>> that have been very good predictors of behavior. i know we're talking about a lot of different things today, but has there been anything about their ability to an early speaking? >> thank you. and let you ask that question. obviously people focus in on the score because it is a single number and it is easier to tell where he ranked. these three digit numbers that are built on the information that are in the credit reports. one concern that one needs to have is whether the underlying information is accurate. when it is not accurate, it will be less productive than when the information is accurate. >> generally speaking, is there any sense in your office different -- and generally speaking, there are pretty predictive, is that correct? there are some things that need to be rectified when it comes to the consumer's ability to ensure that the credit ratings they have accurate and have access. i value of those things. generally speaking, if somebody's credit rating is correct and the information is there, are they fairly predicted for the future and useful in that regard? >> yes, the lenders have found a useful. that has to be the way in which we judge them. when does depend on this course and the mortgage industry it depends on a specific score or a specific set of scores. we do find increasingly that in the auto industry and the credit-card industry that lenders use multiple scores when they do underwriting decisions. it would not rely on just a single score. they are increasingly looking for other information in the credit reports. they are laid on top of the original score and the original credit report that would be called as part of the application to make a determination about whether to accept a application and how to price the account. >> having a predictor of how they will handle their assets -- it is an asset especially to people who keep their credit and good shape. would that be true or false? what's it certainly helps people who keep their credit in good shape and where it is reported accurately. one of the concerns that we need to be aware of a in of the building of credit is the impact that the very first credit lines consumers have on their credit history. credit scores rely on credit history. scores are really using the past to predict the future. we know that different consumers start out with different kinds of products. the different products may have different likelihoods of resulting in good or bad payment behavior. one of the questions we asked, we are beginning to think about is whether bad loans and bad products make bad repairers. therefore can result in harm's -- and harm to credit histories. >> i appreciate your effort to make sure if something happens that is inaccurate and unfounded and candidly makes it difficult for them to navigate the society we are living in, i appreciate your efforts to rectify those things and make it easier for people to be able to overcome that. i think that is an important thing. at the same time, obviously, they have some value in having good predictors. hopefully, when we are through with this process, we will end up again dripless there's still a useful tool. at the end -- at the same time -- i thank you very much for your testimony. >> i understand the valuable service they provide. i would ask to include the following documents, and the consumer report, a statement by the national association of credit services, and articles from the columbus dispatch investigative series on credit reports. >> thank you. i want to jump right into an issue i have a concern about, which is the issue of medical depth. i found it fascinating with just my family of four how many buildings i get in the mail, so many saying, this is not a bill, but here is the information. here is a bill, but you need to check with your other insurance to see if it is covered, etc. it has not been unusual for us to look at it and say, this should have been covered. virtually always, we are right, and it simply was not process the first time through. maybe the insurance company just stamped it and hopefully would not call back and say, wait a minute. i guess the portrait i am trying to lay out as from my personal experience, enormous confusion about what you are paying when it. people simply having to go through a complex set of troops to really determine if i really on this or should it have been -- said of hoops to determine if i really owe on this. i have looked at all that and i have proposed that settled medical that -- after you have sorted through all of the miss and reached an agreement on what you owe and have paid it -- it should not be included in your credit score. i think the chair of the subcommittee, senator brown for cosponsoring that. i want to ask about your sense of this. i want to enter several things into the record. i would like the letter that was sent to richard cory, his response back to us, the support letter from a broad coalition including the national home builders association, the medical association, consumers union and two articles from the ap and the new york times. if i could enter those things into the record, i would appreciate it. i wanted to get your perspectives on this. in your recent report you cite research showing 40% of credit disputes are related to collections, events. before we jump into that piece of it, over all, this issue of the complexity of medical that and resolving it, whether it is a good predictor or whether it should be part of the credit reporting system. >> i appreciate your bringing this issue up. it is definitely a source of concern. the fact that collections items are disputed at high rates is not a surprise. -information's its disputed more often than positive information. we should expect higher rates on collective items. i think you have pointed out in some of your own correspondence over half of collections items about 