BILL ANALYSIS Ó
AB 1220
Page 1
Date of Hearing: April 29, 2013
ASSEMBLY COMMITTEE ON BANKING AND FINANCE
Roger Dickinson, Chair
AB 1220 (Skinner) - As Amended: April 22, 2013
SUBJECT : Consumer credit reporting: files: inspections.
SUMMARY : Requires that if a consumer requests a written copy
of his or her consumer credit report then the consumer must
receive the same information that is provided to the user
(entity that grants credit) of the consumer credit report.
Specifically, this bill :
1)Requires a contract between a consumer reporting agency (CRA)
and a user of a consumer credit report shall include a
statement that federal law prohibits a consumer CRA from
prohibiting a user of a consumer credit report from disclosing
the contents of the report to a user who has had an adverse
credit action.
2)Specifies that a contract that violates the prohibition in #1
is void and contrary to public policy and that the Attorney
General or the district attorney of the county in which the
violation occurred may bring a civil action to enjoin a
contract in violation.
3)Provides that if a consumer has authorized a CRA to furnish a
consumer credit report for an extension of credit or other
lawful purpose, the user of the consumer credit report shall
notify the consumer orally and in writing of the following:
"You have authorized us to obtain a copy of your credit report
as part of an application for credit or for some other lawful
purpose. If we take adverse action on your application and
our decision is based in whole or in part upon your credit
report, you have a right to obtain a copy of the report from
us that we receive from the consumer credit reporting agency.
Neither state nor federal law prevents you from obtaining a
copy of your credit report from us under those circumstances."
EXISTING STATE LAW
1)Regulates consumer CRAs via the Consumer Credit Reporting
Agencies Act. [Civil Code, Section 1785.1 et seq. All further
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references are to the Civil Code].
2)Defines consumer credit report as any written, oral, or other
communication of any information by a consumer CRA bearing on
a consumer's credit worthiness, credit standing, or credit
capacity, which is used or is expected to be used, or
collected in whole or in part, for the purpose of serving as a
factor in establishing the consumer's eligibility for: (1)
credit to be used primarily for personal, family, or household
purposes, or (2) employment purposes, or (3) hiring of a
dwelling unit, as defined in subdivision (c) of Section 1940,
or (4) other purposes authorized in Section 1785.11. [Section
1785.3].
3)Requires that every CRA shall, upon request and proper
identification of any consumer, allow the consumer to visually
inspect all files maintained regarding that consumer at the
time of the request. [Section 1785.10]
4)Specifies the circumstances under which a CRA shall furnish a
consumer credit report. [Section 1785.11]
5)Requires a user of a consumer credit report to provide written
notice of an adverse action to the consumer. [Section
1785.20].
EXISTING FEDERAL LAW provides for the Fair Credit Reporting Act
(FCRA), 15 U.S.C. § 1681 et seq. The FCRA provides for the
following:
1) Defines "consumer report" as an written, oral or other
communications of information by a CRA bearing on a
consumer's credit worthiness, credit standing, credit
capacity, character, general reputation, personal
characteristics, or mode of living which is used or
expected to be used or collected in whole or in part for
the purpose of serving as a factor in establishing the
consumer's eligibility for (1) credit or insurance to be
used primarily for person, family, or household purposes:
(2) employment purposes; or (3) other purposes.
2) Defines the term "CRA" as any person which, for monetary
fees, dues, or on a cooperative nonprofit basis, regulatory
engages in whole or in part in the practice of assembly or
evaluating consumer credit information or other information
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on consumers for the purpose of furnishing consumer reports
to third parties and which uses any means or facility of
interstate commerce for the purpose of preparing or
furnishing consumer reports.
3) Defines "adverse action" as the following:
a) A denial or cancellation of, an increase in any charge
for, or a reduction or other adverse or unfavorable change
in the terms of coverage or amount of, any insurance,
existing or applied for, in connection with the
underwriting of insurance; or
b) a denial of employment or any other decision for
employment purposes that adversely affects any current or
prospective employee; or
c) a denial or cancellation of, an increase in any charge
for, or any other adverse or unfavorable change in the
terms of, any license or benefit described in section
1681b(a)(3)(D) of this title; and
d) an action taken or determination that is -- made in
connection with an application that was made by, or a
transaction that was initiated by, any consumer, or in
connection with a review of an account; and adverse to the
interest of the consumer.
4) Provides that a consumer report may be furnished for use
in connection with a credit transaction involving the
consumer, primarily for personal, family or household
purposes, and involving the extension of credit to, or
review or collection of, a consumer's account.
