enforce the federal law in the area.ar you had tan household employeesd since 1993 is my understanding. how many of these employees to t defile or maintain a i-9 forfor verification of their legal status in the timeframe that iss required by federal law?t have e certification of eligibility secured for each one of those employees on the form required by law, senator. >> so you didn't know there was such a law or you didn't comply? >> i didn't know that it applied to household help --

>> i can tell you as an experienced person as a normal citizen of the united states halyard domestic employees, all i knew about it and i'm not a federal prosecutor. i'm not the federal u.s. attorney for the southern district of california and i knew from the irs that i had to file taxes from those people what they may do for a certain amount of money. so if you understand my difficulty, knowing your background that you wouldn't understand the requirement it is extremely difficult for this committee trying to get information and verify it that the of difficulty understanding it also. when the finance committee asked how many household employees you

had since 2006, you told them had three, when in fact there had been six. why didn't you review of the other household employees? >> senator, as i indicated these were the three students who were -- >> but you are paying them a salary. >> no, we were not -- >> but you're paying them by the hour. >> they were not working on a regular schedule. they worked to drive -- >> but you're paying taxes? >> yes, we were. >> okay. >> so you clearly treated all of those household workers as employees for tax purposes? >> we did, senator for purposes of verifying eligibility to work in the united states because are

not required to have the employer pay taxes or flout -- >> i'm going to back to the of ranking member. who advise you to tell the finance committee that they were independent contractors? was it someone connected to the obama administration who was helping you through the venting process or did you out of ignorance just not list them on an i-9? >> as i said, senator bombing, there was no intent to conceal the three college students. their names appeared on schedule at the tax returns furnished to this committee in fact it was the way in which their names came up with regard to the advice that we were received regarding the treatment of them in the less active since as i indicated we received advice and

counsel from a variety of sources but i am responsible for the decision that was made -- >> you made the distinction. >> i made that distinction and it hasn't been made at the time of hiring employment. >> before the recess appointed i'm assuming the administration asked whether you wanted to be a recess appointment. at that time, you knew you were not finished with our committee's venting process and you knew there were significant issues to be resolved. why did you agree to be vrieses appointed rather than let the committee process come to conclusion? >> senator line proud of having been appointed at the time cbp needed leadership. it is a major agency for the reasons -- >> we know that. it's been a particularly in the week of december 25th attempt over detroit the importance of

having leadership in place was made in the administration. i appreciated that and do not believe it was the wrong decision and i appreciate the committee have an input to nettie -- bac please answer my question to be did you agree to be real disappointed? >> i did not say that i would not be. it was not my decision -- >> were you asked by the administration whether you wanted to be recess' appointed? >> i was asked whether or not i would accept the appointment made and i said yes, sir. >> okay. my time is expired. >> thank you, senator. senator cantwell. >> thank you. mr. bersin, thank you for your willingness to serve and coming for the specific northwest. the northern border issues are of great interest to us and the

movement of goods and services and/or a big part of our economy making sure we have security and flow of commerce and individuals is very important. one of the issues that you helped us try to address was the relationship between customer border patrol agents and local law enforcement and particularly those living on the olympic peninsula area. i appreciate that. how do you think we keep the relationship going? what are some of the lessons you think we should learn from that and how we make sure local law enforcement stakeholders are part of our national security infrastructure? >> senator cantwell, think you for the comments and i also want to thank you for the assistance that your staff in washington and also people like nancy provided in your home state to actually build those

relationships and sustain the partnerships critical to the operations of customs and border protection particularly on the northern border where we do not have the number of agents that we have elsewhere around the country in terms of airports and seaports let alone the southwest border where we have almost 18,000 agents. so the multiplication of the presence in partnership with state and local and tribal authorities that your office is help build is a critical dimension to activities on the north and i think we have made products to the progress not only in terms of regular not reach and meetings joint lead of the community but the law enforcement exchanges such as in the interoperability of communications but i think what ought very promise for other partnerships run the country. >> and do think the border patrol agents will lean more on law enforcement and the kind of

communication and securities to the border because obviously this is a highly sensitive issue when people are miles and miles and miles away from the border and all of a sudden are stopped and pulled over bye someone that they don't even recognize as law enforcement into the. >> think as you recognize and we've implemented in places where dispatch systems are shared between local law enforcement and customs border protection specifically border protection patrol this kind of collaboration and going out together to the community to explain the role of the checkpoints to the community so that people understand why they are in place and also are sensitive to the complaints that people raise about them is an ongoing feature of the collaboration and one that we have learned a lot from. >> and so you will keep taking that kind of communication back from the law enforcement and the

community? >> absolutely. >> thank you, mr. chairman. mr. bersin, good to see you. i want to start by asking about the unmanned aerial systems being operated by customs border patrol office of air and marine and as you know, there are cbp has five per durham drones. i brought a nice little model of that so that everybody can see what they look like. but astonishing to me that the department of defense has 6,000 unmanned aerial vehicles in its inventory and yet customs and border protection is responsible for maintaining border security in the country we only have five. as you know three of them operate out of arizona, two out of north dakota.

and get texas has the longest common border with mexico has none. as you know i have written and i know governor perry has asked secretary napolitano to proceed with dispatch to correct the oversight and at this point we are still waiting for the faa to issue a certificate of authorization because they have been unable to deal with that on what i would consider to be a timely basis. can you tell me what the cbp has done once the certificate of authorization is issued? first let me ask have you done anything to encourage the faa to move on that quickly and then i would like for you to tell us what the cbp has done to prepare for the issuance of the certificate as we can get a drone of like this in the sky as soon as possible over texas.

