Transcripts For CSPAN2 Tonight From Washington 20100327

>> a look now at a house hearing on credit scores. witnesses include officials from several of the companies that provide credit scores, which help consumers obtain home loans and other financial products. luis gutierrez of illinois is chairman of this hearing. it's about two hours. >> this hearing of the subcommittee of financial institutions and consumer credit will come to order. good afternoon and thanks to all of the witnesses for agreeing to appear before the subcommittee today. today's hearing will example how consumer reports are created how they're used in today's financial service economy and the impact they have on consumers. this hearing will also focus on reports completed by the federal reserve and federal trade commission, pursuant to the requirements of section 215. we will be limiting opening statements to 10 minutes perseid, but without objection, the record will be held open for all members' opening statements to be made part of the record. we may have members that wish to attend who do not sit on this committee. as they join us, i will or unanimous consent motion for each to sit with the committee, and ask questions, when time allows. i yield myself as much time as i may consume. as we begin this hearing on credit scores and reports, we must recognize that the american consumer faces a very different landscape than 30 years ago. credit cards are so widespread, that they are routinely marketed to college students, your local bank, that is, if you're lucky enough to have one in your neighborhood, is important likely owned by the same faceless wall street corporation that you can shop for loans and car insurance on line. something that went even imagined 30 years ago. in large part, what has made all this possible are the now ubiquitous credit scores and reports created and provided largely by companies that sit before us today. driven by an increasingly impersonal and homogenized lending environment, and even cell phone companies are relying more and more on credit scores and reports to determine whether a consumer is worthy of their attention and indeed, their services. i know the increased use of credit scores has expanded credit to previously ineligible borrowers and the standardization of the system has minimized some of the baez present in hour economy, but the system has created new concerns and dangers for consumers, especially if you are black or latino, that we should address. a good credit score and a correspondingly favorable credit report have become the passport to a stable economic future for today's consumer. but these passports are being issued by thousands of private, for-profit companies that few can identify using opaque formulas that are hidden from the american people and hidden from congress. in a democracy, there is something unseemly in having one's life judged and possibly even guided, no matter how unintentiointentionally by privr credit companies where it is impossible for one to opt out. this fact alone causes me to doubt the fairness of our current system and structure. for instance, as mr. hendrix will mention in his testimony, consumers are not allowed access to the scores that lenders and other financial consumers of data actually use to make lending decisions. let me repeat that. for instance, as we will hear in testimony today, consumers, americans are not commonly allowed access to the scores that lenders an other institutional consumers of data actually use to make lending decisions. instead, you are sold an educational score, that is not the score used by the lender to determine necessarily your credit card rate can be different than that used to determine the rate for qualifying -- or qualifying score, so what's going on is they are selling awe product that is never really used to make any decision about your credit worthiness. how is that educational? on top of that, lenders use their own private data to further determine what rate or fee they want to charge a consume he were. for an industry that is supposed to be focused solely on accuracy and predictability, there seems to be quite a bit of effort going on behind the scenes, to prevent consumers for seeing things as they really were. americans do not know where these scores are coming from, and how they are created. i have strong reservations about allowing the use of credit reports to determine employability and insurance fees. for example, 22% of latinos in america have thin files that are given a worse rate for loans and insurance and can even lead to them being rejected for a loan. at a time when americans are dealing with 10% unemployment rates, which is in fact actually higher in many communities across america, i do not believe that our constituent should have to worry about whether or not their credit report is entirely accurate or even worry about it when they should be focused on finding a new way to pay their rent, and feed their kids. we shouldn't allow the secrecy of our current system to affect consumers' livelihood without their knowing the rules of the game and what they can do about it before it's too late. consumers should know that a medical debt that they already paid off will affect their credit for seven years to come. or that being away on military service, in iraq , in afghanistan, protecting this country, might not be much of a mitigating factor for the credit bureaus and institutional consumers of credit scores and reports as recently immigrant credit worthiness is often lower than the general population. regardless of how good their credit history was in their home country. these are just some of the concerns that make it clear that the current system has not reached acceptable levels of fairness or transparency. finally, i have concerns that with banks and others taking credit away from consumers, due to the bank's own problems, not those of the consumer, your formulas are not accurately predict being the consumer's true likelihood of default. just because some bank is consolidating their credit line, they have out there for all their consumer, doesn't mean that every single one of them is a greater credit risk. there are many legislative proposals circulating right now on credit scores and reports. some i have co-sponsored and some i plan to introduce myself. we will be holding further hearings on these proposals after we give a harder look at credit-based insurance scores in the near future. many of these concerns that i have are with institutional consumers of credit scores and reports, so that i can assure you, we will be inviting them to sit down and have their own discussion with our subcommittee about this has well. i guess basically, i don't know if i'm a good driver of a car, i check the locks on my house every night, i make sure that the electricity is up-to-date, gas is working good, and i got my of roof, i should pay for my insurance on my house. i go 55 in a 55, don't go through a red light, put my turn signals on when i'm supposed to and i'm a good driver. i don't think i should pay more for car insurance, yet, people are using credit scores, so if i'm one of those 40 municipal americans without health care insurance, or the tens of millions of americans without any job, and i become ill, seven years that illness, i was just thinking before i came up here, when i was in school, i used to be able to go to the teacher and say you know, i was out two weeks, i was sick. so she gave me time to make up, so i could study, so there could be a true reflection of who i was and what grade i could receive but in america, if you get sick, you can't just take i've got a sick card or a note from your doctor to the credit bureau and say, by the way, don't tell everybody i'm a bad credit risk. i was sick. i mean, that's the way we dealt with employment at the end of the year. i know if i had an employee and they were sick in the hospital, i mean sick, they were gone for a couple of months i don't think i would evaluate testimony on their absence during those two months. yet, credit scores are routinely used if people get sick, because for seven years it takes for them to fix that. some would say well, they didn't pay. yeah, well, they were out of a job. they were sick. it was something beyond their control. they were ill. and in america, i just think a credit score shouldn't be used for that, especially when it's going to determine how much you pay for other products. not for a job. if you're in a job interview, you might be able to explain, but you don't know, because someone, somewhere is using that. so with that, i'm going to close my opening statement and yield to mr. henson. >> thank you, mr. chairman. i can't help but notice the television camera that's facing us. hopefully there will be a number of insurance companies in the market who know you're such a good customer and hopefully there will be more competition for your business and you'll get a better rate. i would hope that indeed, that you and other members of your party would support legislation to make these markets more competitive instead of less competitive. i did -- i believe i heard you correctly in your statement saying that you were fearful that consumers are ending up in a system where it is impossible for consumers to opt out. to some of us, it sounds a little bit like the health care bill that was passed on sunday. it would be very difficult for consumers to opt out indeed. nevertheless, i appreciate you calling this hearing, mr. chairman. i think it's important that we talk about the role that credit scores and resources play in hour economy. clearly, when there is information that is accurate, that credit scores have done a lot to help consumers throughout our economy. they have proven to be doors of opportunity for all demographics and geographies. i mean, when you think about it, through a simple number, there are people throughout america, consumers are empowered by simple number, with the opportunity to borrow from a lender, that they never met, never met, and in order to buy a house, a car, or any number of items, that in past years, they would have had to save for weeks, months, years, before they could purchase that particular high temperature. -- item. i think the modern credit score has helped to democratize society and i think this is a very good thing. if we allow these scores to be -- if we allow the data companies to process the scores properly, and reporting agencies are able to compare people with similar characteristics or borrowers of different backgrounds, yes, you do have a democratization of credit and the retired schoolteacher and grandmother of three in mesquite, texas, that i'm able and privileged to represent in congress, can access credit as well as maybe the new construction worker from your district, mr. chairman, their credit worthiness is now determined through an impartial formula, but the linchpin of the system that goes into determining the credit score, it's got to be complete, it's got to be accurate, otherwise the outcome is going to be misleading and i think ultimately that hurts the consume early. and a lot of work hash done. i know -- has been done. i know we were both on this committee, the fact act was passed in 2003, i look forward to hearing through the system, listening to our witnesses on their reaction to that act. anything suggestions that they may have. but i'm still somewhat fearful that this hearing may be leading to a movement to somehow make credit files thinner. i'm not sure that's going to be helpful. number one, to me, the thicker the time, gives one a more complete picture of the customer and they are more willing to lend. ultimately, i think that brings down the cost of credit and i think it makes the availability of credit even greater. at least my research into history shows that before the advent, the wide use throughout our economy of credit scores and again, that's exactly what we saw, less credit, so if we go down the road thin are files, several things are going to happen. number one, some people are going to be denied access to credit that they could otherwise access through the market. some will have to pay more credit. others, as we get away from any kind of risk based pricing, will have yet another bailout foisted upon us by the united states congress where those were good credit scores end up having to bail out toes with bad credit scores. i certainly don't see the merit in that. finally, i really question the wisdom and propriety of the united states congress essentially gagging those who wish to exercise their right to offer opinions about the credit worthiness of their fellow citizens. you know, we should tread very lightly before we trample upon commercial-free speech and i think we need to look very, very carefully before we go through that. and again, if we just look to the recent credit card legislation, where some of us said, you know, if you end up passing this thing, it's going to lead it higher interest rates, more fees, less credit. sure enough, the law was passed and that's exactly what we see. now, i know there are many instances that adversely impact certain individuals. as the chairman described. but you know, i'm not sure that the congressionally mandated law that says that all of a sudden a for-profit company has to enpage in a charitable business that they may not want to engage in. i would think the answer would be to help the individual involved and put it on budget. this is a nation going bankrupt as is, doubling the national debt in five years, tripling it in 10, but if we're going to do this, we putt to at least put it on budget and start making decisions and priorities. anyway, mr. chairman, i appreciate your calling the hearing. i look forward to hearing from the witnesses. i yield back. >> mr. garre ted kennedett is r. >> i was taken aback by the gentleman's comment about the democratization that we should have the ability to opt out of this segment of the market, but as the gentleman from texas said, just three days ago, we said that if you were born in this country, you're a citizen of this country, you cannot opt out of what was just passed for the first time in u.s. history. the requirement that you buy a particular product, approved by the federal government over which you have absolutely no direct control as to whether you want to or not as a price of citizenship. would that be true, that the chairman continued his reasoning to the health care bill to allow americans to opt out of that plan or allow the states to opt out of that program and when the chairman speaks of secrecy versus transparency, my gosh, i don't think there's anyone back at home or in congress who actually knows the faceless bureaucrats who will now be imposing upon the citizenry of this country, the requirements of their health policies and the health care going forward. so perhaps we should put priorities and say, let's have transparency and the ability to opt out in something more personal as our health care as opposed to getting into regulating the credit markets. with that said, i can just say that i was here about six years ago when i first came into congress, back in, oh, my first year was 2003 and at that time, spencer baucus was the ranking member, the chair of the financial institutions subcommittee, and that's when we passed the fair and accurate credit transaction act, or the fact act and that law made a number of important changes for pro consumer changes to the reporting laws, it allowed consumers of to have easier access to credit information, as well as what we're looking for and that is improve the accuracy of that information. now during that time, credit scores have become an essential and valuable tool if allowing creditors basically to more accurately price for risk and that's really what it's all about. unfortunately, many of my colleagues on the other side of the aisle do not agree with the idea of risk-based pricing, there it is the fha loans or credit cards, if you do not allow a company to price for risk, you know what the end result is going to be. it's going to be one of two things. either you will decrease credit availability for some folks, or you will increase the cost of credit for other people. so i believe that this committee should work closely and examine closely and be careful in hour deliberations before we take any actions that could lead to less accurate credit scores and higher costs or less credit for consumers. finally, the use of accurate credit scoring, basically allows consumers to do what i think most of them want to do and that is to manage their financial affairs and provide better control, not less to the consumers. credit scoring is a useful function of the markets, and therefore it should remain free of unnecessary government regulation. when you get right down to it, the very best way to ensure consumers have access to credit and to financial freedom that they need is develop policies here in congress that will focus on economic growth and job creation as well. and with that, i yield back. >> the gentleman yields back. we have the first panel here. mr. evan hendricks, editor and publisher of "privacy times," mr. stuart pratt, president consumer of data industry association, mr. barrett burns, president and c.e.o. of advantage score solutions, mr. cheat wiermanski, global chief scientist, analytic decision services, transunion. mr. stan oliai, senior vice-president, experian decision. ms. myra hart, senior vice-president, equifax. we'll begin with mr. evan hendricks for five minutes. >> thank you, mr. chairman, the ranking member, for the privilege to appear before the committee. i would like to run through about a dozen points in my five minutes. first, on credit scores. the congress did pass a really good law in 2003. it's the fact act, the amendments to the fair credit reporting act and they've been very helpful to consumers and i think it makes for a better industry. one of the great things it did is made consumers eligible for one free credit report per year. which is something that millions of people have taken advantage of, and for commerce, the credit bureaus have sold twice as many credit reports as they've given away when you include monitoring service, so i think we need to take the next step. consumers should be entimed to one free credit score per year, that credit score should be one used by lenders, not a so-called educational score, which the chairman cited to. and you know, in hour free marketplace, companies are going to continue to sell educational scores, which sometimes we call them knockoff scores or since they're not real fico scores, we call them fako scores, but if they're doing that, they should have to disclose that they're selling a score -- first to say are they used by any lenders and if they're not used by lenders or used by a significant number or a majority of lenders. last thing on credit scores, and this is not in my prepared statement, so i apologize and i'll submit something, there's