Credit Scores and Credit Reports, by Evan Hendricks

Chapter 18

Opting Out From Pre-Screening

The makers of our Constitution undertook
to secure... the right to be let alone — the
most comprehensive of rights and the
right most valued by civilized men.

- Justice Louis Brandeis (dissenting)
Olmstead v. U.S. 277 U.S. 438 (1928)

If you are tired of the barrage of "pre-approved" credit card offers, you can stop it. In fact, under the FCRA Amendments of 2003, you ultimately will have the right to stop large financial conglomerates from sharing data about you among their affiliates for marketing purposes. (Toward the end of this chapter, we will discuss how the new law strengthens your right to opt out.)

The right to opt-out from "pre-screened" offers, created by the 1996 Amendments, might be the least known right under the Fair Credit Reporting Act — and no wonder. Scan one of the pre-approved credit card offers that you've received in the mail and see if you can find the legally-required notice that (1) the credit card company got your name from either Equifax, Experian, or Trans Union, and (2) you have the right to call a toll-free number in order to stop the credit bureaus from selling your name. This effectively opts you out from future offers that are generated from your credit report data.

The Toll Free Number For Opting Out Is:

(888)-5-OPTOUT / (888) 567-8688

By calling the number and carefully following the prompts, you can opt out from pre-screening from all three credit bureaus. When you call, be prepared to press "2." By doing so, you get a choice of opting out for two years (Press "one"), or opting out permanently (Press "two") or opting back in if you previously opted out (Press "three").

The recording advises that the personal identifying information you provide will only be used to process the opt-out request. It then asks for your (1) home telephone number; (2) full name; (3) Zip code; (4) street address; and (5) Social Security number. It's that easy. It's also the most effective opt-out right that Americans have under law.

The recorded greeting is confusing to some because it first asks, "If you are calling as a result of the recent e-mail that appeared over the Internet regarding a July 1st law affecting personal financial data, press '1' now." It is referring to the famous bogus e-mail that circulated on the Internet, warning everyone that "on July 1," the credit bureaus were going to start selling your sensitive financial information to everyone. By pressing one, the recording explains that the July 1st date related to opt-out rights with banks under a different law, the 1999 Gramm-Leach-Bliley Act. It also explains that the credit bureaus were not allowed to sell credit report data under the FCRA.³⁰⁸

³⁰⁸ For more on this misleading e-mail, go to the National Consumers League Web site, www.nclnet.org/moneyandcredit/financialprivacy.htm, or to www.ftc.gov

'Pre-Screening & The FCRA'

Under the FCRA, the Big Three CRAs and a fourth bureau, called Innovis, can use their credit report data to produce lists of people that are sold to credit card companies and other lenders. But under the law, these lists can only be used by creditors to offer the recipient a "firm offer of credit." Even though they are called "pre-approved" offers, if the consumer accepts the offer, the law permits a credit card company to pull that consumer's report again. If the company finds something it doesn't like on the newly-pulled report, it can still reject the consumer for the pre-approved offer. This process can result in unseemly "bait-and-switch" offers. (More on this later.)

Remember, responding to a pre-approved offer creates the kind of inquiry to your credit report that shows you applied for credit, and thus, can negatively impact your credit score. Whether it does negatively impact it, or how much, depends on several other factors. But if you suddenly decided to accept two or more pre-approved offers, it probably would make your score drop.

The credit industry started experimenting with pre-approved solicitations in the very late 1980s as CRA records became increasingly computerized. The practice began taking off in the mid-1990s. It was estimated that between 2000-2003, the average American adult received 32 credit card offers through the mail, regardless of their credit history. In those years, industry was estimated to send out more than four billion pre-approved solicitations per year. The consumer response rate to all those solicitations is said to be well below one percent.

Technology allows the credit bureaus to produce lists of all shapes and sizes. They generally produce a list after a credit bureau provides criteria for a target audience. American Express presumably wants to promote its top-tier "Platinum" card to people with high credit scores. Conversely, sub-prime lenders target people with lower scores.

But it's usually more specific. A lender might want a list of women who have two or more credit cards, between the ages of 30 and 40, living in the Boston, New York, and Washington metropolitan areas. Or, they might want a list of elderly women with a minimal number of active accounts who live in the suburbs. Or, how about providing a list of 20-40 year olds who live in rural zip codes in the eight western most states? Some say it's only a list. But the list you are on can say a lot about you.

