tion that may lead them to question false credit repair claims before the sale is made. This is the first and best line of defense against credit repair fraud.

Second, we believe that our law enforcement capability would be greatly enhanced if Congress were to grant civil penalty enforcement powers to the Commission. The Commission presently has jurisdiction over credit repair organizations under the Federal Trade Commission Act including the power to bring administrative cease and desist actions against such a company or to seek injunctions and other equitable relief in Federal Court. The authority to obtain civil penalties could prove to be a useful adjunct to our existing powers by providing a flexible alternative when restitution is impractical or impossible.

Finally, I wish to draw the subcommittee's attention to the many questions that were raised in the Commission's letter concerning the proposed bonding requirement. We do not know the extent to which defrauded consumers know about and obtain refunds in States that have a bonding requirement. Again, if the subcommittee were to review these States' experiences, it might shed light on the usefulness of a bonding requirement. At present the Commission continues to have concerns about its efficacy. However, if Congress does decide to enact a law with a bonding requirement, the Commission believes that the statute should make clear exactly who is to administer distribution of bond funds and how and when consumers are to obtain access to them.

As I have noted, the Commission's views on H.R. 458 are outlined in more detail in our May 11, 1987, letter. I appreciate the opportunity to update them today and to testify on legislation to address this important consumer problem. Thank you.

[The prepared statement of Ms. Noonan can be found in the appendix.]

Chairman ANNUNZIO. Thank you for your testimony.

Our next witness is Mr. George L. Rayburn, assistant commissioner of Consumer Credit of the State of Maryland. He is accompanied by George Jones, director of the Anti-Fraud Program. Mr. Rayburn, you can proceed in your own manner for about 5 or 10 minutes.

Do you have a prepared statement?

Mr. RAYBURN. We have submitted a prepared statement. I am going to deviate somewhat from what was presented to the subcommittee.

Chairman ANNUNZIO. Without objection, the full statement will be made part of the record.

STATEMENT OF GEORGE L. RAYBURN, ASSISTANT COMMISSIONER OF CONSUMER CREDIT, STATE OF MARYLAND, BALTIMORE, MD.

Mr. RAYBURN. Mr. Chairman, honorable Members of the subcommittee, it is a pleasure to be here and an honor and privilege to appear to testify before you in support of H.R. 458. We believe that this bill, to protect consumers from unfair and deceptive practices by businesses that have come to be called credit repair services, is direly needed.

Over the past several years, various consumer protection agencies in the State of Maryland on both the State and county level have received an increasing number of complaints regarding these credit repair services businesses.

Generally, these companies promise to assist consumers to improve their credit reports, to obtain credit cards, to secure loans, to arrange automobile financing or otherwise provide financial counseling. Please note that these services require the consumer, who is often desperate or in dire financial straits anyway, to pay a fee, often a very substantial fee.

We have heard testimony here today that these fees were $650$850, where the only services received in many cases is a series of Xeroxed letters to be sent to creditors and to credit bureaus. Other examples that we know of include: a $35 per minute, 976 telephone number, which is supposed to help the consumer who has credit problems find financing for an automobile. Actually the only service that is provided is a list of dealers who regularly finance their

own cars.

We have seen advertisements promising to eliminate negative credit information including judgments and bankruptcy. No real service is ever provided, nor could it be, to fulfill these promises. In fairness, some of these businesses do offer what might be considered legitimate informational services, especially to unsophisticated

consumers.

However, there is no regulation of their fees and they offer little, if anything, that is not available to the consumer for no cost, either through State, Federal or county agencies. I might add that we have brought with us something that was prepared by the Federal Trade Commission, an excellent booklet that is now available. We also have others that are the Federal Trade Commission's that are distributed by State, county and Federal agencies. Maryland's legislature recognized this problem after a number of these complaints were brought to their attention. In 1987, Delegate Hattie Harrison of Baltimore City introduced legislation that would require these credit repair businesses to obtain a $10,000 bond to be held by the State, if they collect any fee before performing the promised services.