two important fixes that i think this committee could achieve and actually a lot people would agree on because the problem is fannie mae. fannie mae has adopted a policy that if someone has a disputed account on their credit report, they're holding up loans and really making it hard for consumers to get loans. i've written about this and ken harney has written about this in his syndicated column. i think fannie mae should be made to justify that policy because i don't think there's a basis for it and it's hurting consumers and stopping loans from going through to credit worthy people. the other thing is fico scores took off in the 1990's, now there's a much better figures called fico 08. if fannie mae would move forward and adopt that. maybe mr. quinn can talk about why that's a better score. in terms of accuracy, there's two standards in the american fair reporting act. one is reasonable procedural for maximum possible accuracy and the problem there is we still have the same sort of inaccuracy problems that we saw 20 years ago, and i think it goes to a fundamental issue, is that our three credit reporting agencies often like to think of themselves as libraries, simply passively take information from creditors and then just pass it on, when in fact, the law sets a standard for them that they have a grave responsibility to ensure accuracy and i don't think they live up to that, on very important occasions, especially with mixed files and identity theft are causes of serious inaccuracies, it would be harmful to consumers. possibly even bigger problem is the dispute process. naturally, companies want to automate, by the credit bureaus have automated to the extent that a consumer makes a dispute and there's a computerized exchange of messages and the law requires a reinvestigation, but the ray they do this computerized exchange of messages, it doesn't amount to a real reinvestigation and this is something playing out in the courts over and over again, therefore, inaccuracy continues to be a major problem. the federal trade commission is supposed to be getting ready to do a major accuracy study. so far, they have not done a good job with their pilots and i think it's one thing worth note, independent groups have done studies, but credit bureaus themselves have never done an accuracy study, at least in the last 15 years, an they're the ones sitting on all the data. we have another issue because of technology, and because of entrepreneurship that we have a lot of medium and small sized consumer reporting agencies popping up, but a lot of times, consumers don't know that they're there and they don't know what they do and sometimes they get ambushed by them. i think that considering the proliferation of all these little consumer reporting agencies, we should have a registration requirement. if you're subject to the fair credit reporting act, we need to have a comprehensive list of who is gathering data on us, so people exercise their right of reporting. one thing i discovered was the national telecom and utilities exchange, an exchange run bin the utility companies where they are keeping records on people that haven't paid their utility bills and then they're screening new applicants against this, but it wasn't clear to the extent that consumers were getting adverse action notices and finding out, as required by the fair credit reporting act, if this is the basis for them being denied, and so i would like to see some transparency there. originally, they wouldn't answer a lot of the questions i had for them. in employment background screening, i'm just say this. there's a lot of sort of startup companies that simply mr. do a background check on someone, based on simply a name and a date of birth and that means that there's times where i've seen someone like debra adams apply for a job and lose a job because they found another debra adams with a felony record, she never had a felony and also someone like thomas paine was another person i saw. >> the gentleman's time has ex expired. >> thank you. >> thank you. i want to mention that in the interest of time, and as agreed by all parties, mr. pratt will testify on behalf of his association and the three credit bureaus, but they have all submitted written testimony and are here to answer questions. mr. pratt, you're recognized for five minutes. >> why thank you, mr. chairman. mr. chairman and members of the committee, thank you very much for this opportunity to appear before you today. i'd like to just focus on a few key issues in my oral remarks and let's start with the importance of precertificating and expanding data for risk decisions. our members' database preserve an invaluable history of how we manage our finances. 18,000 data sources, update three billion data elements every month. this congress by enacting new laws, calling for creditors to do even more to hey zest the consumer's ability to repay a loan has recognized the value of these data systems. while it might be tempting to eliminate certain data due to the severity of the recession, it is vitally important to preserve the toality of every consumers credit. to require furnishers to delay the furnishing of data or to prohibit the analyzing of data are wrong choices. we must expand data choices which tell the consumer's story. we must verify counsel zoomer's income, lenders should know when a consumer owns his or her home outright. now, turning to scores, no nation has such a competitive and innovative market for the development of credit scores. this industry is a u.s. core competency. it is no mean fate -- the resulting software is intellectual property protected by the uspto. credit scores are designed to estimate the relative risk of my likelihood of repaying a loan or to predict some other credit behavior. use of credit scores benefits all of us. credit scores help lenders lower prices and they help remove unintentional baezs baezs in the marketplace. it is the decision and objectivity which the score brings to the table which makes it an integral part of our nation's lending process. with this basic information about scores in mind, let's turn to the consumer perspective. behind every credit score is a credit report and as we all know, in december of 2004, our members went live with a free credit report delivery system, and as of now, more than 150 million credit file disclosures have been issued. in addition to the credible number of consumers who have reviewed their credit reports, coconsumers also know more about their scores today than at any point in history. whenever a consume he were accesses a score, it is a teachable moment. the reason for score dischose you're is educational. some have expressed concern about which scores are disclosed, and we think they have missed the mark for a number of reasons. there is not just one score used by all lenders. it is wrong to leave consumers with that false impression. various lenders use various scores. scores are not the final word in a lending decision. in previous testimony, one lender said, we use external credit scores and scores developed internally based on our own lending experience. further, all scores our members disclose are production scores used by real lenders. in the end, consumers should understand that the data in their credit report is the one constant. every lender is going to use this data to make a lending decision, regardless of the score used. some have also suggested that nationwide consumer credit reporting agencies should provide consumers with scores free of charge. we do not agree. a consumer pays a fee to have an appraise are assess the value of his or her home. consumers will pay for a software program to produce a tax filing. no one is suggesting these services be offered for free. congress in enacting the fact act, recognized the difference between given consumers free access to their credit report disclosure and giving them access to scores at a reasonable fee. this staple congress recognized -- same congress recognized that it could be beneficial for consumers to access the score given by a lender in a given transaction and further, as a result of the newly finalized fact act risk based pricing notice rule, consumers will now have an opportunity to see the score used by the lender for any type of loan. this expansion of the credit score disclosure by a lender is a positive result for consumers. it is our view that there is no need to create new, score disclosure requirements. consumers have clearly benefited from their right to free credit file disclosures. consumers have benefited from the use of scores by lenders, which ensures fairness and lowers prices. consumers have benefited from the extensive coys of access they have in the marketplace today. mr. chairman, we thank you for this opportunity to testify and i look forward to evenings your questions. >> thank you so much. we will have a second panel, with witnesses from the federal reserve board and the federal trade commission. we will now hear from mr. tom quinn for fico. please, mr. quinn, you're recognized for five minutes. >> thank you, mr. chairman and members of the committee, my name is tom quinn, i am vice-president in the scores division of fico, responsible for the management and delivery of the company's global scoring products and services. thank you for the opportunity to testify before you today on this important topic. fico is the leading provider of analytics and decision management technology. thousand we offer a wide array of services, our company brand remains most closely tied to the fico, first introduced in 1989. today, fico are the most largely used credit score in the world, powering over 10 become credit decisions. in the context of today's hearing, we hope that fico is a developer of credit scoring models. we are not a credit bureau and not in the business of compiling consume early credit reports. our analytic scientists develop models in the form of a mathematical formula called algorithms. when a lender requests a fico score, the credit bureau feeds the consumer credit report information into the algorithm, the score is generate the and outputted to the lender. i wanted to highlight a few key areas related to the fico score. the fico score is a three digit number, ranging from 300 to 850. the score rank orders consumers by the likelihood that they will become serious delinquent, meaning 90 days past due or greater on credit obligations. the higher the score, the lower the risk. fico scores are used by businesses across a range of industries to help assess a consumer's credit worthiness. when a consumer applies for a car loan, a mortgage, or a credit card, the lender may check the consumer's fico score to help determine if they're going to approve or decline and what terms they may set with the loan, such as pricing and credit line. however, fico scores are usually only one of several key factors considered by lenders. traditionally, responsible lenders use other information considered as the three c's. credit worthiness, capacity to pay, and collateral. the fico score addresses the first of those, credit worthiness. fico scores are objective and data driven. our analytic scientists study large representative, national, depersonalized samples of credit data from each of the credit reporting agencies, to isolate and prioritize factors that consistently predict credit account performance. those factors found to be most powerful and consistent in predicting credit performance, both individually and in combination, form the basis of the complex mathematical algorithms, which become the fico scores. the fico credit risk score is not static. it undergoes continuous innovation. fico tests the predictive value of the factors considered by the fico score. through empirical analysis of the data, fico has consistently updated its algorithm, resulting in a more predictive scoring model. in fact, our latest scoring model, fico aid, which what referenced by mr. hendricks, generates the most predictive fico score to date. at fico, we appreciate the importance of an educated consumer. as a result, we've demonstrated a strong commitment to providing freely accessible -- on our my fico.com web site, you cannot only purchase your fico score for a modest fee, but also gain access to a wealth of credit information about how credit works. in addition to a detailed explanation of how your fico score is derived and a program that helps consumers determine whether they qualify for government sponsored mortgage relief. also, we supported the creation of an active, on-line consumer forum in which a community of 340,000 registered users gather online to discuss credit scoring topics, and to help each other understand what they can do to improve their fico scores over time. in addition to our web presence, fico staff work with a wide range of government officials an consumer non-profit agencies and groups, providing education and training related to credit scoring topics and matters. all of this is consistent with our long held commitment in empowering consumers to manage their credit health. credit scores are not static, they are constantly changing based on consumer credit changing behavior. there are no short cuts to a rapidly raising a low score, but smart practices like consistently paying bills on time, keeping your credit balances low, and only applying for credit when needed, will help to lift your score over time. consumers who commit themselves to healthy credit habits and sound financial management practices are likely to see their credit scores improve over time. i appreciate the opportunity to testify before you today. thank you. >> you're very, very welcome. and now we have mr. barrett burns, president and c.e.o. of vantage score solutions. you're recognized for five minutes. >> good afternoon, i am president and c.e.o. of vantage score solutions. thank you for the opportunity to testify at today's hearing. vantage score solutions is a joint venture of the three credit bureaus, we were formed in 2006 to offer choice and competition in the credit score marketplace by providing a highly predictive credit score based in the hattest analytic methodologies. armed with a deep understanding of consumer risk modeling and the respected bureau's database design, team members spent several months building a new consumer credit score from the ground up. 15 million anonymous consumers served as the basis for development and testing of the new model of medicine em. innovative approaches in the model's development included advanced segmentation techniques that provide more score cards than traditional models, including segmentation cards for full file and sim file consumers. our algorithm ranked consumers on being more than 90 days past due based on many consumer warriors and factors, grouped into the following six buckets, which proximate these waitings. payment history, 32%. utilization, 23%. current balances, 15%. debt to credit, 13%. recent credit, 10%, and available credit, 7%. additionally, medical debt, when identified as a medical debt on a credit file is excluded from the algorithm. the vantage score scale ranges from 501 to 990. the higher the consumer's score, the less likelihood of becoming 90 days or more past due. the score range approximate mates the academic rating scale familiar to most consumers, so in addition to receiving their nenumerical score, a score betwn 900 and 990 is an a. many algorithm are unique. we use a single algorithm across the three bureaus and a new modeling approach that looks deeply into scoring, which allows us to score many individuals that would not be able to get scores. first, consumers who have fewer than three accounts on their credit file. between 35 and 50 million adults in the united states or 18% to 25% of the adult population may be considered thin file and therefore often underserved. second, any frequent credit users who may not be eligible for a score because there has not been any new activity on a credit account for 6 months and third, new entrants who are just establishing credit relationships have not had credit open for more than the six months required by some traditional scoring models. many scores reach back deeper into an infrequent credit outers' history, assisting millions more to obtain sustainable credit. a comparison of vantage score with a traditional crc scoring model that used a random sample of mortgage customers saw an overall increase of vantage score of 8% or approximately 10 municipal consumers. additionally, 2.5 million consumers from the study were more accurately identified as higher quality than subprime. well like to thank congressman green for authoring the -- direct being the department of housing and urban development to undertake a pilot program establishing an automated process to determine the credit worthiness of borrowers with insufficient credit histories. credit scores offer a uniform, non-judgmental mechanism that can be quickly deployed, systemwide, within an institution responding to changing credit conditions. although we believe credit scores should be part of any decision process for credit approval, they should not be the sole criterion. approving large loans without also verifying other critical information needed to assess a consumer's ability to repay the loan is simply not prudent. risk is increased across all areas of the credit spectrum. we perform an annual revalidation to test the score of our model. our most recent revalidation is capturing the increased risk presents in its environment. this allows lenders to understand the change in risk presence of their portfolios from systemic shifts, and adjust their business strategies to reflect that change. so even though the performance of our score remains highly predictive under these stressful economic conditions, the conditions may prior a shift in lender standards. thank you for the opportunity to contribute to this important discussion. i hope the information i have shared has been beneficial to the subcommittee and would be pleased to answer any questions you might have and to work with the members on scoring issues in the future. >> thank you so much. and last we have ms. ann p. horton, partner at hudson cook. please, for five minutes, you're recognized jo i don't thank you. good afternoon, i am ann forth any, a partner in the washington, d.c. office of the hudson cook law firm. is it on now? ok, good. again, i'm anne fortney. apry earth the opportunity to -- i appreciate the opportunity to appear before you today. i have almost 35 years experience in -- i have also worked as in-house counsel at a consumer credit card issuer. currently, in addition to counseling clients, i sometimes serve as a consultant and an expert witness in litigation. my experience in credit scoring is described in my written statement. based on my experience, i believe that credit scoring is a very effective tool that ensures objective credit underwriting decision les. credit scoring systems eliminate the potential baezs, illegal