BILL ANALYSIS Ó
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THIRD READING
Bill No: AB 1220
Author: Skinner (D)
Amended: 5/20/13 in Assembly
Vote: 21
SENATE JUDICIARY COMMITTEE : 5-1, 6/18/13
AYES: Evans, Corbett, Jackson, Leno, Monning
NOES: Walters
NO VOTE RECORDED: Anderson
SENATE APPROPRIATIONS COMMITTEE : Senate Rule 28.8
ASSEMBLY FLOOR : 55-21, 5/28/13 - See last page for vote
SUBJECT : Consumer credit reporting: adverse action
SOURCE : Author
DIGEST : This bill makes it unlawful for a consumer credit
reporting agency to prohibit, 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
upon the report. This bill authorizes the Attorney General,
among others, to bring a civil action, for a civil penalty not
to exceed $5,000, against any credit reporting agency for a
violation of these provisions.
ANALYSIS :
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Existing law:
1. The California Consumer Credit Reporting Agencies Act and the
Federal Fair Credit Reporting Act, require consumer credit
reporting agencies to adopt reasonable procedures for meeting
the needs of commerce for consumer credit, personnel,
insurance, hiring of a dwelling unit, and other information
in a manner which is fair and equitable to the consumer, with
regard to the confidentiality, accuracy, relevancy, and
proper utilization of such information.
2. States that whenever a consumer credit reporting agency
prepares a consumer report, it must follow reasonable
procedures to assure maximum possible accuracy of the
information concerning the individual about whom the report
relates.
3. Provides that consumer credit reporting agencies shall, upon
a consumer's request, make available for inspection by the
consumer all files maintained regarding that consumer at the
time of the request.
4. Provides that a consumer's credit file shall include, as
specified, the names and addresses of all sources of the
information in the file, the names (or, if applicable, the
fictitious business names) of the recipients of the
information, the names of any party making a credit inquiry
about the consumer, and, if requested by the consumer, the
addresses of the recipients and the parties making inquiry.
5. Provides that a consumer credit reporting agency shall supply
either a decoded written version or a written copy of the
file maintained regarding that consumer, including all
information in the file at the time of the request, with an
explanation of any code used.
6. States that no consumer credit reporting agency may prohibit
any user of any consumer credit report furnished by the
consumer credit reporting agency from disclosing the contents
of the consumer credit report to the consumer who is the
subject of the report if adverse action may be taken by the
user based in whole or in part on the consumer credit report.
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This bill:
1. Makes it 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.
2. Authorizes the Attorney General and other specified public
prosecutors to bring an action for a civil penalty not to
exceed $5,000 against any credit reporting agency that
violates the above provision.
Background
Credit reports play an increasingly important role in the lives
of California's consumers. Most, if not all, decisions to grant
consumer credit rely on information contained in these reports.
Generally, users of credit reports analyze the information they
contain to assess the financial risk posed by individual credit
applicants, and often transform this information using
sophisticated predictive models into individualized "credit
scores." For some consumers, the acceptance or rejection of an
application for a mortgage, auto loan, credit card, or student
loan may be decided on the basis of a credit score. For others,
the terms or pricing of a credit or insurance product may be set
according to one's credit rating through a practice known as
"risk-based pricing." (Federal Trade Commission [FTC], December
2012 Report to Congress Under Section 319 of the Fair and
Accurate Credit Transactions Act of 2003
[as of June
10, 2013] p. 5 [hereinafter "December 2012 FTC Report"].) Yet
for others still, a decision to extend an offer of employment
could depend on the contents of a credit report. Given their
extensive use in the marketplace, the accuracy and completeness
of the information contained in a credit report is important to
both California's consumers and to the functioning of the
State's economy.
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At their core, credit reports provide lenders with detailed
information about a particular borrower's credit history so they
can more precisely estimate the risk that a borrower will
default, allowing lenders to tailor interest rates and other
loan terms according to a borrower's risk. Yet despite their
importance in assessing creditworthiness, a number of studies
have highlighted the high rates of errors contained in consumer
credit reports. A recent study published by the FTC, found that
26% of the consumers studied identified at least one potentially
material error on their credit report, and that after going
through a dispute process with a consumer credit reporting
agency, 13% of the consumers studied had modifications made to
at least one credit report that resulted in a change to their
credit score. (December 2012 FTC Report, pp. 35, 42.) For over
5% of the consumers studied, the resulting increase in credit
score was of such significance that their assigned credit risk
tier decreased (using FICO Auto Loan thresholds), meaning that
the consumer was more likely to be offered a lower interest rate
on an automobile loan. (December 2012 FTC Report, p. 47.) The
FTC estimates that for individuals with credit histories, "at
least 24 [%] of credit reports potentially contain errors and
approximately 19 [%] of reports may contain errors that are
material." (December 2012 FTC Report, p. 63.)