>> senator cornyn, the uav under consideration by the faa has been a matter of constant increased by yes with regard to coa on west texas there's another the would cover actually the sixth uav the guardian maritime that would garth corpus but with regard to the land predator the west texas coa, it is my understanding the legal deadline for issuance and consideration of the faa is coming in a couple of weeks and we've been making regular inquiry. i have a meeting with faa administrator bad it next week in which we will i would trust hear good news because it is an absolutely essential dimension of homeland security and will become so even more as we move into the future.

the -- i think the other coa having to do with the guardian so-called maritime guardian predator is one that was filed recently and we would expect the faa in due course to accept that. secretary napolitano has given direction. i was present when she met with governor harry and she is committed to this as is cbp. >> mr. bersin, i appreciate your answer. you can understand given particularly senator bingaman talked-about of course the violence occurring in mexico and growing concern about the spillover effect in the united states why using the very best technology be have to provide security both perception and real security of the border is an absolute imperative, and this is something that is very high on my priority list and very important to me and so i hope

that this happens without any more undue delay. but we shouldn't stop there. i know that the sdi net has been dispatched, and workable and assessment is being made as to replace it. we are all waiting to here with the assessment is because we know the border is not secure. there's more than half a million people detained coming across the southern border last year. and who knows how many people actually come that are not detained and return to their country. and we know that with the drugs, the weapons, the people being brought almost across the border at will by the cartels and other organized criminal gangs that this is a problem that has to be dealt with with a concrete plan which gets me to the budget. the administration requested an

appropriation of 11.17 billion for 2011 which is 3% decrease and in 2011 it amounts to further decrease of 318 million. what is the plan to increase the number of bids on the ground border patrol fiscal infrastructure and technology so that the american people can be assured that the federal government is doing everything it possibly can to secure the border? >> senator cornyn's said in 2004 the border patrol is more than doubled in size. we now have a border patrol -- >> mr. bersin, i know that. that's a good but it's not good enough and that's what i want to know what is your plan going forward? >> we have worked through recognizing the fiscal constraints that we face as a

nation that we will not decrease the number of border patrol agents on the ground. in fact we will maintain the steady state notwithstanding the attrition that you see in an organization as large as that. with regard to the ports of entry, the cbpo will also be maintained at a level just below 21,000, officers. we will i believe be seeking to redress the 200 additional air and marine people that we need to maintain the states, so senator i take your point. i think that you would agree that we are much better resource than before. we are seeing the benefits of that. there is additional work to be done and as we consolidate our efforts of what expect there will be further growth but

together with the technology whether it is uav or adaptation of sdi net, we must in fact, the technology with the infrastructure with the boots on the ground. >> mr. bersin, let me say in conclusion i share your concern also about making sure hour authorized points of entry are properly resource to so that legitimate commerce and trade which benefits our nation as well as our trading partners, mexico to the south and to the north, that those be improved. but i would tell you the status quo in terms of staffing and deployment of technology when it comes to border security is not acceptable to me and i don't think it should be acceptable to the american people. we don't cut corners when it comes to the national security when it comes to funding the department of defense. we do what it takes and the american people i know are committed to doing what it takes to make sure the nation is

secure and i think the same thing applies to border security. the american people are terribly upset. they are scared, they are mad and they don't understand why we are not doing more to secure the border so i would suggest we need a plan from the department of homeland security, from customs and border protection about how to get it done and then we need a price tag and then the congress needs to deal with that as a responsible body because the american people simply are not going to be satisfied with a flat line budget and no more border patrol agents because of budgetary concerns. it's important from security is important. thank you respect thank you. i share your sense of urgency. >> senator wyden is next. >> thank you, senator campbell, and welcome to mr. bersin. let me if i could turn to a different topic. and i come to this because i share on the finance

subcommittee and trade subcommittee and this is especially important to our part of the world trade jobs davitamon trade in my home state. something like one out of six jobs depends on international trade. and if confirmed you would play an especially important role in the key feature of the whole policy arena and that is the enforcement of the duty orders and of course the agency cbp plays and a central role in a host of enforcement efforts that are especially important at this time. we are seeing illegal transshipment particularly by the chinese, falsified country of origin marking undervaluation of goods that pay less duty, misclassification of goods, the list goes on and on as you know.

and in effect the cumulative consequences of all of this are u.s. industries forking over millions of dollars to try to fight the costly trade disputes to keep from getting the consequences of illegal dumping and the harm the face as a result of the lack of enforcement. i do have concerns that this agency that is the front-line defense against unfair imports is not adequately enforcing the orders on the books. so let's just walk for a minute through the tools at your disposal and first let's start with what specific actions are you prepared to take at this point to make sure that the anti-dumping and countervailing duty orders are enforced? >> senator waiting, with regards

to the revamping if you will of cdp's mission on a trade in order to assure not only the members of congress but also the trade community that we take as equally important and as complementary the promotion of trade, the motion of american economic competitiveness as part of their security regime we need to look up anti-dumping countervailing duty issue you raise and see it in this in context as intellectual property rights protection and consumer product safety protection so we need to promote trade but we also need to enforce the trade law and i am aware of the perception that we have not used the full power of the agency as an executive agent at the ports of entry to do that. so i have read with interest the

draft on the of the fair trade reduction act of 2010 and think that several of the tools that are in there should be considered as being important measures that we can use as we ramp up our enforcement profile. i should say that we need to put this in the context of the overall review of the trade function that has been initiated cbp under my leadership to look at the resources, the processes and procedures that we use and to look at importantly the relationships we have with other federal agencies for whom we serve as executive aged including u.s. t.r., and on the unfair trade side of the house. but the kind of tools that are in their need to be integrated into this review. the notion that we should have

