Mr. VAUGHAN. Certainly I think the applicant is entitled to reliable information and that the source should be responsible for providing accurate information.

Senator PROXMIRE. Well, now, Mr. Selberg, on page 7, you say, and I quote, "the duty of explaining the information contained in the report is with the consumer reporting agency, not the user."

How can this be? You're the ones who make the decision as to whether a consumer will get credit, not the reporting agency. Why shouldn't the consumer come to you for an explanation of your adverse action?

Mr. SELBERG. Well, we take the information that's given to us by the consumer reporting agency. We accept it at face value and if there are erors in their files I think that as the law now allows, the consumer gets together with the consumer reporting agency and those matters are resolved.

I fail to see the need for the middle man to get involved.

Mr. VAUGHAN. Senator, if I may, with reference to your last question, I think it's extremely important that if the information from the source is not reliable that it should be corrected at the source, and we are not assuming for the purpose of the report that we are the source. We are a user. I think it's extremely important that the consumer does correct the information at the source.

Mr. SELBERG. I'd like to add one other comment, Senator. In those cases when a consumer challenges the information that we have received on a standard credit report, we have empathy with that situation because this is our potential customer and we ofttimes—in fact, almost without exception, we try to track that information down and find out whether or not it's accurate or inaccurate. That's a standard way of doing business.

Senator PROXMIRE. Well, if it's the standard way of doing business. then your response is that the consumer should have the right to come to you for information.

Mr. SELBERG. We have no objection to him coming to us, but I don't see where it's necessary to write legislation to that effect because it's being done as a matter of course.

Senator PROXMIRE. Let's assume that we are committed, as the administration seems to be, to strengthening the consumers access to and control over information about them. What part of this bill could be implemented and perhaps in modified form in a way that would be workable and fair? Industry has worked very well with this subcommittee over the years to give us legislation that you now say you ap prove of and is effective, and we certainly want to work with the people who have the problem of living with the legislation for many years as constructively as we can. What would you suggest, Mr. Vaughan?

Mr. VAUGHAN. Senator, we are faced with a dilemma. I have appeared before this subcommittee on several occasions and have been able to support parts of most pending legislation. I certainly feel that there are certain areas within this proposed legislation that the banking industry could support, but I'm deeply concerned again by the cost of the implementation of any of this legislation. I think that the present act does in fact adequately protect the consumer.

Senator PROX MIRE. Well, Mr. Vaughan, I'm very sympathetic with your argument of the cost. I think you're right about that and I think we want to change this legislation so the cost is sharply re

duced. There's no question that the legislation in its initial form. would be costly and that's wrong and I'm going to do my best to change it as author of the bill. But we still feel that, as you say, there are parts of this that the industry can support and live with and we would be grateful to you if you would take a look at this when you get an opportunity and perhaps write us or communicate in any way you wish, perhaps when you correct your remarks, indicating what there is in this legislation that you feel you could live with and what you feel you could not. I think you have done a good job, both you gentlemen, this morning of indicating why you oppose the legislation but it would be most helpful for you to indicate where, if anywhere, you find that there's some common ground so we might proceed.

Mr. VAUGHAN. As my colleague said, we probably, in essence, are satisfying some of the improvements by furnishing copies of letters to many of the consumers. If we have gotten a credit report or if we have incurred the expense of taking an application and developing the credit information, then for us not to make a loan just compounds the problem of cost. So we're probably doing some of the things that åre espoused here already, but we would be happy to respond to your request.

Senator PROXMIRE. Well, gentlemen, thank you very, very much. I will dismiss you and before I call the next witnesses we have a rollcall vote going on now and I'm going to have to leave again, but I will be back within 15 minutes. Our next witnesses will be Mr. Wilberding, Mr. Badders, and Mr. Evans, and I would appreciate it if you gentlemen could come forward together to hear you as a panel, although your views and positions vary somewhat.

The committee will stand in recess until I come back. [Recess.]

Senator PROXMIRE. The committee will come to order.

Our witnesses are Mr. Joseph C. Wilberding, executive director and general counsel, Medical Information Bureau, Washington, D.C.; Donald L. Badders, director, State government relations, TRW, Inc., Washington, D.C.; and Robert B. Evans, vice president and general counsel, American Finance Management Corp., accompanied by Robert Norris, general counsel for the National Consumer Finance Association.