5) Provides for the following duties of CRAs:
a) Must have permissible purposes to furnish consumer
reports;
b) Must avoid furnishing obsolete adverse information in
certain consumer reports;
c) Required to adopt reasonable procedures to assure
privacy and accuracy of consumer reports;
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d) Must provide only limited disclosures to governmental
agencies;
e) Required to provide consumers certain disclosures upon
request at no cost or for a reasonable charge;
f) Mandated to follow certain procedures if a consumer
disputes the completeness or accuracy of any item of
information contained in his file; and
g) Required to follow certain procedures in reporting
public record information for employment purposes or when
reporting adverse information other than public record
information in investigative consumer reports.
6) Gives consumers the right to one free credit report per
year.
7) Requires CRAs to conduct an investigation concerning
disputes arising from credit reports.
8) Provides that no consumer may bring any action or
proceeding in the nature of defamation, invasion of
privacy, or negligence with respect to the reporting of
information against any consumer reporting agency, any user
of information, or any person who furnishes information to
a consumer reporting agency, based on information disclosed
pursuant to the requirements of the FCRA, or based on
information disclosed by a user of a consumer report to or
for a consumer against whom the user has taken adverse
action, based in whole or in part on the report except as
to false information furnished with malice or willful
intent to injure such consumer.
9) Specifies that no requirement or prohibition may be
imposed under the laws of any State with respect to any
subject matter regulated under-
a) subsection (c) or (e) of section 1681b , relating to the
prescreening of consumer reports;
b) section 1681i , relating to the time by which a consumer
reporting agency must take any action, including the
provision of notification to a consumer or other person, in
any procedure related to the disputed accuracy of
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information in a consumer's file, except that this
subparagraph shall not apply to any State law in effect on
September 30, 1996;
c) subsections (a) and (b) of section 1681m , relating to
the duties of a person who takes any adverse action with
respect to a consumer;
d) section 1681m (d) , relating to the duties of persons
who use a consumer report of a consumer in connection with
any credit or insurance transaction that is not initiated
by the consumer and that consists of a firm offer of credit
or insurance;
e) section 1681c , relating to information contained in
consumer reports, except that this subparagraph shall not
apply to any State law in effect on September 30, 1996;
f) section 1681s-2 , relating to the responsibilities of
persons who furnish information to consumer reporting
agencies, except that this paragraph shall not apply-with
respect to section 54A(a) of chapter 93 of the
Massachusetts Annotated Laws (as in effect on September 30,
1996); or
g) with respect to section 1785.25(a) of the California
Civil Code (as in effect on September 30, 1996);
h) section 1681g (e) , relating to information available to
victims under section 1681g (e) of this title;
i) section 1681s-3 , relating to the exchange and use of
information to make a solicitation for marketing purposes;
or
j) section 1681m (h) , relating to the duties of users of
consumer reports to provide notice with respect to terms in
certain credit transactions;
aa) with respect to the disclosures required to be made
under subsection (c), (d), (e), or (g) of section 1681g ,
or subsection (f) of section 1681g relating to the
disclosure of credit scores for credit granting purposes,
except that this paragraph-
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10) Specifies that the items in #9 shall not apply with
respect to sections 1785.10, 1785.16, and 1785.20.2 of the
California Civil Code (as in effect on December 4, 2003)
and section 1785.15 through section 1785.15.2 of such Code
(as in effect on such date);
FISCAL EFFECT : Unknown
COMMENTS :
Need for the bill.
According to information supplied by the author's office the
following is the need for the bill,
Credit reports play an increasingly important role in the
lives of American consumers. Most decisions to grant
credit - including mortgage loans, auto loans, credit
cards, and private student loans - include information
contained in credit reports as part of the lending
decision. These reports are also used in crucial decisions
that affect the personal and financial well-being of
consumers, including eligibility for rental housing,
setting premiums for auto and homeowners insurance in some
states, or determining whether to hire an applicant for a
job.
Because of the increased relevance of credit reports, the
need to ensure the accuracy of such reports has become more
important. All parties to the credit reporting system have
a vital interest in ensuring that credit reports are
accurate. Consumers and users alike rely upon the accuracy
of the information they receive in consumer credit reports
and may be hurt by errors and inaccuracies therein.
