By Catherine Hubbard, CCH Washington Staff Writer

This year, Congress must address expiring provisions of the Fair Credit Reporting Act (FCRA), the law that sets national standards for the processes of applying and acquiring credit, and the recordkeeping and information sharing that results.

Many lawmakers at a recent congressional hearing said extension of the FCRA preemption provisions are necessary to maintain a uniform, national credit reporting system. Financial Services Financial Institutions Subcommittee Chairman Spencer Bachus (R-Ala.) said providing consumers and the economy with strong benefits and protections "can, and should be, done at the federal level in order to avoid a patchwork of state laws." The FCRA provisions are set to expire on January 1, 2004.

Rep. Carolyn B. Maloney (D-N.Y.) added that allowing states to fractionalize laws "would significantly raise the costs of credit to consumers." Also, Rep. Artur Davis (D-Ala.) said he is concerned that letting the preemption provisions expire could limit credit availability.

Federal Reserve Board Chairman Alan Greenspan has backed making preemption permanent, warning that allowing different state laws would limit the flow of information, which could lead to increases in the cost of credit and reduction in the availability of credit. Federal Reserve System Director of Consumer and Community Affairs Dolores Smith said she agrees with Greenspan. "The uniform system does facilitate operational efficiency."

GOP lawmakers also supported maintaining FCRA provisions that have given federal statutes preeminence since 1996 in areas such as credit granting, information sharing with affiliated companies, reporting practices and how long negative information may remain on a credit report.

Clinton W. Walker, chief administrative officer of Juniper Bank, said the law makes credit more widely available, by permitting banks to send pre-approved credit offers to customers and share credit data among their affiliates. "The benefits of consumer credit to the economy are many, not the least of which is the increased ability of consumers to make purchases as a result of less expensive and more convenient credit made more widely available than ever before."

North Carolina Commissioner of Banks Joseph Smith said he and the Conference of State Bank Supervisors "generally oppose preemption." However, he said, the benefits of uniformity to the credit granting system, and the value of this system to consumers and the economy, "outweigh our objections."

Howard Beales, director of the Federal Trade Commission's Department of Consumer Protection, noted that the Bush administration has not taken a formal position on preemption, but he praised the current national, credit-reporting system and warned that letting the preemption provisions expire could cause a fragmented system that makes it harder to share consumer information across state lines. On the other hand, he said, letting preemption sunset could result in innovative state laws that better protect privacy.

Vermont's Stricter Laws

Vermont Assistant Attorney General Julie Brill noted that her state, which is not preempted by FCRA, has an "opt-in" rule requiring financial services firms to get customer permission before sharing their data with other companies. "The economy has not been harmed in any way by our own more protective laws," she said. Credit is readily available in Vermont, she said, adding that that the state has a low rate of consumer bankruptcies.

Subcommittee ranking member Bernard Sanders (I-Vt.) renewed his call for sunsetting the preemption. He suggested that increased identity theft might be a result of the lack of stricter state privacy laws. He also said people should have greater access to their credit reports, should be able to correct their reports more quickly, and should be informed of the factors that are considered in a credit review. "People have a right to know."