Go right ahead, gentleman, Mr. Wilberding, and I apologize very much for asking you to come as a panel. I realize it's not really a panel in that sense. I know you're quite different as are the parts of the bill that you're testifying on and we will certainly keep that in mind.

STATEMENT OF JOSEPH C. WILBERDING, EXECUTIVE DIRECTOR AND GENERAL COUNCIL, MEDICAL INFORMATION BUREAU, WASHINGTON, D.C.

Mr. WILBERDING. Thank you, Senator. We have met before.

My name is Joseph C. Wilberding. I'm going to brief this thing.
Senator PROXMIRE. I appreciate that.

Mr. WILBERDING. I'm executive director and general counsel of the Medical Information Bureau with offices in Greenwich, Conn. and a service center in Boston, Mass. and disclosure offices in Boston and Toronto.

MIB is a nonprofit trade association owned and controlled by its 700-member life insurance companies. Through MIB the life insurance companies in the United States and Canada can, and at a very low cost, exchange significant underwriting information regarding applicants for personal insurance. MIB receives information in coded form only from its member companies and there are no other sources. A member company has access to MIB only when it is considering a risk or claim.

The MIB information exchange is necessary in order to prevent applicants from obtaining personal insurance coverage on the basis of fraudulent statements or omissions due to faulty memory. Since each applicant must pay a premium that is commensurate with the risk being assumed accurate information is essential to underwriting risks. Under MIB rules member companies cannot report whether an application, and do not report, that an application has been declined. rated, postponed or granted, nor can they, nor do they, state the amount of insurance applied for or issued. Members are not permitted to underwrite risks on the basis of information received from MIB nor do they rate nor decline because of such information.

When alerted by an MIB report a member company must make its own independent investigation and its ultimate decision must be based on its own findings. This results in a selfcorrective, updating procedure that assures a high degree of accuracy in our records.

In presenting views with respect to S. 1840, may I first point out that MIB does not conduct investigations nor do our member companies report their sources to us. For this reason we are not directly affected by several sections of this bill which would impose additional burdens on consumer reporting agencies that make investigative consumer reports.

Our concern mainly centers around a few provisions of S. 1840 which define the term "medical information" and require alerting a consumer to the possibility that significant underwriting information he supplies may be stored with MIB.

May I say that my statement will be limited to the provisions of S. 1840 that impose requirements on MIB, as distinguished from provisions of the bill that apply to users.

The American Life Insurance Association, which represents most of our member companies, has presented the user viewpoint.

During the hearings before this subcommittee in October of 1973 several witnesses charged that MIB operated under a veil of secrecy. In brief, these critics contended that life insurance companies stored underwriting information with MIB without the knowledge of the consuming public. In rebuttal, we pointed out that there was a large volume of published information regarding MIB and its procedures; that we were eager to publicize MIB's existence, and the important services it performs in the public interest.

Following the 1973 hearings, MIB decided to overcome any remaining question regarding the openness of its activities by adopting a prenotice program requiring every MIB member to notify applicants for insurance: (1) Of the existence of MIB; (2) of the possibility of a report being made to MIB; and (3) of the disclosure and disputed accuracy procedures available to the applicant under the Fair Credit

Reporting Act. MIB also adopted a rule requiring member companies to obtain the written consent of applicants before requesting information from our files. Under these voluntary changes, every applicant to an MIB member now receives full information regarding MIB's existence and procedures and his right to FCRA disclosure. These prenotice procedures, which have been in full effect since January 1, 1975, satisfy the requirements proposed in section 5(a) of S. 1840.

Another 1973 criticism involved the storing of certain types of nonmedical information in the MIB, particularly information regarding morals, habits, sexual deviation, and social maladjustment. The argument was made that this type of information might be obtained from unreliable sources; that storing this type of subjective information with the MIB could perpetuate inaccuracies to the detriment of the insuring public. At the time, I pointed out that such a result was highly unlikely but since then, following the 1973 hearings, we have reviewed this criticism and instructed member companies to discontinue reporting all sensitive, nonmedical information to MIB.

However, member companies are still permitted to report such information relating to hazardous risks, such as aviation, participation in dangerous sports or occupations, provided it is confirmed by the proposed insured.