uniform procedures to look at the allegations made and to do it in a consistent way around the country to which the concept cbp ought to collect cash deposits from the importers suspected during the course of the investigation of anti-dumping and countervailing duty orders is another matter that obviously will be of great concern and consternation to the trade with proper outreach and proper application enforcement that could be an important tool. the notion that the department of commerce in homeland security through cbp should issue an annual report detailing allegations of violations in the field, actions that are taken investigated fully and in the results of tanned i think is an idea that should be looked at seriously. the old salles foot if you don't manage it you can't and terms of

regulatory activity and others as well. and last, we are looking in the entire review of the trade function at the number of resources in terms of personnel that we devote to trade in force and promotion. cbp is an agency of just under 58,000 employees just under 900 dedicated to the trade functions. i haven't been there long enough to know exactly how many more resources we need to devote to this but i am confident that we do need to build up the personnel the looked at this kind of investigation and penalty sanctioning. >> mr. chairman, my time is up. >> go ahead, senator. >> thank you, mr. chairman. this is a quick point. clearly mr. bersin is talking about some of the ideas you and i have been discussing to try to

step up enforcement, and i think the general direction we are talking about and highlighted some of the points is clearly the direction to go. you have american industries spending significant sums to defend themselves against unfair imports and then say to yourself how is it they have to monitor compliance with existing order particularly when they walk away and say that our compliance enforcement is a government job at the agency that you are talking about. mr. chairman, i am encouraged by the response we've got and i want to highlight again i know you had a longstanding interest on these kind of issues and i want to work very closely with you as we have been doing on the trade matters and i think you for your time. >> thank you, senator. i have a few more questions back on the i-9s. i understand, mr. bersin, that

when you were first contacted by our staff through the process you indicated that there are three employees that i guess in question you did provide documentation with respect to those three; is that correct? >> yes, sir. >> is also my understanding with respect to other employees that in addition to the three that you did not volunteer as this staff employees work for you but that issue arose during the vetting process when the staff asked questions about whether you get further in planet for employees. at that time you indicated when asked by the staff that he had additional employees in addition to those three; is that correct? >> yes, senator. as i indicated to senator bunning, the six employees included the three that i discussed in the college

students. >> is it correct to provide documentation for the first three? >> it is correct. >> is it also correct you didn't provide the committee and in substantive ways? >> when my wife and i met with committee staff in march we supplied information regarding the payment of taxes for people who were employed by us. we indicated that we had verified the eligibility and i don't recall that the staff followed up to ask us for the actual documentation of the college students eligibility to work in the united states. >> did you on your own provide documentation for the subsequent employees? that is those in addition to the first three? >> after the -- no search we did not provide the california driver's license and social security numbers that we had. we could do that and i didn't think there was an issue about

that. >> and just curious your basic position is it's not as important so long as to provide documentation and you did provide documentation for the first three but not for the other employees except it sounds -- i would like to clear this up it sounds like on a sporadic ad hoc basis. >> senator, i'm told we did. i don't recall having supplied the actual copies of the drivers' licenses and social security cards but they are available. there is no reason not to provide them. i don't believe the staff asked specifically for the documentation. we would be delighted to provide that. >> i'm surprised you didn't speak to -- sprick in fact the questions went to employees

employed after 2006. because i was concerned that the staff had the impression we were not being forthcoming, my wife flew out from california. we sat with your staff and we didn't limit it to 2006. we went back to the 20 years of employees we hired after getting married in 1991 and having a first child together in 1992 and we went through all of the employees that we hired without regard to the date and i must say i think we are so completely forthcoming during that meeting and we remain willing to demonstrate that there was never a case in which we failed to pay taxes for someone employed in our household or verified their eligibility to work in the united states. >> a question i have basically is your dedication to commerce. it's clear you have a deep

background with respect to the security issues and i understand that you are the border azar 2006, 2009. member of the california for an education, apparently chairman of the san diego county regional airport authority. there's a lot of security involved in those jobs and from five to six, secretary of education and in 2005 superintendent of public education and prior to that u.s. attorney for the southern district of california so i commend you for your public service. it is pretty apparent that your services to areas primarily. it's education and it's also prosecution slash borders are

security issues to law enforcement. education and law enforcement. i don't see anything here with respect to commerce and i am quite concerned frankly that you don't have a lot of dedication to congress in fact a listen to the opening statements and i didn't hear very much there with respect to congress. could you tell us more about what you're doing to force that side of it. >> senator, respectful you covered the part of public service that's two-thirds of my career. one-third law enforcement and one-third education but i spent 20 years as a corporate and commercial lawyer deeply involved in trade and commercial matters. i represented in terms of intellectual property rights protection was a part of my

caseload and i get more commercial cases by far than i did any other kind of case. my commitment to trade facilitation and the trade functions of cbp was demonstrated while i was the prosecutor when i worked to create and health have the congress pass the authorization for the center system which is a trusted traveler program intended to segment the traffic along the lines that i indicated in the opening statement for the purpose of sexually distinguishing between the unlawful traffic, traffic that could be expedited from traffic that needed to be inspected with regard to my work as secretary of international affairs and homeland security negative a jury much involved in looking at the cdp trade functions and i've understood not only the committee concerned but