The 1996 Amendments to the FCRA formally authorized pre-screening and required that pre-approved credit offers inform consumers that their credit report was the basis for the offer, and that they have a right to opt out. To quote part of the law, creditors must "provide with each written solicitation . . . a clear and conspicuous statement that the CRA was the source of the information and that the consumer can opt out."

Clear and Conspicuous?

There was nothing "clear and conspicuous" about the notices on pre-approved credit card offers. In fact, it's more accurate to say that these were the kinds of "notices" that were designed not to be noticed. Let's examine one more closely. The following example of a notice, from Bank of America, was located near the bottom of the back page, below the section on "Authorizations, Terms, and Conditions," written in typically tiny type:

Notice Regarding Pre-Screened Offer

Information contained in your credit report was used in connection with this offer. You received this offer because you satisfied the criteria for creditworthiness used to select you for this offer. The credit may not be extended if, after you respond, we find that you do not meet the criteria used to select you for this offer or any applicable criteria bearing on creditworthiness. If credit is extended, the exact account type and credit line will be based on a review of your income and current credit report. You have the right to prohibit use of information in your file with any credit-reporting agency in connection with any transaction that you do not initiate. To assert this right with respect to your file, you may write to: Trans Union, Name Removal Option, P.O. Box 97328, Jackson, MS 39288-7328; Equifax Options, P.O. Box 740123, Atlanta, GA 30374-0123; or Experian, Consumer OPT-OUT, 901 West Bond, Lincoln, NE 68521; or you may notify all three agencies by calling 1-888-567-8688.

Now, Let's Translate

"Information contained in your credit report was used in connection with this offer. You received this offer because you satisfied the criteria for creditworthiness used to select you for this offer."

Translation: Our software programs scan your credit report so we can decide whether to sell you a credit card. You made the cut this time because you have three credit cards with fairly high balances and a credit score between 540-690. We figure you'll jump at our 0% introductory interest rate and no-fee balance transfer and end up switching to our card in the long run.

"If credit is extended, the exact account type and credit line will be based on a review of your income and current credit report."

Translation: Even though the term "pre-approved" is plastered all over the front page in big, bold type, you're not really pre-approved. If you actually respond to our offer, we will pull your credit report again so we can do one last, individualized (though automated) check before deciding if we really want you as a customer.

"If credit is extended, the exact account type and credit line will be based on a review of your income and current credit report."

Translation: Here's the "bait-and-switch," or "counter-offer." If after pulling your credit report a second time, we decide you're a bit too risky, we will still send you a credit card. But, it won't be the 0% card that we promoted to you. It will be a 12% APR.

"You have the right to prohibit use of information in your file with any credit reporting agency in connection with any transaction that you do not initiate... (blah, blah, blah)..."

Translation: You can block all offers based on your credit report by opting out. (Notice how the last thing they tell you about is the toll-free number.)

'Bait-and-Switch'

The "bait-and-switch" is a real possibility. Some credit card companies will lure you into responding with the "pre-approved" 0% introductory offer, only to send you a card that charges a 12% or higher interest rate. Moreover, when they send you the higher rate card they don't tell you that you were rejected for the better card, or that your credit report caused your rejection. Under the old FCRA, they did not have to give you an "adverse action" notice because they made you a counter-offer and you accepted. Unless you read the fine print, you could start using your new card and incur interest charges that you won't discover until your first monthly statement arrived.

Mail Theft & Identity Theft

Another reason to opt out from pre-screening is identity theft. In the early days of pre-approved credit offers, identity thieves would change the address so that a new card in the victim's name would be sent to the destination of choice. During the 2003 legislative debate, the financial services industry insisted that they changed their procedures so if an address was changed on a pre-approved offer, it would be flagged and the card would not be sent. Several industry officials said the rate of identity theft was much lower with pre-screened offers than with other kinds.

But the identity thieves adjusted as well. In fact, theft of mail by organized gangs or loosely affiliated criminals has gotten worse. Even if they are unable to convert the pre-approved offer or "convenience check" into quick cash or credit, they are often able to sell the personal data to a "fence" that traffics in identifiers that help identity thieves.