The balance of my statement deals with specific comments on S. 1840. We have problems with section 7(d) in particular. This requires a notice to be given to all individuals with existing MIB records. We have records on approximately 11 million people. We do not have the mailing address of any of these people. We have had a study made by our servicing agent and this would cost us approximately $32 million. We believe this added expense is unjustified and there are other ways of accomplishing the same thing and take care of it through these other notice procedures.

Also I notice there is a requirement with respect to files created in the future and this presents an entirely different problem, but we believe the notice requirements of section 5(a), the prenotice requirements there, go very far toward handling any additional information that the individual should have.

Now on section 8 of the bill would give the consumer the right to personal, visual inspection of his file. Our files are in coded form. We think that should be amended to provide that giving a fair translation of the code would be sufficient.

Section 8 also expands the responsibility of explaining any information in the file by providing that such information "shall include identifying adverse or potentially adverse information." That's really an underwriting problem. Some of our information we know is in the individual's favor and it's information helpful to him. We don't know in the particular case and we do not have staff to do that and we believe that provision is unworkable.

Section 8(d) eliminates the old exemption of the present 610 which provides that certain actions based on disclosure of information actions are prohibited based on disclosure of information under the act except as to false information furnished with malice or willful intent to injure the consumer. We think that's in substance a codification of the common law to a degree and we do not think that should be eliminated.

The second option is to make the requirement prospective and applicable only to those consumers on whom new files are established after the effective date of this Act. The cost of this program again, although significantly less expensive, does not, in our opinion, appear commensurate with the benefits to be achieved. The third alternative would be to require notification to the consumer only in those situations where a file is created (1) subsequent to the effective date of this Act and (2) not pursuant to a written credit application signed by the consumer. This latter qualification contemplates that all written credit applications to be signed by the consumer would indicate that a file was going to be created on the applicant and that further information about the credit file may be obtained from the CRA, the name of which shall be disclosed by the user at the consumer's request.

This option would split the burden of notification between the user and the CRA since the credit application supplied by the user would advise the consumer of the existence of a credit report on him or her and actual initial notification required for CRAS would be limited to the relatively small number of people on whom a credit file was established without written application for credit being made. We believe that this approach, coupled with the requirement of notification of adverse action taken as a result of information contained in an existing credit file, would satisfactorily meet the consumer's right to learn who is maintaining files on him without creating an undue cost burden on the industry.

There is a second issue and it relates to the question of shared information. We believe that notification should be required only when a file is originated. Notification is not necessary when a copy of a file is provided to another CRA so long as the company supplying the shared material is required to update the shared information at reasonably frequent intervals and to notify the agencies with which it is sharing information of any corrections. Otherwise, a require ment that a recipient agency notify each consumer could have significant anticompetitive effects on the small CRA which has access to the files of the large CRAS.

With the release of information to the consumer made mandatory, we think that consumers will also be in a much better position to address another major problem of the credit reporting issue whether the information compiled is relevant. What kinds of information are really necessary for purposes of insurance, employment, and credit-worthiness beyond known performance standards?

Does it really make a difference in the cancellation of automobile insurance to know that a female policy holder has a "hippie-type" son? This critical question of relevancy must ultimately be resolved by the consumer reporting industry. It is indeed difficult to legislate relevancy effectively-the marketplace is in the better position to deal directly with this problem through adequate disclosure.

It is the existence of this highly subjective and non-performance-related information which can affect consumers so grieviously and abuse their rights so grossly. However, we feel that with access to the information collected and maintained on them, consumers will, for the first time, be able to understand the real situation with which they must deal. Once they are able to identify the problem, they can then press for solutions and remedies if they feel that their rights are being violated.

CONCLUSION

While these ideas which we have discussed do not encompass all the proposed amendments to the Fair Credit Reporting Act, they do focus on the issues with which we are most concerned. At the present time, an amazing number of people do not realize that great data banks of information are being maintained about them and they certainly have no idea of the highly personal information contained in those files.

Thank you.

[From Newsweek, Nov. 10, 1975]

CORPORATE LIFE: BUTTING OUT

For the better part of 25 years, large companies have increasingly earned a Big Brother reputation among their employees-regulating their clothing style. inspecting their spouses, dictating what type of clubs to join and how to live their lives. And in corporate mythology, no brother was bigger than Internationa!