Existing law includes several safeguards designed to protect the
integrity of the data contained in a consumer credit report.
The California Consumer Credit Reporting Agencies Act and the
Federal Fair Credit Reporting Act both impose an affirmative
duty on consumer credit reporting agencies to "follow reasonable
procedures to assure maximum possible accuracy" when preparing a
consumer credit report. The Consumer Credit Reporting Agencies
Act also provides that consumer credit reporting agencies shall,
upon a consumer's request, make available for inspection by the
consumer all files maintained regarding that consumer, and shall
supply either a decoded written version or a written copy of the
file maintained regarding that consumer. Both Acts restrict a
consumer credit reporting agency from prohibiting the user of a
credit report, such as a bank considering whether to approve a
mortgage application, from disclosing the contents of the report
to the consumer who is the subject of the report when adverse
action is taken against the consumer on the basis of the report.
These safeguards - and particularly the requirement against
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prohibiting access to a credit report in the wake of adverse
action - ensures that California consumers have access to
collected credit information pertaining to them, allowing the
consumer to confirm its authenticity and accuracy. Despite
these statutory safeguards, the author has found instances where
contracts entered into between consumer credit reporting
agencies and their clients have contained restrictive language
that could be interpreted as discouraging or restricting the
ability of users to share credit information with adversely
affected California consumers.
This bill expands existing law by making it unlawful not only to
prohibit credit report users from providing copies of the report
to adversely affected consumers, but also for a consumer credit
reporting agency to dissuade or attempt to dissuade a user from
furnishing a copy of the report upon a consumer's request when
the user takes adverse action against the consumer based upon
the report. This bill also creates a new civil penalty
provision authorizing the Attorney General, among others, to
seek a penalty of up to $5,000 for a violation of the above
provision.
Prior Legislation
AB 488 (Kehoe, Chapter 236, Statutes of 2001) required a
consumer credit reporting agency to disclose, upon request of
the consumer, the addresses and, if provided by the sources and
recipients of the consumer's credit information, telephone
numbers identified for customer services for the sources and
recipients.
SB 168 (Bowen, Chapter 720, Statutes of 2001) gave California
consumers the right to place a freeze on their credit reports,
which prohibits a credit reporting agency from releasing the
consumer's credit report without the express authorization of
the consumer.
SB 1607 (Figueroa, Chapter 978, Statutes of 2000) required a
consumer credit reporting agency to disclose specified
information, including the consumer's credit score and an
explanation of the credit score, under specified circumstances.
AB 1629 (Peace, Chapter 1194, Statutes of 1992) provided that
consumers have a right to visually inspect all information in a
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consumer credit reporting agency's files maintained regarding
that consumer upon request.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
SUPPORT : (Verified 6/28/13)
California Association of Realtors
California Public Interest Research Group
California Senior Legislature
Consumer Federation of California
Consumers Union
Mari J. Frank & Associates
Privacy Rights Clearinghouse
ARGUMENTS IN SUPPORT : The author writes:
The right of consumers to obtain copies of their credit
files goes a long [way] to ensuring the accuracy of credit
reports. According to the federal Consumer and Financial
Protection Bureau (CFPB), "[c]onsumers' right to dispute
information contained in their credit reports under the FCRA
- and furnishers' and the NCRAs' obligation to respond -
provide important checks on inaccurate credit reports."
Current federal law gives consumers the right to obtain one
copy of their credit file each year and to receive notice of
adverse actions involving credit reports with a resultant
right to a free disclosure. The CFPB estimates that at
least 40,000,000 consumers obtain a copy of their credit
files each year from one or more of the NCRAs.
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.
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ASSEMBLY FLOOR : 55-21, 5/28/13
AYES: Achadjian, Alejo, Allen, Ammiano, Atkins, Bloom,
Blumenfield, Bocanegra, Bonilla, Bonta, Bradford, Brown,
Buchanan, Ian Calderon, Campos, Chau, Chesbro, Cooley, Daly,
Dickinson, Eggman, Fong, Fox, Frazier, Garcia, Gatto, Gomez,
Gonzalez, Gordon, Gray, Hall, Roger Hernández, Jones-Sawyer,
Levine, Lowenthal, Medina, Mitchell, Mullin, Muratsuchi,
Nazarian, Pan, Perea, V. Manuel Pérez, Quirk, Quirk-Silva,
Rendon, Salas, Skinner, Stone, Ting, Weber, Wieckowski,
Williams, Yamada, John A. Pérez
NOES: Bigelow, Chávez, Conway, Dahle, Donnelly, Beth Gaines,
Gorell, Grove, Hagman, Harkey, Jones, Logue, Maienschein,
Mansoor, Morrell, Nestande, Olsen, Patterson, Wagner, Waldron,
Wilk
NO VOTE RECORDED: Holden, Linder, Melendez, Vacancy
AL:d 7/2/13 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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