A December 2012 study by the Federal Trade Commission (FTC)
found widespread problems with the accuracy of credit
reports. According to the FTC report, the three national
credit reporting agencies (NCRAs) received approximately
eight million contacts from consumers in 2011 to initiate
disputes about the accuracy of one or more items on their
credit files. According to the FTC, one in four consumers
identified errors on their credit reports that might affect
their credit scores; one in five consumers had an error
that was corrected by a credit reporting agency (CRA) after
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it was disputed, on at least one of their three credit
reports; four out of five consumers who filed disputes
experienced some modification to their credit report;
Slightly more than one in 10 consumers saw a change in
their credit score after the CRAs modified errors on their
credit report; and approximately one in 20 consumers had a
maximum score change of more than 25 points and only one in
250 consumers had a maximum score change of more than 100
points. http://www.ftc.gov/opa/2013/02/creditreport.shtm
Inaccuracies can enter into credit reports in a number of
ways. Inaccuracies can occur if consumers provide
inaccurate data when applying for a loan or if the creditor
who furnishes data to the credit bureau inputs consumer
information to its systems inaccurately. Inaccuracies can
occur when the bureaus match information about a consumer
from a particular data furnisher to the wrong individual
consumer's file. Inaccuracies can also come from errors or
the lack of identifying information in government records.
Finally and importantly, inaccuracies occur when consumers
are victims of identity fraud or identity theft.
One way to improve the accuracy of reports is for consumers
to have more information about the contents of their credit
reports is to provide them with the same reports that users
of credit reports receive. Federal law allows consumers to
obtain an exact copy of his or her consumer credit report
from a user who makes an adverse decision about the
consumer that is based in whole or in part upon information
in the report.
AB 1220 will give consumers an important tool to ensure the
accuracy of the information in their credit reports. By
giving consumers the ability to review the same reports
that users receive, AB 1220 gives consumers a more complete
and accurate picture of the information users of credit
reports see about his or her credit history. As a result,
consumers will be able to correct inaccuracies in their
credit history, improving the quality of credit reports for
consumers and users alike.
Information contained in consumer reports
AB 1220 requires that in addition to the current law requirement
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that a consumer can receive a written copy of their file
maintained by the CRA, that the consumer shall also receive the
same information that is provided to a user of a consumer
credit. This provision is designed to address a concern that
the user of a report, such as a lender, may have information in
the consumer report that is used to make a credit decision that
is not provided to the consumer. Over the last two years
several media reports and a report by the FTC have highlighted
the difficulty consumers face in attempting to correct errors
contained in their credit report. Furthermore, the FTC study
found that 25% of consumers had errors in their credit reports.
Other surveys have found this rate to be as high as 37% (Zogby
Interactive, Most Americans Fear Identify Theft, Zogby's
American Consumer, April 2007). On February 10th, 2013 CBS' 60
Minutes program, 40 Million Mistakes, covered the issue of
errors in credit reports and the difficulties of correcting
those errors. This report highlighted a number of consumer
issues relating to credit reports, including the off-shoring of
dispute investigations. A key issue raised in the 60 Minutes
story involved a consumer that was denied credit on numerous
occasions yet all the credit reports the consumer received from
the CRAs were clean of any blemishes. The consumer would then
go the user of the report (a bank) and was told that in fact her
credit report reflected debt that was not shown on the copies
that she received.
This goes to the issue of mixed credit files in which the credit
information for one consumer is placed in the file of another
consumer. This can occur when two or more consumers have
similar names, social security numbers, or other identifiers.
The purpose of AB 1220 is to allow a consumer to see the
information contained in the report furnished to the user as
that report may include different information that would have an
impact on the decision on whether to extend credit to the
consumer. Committee staff is unable to determine if the issue
highlighted by the one consumer in the 60 Minutes program is
part of a large scale problem, or an anomaly. The same program
also highlighted cases of mixed credit files that were
discovered by consumers when they requested their credit report.
If users of credit reports are receiving information that the
consumer is not able to request or view when they exercise their
legal rights to review such information, this is a troubling
practice. However, state and federal law provide that consumers
shall be able to review the information in their files and
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receive notice of an adverse action. Section 1785.15 of the
civil code provides that CRAs shall supply, upon requests, to a
consumer a written copy of his or file. Section 1681 of FCRA
and civil code section 1785.20 both provide that when a user of
a credit report takes and adverse action, the consumer must be
supplied with notice of the adverse action and their respective
rights under law, as well as, the reason for the adverse action.
If a consumer credit report obtained by a user that is then
used to deny credit to a consumer contains information that the
consumer is not able to access via existing law then wouldn't
the existence of undisclosed information violate existing law if
that information impacted the credit decision?
Disclosure.