or even benign, that may exist in judgmental credit underwriting systems. they ensure that each consumer will be evaluated only according to attributes that are neutral and they facilitate fair lending compliance. ironically, it is the fact that credit scoring focuses only on objective factors that has engendered criticism. for example, some complain that credit scores may reflect circumstances beyond a consumer's control, such as a natural disaster. these kinds of events however are not dissimilar to other uncontrolled events that have historically been associated with payment defaults, such as job loss or illness. regardless of a consumer's personal control over events leading to default, credit underwriting systems necessarily focus on default when that is the risk they evaluate. if characteristics such as payment history or credit limits and credit scoring models were eliminated or restricted, regardless of their predictive value, the models would necessarily be less predictive. less predictive credit scoring models would impair creditors' ability to make sound underwriting decision or price according to risk. the inevitable result would be less credit availability at higher prices or prices where good credit risk subsidize the higher credit risk and none of those results would be more fair than the present systems. it is neither efficient for fair to focus on individual circumstances if an underwriting system that is designed to predict risk for an entire population. some have complained that credit scoring models may penalize consumers who are conservative in their use of credit, or who, because of age or other circumstances, may have limited credit histories. if this allegation is true, the obvious solution is to increase the amount of information available for credit score developers. without credit histories, and similar empirical information, creditors are unable to assess the relative risk of a consumers default. by analogy, a 16-year-old has a perfect driving record, when she obtains her first drivers permit. despite the demonstrated value of credit scoring, there continue it shall anecdotal reports regarding its accuracy. i believe these reports are based on a misunderstanding of how credit scoring works. they also overlook the fact that credit score users have a vested interest in making these models work. credit scoring models are continually reevaluated and underdated. credit score developers and users of credit scores are in the best position to evaluate the accuracy and predictability of credit scores because of their impact on the bottom line. credit scoring has also been criticized for an adverse impact on minorities and other protected groups. however, studies by the federal reserve board and the federal trade commission found that these systems are not proxies to prohibitive factors. characteristics that correlate to lower credit scores may also correlate to race, ethnicity and other protective characteristics. this phenomena is reflected in credit underwriting in general. the solution is to increase educational and employment opportunities and outreach for underserved populations and to provide for alternative source of data that may predict credit wore aniness such as rent, utility and telecom payments. i believe many concerns about credit scoring can be attributed to a lack of understanding about the factors applied in credit scoring. these concerns can be addressed through the implementation of new notices, such as the risk based pricing notice, and also increased education and awareness of the process. based on my experience at the ftc, i firmly believe that consumer he had education plays a large role in a consume -- consumer's ability to protect themselves. i do not believe any providers of credit scores should be required to give away their product for free. they persist if the mistaken belief that there is only one credit score and only one provider of that score. in fact, there are many credit scores provided by many different sources. moreover, it would be fundamentally unfair to require any credit score provider to give away its product. this is especially true -- ok, this is especially true because the educational materials available through the ftc and online provide adequate instruction for consumers. thank you for the opportunity to testify. i'd be glad to answer your questions. >> why thank you so much for your testimony. one of the most notorious examples of misleading advertisements are the ads of free credit report.com run by experian. this site does not provide free credit reports. the ftc has taken a number of steps to address this and will testify about those actions in the second panel, but i wanted to show an ad that the ftc produced in its attempt to counteract misleading ads and educate consumers about their right to a truly free credit report, through the official web site, annual credit report.com. i went there, it was free. didn't cost me anything. the ftc does have -- doesn't have the budget to run it had on tv though, but let's show the ftc ad. >> in today's economy, i checked my credit annually. you can do it too for free, under the law, it's guaranteed. an you'll credit report.com, the one you can depend upon. other sites may turn your head, they say they're free. don't be misled. once you're in their tangled web, they'll sell you something else instead. annual credit report.com, the one you can depend on. all the others charge a fee. that's the harsh reality, i should know because it happened to me. for truly free credit reports, there's only one authorized source. annual credit report.com, the one you can depend upon. >> an you'll credit report.com, no hidden fees, absolutely free. >> that's actually a free credit report that you can get. i just have to say for the record, i really did enjoy the commercial. they were very well produced. and it kind of reminds me of -- i always tend to get the second half stuff, that cool car, i won't talk about not getting the date i want because ultimately i got her, so i like the commercial, because i thought they were well produced but the fact is, think about it. the ftc took the time to produce this commercial. now i know there are those who are going to have stated that we're trying to muzzle corporate america, their free speech, they got all the money in the world to run those deceptive ads, and it shows you what we need to do. because when was the last time you saw the government actually produce an ad to counteract an ad that was put out there by corporate america. now they don't have the money to run the ad, so the parity, so i think we should put that, just to start our conversation today about -- and those cute little ads are run by experian, but the ftc said they're so false, they even ran a parity on their hone commercial. let me start by asking some questions, and i want to ask mr. evan hendricks, in your testimony, you sounded an alarm on what is called shadowy operations of little known database of customers called the national consumer telecom and utilities exchange, run with the help of equifax, used by telecom companies to secretly screen consumer applications or charge higher deposits on non-paying customers. in essence, your description this practice makes it sound like almost the blackwater of credit reporting, a secretive company that worked hard to maintain its secrecy and may be evading the application of laws of unsuspecting people that don't know the circumstances. do consumers know the repercussions of late payments are sent to the agencies and do they have a way to appeal the information in their file? >> when i first did the story in october, i couldn't get any of the questions answered. i also want today know what utilities were members of it, so we could checkup, see what was happening, but since that story has run, i was pointed to their web site this morning, to show that they now have some contact information for consumers to order their reports from the database, and they do say, their communications said that they are subject to the fair credit reporting act. again, they didn't tell me that when i first asked them in hocket. >> sorry. do they report all the information or just negative information? >> i think it's mainly negative, but we don't know because we don't have any power to audit and find out what they do. but clearly, it's a situation where consumers can get denied or charged a higher deposit for, you know, for the utilities based on -- >> let me just say something. let's say there was negative information and i was charged a higher rate for my utilities or deposit. do i get it a note in the mail. let's say i was denied a credit card or a mortgage, i get something, here's what the information was used to deny. this credit worthiness. do we get that when this happens? >> under the law, you're supposed to get that, but they wouldn't answer whether it was given to consumers. >> do we have a representative, maybe we'll be able to get an answer from them? >> this is why -- >> my time expired, i have like 5 seconds. my time is expired. we won't take any more time. mr. hensarling can get his question in. >> thank you, mr. chairman. it was a cute ad. my questions is youtube has nothing to worry about, but it was a cute ad. i frankly don't know the facts dealing with free credit repor report.com. my upped standing is that certainly the federal trade commission has the opportunity to issue cease and desist orders, i don't know if they have, so i don't know if the facts are still being adjudicated or not. i know, mr. chairman, you said that unfortunately, the ftc didn't have sufficient funds to run the ad. perhaps had the house not passed on sunday evening the $2.3 trillion takeover of our health care system bill, replaced it with something that would make health care affordable and portable an maintain the high quality, maybe it would have been a few extra dollars to run that ad, but unfortunately, president signed the legislation, so there goes the cute ad. we continue to study all the different but-for causes of the economic turmoil that we have in hour economy today. most people would point to the fact of all the no doc, low doc loans that took place in the residential mortgage market. it's certainly the contributing factor. certainly one of the most significant contributing factors and i'm just curious about a parallel here. because again, i seem to see the prevailing winds from congress trying to make credit files more thin. somehow let's lenders have less information and when i see that applied to residential real estate, all i see -- what i see is great economic turmoil and human misery, and it seems to me, if anything, we would want to be pushing in the opposite direction of having more information about credit decisions as opposed to less. i don't know, perhaps i guess it's the next panel that might have our professional economist, but if anybody cares to jump in on that one, i'd be glad to hear an opinion on matter. mr. pratt, you seem to be the first one reaping for the button. -- reaching for the button. >> you know, there's two things we should think about when we think about the kind of risk data. a credit report isn't just a point in time story of what i did most recently, and i think one of the reasons we feel so strongly about preserving the entirety of the credit report history is that it sets into context, both the good that woof done and also maybe -- we've done and also the difficult experiences we've had at any difficult time. lenders want to do business with consumers. lenders want a complete picture of the possible risk. lenders don't like saying no. lenders will look, i suspected, even at this period of our recession, even at the struggles that many consumers have had and they'll see that in the context a credit report where you have a consumer who has historically done exceptionally well. the credit report is not just a snapshot of some immediate missed payments, but it's about what happened over my lifetime of managing credit. now, with regard to negative information, negative information does come off the file of after a period of time. it's also important to know that lenders look at negative information differently over time. an immediate incident is probably considered to be more risky for a lender. but a lender who has -- if you're looking at a 6-year-old event, it's not the same and a lender wants to do business with you, so that's really important in terms of context. >> mr. pratt, along the same line of questioning, one of the most common phrases we heard applied to what was going on in the residential real estate market was predatory lending. i myself have included yes, there was a lot of predatory lending going on. i have also concluded there was a lot of predatory borrowing going on. but again, predatory lending to some extent, lending money to people who can't afford to pay it back, if we have congressionally mandated center of credit files, is there going to be a greater probability of loaning money to people who can't afford to pay it back? >> yes or no? >> our view is, you've got of to have all the data on the table in order to ensure safe and sound lending decision and also fair lending decisions, but again, for all of us who know that we've just -- we are just emerging, just struggling to get out of a deep, deep recession, we know that there are going to be some consumers that will have a credit report that isn't as perfect as it once was, but it is a history. >> you used the term fairness, i want to go to you ms. fortney. you said the credit reporting helps eliminate bias, that the individual judgment maybe would otherwise interject that bias into the system. could you elaborate a little bit on what you mean b that? apparently no. >> you've already been accused of shutting down corporate america's freedom of speech. i would never allow the one minority witness we have here. please give your answer. >> thank you, mr. chairman. you listen well. >> yes, i appreciate the opportunity. i'm sorry. i thought i had -- ok. yes, i really appreciate the opportunity. there are two aspects of this. as i said, i been practicing for many years and i saw what the world was like before credit scoring. it was not as efficient, and there were even benign bias that made the system less efficient. you had credit managers trying to draw on their imperfect memories of how their memories and also their comparisons of how this applicant compared to others. the other thing i know from my time at the federal trade commission, is that credit scoring has really facilitated law enforcement and compliance. that if you look hat the cases that have been brought by the federal trade commission and by the civil rights division of the justice department the last 30 years, they have not involved credit scoring. they have involved situations of what is called discretionary pricing. by and charge. >> thank you, ms. fortney. we just got a bell, but we've got theext 10 minutes, maybe we'll take questions on each side and then we'll recess. >> thank you. >> the floor is recognized for five minutes. >> some have proposed mandating free credit score be given to consumers every year. as an alternative, i would look at something we did in drafting the fact act. that law requires under certain circumstances a credit score be used by a lender for a loan application, a credit score used by a loan. a indication be provided directly to the applicant, so instead of a mandatory free annual credit score, what if we required credit scores to be provided to the borrower in every application with a cardinal camillo ruini score if used? the credit bureau already provides the information to the borrower so i don't believe it would be an additional burden on them. they should have a right to see it regardless if their am compassion is approved or not. it could also help protect against lenders unfairly discriminated against loan applicants and empower consumers to better monitor their credit score and credit history. any reaction by mr. pratt, do you have any rehabilitation, sir? >> well, my first reaction is that the fact act, the same fact act, did just this year bring to the floor a new notice that i think many lenders will be delivering. in other words, a risk based pricing notice, one of the options for complying with the risk based pricing notice rule is for a lender to deliver to the consumer a credit score disclosure with every application that is made. so i think it's very likely, by the end of this year, you will see an enormous increase in the number of score disclosures, where you actually see a nexus between the lender who is using the score and the consumer who made the application and we're going to see how consumers react to that, we're going to see what consumers learn from that, and i really think that's the next step in this evolution of connecting consumers with scores and with data. : information who do you think stand on identity theft and what steps can the government take to ensure those who are victims of identity theft of credit scores and history repaired quickly? any of you have comments on that? >> well i think a couple of things and the fact that have been effective for example the fact that in power all of us as consumers to obtain an identity theft report and in doing that i can go to islander and ask them to stop reporting data and get access to original application data to be more proactive in investigating the crime. i can go to the credit bureau and ask them to remove data that was a result of the fraud your use of the remedial powers i have under the fcra were great ideas then and good ideas now. they are applicable in the marketplace. if there is one challenge it continues to be obtaining identity theft report to do those things in some law enforcement agencies may or may not be able to get access. >> mr. hendricks? >> they have made some great advantages and could advances for consumer protection. one other idea as i like the idea of having consumers plugged into their own information, and one of the things that makes it possible is the monitoring services that all of these companies offer. in the old days before we allowed a free credit reports the federal law we kept the price of eckert the report at $8, in favor of exploring the idea of cutting the price of credit monitoring to include -- encourage more people to take advantage of it. i can do would be a win-win because you would get more volume of people using it when you lower the price and bring more people plug into their own reports. thank >> thank you. i yield back the balance of my time to get us back to try to become not be thin skin here to read but you know, i just feel personally kind if attacked that i would be accused of shooting down the free speech. it is a constitutional thing, the basis of our democracy of corporate america. i just wanted to let everyone know we in the majority set up these hearings. we invite the witnesses and i just hope everybody please take note we did