reflected in your preparation and filing and posing of the senate bill 1631 and also the trade community concerns about cbp transparency, the commitment to increasing the resources it devotes to trade enforcement and trade promotion. all of this has been very much a matter of concern to me and a matter which i am committed. >> are you going to know whether you succeed or not? when you leave your job how will you know whether you succeed on the trade side? >> i think there are a number of metrics we can look at in terms of seizures of counterfeit goods. looking at mr. wyden's concern, the loving and of the collection of countervailing duties and anti-dumping restrictions. there are a series of measures that will tell whether or not we

are getting the results in the trade arena we need to have. >> what do you think the best measures are, two or three or four good measures? >> in terms of trade promotion i would -- >> also to stop the bad guys and the stuff that comes in. >> we need to see the amount of time for example that comes to the united states, the inspection time, the complaint by the trade that we are not moving the traffic as quickly as we can i think is one great concern i have heard on out to the trade organization's. the notion that we do not provide adequate notice to the trade changes we intend to make the rulings and revisions i think is another area in which we can get a free good read as to whether or not we have improved not only the substance and the reality of the commitment to trade but also the perception not only the congress of the trade community. i think that we can look at the

extent to which we have devoted resources to good effect in the area in terms of the number of petitions handled, the time it takes to handle petitions and time it takes to handle the drawbacks filed by the trade. i think there are a series of readily available measures along those lines we can look to assess the progress. >> what i would like you to do is submit to this committee six of the most important metrics you think are most important that you think will help us as a country determine whether or not we are making progress. >> i would be pleased to do that. >> than i am going to review these with you. maybe six months from now. i would like the six most important metrics and the timetable during which we will review these metrics to see the

degree to which you've made progress. now we want to tell you you will be commissioner a certain period of time. we want to work together. this is a two-way street so if you have areas you need help, let us know. we want to help but the main thing is getting the job done so you write that letter to us and we would like to see that letter by the end of this week and i but light -- we may responded said just another match record to that we also think makes most sense. i would appreciate that. what% of software do you think is pirated? just a rough guess. >> senator, i wouldn't answer to guess what i do know that the degree is unacceptable and that the trade community is conscious

of the problem in the same way that i could not give you a good answer to how many films are pirated and how many copies of counterfeit textiles are coming into the country or handbags. i would hesitate. i would say -- >> don't you did you should know and have an idea how much is pirated and coming to the united states is pirated? >> i think that we can look at what these teachers have been and project but i've learned in terms of the security feature and i see this in much the same way that being able to project what is not being captured or seized is a hazardous calculation and would want to be in a much more informed position to be able to give you -- >> don't you think you ought to

know what each of these areas -- shouldn't you have members of the fingertips like that? the scope of the problem is and how will customs is handling it? >> yes, sir. >> instead of the lateral generalities' immediate and specific. >> i do believe the data is better but in any event, having that baseline data still is not a sure god to the trees falling in the forest when no one is there to hear them. >> better than nothing, isn't it? >> educated guesses -- >> better than nothing. >> educated guesses are better than nothing but you need to take -- >> that's right, do the best you can, find out that number. would you be amazed if you learned that 43% of world software is pirated? >> i would find that as

unacceptable as figures far less than that. it's been at what% in china do you think is pirated? >> i know from my visits in the educational context of china that there is an enormous amount of pirated counterfeit goods on sale and on the sale elsewhere in the world. >> i'm talking about china right now. the software and piracy with the numbers of 94% in the year 2000 and 79% for the year 2009 surprise you? that's what they are. rush of 94% in 2000, russia, 200967%. a little better. about the same. 58%. the world is a little better, know it's worse, 6% worse, 37% near 2,000 in 2009 as the software pirating.

do you feel we have the ability to deal with software? you sound to me like a knot and bolts guy, not a software by. >> actually, senator, having worked in california on the understand the piracy of software and i understand the critical nature of software and intellectual property rights protection to the economy. i understand that deeply and i've been involved as a lawyer and also as a prosecutor where we work to stop the counterfeiting of goods coming over from mexico. i understand this issue and the importance of it very well. >> i must tell you a lot of visits come into my office and i am concerned that the degree of intensity with which they are upset with products that are

pirated astelin. >> i am familiar with those complaints and those concerns -- >> [inaudible] i am just telling you. so you know. you also know there's another border besides mexico. >> i know that very well, sir. i've been there often. >> where have you been? >> i've been to me and two weeks ago and senator cantwell indicated seattle. i've been to detroit, windsor, the holton sector up in new york state, vermont, and i would have gone to montana had a senior center been there to greet me. >> well you could have gone anyway. >> i know montana from travels there but i meant in the official capacity.

>> will you know we have a long border, 545 miles and we only have freeport's which commercial vehicles can pass which is a huge problem. the operational hours of some of them have been dramatically reduced. so what are your plans to refocus and get commerce moving across the borders? >> with respect -- with respect to the northern border as you know we have implemented the pilot program to expand the hours and we wanted to see whether or not in fact if we provided was extended service hours whether or not the traffic would require that we extend to read we are always willing to assets of that and i think our record has been good in that respect that we're we conduct

the analysis and where there is a demonstrated need and response by the community to make those hours permanent. if there is also an were areas and ports of entry we need to be willing to look at flexible use of technology that ensures a were security but also permits people who use the border regularly to register so that they can be given access at certain times of the day when we are not there with people on the ground. >> sprick i'm especially concerned about the intellectual properties because it is rising. it's counterfeit medicine for example threatens the health of