10 years ago a denture a fed study come from -- in a fed study comes from medical collections items, which is way out of proportion to the role the health-care system plays a in the economy compared to debt. >> is that the federal reserve study you are referring to? >> yes, 2003. it is clear consumers face enormous challenges understanding medical bills, who is liable for what dealing with payments, consumers get the bills from multiple entities, some of the not aware that have been treated by. anesthesiologists -- all of that stuff. it is not clear when a bill is a bill. of the complicating factors his many health-care providers out source not just collections but their whole accounts receivable function to agencies who manage the building. -- billing. the timing of when it ultimately gets reported to a consumer reporting agency can vary considerably from provider to provider. there is not a single set of rules out there that happen in the medical billing environment that have -- unlike what has evolved in the credit card industry. some collection items show up earlier before some of the responsibilities or a formal and voice may have been received. >> given all of that, when a person has worked their way through all of that and settled the debt, should still be on their credit report? >> there are a couple of issues late -- on that. those are questions you will have to answer. the process of developing your legislation. >> i am asking you for your expertise. i already know my answer. >> here are the things we are looking at. i do not have a firm answers. one question, obviously, is to what extent certain medical items agreed to many of these are very small, as you know. are they predictive if they're not paid? many consumers find out about them only when they go to apply for a loan and they learn there is the collections item. the idea that the collections item was something that was woefully not paid or could not be paid is not something that you can infer. for those people, one could argue it would be predictive of anything regarding willingness to pay, which is kind of the way credit history is used and reflective and credit scores. a second issue is, where a in the system one wants to hold accountable filter for determining what is and what is not predictive appeared to have the credit reporting agencies to collect the data. we have scored developers such as fico to translate the underlying data into something that is predictive of credit worthiness. we have purchased a panel of an anonymous consumer data agencies that will have this data from which we will be able to make a determination about the predictive as of this data. >> i have to cut you off because i am way over my time. my scored as throughout most medical data and i do not think they consider it to be predictive. this is affecting millions of americans. i am only arguing when people have figured out who would have paid what, they settle it. by that time it has already been reported and on their credit record for seven years. the fact it does so much damage, it seems to come on in the results of your study. thank you. >> this will probably be your last hearing. we look to your leadership, senator, cut and thank you -- senator akaka, thank you. >> thank you very much. so good to be here with you and the committee. i have enjoyed working with all of you. of course, we are here for all the people of america. let me just say thank you very much for holding this hearing today and for all of your work in consumer protection issues, chairman brown. our economy and nation are stronger for it. it is fitting that a hearing on consumer protection will be my last in the senate. consumer literacy and protection are issues that are very close to my heart while my career is coming to an end, i hope there are many of my colleagues who continue to empower consumers to make the best financial decisions possible. thank you very much to my colleagues here on the committee also, the chairman johnson and chairman brown and senator reid, senator merkley, senator hagan and others who i know share my strong interest in .onsumer protection by al i appreciate step because we work together so well. thank you again, as well. i want to thank our witnesses for your tyler's work in consumer protection. esther chairman, i asked that my full statement be added to the record and i would like to ask a couple of questions. glad to have you here, mr. stone. i am so glad to see that consumer financial protection bureau is working and here. i look forward to your work. i believe it is important to have a complete picture of an individual's financial record, calculating a meaningful credit report. i thought to include a report of remittance, transfers in the dodd-frank provision. the report last year mentioned research that they plan to use the remittance histories to enhance credit scores. can you please discuss any progress being made in those research projects? yes >> , senator, let me thank you for making sure that report requirement was inserted in dodd-frank and it is an important issue of what kinds of information can help provide a complete history that gives all consumers an opportunity to get access to credit. we did provide an initial report last year and that dealt with some of the strengths and weaknesses we would anticipate would be involved in using remittance history. for context, lots of people who send remittances are people who have thin file so it was a great opportunity for a new kind of information to enrich our understanding of their ability to pay and their financial wherewithal. the downside is that it is not an obligation and therefore does not provide indications of whether an obligation has been met. since we completed that report, we have received a sample of information from one of the largest remittance providers, transaction history, on a very large