have mr. hendrix here for the consumers and then representing corporate america is one, too, three, four, five, six, seven. cut the democrats a break here. that is seven corporate american representatives. >> plus ims corporation. >> he even wants to be. so i think with that we are going to allow -- we are going to get mr. marchant in for his five minutes and then we are going to recess after mr. marchant. you are recognized for five meds. >> thank you, mr. chairman. i would like to explore some of the methods that some institutions use as far as coming up with approval ratings. i think for instance fha has i don't know if it is a written policy but a policy that says that they are to disregard medical in some of their process these when you get a score than the score reflects any past due faugh medical bills. is there any way -- are their customers that have such a relationship with a credit score company or a credit report company where they could say to them i would like to have the credit score of this person if you do not take a certain debt into consideration. are any of the programs that customize where a program to the customer could find that information were the reports in the scores just given across the board? >> at trans union we do not include medical debt in the calculation of the score. that is another generic products. when developing customized solutions as you are describing it is up to the customer where they may want certain data elements excluded from the model development process. and in those situations the information would be excluded and the models would be engineers without the data made available to it. >> so each customer can decide i guess you'd have to be a very large customer? >> not necessarily. we service customers from several hundred member credit unions to the large lenders, but that's where i would say the art of developing credit scores come in. it is an art and science and it's up to the outcome that we are trying to model and the business objectives of that institution that when we create the credit characteristics that feed into the modeling process that we take the steps of things into consideration. >> thank you. correct me if i'm wrong but i think that the most widely used credit scores are the fico models from the 90's and begin to allow medical collection to damage your score about the copay comes to a 48-dollar collection on your credit score if it is something that had been in a recent months it can drag down the score dramatically and really send you a tailspin in mound to not be eligible for the credit so it is a big problem. my understanding now is the modern version of the fico 08 this excludes medical debts under $100 i think that mr. burns talked about trying to exclude medical that advantage scores as well so medical debt is a big problem that unfairly hurts consumers and like i said i recommend finney would move towards models like fico 08 and that will address the problem without even passing the legislation. >> one of the big concerns i fat for the last two years is it appears since we are going to have a record number of foreclosures in the united states in history and certainly a record number of late payments and where we have numerous government programs that i fear lead people to believe that it is okay to be a leader and latest on your payments that we are creating an entire generation of subprime mortgages nurse that we will experience problems with for the next 20 years, and i think many businesses are struggling with how to properly treat their scores and credit reports, and i think in the future you may have lenders and people wanting to extend credit that will say we want to exclude a late payment in 60 days or less and really customize it to and to me this is one of the looming problems we have in the recovery him and the economy coming back and that is commentary. yes, sir. >> if i may i think of a great point and that is the credit due to difference between eckert sorted criteria. it seems to be objective however the credit criteria can decide to exclude that situation for example in the underwriting criteria. >> the time of the gentleman is expired. we are going to raise about 25 minutes and have a series of votes i've been informed that is how long it is going to take. we are going to reconvene and finish the panel. we are going to allow the other members here to ask you questions in 45 minutes. thank you for your testimons you to stick around. we've got more questions and then we will go to the second panel. thank you. the meeting is recessed until we get back at 4 o'clock. [inaudible conversations] [inaudible conversations] [inaudible conversations] >> i think we will reconvene this hearing. the subcommittee and we will go to the five men of rule and next we have mr. sherman, california for five minutes you are recognized, sir. >> thank you mr. chairman. let me ask mr. stan come i've seen these commercials, freecreditreport.com, a clever commercials, but apparently you have to pay a fee to get it for free which is like a restaurant saying for the dinner but you have to pay to walk in the restaurant. is it enough to just have a disclaimer on it or should we private a commercial that says it is free if it is only free to those who pay money? >> i come from the analytic business and am a 17 year practitioner of credit scoring and that's not a part of the business that i come from a represent by way of follow-up i talk to my colleagues and provide -- >> is it free if you have to pay money for it? you are dealing with financial issues all the time. is $14.95 a free? >> it doesn't sound free to me but i personally don't pay for it. >> mr. headrick said, is the ftc adequately cleaned up the free credit report -- freecreditreport.com ad by saying you can keep the commercial and put something eligible at the bottom that tells people it's not free the? >> i would like to see the use of the word free. i like plain language, so i like freedom to mean free. but the ftc has tightened of the rules on those ads and congress passed protections recently which is also going to help in this nonsense but it has been confusing for consumers and i hope these days are behind us. >> mr. quinn, we all like a murphree trip reports but no one seems to care much about my credit report they just care about my fico score. can i get a free fico score each year? >> we do have programs we are organizing with lenders called score review where the person who pulls the score for account review decision process he's one can also disclosed that score -- >> khan. but if what if i want to know my fico score before the start applying for a loan so i know whether to apply for the good ones or bad ones or even know whether to go shopping for a good house or that house? it got to get my free fico score. schenectady is either through score view or if you applied for a mortgage it is the score disclosure. >> let's say i want to know my score before i apply for a loan. how much it cost me to find out >> it costs $15.95. >> at least you don't have adds that say three fico scored off, and then charge me $15.95. i yield back. >> [inaudible] >> i can vamp for a while. >> mr. paulson of minnesota, you are recognized for five minutes. >> thank you, mr. chairman. i have concerns what may happen. we may have gone over some of this in testimony but what should happen if we prevent certain types of information from being allowed as a part of a credit score computation. for example, if i have a score of 650, then we pass legislation banning certain information from being used, this would argue because those people who had lower scores to now have a higher score innocents. that is the intent of some of the legislation that's out there but my score will still remain at $6.50 and at the end of that day how what does it mean for me as an individual? will this no longer be as good as it once was in the past? does that mean it is going to be harder for me to get credits? mr. quinn, maybe you can comment on a potentially. >> sure. if information is required to be suppressed from the score calculation and it causes the score to be inflated artificially from what would be if the information were considered, then the lender would look at the score in the decision process and say i am used to a $6.50 equating to a 2% vat rate. if the score now is inflated they will have to potentially change the cut off to accommodate four inflation of the score driven by the suppression of certain data elements coming into this or calculation. >> what will be the impact on predictability of credit scores of congress mandated certain data elements are treated lines been asked? >> we would have to do analysis to understand what the expected impact is depending what information is being suppressed. but we've seen through the data analysis is more information provides for a more robust score and if you start to take information out of the availability to be included in the score it will usually result in loss of predictive power. >> can you talk a little bit about the intellectual property that is embedded within the chris core? >> sure. fico scores have been around since 1989 and through the 20 your time period we have learned a lot about credit scoring and how to get the most out of the data from the perspective. however, from our perspective the fundamental factors that drive the score calculation are very transparent. so, it is consumers to pay their bills on time to cut the debt levels reasonably low and only seek credit when they need credit are going to generally result in a more favorable score. and so, the fundamental practices of good credit behavior are pretty transparent. but that has been asked through 20 plus years of the model developed. >> if i may add to that our intellectual property also includes a technique that minimizes the inconsistency between the bureau's because we only have one algorithm the trend appears with his mother intellectual property model. >> ms. hart, do you have anything to add or follow-up on that line? >> sure putative i guess i would like to say that we also have about 20 years of looking at our data and building generic scores and working with customers to build custom models for their business purposes and we like to feel that we have done a good job of minding our data and identify you the characteristics that specifically are predicted for risks in a particular customer application. but just to add to what tom quinn said factors that go into the credit scores are very transparent to consumers. they are very basic. i would say very easy to understand. but we are all doing is tweaking a little bit the attributes, tweaking the weeks that are applied to the attributes to help the models to be more productive for a particular business need. but generally it should be clear to the consumers of the understand their credit report and how they are managing the fair credit overall it should be clear to them the things that generally make their scores higher or lower relative to other scores. >> thank you, mr. chairman. i yield back. >> mr. perlmutter, please. from colorado, you are recognized. >> thank you, mr. chairman. and i apologize. i have been bouncing back and forth among the number of committees. my question is i do this thing called a government at the grocery every other saturday we said at a congressional office in a different course restore in my district. a week ago saturday a woman came up and said she had to credit cards in the course of the last six months, eight months, i don't know if any of you have experienced but many americans have experienced the credit card rates going up even though they've been paying on time and all that sort of stuff so they close the credit cards. then they find their credit score has dropped because they pose the credit cards because they didn't want to pay higher rates. they were done. somebody explained to me how that happens. islamic when you say they closed it to mean the consumer? >> the consumer closed their credit cards because their rates had been jacked up. >> so the way that can happen is in the eckert is our model at least what the fico scores we don't have many characteristics looking at just available credit in isolation so there would be no points lost because of that. however, we do look at what is called the utilization calculation. so, using a hypothetical example if a consumer had to credit cards and they had $10,000 available to them as credit and $5,000 balance, the 5,000 slash 10,000 is a 50% utilization calculation. and the data shows consumers that carry higher utilization patterns are higher risk. as if a consumer in your situation closed down one of those credit cards and now let's say that had a line of $5,000, their utilization now looks at 5,000 slash 5,000 which makes it 100%. and so then that in some potentially costing them points on their crevice or because of that action. >> go ahead. >> sorry to interrupt. there's a second category. first of all but mr. quinn is talking about is each credit card is scored one of the time and then collectively. the other categories length of credit history. so if you close 15% of your score. >> so these people that have these credit cards on times and then the close them, then that all of a sudden the length of time they had the credit card no longer goes to their benefit. so, did anybody in your algorithms and computations and calculations, and i understand it's all proprietary and i will care about knowing the in and out of the things that part of what we have been dealing with in this congress or credit card practices that in many ways were free sharp practices. double billing cycles, whole variety of things, then so we take steps to try to deal with at. people then face higher rates for whatever reason. credit card, some of the credit card companies did that and then they face because they closed and choose not to maintain that credit, then they lose points on their credit scores so if they want to buy a house they are going to be that much more money in interest. did anybody take any of this into consideration? >> if they may offer an opinion, the value of giving somebody credit for having a long history of a credit card or mortgage or although loan is that it shows they believed all over the long period of time. the other side of the coin is at the close the account they lose that history. so, our advice is don't use the credit card anymore in don't close your oldest accounts because you should be given credit for beating well over those years. >> the trouble is sometimes it is counterintuitive. is he is responsible to pose a credit card you are paying through the nose but from the chris or point of you attending use of the you have to know the inside facebook to protect yourself and that puts a burden on consumers. >> attended counter intuitive. i've had my credit card, the 6% was wonderful, not 16% and i don't need or want it anymore. i done. but then all of a sudden you get hammered over on the house borrowing side because your credit score is less. i would ask all of you to take them there will get that. i appreciate the sort of philosophy behind it, but it is a -- there are more questions to be asked and to immediately do it and i don't know if it was you, mr. pratt or mr. quinn is a snapshot or looking the long run. all of sudden you are not looking at the long run you were looking at the snapshot psp mcginn is a point in time snapshot of the history but it is the history. it is not just the one. >> unless you close the account. >> to make a good point about the closed accounts and the history is no longer there. the counter intuitive part is just like looking at a consumer who is 21-years-old into the marketplace and has a one-year credit card for a year and the same and maybe another consumer has literally the same credit card profile but has a market for 25 years. you can make a better estimation of how life on a five been in the market for 25 years. that's all. so it may not be counterintuitive but it may be little comfort into it if there's a logic in terms of how that works. >> the gentleman's time is expired. >> mr. campbell recognized for five minutes. >> thank you, mr. chairman. i have a couple of questions. the first one is is there any difference between the scores that a lender is plan to use to evaluate someone's credit and the score that is disclosed to a consumer whether they pay for it or not, and i will direct the question first to mr. oliai because you're from the constituent company. welcome, glad to have you here. but the question is for all of you actually. >> okay. i guess there are a couple of parts to that answer. they're really is no one score that fits every bill. there are many stores as you heard in some of the testimony prior to now. when we talk of educational scores typically we talk about the scores that have a lot of packaged material around them that say what are those elements that must positively influence your score? what are the elements that negatively detracted from your score and they are designed with the sole purpose of the educating the consumer about credit management and kind of those actions were those elements on the credit report that most influence a score. the educational score is much like scores of lenders use an underwriting. they move in the same direction. they are predictive of risk. they're based on area most similarity deer based off the same credit bureau data. the audience and in ten of the score is different so it's not the score itself that makes the educational score special per say. it is more all of the material that goes with an all goes witho educate consumers on those elements that most influenced the score. >> so there are different -- just for the lender now they can request a different score because they want to wait something differently or how does that -- >> there is a multitude of scores both that we would call kind of an hour nomenclature generics course that predict slightly different outcomes and we are looking at credit risk. most lenders rely heavily on customs course to their underwriting decisions, so those scores of a custom to end to their prior lending experience. >> with the consumerill get that is what you call the education is in addition to this educational data is basically generics or. but a lender because maybe it is a long term or whatever may have their own custom thing that they are getting that could be different. >> the destructive interviews multiple scores for the same credit rating decision. >> ok. thank you. mr. pratt and hendricks are chomping at the bit. whichever one a few. >> it's important every -- i think a world view is of return the consumer requires a score they are obviously more than likely getting a credit report at the same time. it's always educational meeting because there is no one score because a single lender could use different scores for different products because a lender could take in externals core and folded into an internal