House Committee Approves FCRA Bill

Shortly before adjourning for their August recess, the Financial Services Committee of the U.S. House of Representatives voted 61 to 3 to approve a bill that would block states from legislating in several core areas covered by the Fair Credit Reporting Act. States like California have been actively debating tougher privacy laws that govern the exchange and use of credit report information, in addition to other types of personal financial information. Since 1996 the federal FCRA has prohibited states from tinkering in 7 key areas, which include content of credit reports, responsibilities of firms that furnish information to credit reporting agencies, the sharing of personal financial information across corporate affiliates and the use of credit report information to prescreen offers of credit and insurance. The preemption expires at the end of 2003. At the start of the 2003 legislative session, the financial services industry identified an extension of federal preemption under FCRA as one of the top legislative priorities for the year.

Along with extension of federal preemptions, the bill establishes new safeguards to protect consumers from identity theft, and includes several new provisions to help consumers learn the content of their credit file. One amendment that surprised financial industry lobbyists but which was narrowly defeated would have prohibited the common practice of an issuer raising interest rates on accounts of cardholders whose credit reports revealed a significant increase in risk but who were not delinquent with the issuer. Introduced by Rep., Bernard Sanders (I-VT), it surprised lobbyists when it gained support from one of the co-author's of the bill, Rep. Spencer Bachus (R-AL). According to the American Banker, Bachus rejected the arguments of some of his colleagues (and Federal Reserve Board Chairman Alan Greenspan) that the amendment would jeapordize the ability of issuers to control their portfolio risk: "Are we actually saying here in America that to maintain the financial safety and soundness of institutions, we have to allow baiting and switching?. . Mr. Greenspan talks about increasing risk. When you increase a low-income American's interest rate up to 19.9%, aren't you increasing his risk?" Several other Republicans voted for the amendment as well, but the defection of several Democrats doomed the amendment. Nevertheless, it could resurface when the bill goes to the floor of the full House after the August recess.