consumers. the authorization bill we hope to pass would give customers more resources to seize the infringing goods. but additional authority would you like to have to do your job? >> we appreciate the concern. i want to first see how far we can and the enforcement efforts we have initiated. there's been two major developments that i want to apply and then be in the position to talk about what additional authorities we may need. those two efforts are the intellectual property enforcement centers that immigration customs enforcement has established. we participate and the investigations at i.c.e. is doing with intellectual property violations or suspected violation. that is a partnership that we need to assess how far we are

hampered by lack of authority and what other obstacles there may be. the second major development is the development -- the opening up of the commercial targeting and analysis senator that really represents the first time in which we are trying to use the sophisticated databases and targeting rules, but we have proven so valuable in the security context and to do this in the trade context to look the same notion of risk management, risks segmentation and layered security in the area of trade in force and as we do in terms of protecting against the terrorism and transnational crime. >> what are you doing about concerns about safety of imported to place, children's products? that is a huge problem. >> it is, senator, and two weeks ago, two and a half weeks ago i met with chairman tannin rahm at

the consumer product safety council. we entered into a memorandum of the understanding and which members of the cpsc are targeted at the analysis senator. i had a call this week with i netz tannin bomb where we would convene a group of agencies for which customs and border protection serves as the executive agent so we can start to take an entire and more unified whole u.s. government approach to the issue is not only of consumer product safety but also intellectual property enforcement. >> what about the additional cost the importers have to bear because compliance with trade law. doesn't that put additional burden on them?

>> there is no question every time we impose a regulatory requirement there is a cost involved and i have heard the complaint chairman just articulated in my meetings with tree organizations which i presented the first week on the job. this week i was with the commercial operations advisory committee coac in philadelphia and heard the same complaint and basically, senator, i think that what we are talking about here is a reciprocal obligation of the reciprocal obligation is that if we impose a requirement that results in additional cost to the business that we provide the benefit of the bargain to the business. >> how do you do that? >> by seeing that there is an expedited movement of goods, prophecies and paperwork as well as the movement of containers and the maritime and aviation context and movement of trucks across the land border. this has got to be a win-win situation in which business and

government promote american economic competitiveness and economic prosperity. >> the legislation passed provides such benefits that is so that those who are doing a good job get a benefit of this whole process. >> dalia understand there are important dimensions in the bills that do that. so what safeguards do you put in place to ensure that cdp consults with this committee and other agencies before making significant decisions? >> i think a commitment to transparency, openness and notice is the whole market keystone of that approach. when i met with the committee in philadelphia this past tuesday i made that commitment to them. i believe it was well received. we had a four reading in which the seven committees that had been established reported on

their word. i understand the importance of consultation. i understand the importance of rebuilding the trust and confidence of the trade community as well as members of congress and the notion that we can have both security and prosperous trade together. we need not sacrifice one -- speed this committee doesn't like to be blindsided. so if something is coming up and you think that the congress should know about i would like a telephone call in advance. spec i want to read about something significant in the newspapers or my constituents. i want to hear it first from you >> i am about rap to be cut to wrap up unless you have something to say. spec i appreciate the opportunity. i want to express again my

concern at the impression that may have been conveyed to your staff in the course of the vetting process. for 20 years now i've been engaged in public service as you've noted as u.s. attorney as a member of the department of justice as a school superintendent, california secretary of education as a chairman of the airport authority and more recently dhs as assistant secretary special border representative. in each of those positions my reputation for truthfulness and directness indeed are sometimes believed to be default are what i prize most. i've been confirmed by four legislative bodies, five legislative bodies and for different levels of government. i take my reputation for truthfulness and candor as the

core. the first lesson my children durham is door word is your bond, and i want over time, senator, to have the opportunity to earn that trust and confidence on the substantive matters but also on the values that you articulate teddy roosevelt at the outset of this hearing. >> i appreciate that and i appreciate your answers questions. i still remained concerned. since 1853 that customs service has cut responsibility for patrolling the borders the agency retains authority to secure the borders from unlawful entry and persons and goods and i believe that your failure to complete and maintain the i-9s goes to the heart of your duty as customs and part of the responsibility to secure the borders, to credibly enforce the law you must first follow the

law. nevertheless you've been appointed as commissioner and your term will expire at the end of the next session in the meantime you have important duties to fulfill and i hope he will fulfill them very well and we look forward to working with you in the metrics we are going to work with to see what progress we can undertake between now and the end of next year. >> thank you, senator. >> thank you. the hearing is adjourned. is th.

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[inaudible] thanks to all the witnesses appearing before the subcommittee today. today's hearing will examine the impact the use of credit reports and information have on consumers outside of the traditional use for lending and credit purposes. we will examine the use of credit based insurance was and whether a person has default and whether or not a consumer's credit information should be used to determine their employability. we will be limited opening statements to ten minutes per side but with objection the record will be open. opening statements will be made it part of the record. we may have members that wish to attend the duenas on the subcommittee as they join as i will offer unanimous consent for each to sit with the committee and for them to ask questions when the time allows. for i yield myself five minutes

for opening statements. this morning's hearing is about the use of credit information in areas such as insurance, underwriting and employment purposes. we will hear about important yet complex and often opaque process these concerning credit insurance and insurance scores in the first panel and in the second panel we will hear about the equally important to a vast number of consumers little known or understood use of credit information for hiring and even firing decisions and the effect medical debt has on one's consumer report even after you paid the medical debt off. when legislators and regulators attempt to fully grasp an issue such as credit based insurance scores they see a complex system latent with ever-changing computer applications and models. but it is precisely the complexity that should make the hearings in congress still further into an issue that