underwriting decision is a mistaken assumption to think that we are going to be able to 121 get a consumers' knowledge to the point where it knows exactly how bank number one is going to say yes or no and what price and seller of a bank number two and number three. that is what we worry about with these ideas where you get into their must be some score that is definitively the only one that's going to tell me the whole truth and there is no oracle but there are scores that tell me and i think ms. hart and others reference to it and it's been in the testimony of some of the score developers of the table what is important about the credit management, have i paid my bills on time, how much credit do i have outstanding and so on and so forth, so that's the core of what we do when we get a score. we were about how lenders look at us and analyze us and we learn a little bit about how to structure our financial management more effectively. >> from a consumer point of view, the fico score to the number 75% of the lenders when a consumer goes to my fico.com and boies the score he knows that is a score used by lenders. when you go to the trans union and by the troup credit scored that's based on the trans union model and that's not used by lenders. a good experience or free credit report.com at that again is not used by lenders. the vantage score is used by lenders but i'm not sure we have good data how far it penetrated the market. so, that's the kind of confusion. the problem is sometimes consumers will buy a score and think it is a real score and find out when they apply for a low negative different score. >> it sounds like, and i didn't notice this is why i ask the question, but there is if the scores are kind of customized for whatever there is no, like i say there is no "the" score. isn't it important i guess i'm thinking out loud here that the consumer understand that? that even though your thing said 600 you could be something else if a lender weeks something differently. >> quickly enter the -- answer the gentleman's question. >> anybody that sells a score should tell the consumer is it used by lenders at all and is accused by a majority or a segment of lenders? >> thank you, mr. chairman. >> mr. green of texas, you're recognized for five minutes. >> thank you mr. chairman and the witnesses were appearing. i'm quite got to to hear the exchange because there's many consumers who are confused and are of the opinion that if i'd taken advantage of this offer to get my credit score by way of some entity that is offering it to me i will have the credit score and when you are saying is it may be a credit score but not necessarily "the" credit score; is that a fair assessment? >> yes. >> does someone deferred? this is in the line of questioning i intended to pursue but it's worth consideration. >> i would like to correct the statement made by mr. hendricks. the scores by trans union to consumers are used for hundreds of millions of credit decisions. so they are not what people call a fico score, they are commercially made available scores. so, that i wanted to clarify that. the -- there are many different scores that are made available to our customers there are used for decisions purposes and there isn't one score that is used. at trans union we have 12 different versions of the fico score the different algorithms used for different purposes, so there isn't one fico score. the only one score i know of the excess out there is the one offered by vantage score where it is the same algorithm across all three credit bureaus. >> thank you very much. and thank you for the new term for my vocabulary. faco score. >> that is a termite picked up the last time i testified. >> if i may say something i work for fico, and over 90 of the top 100 lenders use fico scores in the decisions as mr. hendricks indicated 75% of the credit decisions are made with fico scores. it is the predominant score and as mr. wiermanski indicated there are many versions of fico but the designed a blueprint in the underlying data parameters the drive to score or the same. so from the fico's perspective benefit is greatly from getting access to the score the lenders use which is the fico scores. >> is the read from a set of opinions. i do see another. go ahead. >> thank you. when i hear the term faco score i find motivating and insulting the same time to read like been working with experience since 93 building these models, and we do have widespread usage across and good penetration across the custom and generic modules much like the other leading companies here on the panel. so, i would contend that there is no universal score to read you heard mr. wiermanski talk about ten different versions, there's a place eight ed experience not to mention those leipheimer proprietary fashion over the years. >> thank you. but the move to another area. and i appreciate your comments. alternative credit scoring for those of you who do score can you give me some intelligence on how this will impact you? there's a possibility that hard the introduce alternative credit scoring. there are people who can afford to pay for a given item but they don't have what we call traditional credit. daylight, gas, water, phone but they are not always scored. in fact there's a good likelihood they won't be scored. how will alternative scores impact you? yes, sir. >> thank you. the alternative payments if they are reported to the credit file are picked up by vantage score and that is one reason we can score millions of other people so it is recorded and should be recorded and it's predicted. we use the normal calculation. >> would become too is it mr. pratt? >> yes, sir. .com if i can see you -- go ahead, sir. >> to setup the circumstance, the challenge we have that alternative data or lack of guidance as to whether the data can be used so in other words many consumers have a cellular phone and in fact in the maybe the only from the half telecom companies are not clear on whether or not they can report the data to the exchange database or credit reporting database and so one of the great impediment that is impinging on the progress towards a more folsom will get a consumer who may have a rise of a somewhat thin file is this an ability in the industry to be able to get that data to the database to do the full and complete and politics and really deploy better analytical tools that include more consumers in the marketplace. that's the biggest challenge. >> yes, sir. >> suffered a nose in 2004 we developed and released a store called the fico extensions for and what this does is takes an alternative credit information that's not reported to the big three sold for example with positive and negative information how you manage your checking account, how you manage credit membership relationships if utility information is provided and fortified, the model will consider that as well, and we built that in response to linder questions about wanting to be able to more confidently extend credit to the underserved population. so this is an alternative that they can use when there isn't a traditional credit file on the consumer they can come and get the fico score. >> my time is expired. thank you mr. chairman. >> mr. rice of california recognized for five minutes. >> i was going to ask mr. pratt as you know this committee has marked up and the house has passed its consumer financial protection agency legislation that is now in the senate. what would happen if this agency armed with a broad and unchecked authority began cracking down on what goes into a credit file? what would be the consequences of that? >> i suppose whether it is law or an agency that is involved in as you say the crackdown, the concern for us is first of all there is no science misses early behind the decisions would be made. the would be one of risk. sallai turtle these partners and competitors of the table are the berlin and folks who will help us make a better decision of data should be in they are going to tell where it should be and how it should be dated and that is the duty of this industry. so, to make a r pachauri decision to exclude a set of data without understanding the consequence is part of the story. the other part is the death by 1,000 cuts. you could run data and run a store and see what about this piece? if it's not in, how consequential is that? my concern is the cumulative affect of removing progressively this piece and that peace and this piece and you get to the point where you have harmed the system and have a less effective system that would be a shame. we have the best credit reporting system in the globe bar none, period. >> what would the result be? what would predators do? what they begin to question the integrity of an individual's credit final? what impact would that have on the general appetite for the rest among the creditors out there in your opinion? >> it is also the session. i'm assuming creditors would have wide bands for risk. they might not be able to allocate the risk as effectively. they might not be able to allocate risk at all to certain segments. you might have less credit in the marketplace, more expensive credit for more consumers. that is inevitably the consequence of removing data from the credit your system. >> less extension of credit on the lower end of the credit spectrum probably and when you can't accurately price credit the cost goes up for everybody. >> yes, sir. >> let me ask a second question and maybe i will ask this of mr. oliai. can you explain how insurance companies use credit information to assist them in underwriting automobile and homeowners' insurance? what is the thumbnail sketch process? >> it's not 100% my area of expertise but one of of what i have had with using credit information for insurance escorting, the credit data is put into those scoring models with other information that the insurance companies have in this team predicted tough whatever negative outcome the insurance companies modeling. so, things like false claims, excessive claims, those sorts of things. so the role of the credit data much like in financial services is as an input and underwriting decision. >> so we have seen studies here and had testimony in the past that confirmed the strong correlation between credit scores and risk. is it fair to say that the use of credit based insurance course allows insurers than to more accurately price their policies for the risks that they are covering the? >> i believe that to be a fair statement, guess. >> on the same csb a question i was when asked ms. fortner, because you were at the ftc. what would you think if the cfpa got this over the credit scoring process, what would be your observation based upon your experience? >> as mr. pratt said the difficulty would be if either by law or regulation the government attempted to exclude certain characteristics that could be considered the result would be less productive system that less predictive system would result in either fewer people getting credit or insurance or also paying higher prices. >> mr. chairman i want to thank the witnesses were coming to testify today and appreciated very much. >> i echo those sentiments. >> congresswoman jackie spiers. recognized for five the nets. >> i appreciate you holding this hearing today because this issue to me is one of the most important consumer protection issues that we could be addressing and frankly i don't think we are doing anything. in fact as i'm listening to the testimony today it reminds me a great deal of our discussion of credit rating agencies. the credit rating agencies came under great deal of criticism this year because one they had garbage been so garbage can now, there was no due diligence required by the credit rating agencies when they raided these instruments. number two, they also for providing these -- they were a -- responsive to the issue were not the consumer evaluating whether or not to purchase that particular instrument and three they were not subject to the full disclosure by the sec and i see similar things going on and what i would like to focus on is the rate that continues to exist in credit report and the due diligence that none of you do in order to respond to them. a recent u.s. consumer union study found that errors in 25% of the credit reports are serious enough to cause denial of credit. that's serious when you are denied credit. now this, the fcra has been around for years and ryckman agencies were required to a level of free instigation. i want to read now this is from a report called automated injustice and mr. chairman i would like this submitted for the record. >> without objection so ordered. >> in this law center report, they speak to this whole issue of the investigation and now of course i've lost my place. the question was asked what was on in these investigations and this was a deposition taken of the vice president of equifax for cool services. did your and we have telephones on their desks? i don't believe so. as part of the compliance with equifax's procedures committed the employee telephone the consumer's part of the conduct an investigation? did not read to the telephone furniture's? they did not to read the telephone anybody from outside of equifax as part of conducting the investigation? they did not read what about e-mail in any of those? as you can see they didn't do anything. what they do, the only human contact and the investigation from what i understand is someone reviewing with the furniture provided and then getting a two or three digit code. so my question first to all of the credit reporting agencies is do you outsource this function to other countries? >> probably the only credit your personal the table since these folks are all actually the heads of the decision science sides of the businesses so they don't deal with and manage the credit bureaus. my response is first of all i'm going to push back on the study that you have quoted because it is not a statistically the was study. it doesn't study sample that comes anywhere close to the size of a database which includes 200 million consumers. the gao looked at this and came to that conclusion so congresswoman is wasn't me it was the general accountability office that came to that conclusion. and we are grateful that they did because this was just a polling some cases just employees of the company. so, that is not indicative -- >> i guess my question is and i would like to ask again do you outsource that function? >> i think the members make different decisions -- >> it is a yes or no answer. >> i think it's more than that. scatty for all source or you don't. do you outsource? >> you're in the u.s.? >> no other countries. >> i will go back to the companies and see if we can't give you a better answer. >> was i fairly accurate in terms of the way that you're credit reporting agency operates in terms of the investigation? >> no actually first of all using a deposition as an indication of how the process works just doesn't work because a lawyer is trained to ask certain questions in a certain way to indicate accusatory situation. that is exactly what a deposition is to try to pin you into a corner. so, no, i don't think that report reflects accurately. >> i asked a simple question. what we investigation procedure do you follow? >> of our members follow the credit reporting act and provide consumers with toll-free access to life personnel after they've received the credit report. all of our members to a full and complete information from consumers and all of our members apply accurate reflection of the dispute to the lender and all of our members ask lenders to reinvestigate because faye alternately -- >> my time is expired. >> i don't want to be accused of stalking corporate america from speaking of the time is expired. ms. ellis and you recognized for five minutes. >> thank you for convening this hearing. let me thank all of the members of the panel. my first question is for mr. pratt. i believe -- there is no spratt on the panel? >> that must be me. >> on page 18 of your written testimony, you state credit scores remove social bodies and provide fair treatment for consumers. do you recall that? >> yes, sir. >> this is puzzling to me because in the written statement on behalf of the ftc on page 14 she references the 2007 study on automobile insurance and i will quote from that study it says the ftc found that credit based insurance scores are distributed differently among racial and ethnic groups and therefore are likely have an effect on insurance premiums that those groups pay on average with non-hispanic white and asian american consumers paying less and african-american hispanic consumers pay more. >> can you offer any insight into why there might be a discrepancy between your observations and that of the ftc representative? >> thank you for asking the question. it's important to get the points straight so that we have a good record for all of you as members who are ultimately going to have to think through these issues further. our point is a credit score is blind. it doesn't know why race, my age. all the does is to get empirical data on a credit report and did then ultimately as mr. quinn's testimony indicated a number is scored on a scoring system that generates a number. because of that we have removed the kind of lending bias that we saw in this country and the individuals experienced in this country at one time so this course because they are blind to these triggers have removed the risks of those triggers, gender or race from being included somehow in thinking of the lender who might say yes. with regard to the study the key is to make sure that the score accurately scores risk. it may be that different communities have lower scores than other speech he would be if i walk in, if two different people walking we just want to make sure we are treated the same. >> i appreciate your answer and i don't want to suppress you in any way that they only give me five minutes. so mr. quinn of you help me with this question. on page nine of mr. hendricks written testimony he states it is important to understand that even if the consumer buys the fico score it could differ sycophant plea from the fico score pulled by the lender. do you agree with that statement and if you do can you explain the rationale why there might be too different scores? >> sure. if a consumer to get their score today on the my fico.com and apply for a loan amount from now that time period could cause new information to be reported. >> excuse me, so are you saying that the scores are the same but the change over time quickly? are you essentially refuting what he is saying by saying they are the same but time because the scores to change? >> right. the altar of about calculates the score stays the same potentially but the information that gets it into the model can change because new information is updated every second on the credit reporting databases and that can cause the score to change if new information hits the file. >> would you say to that? >> there are differences