sample of consumers and that information has been matched those consumers credit histories so we have remittance history and we have held those consumers performed on their credit obligations subsequent to that remains history. right now, we are doing the analysis to determine how useful the remittance transactions are predicting the credit performance and payment history of those consumers. we expect to that report to be finished in the second quarter calendar, 2013. >> thank you very much. the cfpb report affects the lives of americans from finding a job to finding a home, two fundamental topics when we talk about moving our economy forward. less than one in five consumers accesses their credit report. please tell me, what is the cfpb doing to encourage their credit reports? >> thank you, senator for asking that. it is important that consumers access their credit reports and we have a number of mechanisms. we have consumer education and division. we develop blogs end contents that gets distributed to all kinds of community partners. we also make sure people are aware of research that shows what the benefits are of people saying their credit reports and knowing them and knowing their credit scores. there is a recent article from the federal reserve bank of boston that shows some of the potential benefits of consumers knowing their scores when they apply for credit and not knowing their scores. i want to point out power constituent offices where we do special outrage to service members. have an office of students and an office of older americans and those offices have developed specialized channels for communicating what in particular about credit reports and scores is important for those particular groups to know and we are trying to make the message available to each of those groups at the most taechable small men's. >> thank you very much. may i then ask you to give my regards to holly petraeus. she did to map to hawaii to talk to us about financial literacy and did a great job. i am proud of what you folks are doing. >> thank you, senator, i will pass on your greetings. >> aloha, thank you senator akaka. [no audio] [no audio] stuart pratt has often testified before . on responsible uses of consumer data. ms. wu has been a staff attorney. she worked in the consumer protection division of the massachusetts attorney general's office in the asian average unit. she is a graduate of harvard law school and johns hopkins university. she is a contributing author to consumer credit and landing. welcome to both of you. >> thank you for the opportunity to be here before you today. let me touch on a few highlights of the testimony we have already submitted. we talked a little bit about credit reports and whether consumers understand them or not but the strongest advocate for me is a consumer. when the bank does not know me, 40 million of us moved every year and a credit report is the bridge that tells my story. it is about my hard work and help pay my bills and the good decisions i make and personal responsibility. credit reports are an incredible indicator to others, everything else about you want someone to know about me. usaid, the other banks are so involved and supportive of credit reporting that they are involved in spreading this good news around the world. i serve on an international task force to advance credit reporting and other parts of the world. the system is big. the report laid out very well, 200 million plus consumers have a credit report in this country, about 10,000 lenders are supplying data and there are about 1.3 billion accounts and the system and about 3 billion updates every month are members are confident of the accuracy of the system they have and they should be. they work and accuracy seven days per week and we provided the ftc with information so they can release their report. we did not wait for them to measure the question of accuracy. we want to answer the question that consumers most ask which is -- is there an inaccuracy in my credit report that is consequential? i think there is some good news in all of that. we contracted with an outside group. they controlled the data and the results and the press releases. it was a very powerful study and p [eer-reviewed. as a consumer, about less than 1% of the time will an adjustment resulted in a 25% move on my credit points. 99.5% of the time, i am not likely to see something in my file that will impair my ability to engage in the marketplace. read investigations are another big issue. --re-investigations are another big issue. we did this in tandem with the work that was done with the accuracy study and got some good news there -- 95% of the consumers that disputed information on the credit reports and then saw the results indicated they were satisfied with those results. automation really is not a problem. we have some fundamental problems for consumers with automation is a web at-based system that wires together. law requires that we resolve a dispute in 30 days, these systems allow us to allow the -- to resolve the dispute in 14 days. cfpb indicate roughly 44% of the time, a communication is sent through the mail. however, 85% of the time, it is a standardized form or standard letter and 10%, it is identity theft report and 2%, it is more than that. the perception has been that consumers are spending big stacks of validating data but we see consumers satisfied at 95% and a system that is working today even though it is automated. one of the biggest challenges for re-vesta gay and his credit repair. 