AB 1220 provides for a new disclosure provided by the user of
the credit report both orally and in writing of the consumer's
right to obtain a copy of their report from the user of the
report used in taking action. Current law already gives
consumers the right to request their report from a user when an
adverse action has taken place. AB 1220 would also provide that
when a consumer authorizes a CRA to furnish a consumer credit
report to a user that the user must provide the required
disclosure. Oral disclosure requirements are fraught with
liability and enforcement issues, and may be unnecessary in
those cases where the borrower receives a written disclosure.
This committee has previously voted against oral disclosure
requirements for a host reasons. For this reason, staff
suggests deleting the provision that requires oral disclosure.
Furthermore, if it is necessary to provide the restatement of
existing law that is provided in the disclosure, then staff
recommends that the disclosure occur with an adverse action
notice, not every time a customer seeks credit. In providing
for an adverse action disclosure staff suggest that the
statement be moved to the existing law requirements (Civil Code,
Section 1785.20) that provide for the requirements of users when
an adverse action has taken place.
Contracts.
Existing law specifies that a contract between a user of
consumer credit reports and CRAs may not prohibit a user of a
consumer credit report from providing a copy of the report to
the consumer. AB 1220 would require that a contract between a
user and provider of a consumer credit report include a
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statement that federal law prohibits a consumer credit reporting
agency from prohibiting the user of consumer credit reports from
disclosing the contents of the report to the user if adverse
action has been taken by the user based on the report.
Additionally, AB 1220 provides that any such contract in
violation is void.
This provision came about due to information provided to the
author's office that provisions in contracts between users and
the CRAs, in spite of the FCRA prohibition, contain restrictive
language on what the user can reveal about the report to the
consumer. This requires that the contracts between these
parties include a disclosure that such prohibitions are not
allowed. For example, committee staff was provided with a
contract between a CRA and a user of consumer reports that
contains the following:
"Neither Client nor client Affiliates will provide a copy of the
consumer report to the consumer, except as may be required or
permitted by law?"
Federal Preemption.
As this committee has noted previously, the actual preemption of
state law is left to the courts to decide. However, when faced
with issues that approach the scope of issues covered by federal
preemption due consideration of those issues must be given. The
potential of federal preemption often weighs upon the issues
facing the Banking and Finance committee as the committee has
jurisdiction of multiple issues that overlap with federal law
and regulations.
The FCRA contains several areas of preemption. First, FCRA
section 1681t contains explicit references to provisions of the
FCRA of which states may not regulate. These areas include,
1)Sharing of information with affiliates;
2)Prescreen activities;
3)Duties placed on furnishers of credit information;
4)Duties of a person taking adverse action;
5)CRA action concerning resolution of disputed report data;
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6)Requirements concerning a consumer report; and
7)The summary of rights and notice to be provided to consumers.
Additionally, FCRA section 625(a) contains a general preemption
statement relating to inconsistent or conflicting state laws,
specifically,
Except as provided in subsections (b) and (c), this title
does not annul, alter, affect, or exempt any person subject
to the provisions of this title from complying with the
laws of any State with respect to the collection,
distribution, or use of any information on consumers, or
for the prevention or mitigation of identity theft, except
to the extent that those laws are inconsistent with any
provision of this title, and then only to the extent of the
inconsistency.
The main question for debate is to what extent is AB 1220
inconsistent with the FCRA? The proposed amendments, discussed
later, may mitigate preemption concerns as they attempt to
codify in state law concepts that are already present in the
FCRA.
Amendments.
Should the committee desire to move AB 1220 forward committee
staff suggests the following amendments:
1)If, as the premise of AB 1220 assumes, that decisions are made
with information in a consumer report that a consumer does not
currently have access to, then this is serious issue that may
already violate state and federal law. Additionally, it is
unclear how extensive this issue could be. Currently, the
language provides "the consumer shall receive the same
information that that is provided to a user of a consumer
credit report?" This language does not specify any point in
time. For example, when was the information provided to the
user? How far back can the consumer request information?
What if the user receives information in a credit file that is
specific to the user but does not involve the consumer?
Based on these concerns and that the problem has not be
adequately outlined, staff recommends that this requirement be
stricken from the bill.
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2)The FCRA already prohibits a CRA from preventing a user of
consumer credit report from disclosing the information in that
report to the consumer if an adverse action has taken place.