that can be caused by the lenders might be using the fico model for credit cards or auto loans and differences there that could cause differences. i think between you and congresswoman speirs and the members are asking the questions but we don't have good data to answer the questions and to get the data we have to look at the enforcement and for stricter. i.t. with the credit bureaus to as we should look at them as public utilities and that kind of oversight. >> with me ask this question what is the market share? tester bna lawsuit? i understand there was a lawsuit what was the outcome of that and do you foresee any level of market concentration such that the market is so concentrated by a few players that even if they collude in and under the broadway to understand what i'm trying to say that we end up with a sort of group think problem that ins of excluding people? do you have any views on the subject? >> for the foreseeable future what you see is what you get. we've got the big three and a play bickel. >> are the 100%? >> they are the three nationwide database. >> there was an antitrust lawsuit. what happened with that? >> as far as i know what got dismissed. >> when you have a market with three? >> the market is still pending. >> if i can clarify that -- estimates unanimous consent -- >> 15 seconds. lawsuitent to trial wast, the dismissed and it's apparently under appeal now but it was won by us. >> i have more questions. thank you gentleman, and ladies. >> i ask unanimous consent that this kilroy of ohio, a member of the full committee, be allowed to sit on this panel and ask questions for five minutes. without objection so ordered. >> the gentlelady is recognized. >> thank you. ai thank all the witnesses for their appearance today. mr. quinn, a understand the fico is the most widely used system by credit reporting agencies; is that correct? >> we position as the most widely used credit score by lenders. >> bye lenders. and to these lenders and any other entity that may use these credits course, they are putting them to very important uses in the economy both for the lender and consumer that is attempting to obtain the loan to buy a car or house; is that correct? >> yes. the lenders will use the score in addition to other information to determine if the consumer can be approved for credit and set terms for the credit. >> so those terms can be in one consumer the sentence or would pay over the course of a loan considerably less than other consumer might pay? >> potentially yes. >> it is a heavy impact of the lives of individual consumers? >> potentially, yes. >> for those stores to be useful for the lender to make the right decisions and to be fair to the consumers since the of significant financial repercussions it's important for the eckert is worse to be relatively productive of consumer behavior in terms of handling the finances; correct? >> yes the lenders on the one to use credit scores they feel comfortable recorder with and predict risk? >> the data that is unproven predicted should not be included in a crevice or? >> data that isn't proven to be protected shouldn't be in the credit score i agree. >> what you want to do is predict how that person handles his or her finances whether or not they can live within their means; correct? >> the models designed to bring order risks of its predicting their ability to handle future credit obligations. >> you might have heard a little bit maybe this week or even before this week that americans around this country are having huge issues with health insurance, and in fact that's 72 million americans are affected by a medical bill problems or accrued medical debt; do you agree with that? >> i have no -- i'm not an expert in that area. i can't comment yes or no. >> when you are looking at credit scoring what medical debt be one of the areas that is included in the credit scores? >> we do not consider any medical debt information in the score. we do consider medical collection information. >> so, a person who may have had a perfectly wonderful credit score but got hit by a boss or received a number of statements that say this is a and a bill in a confusing array of post emergency room visits or have issues with their insurance company about paying those medical bills, that person with that good credit score could be hit with collections issue with respect to medical debt; correct? so that medical debt in one way or another wind up affecting adversely their credit score. >> the medical collection item reported to the bureau could impact their score; that is correct. >> if a person takes some time but actually pays for results the medical debt or medical collections issue, would you say that that is predictive of how they handle their finances? >> with the data shows when we analyze medical collection information is that the fact that the medical collection item occurred is predictive of future risk and that is why the law model considers the information. >> a person makes those efforts and pays of their medical debt, that derogatory information with respect if it had gone from collections, that stays in eckert record for years is in the correct? >> my understanding is that of the collection information can stay on the credit report up to seven years. >> so you would argue that someone who paid off their medical debt and resolve that issue has the same kind of predictive value as somebody who runs up their credit cards buying big screen tvs or stereos or other consumer goods? >> with the data shows is that the presence of medical collection information on the consumer's report is predictive of future risk. but it's important to understand the models not looking just at that component, so it's looking at the overall picture of the consumer's credit report, and so it is the total picture that is driving this corps, not just one data element. >> craig watts is a spokesperson for your company; is that correct? >> he works in our public relations department, yes. >> and didn't he make a statement that paid medical debt was not indicative of some of these abilities to pay predictive of how they are going to handle their debt? >> if i may i'm going to ask that you give your answer in writing. we have had a call for a vote, and what we would like to do is dismiss this panel and try to get through the next so as not to have them come back. so if he would give your answer in writing. the time is expired. thank you. and i'd like to thank this panel. and of course, we may submit to you additional questions in writing and members will have the opportunity to do so within the next 30 days. thank you very much. you are dismissed. and if you will move quickly, we will get to the next panel. and we will ask that this panel give your statements as quickly as possible and in so doing, and in so doing giving your statements as quickly as possible but there may be some members who want to submit their questions in writing which means that you will have to wait some time for us to come back. [inaudible conversations] [inaudible conversations] >> thank you members of the second panel. and if i may, i will have quick introductions and we will move right to your statements and if you can summarize as best you can it will help us and help you because we are trying not to hold you wonder then we have to which means he will have to come back after a series of votes. .. in ensuring that lenders use credit scores systems appropriately to evaluate consumer's credit risk. the three roles that the committee plays are the rule rader, supervisor and a research institution. as a rule rader, the which implements the whole credit opportunity act. and the board has shared rulemaking authority with other regulatory agencies under the infections at 2003. in january, the ftc issued final rules to implement the risk-based pricing positions peer creditors that engaged in risk-based pricing generally offer more favorable terms to consumers with good credit his jury and less favorable terms to consumers with imperfect credit histories. the risk-based pricing provisions give consumers who were granted credit on most favorable terms protection similar to those afforded to consumers who are denied credit. tonight consumerist consumers riva nonfirst action. under the new rules, a creditor who uses credit reports can provide the risk-based pricing notice to those consumers who receive credit on terms that a lot as favorable as the terms the creditor has provided to other customers. those consumers can contact the credit bureau to obtain a free copy of their credit report. as an alternative, creditors can provide a credit score disclosure inside of a risk-based pricing notice. under the credit score disclosure alternative, consumers who apply for credit automatically receive a free credit score and information about their score in the notice. i expect that many creditors will use the wrist accredits alternative which will give consumers access to their credit scores without charge. as the supervisor of financial institutions, the board conducts fair-minded examination to ensure that financial institutions or using credit score models that comply with it. it discriminates against an applicant and a credit transaction on the basis of race, national origin, age, marital status or sex. exhibitors ensure that prohibited bases are not used in a credit scoring system good examiners also ensure that creditors are not using credit scoring systems in a way that has a desperate impact on impacted groups. properly constructed critical resistance may help lenders facilitate and limit lender discussion in the credit evaluation process, which promotes fair lending. as a research institution, they showed significant publisher research and curb the research by other parties. as directed by congress, the board prepared a report on credit scoring, including on how it has affected the availability and affordability of credit. the relationship between credit scores another fact there is and whether the use of credit scoring systems has lending applications under a co-author of the board's report is the first comprehensive study of its kind. it describes original research conducted by board staff here for this research, board staff developed a unique database that links credit records and personal demographic information. the findings of the poorest report are significant. major findings include one credit scoring is increase the availability and affordability of credit. credit scoring has increased the consistency and objectivity of credit evaluations and has reduced some of the discussion that could lead to discrimination. two, different populations on average have substantially different scores based on differences in recorded history. three, for every population group considered, credit scores consistently predict the credit risk of individuals, that's regardless of race, after ethnicity, michael rich, persons at higher or better credit scores consistently to form better than persons with lower scores. the study found that for all populations groups come interest rates and average estimated denials rates consistently declined as credit scores increase. i will be happy to answer any questions from the committee members. [inaudible] >> go to mr. broderick for his five minutes and if you can be a little bit briefer that would be appreciated. >> i'll try. mr. chairman, ranking member has and filling, members of the committee my name is david slotnick at the federal trade commission. that is expressed are written testimony that were approved by the commission, the views that i may state here, those are my own and should not be the sky to either the commissioner or any member. i blucher written testimony which describes in detail the 30 fast-track projects at the commission has completed including rulemaking, studies and educational campaigns. i'd like to take a few minutes just to highlight our responses to some of the issues raised in our invitation letter. first, in addition to the 2000 study that we did on the use of credit scores and credit-based insurance scores in the automobile market, we're currently working on a follow-up report analyzing the effects of credit-based insurance scores used for homeowners insurance. the report will be as expensive insurance policy data collected through the use of compulsory process for the nine largest insurance firms. second, we've talked a lot today about the issue of accuracy of credit reports. ensuring the accuracy of credit reports is crucial for consumers or reason that go to their very livelihood. if information in their credit report is inaccurate, consumers can suffer devastating economic consequences. they can be wrongfully denied credit, insurance, housing or employment. we're trying to improve the accuracy of consumer reports in several ways. first, we've recently issued amendments to the free credit report role to address deceptive advertising in the advertising of free credit reports. with the new disclosures that we are requiring, we believe we strengthen the ability of consumers to obtain no strings attached free credit report. additionally, we worked with other agencies, including the federal reserve, to issue the furniture rules, which call on furnisher is to improve the accuracy of information they provide to the credit reporting agencies and give consumers the right to dispute errors in there -- to dispute errors in their report rackley with a furnisher is that the information as well as to making disputes with the consumer reporting agencies. finally, let me turn to the transparency issue that we've talked about already. credit scores are used widely by creditors. they affect whether a consumer can obtain a valid and how much the consumer will have to pay for it. we've long been advocates for access to credit scores and information about what those scores mean and how they're using. the fact act he is consumers the right to purchase a credit score from credit reporting agencies and required certain mortgage lenders to provide free credit scores to home loan applicants. as a result, consumers have had better access to credit scores over the past couple of years, but we've taken additional steps to improve that. as i mentioned, the ftc with the federal reserve board increased its pricing book, which requires certain companies to provide consumers with notice when their report information has been used to provide them less favorable loan terms than other consumers. but the rule also gives companies the option to provide all of their customers with a free credit score along with information about that score. and we are hoping that companies will take this option to provide consumers of no charge to the consumer their credit scores. we've also engaged in research and a great deal of public education on the issue of credit scores, their use. we look forward to working with the subcommittee on these and other consumer protection issues. will be glad to answer any questions you might have in writing. i understand the time pressures. >> thank you for your understanding. i'm going to ask my questions in writing. the ranking member has concurred. the members agree. misfire if we can get one answer to the question and ms. kilroy, will extend you a similar courtesy if the question can be as quick as possible. >> thank you, mr. chairman. to you mr. vladeck, i don't think there's any teeth in the reinvestigation requirements under the fact or the original act. you can occur in knots and if you do, what should we do to make sure the investigation does take place? >> well, i think there are two answers and i'll be as brief as i can. i like to amplify this answer in writing if i may. first is the furniture world takes effect in july. we think this is going to have a substantial impact on the ability of consumers to dispute information, their credit files and get an answer. and that coupled with the accuracy parts of the dispute parts of the rose, we think will go some way to do it. i would also say we're doing this through enforcement. we are now requiring a collection agencies when there are disputes to go back when there is a consumer dispute to rely more on simply the one page that they get from the dead writing agencies they get. so we're trying to attach the accuracy issue in a number of ways. most critically, we're engaged in a massive study on the accuracy to get a better sense of what causes these errors and how we can better fix than. the accuracy study as a non-going process, but we hope to be able to provide answers to the question about accuracy within the next year or 18 months. >> thank you, senator. and if i may i would ask if you'd respond in writing and will go on to ms. kilroy with the first question is at all possible. >> thank you. will you take a look at the scoring systems of various reporting agencies use in order to determine whether or not they're using a proxy that would have a discriminatory impact. have you taken a look at such issues as whether or not everyone, particularly census tract is penalized with their credit score based on the number of foreclosures in the area or looked at other kind of micro-targeting issues that a credit scoring company might utilize, as many kind of marketers do, even politicians use micro-targeting these days? >> thank you. it will ask if you would submit your answers in writing. we're beyond the time for the vote. we are beyond zero and some of the members are going to have to brush over for this vote. at this time, i'd like to indicate that the chair notes that some members may have additional questions or the witnesses, which they may wish to commit in writing and i shall be one of them. therefore without objection, the hearing record will remain open for 30 days for members to submit their written questions for the witnesses and to place the responses in the record. the subcommittee hearing is now adjourned in thank you so much. [inaudible conversations] [inaudible conversations] >> don't pretend that this is producing a flexible system to the contrary. it's producing what a constitution will produce and that is rigidity. >> and we have to deal with an organization that is capable of passing laws in accordance with the powers given them by the constitution of the united states, which is a whole point of the constitution. >> in 2006 the united states began transferring some detainees from guantánamo bay to saudi arabia. they went through programs do we integrate them into civilian society. since then, some program graduates have returned to terrorist activities. today at the heritage foundation posted this one-hour discussion about efforts to retrain former detainees. [inaudible conversations] >> good afternoon. thank you for joining us here at the heritage foundation. it's my privilege to welcome you to our louis lehman auditorium and of course to welcome those who are joining us on our heritage.org website as well as those watching on c-span network. we would ask everyone in in-house to make that courtesy check that