affects every single american who owns or rents a house. a car has insurance, has a job orders looking for a job or is likely to incur medical debt. to most consumers know that their car or homeowner's insurance rates may go up due to their credit scores? do they know if one of the medical bills goes to a collection agency and they pay in full it will still affect their credit report for up to seven years with extra people realize that even in the tough economic times preemployment consumer credit checks are increasingly widespread? trapping many people in the cycle of debt that makes it harder for them to pay off their debt and for them to get the job that would allow them to pay off the debt? i wonder when you go to state farm or allstate or geico to get insurance the eckert is core and if eckert is worse negative they are going to charge more for

your insurance to this and you a note in the mail telling you that you're going to pay more for the insurance? these are all very important questions the american public needs and indeed the current system facilitates the denial of employment to those that have bad debt. even results the denial of employment. the vicious cycle and has a good crestor can't get a job. and i wonder who is most likely to be effected especially in the economic times. extend unemployment compensation? what about the national debt? why have a way we could settle and limit competition. how about letting somebody get a job and in prove who they are without mysterious numbers coming out of a black box somebody nobody knows about it. that is a committee in this hearing. sick and so for this year's credit reports, eckert this course and impact on consumers we will look at reports, studies

about the predictive nature of insurance court and traditional scores among other things. but as we do so we also need to look the basic guiding principles of equity, fairness and transparency. some have contended there is no disparity of minorities injured scores some will say even if there is a disparate impact on some groups the system still doesn't need to be changed. the question of how productive the credit based insurance score is on an injured likelihood of blame is important as it is the predictive value of the traditional press corps used for granted. but as long as they're continues to be disparity in the outcomes of the current system for racial and ethnic groups and a long glass and geographical line i believe the system needs strenuous oversight and fundamental change. how to correct the disparity in the system with its disproportionately negative impact on minorities and low-income groups while maintaining the credit information as a risk management

tool is a talent we should take on. for example on issues like use of credit information for developing insurance pricing and the inclusion of medical debt collection determining the risk i have doubts as to whether there are the uses of date. the equal employment opportunity commission, the federal reserve, the brookings institution, federal trade commission and texas department of insurance have all found racial disparities between african-american latinos and points and chris cord success to and we will see this as a wide-ranging implications beyond simply obtaining consumer credit. depending on decisions such as determining their insurance rates or even something as vital as whether or not to hire someone that is based on something that is shown to possess a degree of bye yes that is difficult to say at least. but i welcome that estimate is one of those who believe the system works and of those who believe the system needs to be changed to work in a more

equitable fair and transparent faction. in the same spirit of transparency, i am making it clear at the outset i side with the latter. i don't think you need any sort of score to predict that from my point of view. in order to persuade the committee from moving forward on the legislation that was strongly limited what we believe to be fair practices the industry witnesses before us must prove to me not only are the questions to colin colin but the their fair and equitable to americans. the ranking member mr. hensarling is recognized. >> for as much time as you need. how much time do you want? >> for and have for calling this hearing. as we know last week we were greeted with more bad economic news in the nation and as on an employment ticked up again to

9.9%. again on a plan of remains mired at a generational negative since the president asked for and congress passed the stimulus bill approximately 3 million of our fellow countrymen have lost their job. countless stories of hardship and countless stories of suffering and we know that the number in plan a rate hovers around 17 to 18% of the country. any historical standard we should already be out of this recession. we should have robust gdp growth and robust employment growth but unfortunately we do not. i believe as do many that the reckless spending, the enormous debt and deficit that has been brought upon us by this congress, by this administration, the serial bailouts, the government takeover and legislation passed but ultimately restrict access to credit have contributed to

the fact we are still mired almost double digit unemployment i believe the administration and congress are holding back our economic recovery. an economy that wants to recover. the economies work on reverse gravity. what goes down must come up. egypt is recovery has been the most tepid languishing recovery in the modern economics era. i didn't even mention the impact of the high-cost health care bill or the national energy tax. as i talk to small business people in the fifth congressional district of texas and investors and i talk to bankers and fortune 500 ceos i hear the same message over and over and that is all i am not willing to expand my business and create more jobs today. i don't know what the health care costs are going to be for my employees or with the energy cost might be associated with cap and trade. i don't know what my tax bill is

brenda diaz tax relief expires eight years and and i don't know how my nation is when to pay for all of this debt. more taxes, more inflation. given the backdrop i would hope any legislation the subcommittee were full committee considers that we would consider jobs to be job number one for our committees. yet i feel we are considering three more policy ideas that will further harm job creation in america by restricting access to credit. all of the ideas before us are either going to prohibit accurate data from the pantry credit flail or prohibit the use of accurate data that may be in a credit file. to many of us this is the distinct odor of government censorship even the risk of the orwellian thought control. the bottom line is the kurdish

files will the road risk-based pricing of the products which in turn is going to lead to less available credit, more extensive credit to at a time again when our nation is meijer and almost double digit on employment. now should curtis course be used in insurance underwriting are they predicted? i have seen a number of studies that claim they are but most importantly i suppose those who are using them find them to be predictive and i believe they have an incentive to get their right otherwise they would ultimately lose money and have to fold up their shopping. those who get it wrong ultimately go out of business. maybe one entrance company feels that those who wear blue ties are riskier than those who don't. i don't know. i don't know if that is predicted. tautological but maybe it is. one company may decide to use it and another one might choose not to use it. information about this charge