This bill further requires that contracts between CRAs and
users must include a statement to that the contract cannot
include prohibitions against the user sharing the consumer
credit report with the consumer. Additionally such a contract
would be void and the Attorney General or District attorney
could bring an action for a violation. In order to avoid
implementation issues with existing contracts staff recommends
that the voidability language be stricken and that additional
clarifying language be added as follows:
1785.10.1. (a) It is unlawful for a consumer credit
reporting agency to prohibit in any manner, including, but
not limited to, in the terms of a contract enforceable in
the state, or to dissuade or attempt to dissuade, a user of
a consumer credit report furnished by the credit reporting
agency from providing a copy of the consumer's credit
report to the consumer, upon the consumer's request, if the
user has taken adverse action against the consumer based in
whole or in part upon information in the report. A contract
between a credit reporting agency and a user of a consumer
credit report for the provision of consumer credit reports
shall include a statement that federal law prohibits a
consumer credit reporting agency from prohibiting a user of
consumer credit reports from disclosing the contents of the
report to the user if adverse action has been taken by the
user based in whole or in part on the report . and allows a
user of consumer credit reports to disclose the contents of
the report under those circumstances .
(b) A contract in violation of this section is void as
contrary to public policy. The Attorney General or the
district attorney of the county in which a violation of
this section occurs may bring a civil action, or intervene
in any civil action, to enjoin the enforcement of a
contract that violates this section.
3)State law and the FCRA already require that a consumer can get
access to their report after an adverse action. This bill
requires an oral and written disclosure upon any inquiry that
requires use of a consumer credit report. Due to the
liability of oral disclosures, and their potential
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ineffectiveness in consumer protection, staff recommends that
the disclosure should only be made in writing.
Additionally, the statement that the consumer can get from the
user a copy of their report conflicts the language in the FCRA
and state law. Section 607 (c) of FCRA provides that a CRA
may not prohibit a user from disclosing the contents of the
report to the consumer if an adverse action has taken place.
The proposed disclosure statement includes a statement that
the consumer can obtain a copy of the actual report from the
user. These are different concepts. An actual "report" may
not be the same as "contents of the report." On the other
hand, a user could disclose the contents by providing the
actual report. Either way this terminology presents potential
confusion for consumers and users of reports. As a conflict
between FCRA and this bill could lead to preemption
challenges, staff recommends striking the current proposed
Section 3 of the bill and instead provide for an alternative
to the current version of the written notice in the bill.
Additionally, this section should be moved to the existing
civil code section addressing adverse actions.
Section 1785.20 of the civil code is amended to read:
(a) If any person takes any adverse action with respect to
any consumer, and the adverse action is based, in whole or
in part, on any information contained in a consumer credit
report, that person shall do all of the following:
(1) Provide written notice of the adverse action
to the consumer . , that includes the following
statement:
"We have taken adverse action on your application and our
decision is based in whole or in part upon your credit
report. You have a right to request from us the contents of
the report that we receive from the consumer credit
reporting agency. Neither state nor federal law prevents
you from obtaining the contents of your credit report from
us under those circumstances."
(2) Provide the consumer with the name, address, and
telephone number of the consumer credit reporting agency
which furnished the report to the person.
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(3) Provide a statement that the credit grantor's decision
to take adverse action was based in whole or in part upon
information contained in a consumer credit report.
(4) Provide the consumer with a written notice of the
following rights of the consumer:
(A) The right of the consumer to obtain within 60 days a
free copy of the consumer's consumer credit report from the
consumer credit reporting agency identified pursuant to
paragraph (2) and from any other consumer credit reporting
agency which compiles and maintains files on consumers on a
nationwide basis.
(B) The right of the consumer under Section 1785.16 to
dispute the accuracy or completeness of any information in
a consumer credit report furnished by the consumer credit
reporting agency.
(b) Whenever credit or insurance for personal, family, or
household purposes involving a consumer is denied or the
charge for such credit is increased either wholly or in
part because of information obtained from a person other
than a consumer credit reporting agency bearing upon
consumer's credit worthiness or credit standing, the user
of that information shall, within a reasonable period of
time, and upon the consumer's written request for the
reasons for that adverse action received within 60 days
after learning of the adverse action, disclose the nature
and substance of the information to the consumer. The user
of the information shall clearly and accurately disclose to
the consumer his or her right to make such a written
request at the time the adverse action is communicated to
the consumer.
(c) No person shall be held liable for any violation of
this section if he or she shows by a preponderance of the
evidence that at the time of the alleged violation he or
she maintained reasonable procedures to assure compliance
with this section.
(d) Nothing in this chapter shall excuse compliance with
the requirements of Section 1787.2.
REGISTERED SUPPORT / OPPOSITION :
Support
California Public Interest Research Group (CALPIRG)
Consumer Federation of California
Privacy Rights Clearinghouse
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TURN
Opposition
Equifax
Analysis Prepared by : Mark Farouk / B. & F. / (916) 319-3081