cell phones have been turned off as a reminder internet viewers another set questions or comments can be sent to us at anytime e-mailing speaker@heritage.org and we will of course post a program on our heritage home page later today for your future reference. hosting a discussion this morning is cully stimson. mr. stimson is fellow understudies piteously neuropathic and military law, military commissions and detention policy. prior to joining heritage he served as deputy assistant secretary of defense for detainee affairs. he advises secretary detainee issues worldwide including of course guantánamo bay, iraq and afghanistan. he has also served four years and his assistant u.s. attorney for the district of columbia. previous to that he was a homicide prosecutor in maryland in a domestic violence prosecutor in san diego. he served three active-duty tours in the navy and continues to serve as a judge advocate general, reservist in the navy. he is currently commander and serves as a military judge. please join me in welcoming my colleague, cully stimson. [applause] >> thank you, john. welcome. this week i had the opportunity to speak to some distinguished seasoned citizen about u.s. detention policy. and in that audience were several world war ii vet. and during the question-and-answer period one of the vets noted that during world war ii on the we had over 400,000 not see pows here in custody in the united states and no one would have ever thought of releasing them during war. and it just seemed rather common sense to him and his peers in that room that no one would want to do that during wartime. that's exactly what we're doing today. now i'm sure a lot of people agree with that gentleman, that we should not be rearming the enemy. comment committed islamic jihad history more time. of course, that's exactly what we did during the bush administration for a variety of reasons and that's exactly what the obama administration is intent on doing us all. those detainees that people usually focus on are those who were or are at guantánamo. this policy also exist -- exist in iraq and afghanistan and nevertheless people tended to focus on people at guantánamo. and afghanistan today, under the leadership of task force 435, military commanders are getting reintegration combats in programs that entangles the transition to the government of afghanistan for their use after the military and detention operation. and as many of you know, saudi arabia began xd radicalization program in 2004. and when i was in office with several of my colleagues who are here today, we started sending wonton amo based saudi detainees back to the kingdom to their deradicalization program in 2006. now, according to published reports, the recidivism rate for the program is around 20% or so, give or take eared and many think that that number maybe on the low side. three of those men have made their way to jammin and occupy senior leadership positions in the al qaeda most suitably cited all cara or a cab second-in-command is believed to have been behind the 2008 attack by the u.s. embassy and the phenom. abraham provide a show is the islamic thought leader thought to be approving a cat terrorist operations and mohammed at teco kirby became a cap field commander. after the christmas day bombing attack or terrorist attack in the united states when we discovered the gem in connection and after many of us urged the obama administration to stop transferring any more of the 90 or so get no pay back to yemen can the administration announced it would temporarily resent those transfers. too many people, that was a common sense move. the government of yemen has shown no real ability to mitigate the threat that returning gitmo grad supposed and have not yet established a credible deradicalization program although there is movement towards that. indeed to keep farmers and the uss cole bombing were convicted by yemeni court, yet are freemen today. now today, on this panel and mr. were going to set aside politics. so let's just take that out of the equation and focus on and try to do a deep dive on the programs themselves. do they work? how do they work? what do they have in terms of actual class is, teaching philosophies, et cetera. and hopefully before the question and answer period, our panelists will offer their opinion about whether we should continue as a matter of policy, using these programs. matter to panelists are friends of mine and are uniquely qualified to discuss this topic. marisa porges is an international affairs fellow in residence at the council on foreign relations, where she is researching efforts to to radicalize detainees through extensive fieldwork in yemen, saudi arabia, afghanistan, singapore and indonesia. she has firsthand knowledge of these programs. she didn't attend them. and has been to saudi arabia five times and spent three weeks in yemen this past fall and many seek her advice on these matters. more to the point, from 2006 until 2008, marisa served in the opposite the secretary of defense as an advisor to the detainee affairs. she worked for me and alan liotta and others in that office. her responses included negotiating with foreign governments on detention issues uncoordinated u.s. government efforts to repack treat governors on ten -- and afghanistan. she moved from dod to the treasury department office of terrorist financing and financial crimes and develop strategies to combat money laundering and counterterrorist financing and other illicit activities. shell she also the privilege in high honor of serving a general petraeus's u.s. central command assessment team advising on counterterrorism and the arabian peninsula. like me, she's a commissioned naval officer although she's a brown shoe and she received her b.a. with honors in geophysics from harvard university and a masters with distinction from the london school of economics. daveed gartenstein-ross, who i had the pleasure of taking a round-trip ticket -- round-trip to guantánamo with i think in october of 2006 is the director of the center for terrorism research at the foundation for the defense of democracies and a phd candidate in rural politics at the catholic university of america. he's the author several studies about radicalization, homegrown terrorism, including homegrown terrorists in the u.s. and u.k. an empirical examination of the radicalization process i-india spent his academic study of terrorism to practical use or a variety of consulting work, including work on my passage negotiations, border security issues and leaving training with the u.s. military federal and a law-enforcement. of course, he's testified before congress and his writings on the war on terror have been published whiteley and you can see them on tv quite often. he has published for monographs, the one i was the most intrigued by is my year inside radical islam. and what that come i turn it over to marisa because please go first and will last for two make some comments followed by daveed and then we'll have some questions and answers. marisa porges. >> thank you everyone for being here today. it's a great opportunity to talk about an issue which myself and those we worked closely on detention topics have looked at for a number of years now, but which thankfully is now become part of the wider public debate both on detention and counterterrorism issues. so i'm going to start my talk by defining some terms. my former life as a naval aviator i would've said that's just silly, but as an academic we have to do it now. so let's quickly look at what is usually considered the confusing topics of deradicalization and counter radicalization. we are here today to talk about deradicalization, which are efforts to work with individuals who have been picked up, have already committed acts or professed to be supporting terrorist organizations or have shown exhibited that they are supporting these organizations. when they're in custody, what are we doing with them to try and rehabilitate them, change their mindset or their behavior so that if and when they are released, they won't be as significant a threat. and that should be thought of distinctly frowned, radicalization and which are preventative efforts to work with vulnerable operations. think the smalley d. after here in the u.s. for impoverished youth in yemen and try to forestall future recruitment, future radicalization in the long-term effect that has. these are both very important tool is and the broader counter is an toolkit and they are mutually supportive, but we really need to be precise when they're looking at how to evaluate programs and think we were lucky not deradicalization really what's going on with those we have in custody and what can we do about it. so, what can we do about it? how do you think about a program like this? over the past five or ten years, people have been trying to develop the theories behind programs and have come up with two camps so that there's a spectrum here. on one side, we have individuals who think it's an ideological goal, that we should be focusing on changing and individuals ideologically his beliefs, his religious motivations and approach in a program that direction. think religious dialogue on the religious debate and really a focus on the belief system behind the activities. at the gathering of the spectrum are those who think it's really about changing behavior. a program that is developed on this path will focus more on disengagement, trying to change an individual site goodies, look often like a rehabilitation program in a federal prison. at the end of the day, programs typically fall someplace in between, depending on the country involved, the circumstances of the individuals involved. but it's important to see the spectrum because when we evaluate programs, inherently good but got well, which camp is really working and where should we put the program in between. at least when i look at them, that's where -- how i honestly see them. so what are the questions? what we really need to be considering when we are looking at a few programs. and i'll go over some brad drake ideas at play in the metallica a few pro-grams. worst of all, we have to consider what is the goal? is a tactical counterterrorism goal? are we primarily individually concerned with those we have in custody and not said? or is it a broader effort is part of an effort to stabilize the company adtran involved or counterinsurgency campaign. and that will of course play out in terms of how we're implementing the programs, how we talk about the programs and how the public is either involved or not involved in the programs that did the deed. another essential question to ask is what is attainable and pragmatic on the timeline involved for those who are holding the individuals? this is something of u.s. policy make are we always need to be considerate about -- concerned with when you're trying to figure well, how long does it take to change someone's mind? are we more effectively for only changing behavior, if for the deadline abuzz because we know we have to really somebody at some point, perhaps they ascendance already and they will be locked at out the door one day? what are the capabilities? do we have the resources we need whether it's therapist, particularly when you're looking at a nonsecular government is implementing the program. we have the clerics, the mullahs, the individuals who understand the customs of those in custody who can forward the idea and make the program affect this? and of course, this brings us to one of the key factors who's running the program. is it a government run program solely? is there nongovernment or public support? are the families involved? and if so, how? and is very nonsecular secular community? now, cully and i know from our time working on the suffer from a u.s. standpoint, we're concerned with where detaining individuals in another country, where an outside authority. where a nonsecular outside authority so that we have another layer of difficulty when implementing something, whereas the good-looking and indonesia or in singapore, now you have a government working with their own citizens. and so, these are the factors that end up making a determination about program is developed and implemented. the lasley, the final factor which is perhaps the most critical and i think which side they will talk about as well. what are the factors of radicalization about with those in custody? how are we to understand is that we are holding and wanted to work with, how did they get their? what path did they follow to commit or joined with the terrorist organization? this is still a widely contested debate, but that there's that are of concern and have interplay to be the sources of radicalization include ideology, economic motivations, whether they're joining to join the paycheck that comes with an a member of some of these organizations, local grievances. this has become a serious factor for al qaeda and the arabian peninsula is using citizens local grievances against central government as a way to radicalize and recruit more members. or is it not program this? is a concern for u.s. policy in the region? and if so, how can we address those within a deradicalization program? without overview of the basic questions involved in the concerns we need to address when we're picking elements of a program, i'm going to quickly touch on two programs that are interesting for coming out, both their failures and successes. as was mentioned earlier, i spend extensive time looking in a variety of different programs. you often hear about the saudi programs. it's the most well-known and spoken about. so not going to touch on that and this talk. i'm going to focus on a program in yemen and a program in afghanistan. the former come the program in yemen is ironically was the first one in the arabian peninsula to be established, which can occur in a state affairs and things going on in the countries is today curious. but it was run from 2,222,005 to do with mujahedin who returned from a tennessee and anne had been seen to reengage in violent activity and were back in prison, but were not at the same criminal mindset as those who are already there. it was a heavily religious focus program. if also to the campus primarily an ideological game run by supreme court judge named ahmad on the tar who worked with three oman to a engage in ideological role he called it. really it was a matter of trying to change the detainees find that a few key issues when it came to how they understood islam and how they understood being a muslim citizen in yemen. the kling center made official are 90% success and what we're looking where the rubber hits the road, did it work? 90% success is the number. if you dig a little deeper, in my estimation is that with hardly a success at all. it worked with just over 360 individuals who were released after signing somewhat of a parole agreement and many were seen to return to the fight, either ide supported or support activities or exit taking up arms and a few of them returned to iraq and became freedom fighters there and were either picked up killed later. but the most interesting thing is when you talk to people who went to the program and when i met with a former senior member of al qaeda, an al qaeda recruiter who had gone to the program, had come out the other side not really changed at since reformed his ways, which is why i was able to sit and talk with them for a couple days when i was there. but it's interesting to hear him discuss how it was a one note wonder. it was a very cursory program, not very robust, but also only touched on the ideological components. and it really left out some of what was needed to help the detainee who was released a prisoner reintegrate into society after the fact. though there was discussion of support mechanisms, that really wasn't the focus of the program. and in his estimation and us well in mind, it became one of the central fault of the prepared which is now defunct and though they're trying to start a new one. now compare that to what's going on now in afghanistan. afghanistan is likely to notice program out there. it was started last fall for detainees in u.s. custody at the bottom detention facility and is part of the new effort by general the crystal to recast and reinvigorate those detention efforts in the country and also overall convergence efforts. and here we see a program is being developed more in the camp of focusing on disengagement and rehabilitation. they offer classes to the detainees that number about a hundred right now. it works with other detainees and they offer classes, english classes, dari classes, they try to teach skills, they also give art classes which is an interesting way for interpreting the saudi program that relies on the derby to work with the detainees. and they also to give a nod to the religious component as well. so now they might end up in the middle of the spectrum because they do have a mullah who comes in and talks of the detainees every day and engages them in a religious debate. it's too early to tell how over. it's too early to to market recidivism rate. it's only been around 26 28 months and is still growing. but thus far, if you're thinking of a broader spectrum of how it plays into efforts in afghanistan, it's deemed a success. having met with two ex-detainees and if you asked halaby and when i was there in december, they would say yes distillate issues with detention efforts prior, early on in u.s. engagement in the country, but we appreciate what's going on now and how it's changed. those were coming out of the prison now, they are skills they bring back to their villages. they gave chevrolet with their village elders and they appreciate the fact that those individuals are less likely to return to terrorist activity because of that. and this brings me to what my overarching conclusion is with these programs. and that's how they spread into broader strategies for dealing with terrorists. in afghanistan at the particular example for two radicalization is a tool within the broader detention environment and the task force about us us using it in a greater toll than the broader counterinsurgency effort. so now becomes not just a tactical tool to deal with those we have in custody but he told that supports a broader shoot huge effort. and i think this is an important part. the two radicalization should be part of a broader strategic counterterrorism effort. it is part of a broader counter radicalization effort in saudi arabia. the saudis are fully committed to worry not just about those they have in custody, but those that are the peers, friends, the brothers, the family of the detainees. they are concerned with further radicalizing those on the outside opinions of their actions when the detainees are in custody. and they are firmly committed to it i remember when i met with them, prince mohammed bin nayef. i'm concerned with what happens with the ten, 20, but i'm more concerned with the radicals who are holding in