medical bills, you know there is a lot of setbacks one can have in their life that ultimately impact their credit to force, unemployment, medical bill. but at the same time or they predict if? if they are productive if we don't allow that information and ultimately small businesses many of which are organized as sole proprietorships -- >> [inaudible] >> in that case, mr. chairman michael -- [inaudible] >> i am going to ask unanimous consent miss gilroy be allowed to sit in this hearing and grand two minutes for an opening statement. hearing no objection, so ordered. >> thank you, mr. chairman and for your leadership in this important issue. and i thank the witnesses for their time here today. i'm interested in what you have to say particularly about

medical debt and the impact it has on the credit scores for millions of americans and their ability to get an affordable home loan or a car loan after they've paid their medical debt. and i ask for unanimous consent to enter into the record a letter written to me from my constituents, julie mueller of columbus ohio. she's a responsible young adults, college student. she pays her credit cards on time, she purchases health insurance and checked with them before she was going to have an expensive procedure to see if it would be covered. she was assured it was and that was her understanding until the bill can and her insurance company denied coverage she ended up in a yearlong dispute on that. eventually resolved but it destroyed her credit score and now she's worried about her ability after college to buy a car, to buy a house, and i worry it might even affect her ability to get a job. i introduced a medical debt

relief act to help hard-working americans like julia to play by the rules, pay the medical debt, yet our find chris course adversely affected for years to come. today we are taking an important step in the right direction to do with this important issue. i want to tell julia when she writes to me that, quote, fiscally responsible and i would like to be treated that way. but that is what we are aiming to do here today. thank you, mr. chairman. i yield back my time. spec the gentlelady yields back the time. mr. garret. okay, mr. price is recognized. >> the last two years have taught anything it is that risk is unavoidable and ever present. for the economy to work businesses must people to price products for risk that they incur. risk-based product to the comprizing is important when you try to determine the reliability

of the injured and exposure of job creators. a credit based insurance laws have proven to be the most productive factor in determining the likelihood of a consumer filing a claim. the risk model enables insurance to more accurately underwrite and price for the risk and when this is, well everyone wins. democrats want you to believe everyone shouldn't be judged by past actions. however it is the americans' right to pull yourself up by working hard and making responsible decisions to read and what makes the risk-based pricing insurance score is important could be ability for people to improve their scores and lower their rates by paying their bills on time and taking responsibility for their financial decisions. so ask yourself what would happen if there was no risk pricing? everyone would get the sampras re was alleged insurer has to pay to cover a claim. this would result in significant and dramatic increases in rates to virtually all americans, less credit available, more expensive

credit and more job destruction. this is clearly not the most wise ave. i look forward to the testimony and hopefully our response in wisdom and i yield back. 362 >> thank you. ai thank the witnesses for appearing to read mr. chairman i am concerned about the credit based insurance scores especially as they relate to employment. it's very difficult to be poor. it's very expensive to be poor in poor neighborhoods goods cost more. important neighborhoods you find that unemployment is obviously higher for any number of reasons. it's very difficult to be poor. and when you are poor and you needed job and it's difficult to get a job because of credit

scores it seems the compound. i injury concerned about how we approach credit scoring with reference to the employing people is especially people who are poor. i look forward to hearing from the witness is and i look forward to solutions that poor people won't find they are being insidiously discriminated against. thank you. i yield back the balance of my time i ask unanimous consent mr. manzullo be allowed to sit on the subcommittee and hearing no objection to recognize him for a minute and a half. >> thank you mr. chairman. there is a distinction between people who incur medical debt to those who go out and charge a vacation and consumer items. i practiced law for 22 years and have been through a thousand bankruptcy's and in several of

those cases the people put in the bankruptcy either exhausted insurance or had no insurance and the filed bankruptcy not because they wanted to, not because they did anything intentionally but simply because they couldn't stay off of their medical bills. i talked to two colleagues of mine in rockford illinois specialist in bankruptcy. if then threw 30,000 bankruptcies together and one has a record for credit card debt, $140,000. mr. chairman those for all medical expenses. and we have to draw a distinction between people who because of their spendthrift outrageous on credit or the conduct go out and buy things they need just because they want that and people who are caught up especially today without insurance or lack of insurance or many times very high deductibles, co-payments etc. and i am a sponsor of this bill because it is the right thing to

do especially with so many credit card companies the case my wife and i have done a simple 150 donner coach put on the way it took us four years and it wasn't until the fair reporting act they finally backed off on it and so credit card companies reporting companies i'm sorry, credit reporting companies do a job and i understand what they are doing. but for people who are the unfortunate -- >> [inaudible] >> they shouldn't have to suffer the consequences. >> my friend, mr. watt is recognized. specs before, mr. chairman. i may not even take a minute. i just want to applaud your continuing effort to shed some light in this area, an area that a number of us thought looking at doing the last term of congress and found some very

disturbing things like credit scores or determine your automobile insurance rates. and i never could quite figured out why somebodies credit had anything to do with their driving record or how somebody's credit had anything to do with the insurance rates they pay on the homeowners' insurance. there's a lot of disconnected and we need more information about this so that we can make some good judgments and possibly do some legislation in this area and i think that is why this hearing is so important and i applaud the chairman for the hearing. thank you. >> ai thank the gentleman. mr. garret of new jersey is

recognized. >> thank the members of the panel that are here. credit information has obviously become an essentials and valuable tool in allowing various market participants to more accurately price for the risk and one of the areas examined today is how the information is used by insurance companies determining the premiums they charge for their clients. there's been numerous reports as studies and by using consumer based insurance determining premium rates insurance companies are basically more able to accurately price and the rates to sycophant plea decreased for a broad majority of the holders. credit scores are just one of a number of different points that insurers consider in determining premiums. if we were to limit -- more