43% of the mail we receive comes from fraudulent credit activity. it clogs the system and interferes with the process. consumers often don't know what credit repair agencies do. they take money from consumers where they could exercise their right to free of charge. my time has expired but i will leave it at that and i look forward to any questions. >> thank you for inviting me here. i may staff attorney at full law center. thank you for holding this hearing. credit reports play critical role in the economic lives of americans. the system is full of preventable errors and the dispute mechanism mandated by the reporting act has been turned into an automated travesty of justice. consumer advocates have complained about these issues for over eight decades. these issues were discussed in a 2006 report by the ftc. preventable errors include mixed files or credit information lead -- pertaining to one consumer is placed on another. matching criteria is to lax. mixed files could be prevented by having -- require in the credit bureau to have an exact match of social security numbers. debt collectors and debt buyers have their own errors because they don't usually get supporting documentation. the report issued by cfpb notes that they provide only 30% of the information. we have a number of concerns about this study in contrasts with studies by consumer groups. even if we take this one% error rate at face value, that figure translates to 2 million americans. that is not acceptable. if 1% of their plants fell out of the sky, would we accept that? -- it 1% of airplanes fell out of the sky, would that be acceptable? credit bureaus translate disputes written by desperate consumers. they use the same handful of codes 80% of the time and the entire role of foreign workers employed by their offshore vendors and all these disputes. a failed to send documents that have been submitted by the consumers. the credit bureaus [inaudible] no matter how good the consumer evidences even when the furniture is a dead buyer or debt collector with a known record of bad behavior. the consumer is not always presumed guilty but she cannot get an innocent verdict. furnishrs in -- the ftc brought a case where they require their dispute handlers to handle half a million disputes to process one dispute every three minutes. the end result of this system is that no one either in the credit bureau or otherwise can conduct meaningful investigation into consumer disputes. they cannot expedite any form of human discretion involving a dispute. reform needs to happen now and it should've happened years ago congress can help by giving them the ability to have power under the fair reporting act. the medical debt is an enormous impact. it is probably the simplest and quickest way to improve the credit report of millions of americans. medical debt makes up over half of the items on credit reports for debt collection and is often for services that are involuntary and not predictable. it could be a dispute between an insurer and a provider. how does the fact that the consumer got caught between an insurer and a hospital in a billing dispute make them a bad credit rest? thank you for the opportunity to testify. >> thank you, ms. wu. >> thank you for this hearing. i will step into another meeting. i think this has been very enlightening. mr. pratt, i thought your testimony was very good and ms. wu, if i ever m.a. situation where an attorney, i will call you. [laughter] we all want this to work for everybody. there is some issues here that need to be resolved. i hope we can do that. i want to thank you again for calling this hearing and the leadership and i will see you later today. >> thank you very much. thank you to both of you testifying and i endorse senator corker's comments. is it feasible for credit bureaus to share documentation with furniture is? - furnishers? i understand that it is pretty certain that bureaus don't share that information when furnishers be able to see it. is it feasible for them to share that information each time? >> if you look at technology, there is some technology we could look at and we are always in this dialogue -- is there some new mechanism we could put forward. one of the challenges is consumers will often talk about two or three different accounts on the front page of the letter. we cannot send bank of america information about citigroup or another lender. we need to parse before the letter. one of the legal issues we have, as a matter of law, is how to unpacked important communications sowed data can be sent from one party to another if it will advance the ball beyond the coating systems we have today. we think we are getting it right. most of the letters come in and they said that is not my account or they say i net -- i never missed a 30-day payment. more consumers are choosing to dispute directly with their lender. >> even if the lender is not the furniture? >> lender would be the furniture. through the fact act, a push for the idea that i should have this right under law. we see more consumers with complicated issues going to the lender to resolve the issue and that's why you will continue to see this moving forward. >> it seems more often than not that the furnisher and the lender are not the same institution. >> if the consumer looks of their credit report and says there is a credit card issue or disagree -- >> if they have a crop report but they look at their credit score and they see why it is that blow and a question that and they come back to the credit bureau and the credit bureau -- this is sort of vague kind of a black hole for concern is dealing with credit bureaus that the credit bureau is not sharing the information with the furnisher. there is no good appeals process -- >> we want that process to work. >> why we do not share the information with the furnishers? >> is a voluntary system and we had to take care not to overburden the system. >> furnishing the letter does not change how the lender will investigate the date set. if the consumer says i never missed a 30-day late payment, it has the same effect and the lender will process the dispute in precisely the same way. there is very little communication coming over the transom to the credit bureaus. on the letter-writing side, one of the challenges we have is credit repair is flooding the mel-based system. 