treating those we have in custody because those are the terrorists of the future. and that's my concluding thought, that we need to look at deradicalization as a strategy within broader terrorism efforts. it's a tool that should be used tactically, but it's a tool that has greater strategic implications frankly and how we are doing with a few that we have in custody. and so, i fully support these efforts and i think that they should be expanded where possible or made more robust in countries where they're needed. but it's really to look at the broader goal of porcine radicalization in the future during a swamp as it were a terrorist that will be coming down the line and working with how we can make deradicalization one piece of the broader terrorism tool. so with that, i would just leave us with the thought that perhaps you need to realign our goals when it comes to deradicalization fully supporting the idea, but trying to understand them within a broader spec terms of policy options. thank you. [applause] >> so marissa draws a very relevant distinction at the outset in her speech and that's the distinction between deradicalization and counter radicalization. deradicalization comes at the back and other process. deradicalization is what occurs after somebody has been engaged in terrorism and you're trying to get them away from it in some way. either through actually cheap generic yes or roster disengagement as marisa does a good job of outlining. whereas counter radicalization is enough for the concept of front-end. return to prevent the community from tilting over into support for terrorism. and the reason why i returned to the very first distinction that she made is because this actually goes to the level of risk that you confirm. if you think about a counter radicalization strategy, there's very little risk if it fails. like for example, obama speech in cairo. that was serving most full purposes, but in what way it can be grouped into u.s. counter radicalization efforts by introducing a different face in the united states is in the middle east. if you feel it cotter radicalization programs it's basically is your risk of muster so ineffective you end up creating more terrorists. in general if you fail, you just have spending money unnecessarily innuendo bravery started good whereas in deradicalization you actually can face concrete risks. that's not the case of course for all deradicalization programs. for example, you have some programs that are more informal or at a mosque level such as the program that was recently announced within toronto that was serving a sun shade in between when someone has adopted a radical ideology and actually resort to terrorist violence. basically, trying to break the linkage between accepting radicalization and actually acting on it. but ultimately, if the program fails, that deradicalization programs -- then you're back where you started without the program. on the other hand, deradicalization programs can pose a danger in certain circumstances. and that is when you're taking people who are convicted terrorist and putting them into a program where they're being released and allegedly being too radicalized. i put that resort is the calculus because it goes to the rest of my speech, which is how do we think about deradicalization policies. now, i am not against them. i'm not going to say that we shouldn't use them. i agree actually with what teresa said, that deradicalization strategies should be embraced as part of a broader effort against terrorism. but i think we need to understand the risks that are intended to them and in particular the way these programs are studied in the way these programs are understood and debated. i think we want significant blind spot and that plans by this ideology. i'll talk about that at some greater length. but first i want to point out one other important fact or in the way that we discuss and understand these programs. and that is by researchers say significant barriers in evaluating these programs. a story bureaucrat whose name i'm sure i just mangled and john horgan writes in a valuable come this topic, leaving terrorism behind which was published in 2009. we lack the necessary data to test whether the various programs are actually effective and if so why? as most governments and organizations running such programs are only releasing the data they consider convenient to make public. now i believe that there has been greater transparency to some degree since then, plus we've got to see some of the outputs of these programs in terms of recidivism rate than the light. some programs also i should point out are quite a bit more transparent. singapore is deradicalization program, for example, is highly transparent embedded host information almost right away from the ministry of home affairs in which announces releases, changes in status and renewals of charges, which allows researchers to have a pretty good sense of at least yelped with the singaporean program. my own analysis in this area, as cully pointed out on the outside, is on the front-end. it's for how people radicalized. and part of what i studied in that regard is the will of ideology and radicalization. you marisa and i on the same page but ideology is certainly not the only driving factor of what brings people to terrorism. his multipolar researchers call push factors as well as pullback airs. that is things like discrimination court angers over foreign policy and the like might service pushing someone's torch i need a radical group. and likewise there a certain pull factors which might draw some untoward the embrace of terrorist violence. now, astonishingly to me within this area there is a question of whether ideology plays any role at all. there are some researchers who strongly argue that it doesn't. if a large part of the study that cully that cully that cully was quantitative analysis, basically looking things that we can measure externally that link people's radicalization, specifically to an ideology. it quantifies that to make the argument that it's far too early to remove ideology from the picture is something that draws people towards terrorism. not because i believe that ideology is an important part of the radicalization experience, one of the common themes which runs through my work is the need for scholars to take seriously the ideology that drives people to groups like al qaeda. and i believe this in general serves as a significant blind spot, something which i hope to show. some researchers tend to have a flipping attitude towards understanding ideology, either believing it somehow dangerous or offensive to do so or is for us in other ways giving it short shrift. but i believe that it is impossible in most cases to evaluate the majority of these programs without looking at ideology seriously. and i should sit also i think there are some exceptions to that. her example and afghanistan we have much more of an insurgency situation, i think that's a programmer which are broad-based approach can actually take ideology out in certain cases it does what we know about the component of the afghan insurgency as opposed for example to transnational jyoti groups like al qaeda where you have a different sort of person joining it. looking at the many programs, i think the marisa did a good job of outlining how religious dialogue in persuading people of one's ideas about religion as absolutely vital to the success of the program without, you know, aftercare so to speak that is letting people in jobs or families income is really going to be these ideological debates that are key to the success or free to the committee and religious dialogue here it and i share versus you that this program has been a failure. the saudi program, which he talks about come as much of our comprehensive. it draws in families, provides extensive toast really support such as for example letting people in jobs, providing them in some cases with housing, basically it's good to be the kingdom. it's good to have the kingdom of saudi arabia's resources. but also a large part of it is indeed ideological. christopher cusack who has written extensively about these programs has written about how suspects in the view of those running the program were misled by extremists and strayed away from quote, unquote true islam. and so part of the program, one of the key parts is a counseling program that tries to correct misunderstandings by reinforcing the state version of islam in saudi arabia as a means of the radicalizing individuals who come into the program. prisoners are expected to go through the rehabilitation program, to renounce their previous beliefs another given the kind of assistance i spoke of before, jobs, cars, apartments and the like. but to me a review of the scholarship shows where people end up ignoring the ideological factor, even though it's so important to these programs are one example of this comes in a book i recommended before, leaving terrorism behind in which the chapter on yemen in discussing the work of judge all his heart was than the most visible face of the religious dialogue made a very questionable claims to researchers at the uncritically repeated. and i quote, judge all the tart has made it clear that there is only 1% person in the quran that prevents muslims to fight nonbelievers as an act of self-defense against oppression. i purpose is not to engage in religious discussion of the current war of islam lafarge. but anyone who i've had even a cursory knowledge of the quran will know that's not true. there's not one single verse. off the top of my head i can give at least four versus the two that and this isn't a factual matter. it's not a matter of opinion. and the fact that researchers repeat things are actually incorrect to me is indicative of the degree to which they're ignoring ideological elements. but something that's either true or it's not. his claim wasn't true, but instead the researchers are simply repeating it because he said so, what which shows they're not actually engaging the religious text that these people are debating in the first place. likewise, to get to the saudi arabia program, there were a few quotes from the same book that i mentioned, which i thought to be a little bit interesting. one of them, the saudi arabian program says resumes of the suspects were abused, by two, into strayed away from true islam and the state wants it helps prisoners returned the correct path. it continues, the counseling program seeks to by reinforcing the official version -- the official state version of islam. other now the reason these struck me as being a little bit remarkable is because those who are familiar with the official saudi understanding of islam, that is the wahhabi -ism that is taught by this table understand a couple of things right away. number one is that this is one of the most intolerant brand of islam in the entire world without question towards other side, towards other faiths and the like. that's something you get at both the state level and individual level. in the second thing is when you look at the ideology of the group al qaeda, you have bruce rydell is a new expert at the subject to read about osama bin laden. he said something i agree with that for bin laden he wrote, the islam of mohammed abdul baha. his quarrel with the leadership is evident to the principles of the faith they both claim to share. now if you look at the history of saudi arabia, the state version of islam that day per pound creates an inherent systemic problem to them, which they have dealt with any rather peculiar way. and that is they have a very austere vision of islam which the monarchy cannot live up to because they live in the real world where you have to engage in diplomacy and compromise on certain things. and so as a result, for decades they've been trying to channel aggression abroad as opposed to focusing it on the monarchy. a number of analysts and peter bergen and is the holy wording uses this space. we ought to leak after the saudi currency. that is they spend a lot of money trying to create aggression abroad so that it's not aggression at home. one of the things which is unfortunate outcome of this day with very little civil liberties and a set of ideals that the state cannot ever look up to. now the reason i bring this up at length is not to say that the saudi rehabilitation programs cannot work. perhaps it can, but one question you get into is that the religious debate is about how people have strayed on the official saudi version of islam. that creates a question as to how much people's minds are changing. and moreover, if ehrlich in a predictably what's going to happen with the program, understand this ideology better is key to making predictions. so in saudi arabia, we have a history of people undertaking jihad outside of the kingdom. well perhaps if people are being implicated in official saudi as bombs, one thing we can predict is that she would get a high recidivism rates. a high recidivism rate directed at the kingdom, but rather directed elsewhere like say against u.s. forces in iraq. that something basic that comes from his ideological understanding. answer to that extent that's where morris and i part ways on one issue. this is an issue she didn't reason her speech, but on foreign policy she argued that perhaps the best strategic solution is transferring yemeni gitmo detainees back to yemen. i agree we should not transfer them back to yemen. but she says saudi arabia and i'm not convinced of that. particularly for visitors who are asked where the kind we want to release, who are really as radical as some of those who we are most concerned about while implicating them in wahhabi ideology which is exactly what the program reports to do land at making us safer or will it end up making us less safe? so to understand all of this, i think that there are multiple factors that draw people to terrorism. but as long as researchers are not paying attention to the ideas that drive terrorism and the ideas that are actually part of these programs, we will have a blind spot and i think we are to have examples of how that blind spot makes us less safe. unless the situation changes, i think that we are going in with a stewart said that the radicalization programs were not actually looking at the big picture. thank you. [applause] >> now is the moment that you all have been waiting for. your opportunity to ask an actual question. and i would simply ask that in doing so you wait until a microphone comes to you, you tell us your name and your affiliation and then pleas to the extent possible, ask an actual question. and i will reserve the right to rephrase your comments into a question. so who was a question? will start here in the front. >> hi, i'm deborah weiss, goes to lengths on frontpage magazine. could you comment a little bit on the senate hearings on the deradicalization programs and i specifically have a question about a question i keep hearing that mask, which sounds ridiculous to me, which is they keep asking how radical is it okay and tell -- i don't know how to work. sorry, i don't want to ramble. give me one second to clear up my thoughts. they keep asking at what point is radicalization going to turn into something violent where we have to stop it? that seems to me to be the wrong question i just want your comments on that. the mac i actually think that the right question in a very difficult question to answer because there's clearly a gap between radical beliefs and terrorism. and this is something that our nation is founded upon. the first amendment is based upon the idea that there's a difference between radical beliefs and actually undertaken by lengths, which is why you have people advocating -- tasha and our kids, communists, islamists, where the majority of people who wanted to express their opinions. and you have a lot of people who are somewhere along the path like the nypd study and radicalism which has been much criticized puts it as a four step process. beginning with pre-radicalization going through indoctrination into what they describe as the jihad he teleology and something and finally jihad a station where you end up undertaking violence. and they'll find that the vast murder toward the people you start down this path towards radicalization and up at some point turning back. now what is the gap between radicalization of violence? that something that researchers are looking at and it's an important question. i don't know that they're been satisfactory answers to that but i don't see a problem with asking. i think that indeed it's one of those things that we really need to know much more about. >> risa, do you want to comment? >> welcome of my one comment on that is to follow up on the fact that she could be radical without being violent. to clarify when a second bout ideological deradicalization programs versus those on rehabilitation. i would argue that to actually have to be closer to the regal issue and focus. because as a major study can be radical and have radical thoughts about committing to joining a group or terrorism. so perhaps we should be most concerned with the actions and activities in the ideology, also recognizing that there is subset that are ideologically committed and likely will never have their mainstream. so i think in terms of bringing it back to the deradicalization standpoint, i think just the question is really important when we're trying to figure out how to develop a program and what the program should look like coming out right. >> question, this lady was next. >> i am terry hart, a consultant. would you explain the use of art turkey as the radicalization counter radicalization, the pros, cons, the origins, the success traits. thank you here it >> marisa, do what you tell them about the artwork you showed me. >> yeah, exactly. the results of complementing a detainees program skills when i was last there a few times ago as i now have a painting by one of the saudi detainees hanging in my living room. at the program -- the first instance of the program that i've seen were looking at the saudi example. it was used as another way to get at the psychological source of the detainee's radicalization or any mental issues he might have. and so, the way it's played out there is really using a phd, art therapist who goes and works the detainees to try and get them to paint their emotions. it sounds a bit silly, but you see over the course when i showed her artwork how they're trying to release some of the emotions that will be the sources of the radicalization of the violence for the detainees. yeah, i mean, you can doubt it and it might be a smokescreen but it looks pretty cool and it's a good way to give another outlet for the detainees when they're in custody. but i think, you know, there's a therapeutic element of it come about there is also just the i.t. of keeping the detainees busy and giving them something else they can be doing to express themselves when they're in

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