It is now a part of Maryland's Commercial Law Article. The new law requires that a notice be given to the consumer which discloses, among other things: the consumer's legal right to receive a copy of, and to dispute the accuracy of, information in their credit report; a statement that accurate information can't be legally removed from a credit report; a complete description of all services which the credit repair business will perform and the total cost to the consumer of these services; and, information that the surety bond exists to compensate the consumer for any loss sustained as a result of a violation of law.

I might add that all or most of these provisions are contained in H.R. 458. Further, Maryland's law prohibits a credit repair business from charging a fee for simply referring a consumer to a retailer or other credit grantor, if the credit to be granted is on substantially the same basis that other consumers can receive.

It prohibits fraud or false or misleading statements. The law also establishes that the consumer has a 3-day right of rescission on any

contract with a credit repair business and requires notice of that fact to be given to the consumer at the time the contract is signed. The Maryland Commissioner of Consumer Credit, a principal advocate of the Maryland legislation and the Consumer Protection Division of the Maryland Attorney General's Office are vested with administrative enforcement authority with respect to the Act.

Further, there is a criminal fine that is available, although no incarceration is provided for convicted violators, I'm sorry to say. In attempting to enforce the new statute regulating these credit repair services we have encountered some difficulty. The most significant road block is that of State boundaries. Some of these operators, who were faced with the Maryland requirements for bonding and other requirements and our active enforcement efforts, have simply packed their bags and moved to another State, especially those without strong regulatory legislation. Or, in other cases they declare bankruptcy to avoid giving refunds to consumers.

They place advertisements in local newspapers using an 800 number to entice unsuspecting victims into their web. We have found it all but impossible to locate and take action against these operators in many cases. We believe this problem can best be addressed by Federal legislation.

I am sure all of you are aware, as I am, that it takes little more than a telephone and a few ads in a local newspaper to set up one of these businesses. For this reason, we strongly support a bonding requirement as that is contained in your bill provided to cover claims by injured consumers.

But more importantly, we have found that the bonding requirement keeps many of the operators that could be considered charlatans out of the business from the beginning because they can't qualify for the bond. We believe it to be essential to the enforcement effort. At this point we are prepared to answer any questions that the subcommittee may have, and also to recite specific consumer complaints in support of our previous statements, if that is your desire.

Chairman ANNUNZIO. We will continue with the witnesses and then get back to you with questions.

Mr. RAYBURN. Thank you, sir.

[The prepared statement of Mr. Rayburn can be found in the appendix.]

Chairman ANNUNZIO. Thank you for an excellent statement.

Our next witness, Mr. Walter R. Kurth, president of the Associated Credit Bureaus, Houston, TX. He is accompanied by D. Barry Connelly, vice president of Associated Credit Bureaus.

We welcome both of you here to the subcommittee. You have testified before this subcommittee on previous occasions. We have always enjoyed your testimony and cooperation. We are happy to have you here today. Mr. Kurth?

STATEMENT OF WALTER R. KURTH, PRESIDENT, ASSOCIATED CREDIT BUREAUS, INC., HOUSTON, TX.

Mr. KURTH. Thank you, Mr. Chairman.

Chairman ANNUNZIO. Proceed in your own manner for 5 or 10 minutes. Your entire statement will be made part of the record, without objections.

Mr. KURTH. Thank you, Mr. Chairman.

Let me say first of all, that the Associated Credit Bureaus strongly endorses H.R. 458. We think the case has certainly been clearly stated as to the abuses that are occurring in the marketplace. Our industry has a concern about the efforts of credit repair organizations for a number of reasons.

First of all, it attacks the integrity of the consumer reporting system, the soundness of the banking and commerce of this country. Are consumers really served even if a credit repair company were successful?