43% of what we're getting is coming from credit repair saying they will dispute none of verifiable data. what they really say is that they will keep sending these letters until but lender gives in. 40% of our mail and if we keep pushing that miller disputes back to that lender, we are just forming the system. one of the great challenges is the credit repair act of 1996. it is a challenging issue for us. >> thank you. why do credit bureaus keep accepting customers that have a poor record of compliance? >> that is a great question. it is a very simple answer -- money talks. asset acceptance -- is a company we complained about in 2007 before the house as a dead a buyer. -- as a debt to buy air. they would buy it one of the credit bureaus for supplying inaccurate information. >> was there 5 million accounts? they were sued for providing false information for several million accounts? >> i don't remember the exact number but it was a class action involving a number of accounts. the federal trade commission sued them for a greases of violations. this is the type of furnisher that constitutes 40% of disputes. this is the kind of furnisher the industry says it does not want to burden with the obligation of resolving disputes. they are required by law to settle disputes. the reason that they are still in the system is because they are the customers. they pay the credit bureaus who enter their information into the system and pull reports. the creditors and debt collectors that are the major customers of the credit bureaus, not the consumer -- this is an industry unlike every other industry -- usually in an industry you have competition and the consumer has a choice. in this system, consumers do not have a choice. if you are unhappy with hal experian handles your information, you do not have the choice. there is no traditional market force to improve the services to consumers. on the other hand, creditors and debt buyers can choose between the credit bureaus and they are the ones paying the bulk of the revenues. >> mr. pratt. given the history of bad behavior among debt collectors, should there be a higher standard? >> i will answer that question -- i think is fundamentally wrong what ms. wu is saying about our relations with consumers. >> you do acknowledge the rebel -- relatively small part of revenues -- >> to the contrary, we generate more revenues in the direct to the consumer area. it is an important relationship evolving in the market. it is exactly what we should operate in this country. >> one of the big three gets more money from consumers than they do from lenders, furnisher, and other financial institutions? >> that's right. i think it is patently wrong to say we are not seeking a relationship with consumers and wrong to say we want to have some sort of sub standard system. all i can tell you is that women look at air mattress, every time a consumer -- all i can tell you is that when we look at our metrics, one-five, we do a good job. the average is 4.5 for consumers. we are measuring and looking for ways to serve consumers care what the law requires them looking for ways to serve consumers in the marketplace. both are important ways for us to reach consumers. there has been a lot of discussion of consumers being confused about credit reporting. the consumer federation of america has the survey consumers and said progress had been made. we are making progress. i'd like it is probably wrong to say we're still in the same place we might have been back in 2003 or 1996. why did credit bureaus do business with debt collectors? it is true we do business with them. because debt collectors report negative information, there does -- their dispute rate will be higher. we evaluate in come furnishers and the white paper does a good job of outlining the process by which we check and bring a new furnisher on board. we also have an ongoing audit process for every set of data coming into the system to make sure we quality control was coming into the system. this is not the wild west description that i think sometimes run into. is a very deliberate and careful quality assurance process. you see dispute rates running around bankcard retail of 21.7%. even with collection agencies, the dispute rate runs around 1% of all the data reported. when you look at it on the macro level, this dispute rates are relatively good. that is what is showing up in the accuracy study that was sponsored in the first place. >> do you want a specific response to the question? >> i cannot speak to asset acceptance specifically. >> i want to ask both of you about the use of credit scores with employment. are we setting up a vicious cycle where a person's credit score might affect their ability to get employment? >> yes, we have taken the position and strong oppose the use of credit reports in employment except in very limited circumstances. we think it harms american workers. it creates a vicious catch-22 that if you lose your job and cannot pay your bills, york reported damaged and that your credit report is used against you when you're getting a job. that sets up the workers to fail and puts them in a horrible bind. when you are talking about our weakened economic recession where we had almost 10% unemployment and millions of consumers affected by this, we know a lot of employers do that. 60% of them use that. we think it has a disparate impact on minorities. we have seen studies that showed that certain minority groups have lower credit scores. that means this practice is disproportionately unfair. we have supported bills in the house before too restrictive this practice. >> what is the best argument for using a credit score by the employer? >> some employers make the argument that the credit report is somehow a reflection of