson attributed to senators' fears of crossing Senate Banking Committee Chairman Richard Shelby (R-Ala.).

'Collateral Issues' Raise Concern

Shelby has said he plans hearings on FCRA this summer, but also is known as a strong privacy advocate. Backers of FCRA reauthorization worry that trying to resolve privacy matters in the context of FCRA renewal could complicate and doom the drive to reauthorize the statute's uniform credit reporting standards. "We cannot allow collateral issues to jeopardize the timely passage of what is absolutely at the foundation of strong credit access in credit today," Johnson said.

At the moment, there is no FCRA legislation in the House. Oxley said he hopes to introduce a bipartisan consensus measure and hopes to move the bill out of the full committee by the August recess, with plans to move it to the House floor in September.

In answers to reporters' questions, he also said impending House hearings to examine accounting woes at Freddie Mac would not affect the FCRA effort. Oxley also declined to predict action Congress might take to address Freddie Mac's troubles, noting only that Rep. Richard Baker (R-La.) has scheduled a hearing on the matter next week.

"A lot may depend on what comes out of that hearing," Oxley said. Baker chairs the House Financial Services Capital Markets Subcommittee.

Assistant Treasury Secretary Wayne Abernathy addressed the U.S. Chamber earlier in the day. Abernathy said uniform national standards are a key tool in battling identity fraud, but did not say whether the administration plans to seek renewal of those provisions.

Johnson criticized the administration for what he called a lack of action so far on FCRA, worrying that efforts to revamp federal privacy laws could threaten the reauthorization effort. According to Johnson, the Bush Administration "has been extremely adept at getting what it wants when it puts its mind to it," citing recent passage of a major tax cut. He urged the White House to put forth "a similarly focused effort towards preserving the nation's uniform credit reporting system, which is in fact a critical pillar of our nation's economy."

"This administration should worry a little bit less about polling data if opponents of FCRA succeed in framing this as a debate over privacy, and worry a little more about how our economy would suffer if we lose the uniform national standard for FCRA. I'm confident that once the White House puts its muscle behind reauthorization we will have won half the battle," Johnson said.

Bias Said to Lie in Failure to Renew

Johnson, calling access to credit the key to FCRA, also said failure to renew the preemption provisions could mean a comeback for once-prevalent credit bias. "The last thing we want is to re-introduce discrimination into the system, where minorities and low-income people are forced go to unregulated lenders for their credit needs," Johnson said.

However, Johnson also blamed the business community for not speaking with one voice, saying its differing expectations are complicating prospects for reauthorization. Some business leaders want amendments to FCRA that would preempt a broader class of state privacy laws, not just those that deal with credit reporting.

The business community should either work toward a simple FCRA bill that would keep the status quo, address privacy on a separate legislative vehicle, or quickly reach consensus on a broader but workable privacy approach within the context of FCRA, if such a thing is possible. Decisions will have to come soon, he said, adding that failure to renew FCRA "would be catastrophic to the economy."

Oxley struck a similar tone. "Make no mistake about it. If Congress fails to renew the Fair Credit Reporting Act this year, it would mean higher credit costs for consumers. It wouldn't occur overnight, obviously, but we can't allow a lack of congressional action to contribute to higher credit costs," he said.

Study Shows Value of Preemption

The U.S. Chamber's National Chamber Foundation June 17 released a new study arguing that renewal of FCRA's preemption provisions is essential for low-cost and convenient credit solutions for consumers. The 100-page study--The Fair Credit Reporting Act: Access, Efficiency & Opportunity--was authored by Dr. Michael Turner of the Information Policy Institute, and surveyed 3.6 million credit reports. The study received major support from Transunion, a credit bureau whose help Turner said was indispensable for the work.

The focus of the study was whether a loss of FCRA's uniform national standards for credit reporting would threaten key benefits that consumers now enjoy. It would, the study concluded, citing among others the important role of automated underwriting in the nation's residential mortgage market. Although loan processing used to take three weeks, during 2002, 75 percent of all such loans were approved in less than three minutes, according to the study. In addition, uniform standards have brought significant savings to consumers, the study said, pointing to at least $18.75 billion in savings in connection with home sales during 2002.

If FCRA's preemption provisions are not renewed, the study said, loan acceptance rates would fall and delinquencies would rise. Under the most severe scenario, consumers would end up forking over an extra $22 billion in new costs, while as many as 41 million people could be denied access to credit cards. Overall, according to the study, roughly 9 out of 10 consumers would experience some kind of change to their credit reports if FCRA's uniform standards are not reauthorized, Turner said.

"Congressional action is therefore urgently recommended to reauthorize the framework of preemption that has been in place since 1996," the study said.