In June 2003, Privacy Times broke a major investigative news story about how various criminal gangs across the nation, intent on committing identity theft and credit fraud, were targeting mail boxes for consumers' personal information and financial instruments. Their favorite targets included "convenience checks," pre-approved credit card offers and bank statements. The gangs involved with these have demonstrated different levels of sophistication. Some consisted of drug addicts, especially "methamphetamine" users known as "Tweakers;" others were associated with specific foreign nationals. Some of the more active gangs hit 200-300 mailboxes in one day. When possible, they used convenience checks or pre-approved credit card offers to get credit quickly. If not, they sold the personal data to other gangs specializing in identity theft, credit fraud and counterfeiting.³⁰⁹

"Some thieves will steal a pre-approved app, send it in, and either change the address or come back to take the credit card out of the mail box. Others will get checks, call the bank and try to change the customer's address," said Phil Bartlett, the U.S. Postal Inspection's manager for external crimes and identity theft.³¹⁰

Between October 2002 and May 2003, postal inspectors had made 2,264 identity theft-related arrests stemming from mail theft investigations. In one month in 2003, in one mid-sized western city, there were 20 arrests and 14 prosecutions. In that city, one law enforcement team had four of its six investigators dedicated to identity theft.

³⁰⁹ Privacy Times, June 16, 2003, Vol. 23 No. 12
³¹⁰ Id.

Bolstering Opt-Out Rights

The FCRA Amendments of 2003 attempted to strengthen consumers' rights in a couple of ways. First, they required the FTC by to set new rules directing creditors to present opt-out notices "in such format and in such type size and manner as to be simple and easy to understand." Second, the Act closed the counter-offer loop-hole that made it easier for credit card companies to pull the bait-and-switch. The FTC and the Federal Reserve Board must publish "risk-based pricing" rules explaining how and when creditors must give consumers notice when something in their credit report caused the consumer to receive a "materially less favorable" offer. The new Amendments permitted creditors to give oral, written, or electronic notice, but do not allow consumers to sue for violations. Enforcement will be up to the FTC and U.S. banking agencies.

Third, the Amendments for the first time permitted consumers to opt out from the sharing of their data for marketing purposes by affiliates of financial conglomerates. The new provisions were controversial among consumer advocates and privacy experts because they did not go further and regulate other types of affiliate sharing, such as the ones that result in detailed profiling of customers. A California State law sponsored by Senator Jackie Speier went further, but major banks asked a federal court to declare that the Speier law was preempted by the FCRA.³¹¹

Still, for those who want to cut down on junk mail, the 2003 Amendments should provide additional relief. A large financial conglomerate like Citigroup has over 1,500 affiliates. In testimony before the Senate, Martin Wong, Citibank Global Consumer General Counsel confirmed that his company aggressively used affiliate data:

³¹¹ The case was pending before the U.S. Court of Appeals for the Ninth Circuit in March 2005.

"Citigroup is able to use the credit information and transaction histories that we collect from affiliates to create internal credit scores and models that help determine a customer's eligibility for credit. This information supplements credit reports and FICO scores to paint the most accurate picture possible of a customer. For example, CitiMortgage underwriters have access to information from affiliates that includes a customer's deposit, loan, and brokerage account balances, as well as the customer's payment history and available lines of credit. This allows our credit analysts to verify the customer's creditworthiness quickly and efficiently, minimizing the burden on the customer associated with providing this documentation."³¹²

And, if you are a current or former customer of Citibank, and you receive a pre-approved credit card offer from the banking giant, notice how the FCRA notice is not included. This indicates that Citibank's "internal" information is detailed enough for it to make you a credit card offer without pre-screening against the credit reporting databases.

Of course, the financial services industry is only one source of junk mail. The rest of it comes from retailers, catalog companies, publishers, and non-profits, just to name a few. With a few notable exceptions, federal law is silent on this front. One federal law requires state motor vehicle departments (DMVs) to obtain drivers' permission first before selling their data to marketers. This was a major change for the direct marketing industry, as it was largely built upon free or low-cost drivers' data until Congress passed the Drivers Privacy Protection Act in the mid-1990s.

³¹² Statement of Mr. Martin Wong, U.S. Senate Committee on Banking, Housing, and Urban Affairs, "Affiliate Sharing Practices and Their Relationship to the Fair Credit Reporting Act," June, 26 2003; http://banking.senate.gov/index.cfm?Fuseaction=Hearings.Testimony&HearingID=46&WitnessID=189

The Direct Marketing Association runs a voluntary opt-out program known as the "Mail Preference Service (MPS)." Registering with the MPS is supposed to reduce unsolicited commercial mail, though it cannot eliminate it. Contact: Mail Preference Service, P.O. Box 643, Carmel, NY 10512;

http://www.dmaconsumers.org/consumerassistance.html or
http://www.dmaconsumers.org/privacy.html

You have a better ability to stop junk phone calls: sign up for the FTC's "Do Not Call" Registry. (888) 382-1222, or, http://www.donotcall.gov.

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