personal responsibility. they think it shows good values and good work but i submit that people would damage on the credit reports often are the victims of circumstances. they lose their job and i cannot pay their bill or they get sick. we had a discussion about medical debt. think reports are a reflection of personal responsibility. i think they are reflection of circumstances, bad luck, and sometimes hard times. >> student loans have involved more debt across america than credit cards. if you can get a job out of college, your student loan may hold you back. is that proving to be a challenge? >> student loans bashir -- certainly show up on credit reports. what we have heard is that if you have deferments that affect the credit score in another way having to do with the ratio of credit available to credit outstanding -- it does have an impact on credit reports. >> does this create a generational bias in that if you are fortunate enough to have parents that can cover your student loans, you have an enhanced ability to get a jump compared to someone who does not have parents who can pay their loans? >> i think credit reporting and credit scoring often reinforces the economic circumstances whether it is generational because of what is happening in our economy and how the younger generation is being compacted -- is being impacted. it could break into the system years of discrimination. the good credit scores tend to have their scores go up and the bad scores go down because they have to pay more for credit and they have to pay more for insurance. credit scores are often used in insurance. everybody needs insurance if you drive a car or zero may, you will pay more if your credit score is low. the more burdens that are placed on the consumer because of a bad score makes it financially harder for them to dig out. >> with insurance, you have a situation where if you don't pay your bill, you lose your insurance and there is no credit outstanding for credit issue. why would a credit's core be used in that setting? >> from what we understand from the industry, they use credit scores because they found them correlating with claims. that industry claims that the reason why credit scores are: -- correlate with lost ratios is people who are better their credit reports which is bad drivers and people who have messy lives, the correlation has to do with economics. people with low scores may have lower income and have more difficult financial situations but if they are in a fender bender, they are more likely to file a claim. it is all about the money. >> what you think about this issue of employment, mr. pratt? >> i think the news is better than that. the society for human resources management was represents human resource folks in this country has been polling their members regularly to find out what is going on in the marketplace. only 53% of employers conduct a background check using a credit report for any job. there's a difference between 53% using it for one job. there is no employer using it monolithic lead. cally. the human resources folks are saying we are looking for something in particular, something that may deal with personal responsibility but they usually do this after they make a contingent offer. at that point, i say i understand that if you don't have a job, you cannot pay your loans. in this case, i don't think the delinquency that shows up on a student law has anything to do how you will perform a particular job. credit reports are used most often for positions of responsibility -- financial positions and employees that have access to highly confidential information. we surveyed our members and maybe 5% of the products they issue -- 95% of the background screening in the marketplace does not include a credit report. it is used for a discreet population. i think that response to the idea that some parents are able to pay student loans and others are not. i think it is the way it is being used. it is not was in the credit report but the way it is being used that is a pivotal question. credit scores are not used. the credit report is used by our members to not sell credit scores for employment. you do not just see a number. you are seeing the report and take a deeper dive into the details. i think the news is better than that. >> did you mean to say no employer uses it for every job? >> that is dangerous these days but based on everything we have seen, it is used very selectively and is not used as a broad filtering process. >> you talk persuasively about using percentages but as ms. wu points out, 200 million is not a low percentage. was a few percentage of 200 million americans, that is a significant portion. i'd particularly appreciate the questions. this plus the fact that modern income americans and low income americans whose lives are often a challenge when most of them have not had a raise in 10 years and then faces obstacles of may be higher insurance rates in some cases, more difficulty getting a job, more difficulty getting an apartment and certainly getting a lower interest rate than they might otherwise get, sometimes the credit score they have earned through their behavior and other times credit scores may not be entirely accurate but it is low income and moderate income people that are least likely to know they can challenge the scores and get them fixed. i know you are aware of that, mr. pratt, and i hope we can see some remedies without legislative action. i ask that if anybody wants to submit questions to the panelists, please do and get them back to us by january 2. if mr. stone wants to expand, please get that to us by january 2. thank you very much for being here and this meeting is adjourned. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2012] >> today, "washington journal" is next followed by " newsmakers." first we will talk about the fiscal cliff negotiations and the finays