We have seen documentation this morning that it is very difficult for them to even come close to fulfilling a small percentage of promises that they holdout. Are consumers served who have been overextended in having that record wiped clean, and then obtaining additional credit irresponsibly?

That drives up the cost to the credit granting community and ultimately drives up the cost to all consumers. We think they are not well served, even if they were successful. More importantly, we know that the record already is clear, they are not able to fulfill promises that accurately reported adverse information can be removed from the file.

We believe in education, and we commend the Federal Trade Commission for the pamphlet that they prepared. We also have another pamphlet, "Fix Your Own Credit Problems," that is available without charge from our association to consumers.

All they need to do is to inquire. Those kinds of efforts and the efforts of the nonprofit consumer credit counseling services, we believe best serve the American consumer. Thank you, Mr. Chair

man.

[The prepared statement of Mr. Kurth can be found in the appendix.]

Chairman ANNUNZIO. Thank you very much for your statement. Now, our next witness, Ms. Elena Halford. Welcome to the subcommittee.

STATEMENT OF ELENA HALFORD, PRESIDENT, DESIGN SYSTEMS, GLENDALE, CA.

Ms. HALFORD. Mr. Chairman, thank you.

Chairman ANNUNZIO. You can proceed for 5 or 10 minutes. Do you have a prepared statement?

Ms. HALFORD. Yes, sir, I do.

Chairman ANNUNZIO. The entire statement will be made part of the record without objection.

Ms. HALFORD. I am Elena Halford and I am the founder and president of the American Association of Credit Inc. in Glendale, CA. Thank you for giving me the opportunity of presenting my views on H.R. 458 this morning.

Along with me is Steve Frank, my public affairs consultant. My company is licensed in the State of California, and I do have the required per California law, $25,000 trust account.

In California we have an option of having either a trust account or a bond. The bond is only for $5,000. However, because of the difficulty in obtaining bonding in the State of California, there was another option where we could have also a trust account. However, that trust account has to be for $25,000, which my company has placed in a bank in California.

Several years ago I got into the business of credit repair because I saw the need for the consumer to have better control over their credit and their credit information. The credit reporting bureaus were making the mistakes of not accurately reporting information to potential credit givers and in many cases refused to listen to consumers when legitimate information was given to them.

It is my opinion that credit reporting bureaus are merely conduits of information. It is not up to them to judge information or determine what information goes on a consumer report and what does not.

Unlike the majority of the credit repair agencies in this country, my company uses the negotiating procedure, instead of the disputation procedure. We contact the creditor, and it is the creditor himself who makes the decision whether this item of derogatory information should be removed from the record or not. The credit bureaus have nothing to say about that.

The information, once reported by the creditor himself, J.C. Penny, Montgomery Ward, however, they control the information. They know whether it is accurate information or not. So they have the right to say whether it belongs there or not, not the credit bu

reaus.

A consumer comes to me and they say that they are unfairly being denied credit because of misinformation on their credit report. I get the pertinent information from them, get a copy of their credit report and explain to them under the law their alternatives. I then attempt to correct the information, negotiate a settlement with the credit giver and/or explain to the consumer that nothing can be done to change the report.

In 1987 I refunded $20,000 to consumers. This year so far I have refunded $7,000. Unfortunately H.R. 458, while it correctly regulates the credit repair industry, leaves out a key element; that is, it does not mandate the credit reporting bureaus to recognize our existence thereby precluding the consumer from having representation.

Our success ratio is 89 to 90 percent, again the reason being because we deal directly with the creditor who reported the information. This presents a problem for most consumers. The area of consumer credit is complicated, technical and unnerving for most con

sumers.

They don't understand the law, what their rights are or how to exercise their rights under the law. Some consumers ask their relatives, friends, attorneys or credit service organizations to represent them to credit bureaus, but TRW, the largest credit reporting bureau, refuses to allow anyone to represent a consumer. They claim that the right to privacy precludes them from talking to anyone about an individual's credit. But this is hypocrisy, Mr. Chairman.