people would pay higher premiums and less people would be able to purchase insurance. neither of these are good thing. so in the week of the recent financial crisis instead of looking for ways to decrease credit availability and accurate pricing of risk i believe congress should be considering policies to help expand credit for consumers and small businesses and lower the cost of credit and insurance premiums for the majority of americans with the current unemployment rate around 10% we really work on initiatives to expand economic opportunities for all americans. no place for the government to micromanage the nation's small-business is and for frisking be accurate price of risk and with that i yield back the balance of my time. >> okay. and last for the site we have congressman maloney. >> thank you mr. chairman. first i want to welcome mr. wilson from lexus nexus headquartered in the district i represent and i'm proud to

represent this country -- this company that is valuable to the country and the number of consumer complaints related to the credit scores has been going up and i look forward to the testimony of others on how we can better move forward in a way that is fair to consumers and fair to business. thank you. >> we have two panels this morning. so stop the covers will focus on insurance information for underwriting and the second donner creating information and areas as employment. the first panel consists of three witnesses, the honorable michael mcgraff on behalf of the national association of insurance commissioners and i welcome you here from illinois. during a great job in the state of illinois and happy to have him here. then we have mr. david snyder vice president and associate general counsel public policy american insurance association and the third witness is

mr. price of georgia. >> thank you mr. sherman. mr. wilson as a constituent and i want to welcome him to our panel today. mr. willson served as to the eckert analytics for the group at lexus nexus risk solutions joint equifax in 1983 and early experience included the walls us marketing analysts and field operations manager for electric and gas and telephone utility customers. then served as manager of strategic planning and research before moving to equifax in the development. he worked extensively on the flight of introduction of the first credit scoring models as a wealth of knowledge in this area. the current roll with nexis and lexis he continues to support insurance risk scoring models and manages the team of statisticians and modelers and he holds a b.a. in marketing and brand university down in georgia

and m.b.a. from mercer university and other great institution in georgia. we want to welcome mr. wilson. you are welcome here. >> we are going to start with the gentleman from illinois,. you have five minutes. when you see it turning yellow you have one benet. one minute last quite a while. when it is read five seconds later we hope he will wrap up. you are recognized for five minutes. >> thank you may to become mr. gutierez the director of insurance of illinois and serve as chairman of the property and casualty committee for the national association of insurance commissioners. today i offer the views of my fellow regulators on behalf. thank you for your intention to the use of credit information

and personal lines of insurance. h.r. 5633 sponsored by the chairman last year coincided with our own effort to scrutinize the use of insurance scores. as regulators we do not fashion public policy those decisions are made by congress and state legislatures. states view the insurance scores from different perspectives. they have band the use of credit information and others impose rate bands or prohibit use on a renewal or allowed only if credit information would reduce premiums. still others require only that credit not be the sole basis for an insurer decision. and illinois on like most states our law requires only that insurers consider extraordinary events and does not even recognize military deployment as an extraordinary event. in the illinois an older gentleman from a small town road that he had paid cash for everything his whole life, car,

farm land, his hand written note explained he bought car insurance before the law required never a fancy meals or bought pricey clothes. he even added he'd been married 47 years to the same woman but confronted a greater. illinois law we should be improved we applaud this committee's desire to move past the rhetoric of interested parties towards the fully informed approach. to this an end we held public hearings and 20093 interested parties, insurers, actress and insurance vendors argue that injured scores allow for more accurate underwriting and ratings. consumer representatives argue that credit based insurance scores had a disparate impact on the members close to the to protecting clauses and premised upon irrelevant if not inaccurate information. we heard in great length about the studies that support both

positions. and our own state insurers sell homeowner insurance in urban neighborhoods where homeowners were previously stretched to find affordable coverage. insurers argue that credit based insurance scores have facilitated the market change. studies also indicate individuals of racial and ethnic minority heritage or over represented in low credit score categories and credit based insurance scores discriminate on the basis of the heritage. our national focus has turned. rather than engage in the circular debate we've undertaken the two-pronged strategy to assist the policymakers. first we are developing a standardized static or detailed interrogatories for the personal lines although companies. the data will target the impact of different factors upon rates paid by consumers. gender, marital status, eckert discourse among others. the data will enable congress

and the states to measure the consumer and market impact of one states law versus another. second, we are difficult and a model to bring insurance score vendors with an insurance regulators oversight. one panel indicated in written testimony the vendors are already subject to state regulator oversight on which we largely agree. however the same vendors argue the opposite before the naic and we tend to eliminate ambiguity. as digital information expands access to consumers details insurance regulators remain vigilant protecting consumers against potentially abusive underwriting and trading practices. we are watchful for underwriting rating formulas that may constitute a proxy for the race gender or other protected characteristics. insurance must function as insurance. for the naic we appreciate the chance to assist the

subcommittee and pledged continued support of your efforts with the two-pronged approach state regulators intend to offer reliable fact based information for the congress and the states. as the data called the model development concludes we will deliver the results to this committee and, worse. thank you for your attention and i look forward to questions. >> thank you. mr. snyder, recognized for five minutes. >> good morning. german gutierez, ranking member hensarling mr. price and members of the subcommittee my name is dave snyder vice president isasi general counsel for the american insurance association. in the midst of the financial turmoil and its related chaos the u.s. property and casualty insurance sector is stable, secure and strong. there are good reasons for this. the united states never lost sight of fundamental shared goals. reduce risk where possible accurately assess and assume the

remaining risk and provide effective coverage to the american people. as a result although and homeowners insurance markets are by every measure financially sound, competitive and affordable. claims are being paid daily by the companies. the market is competitive by any measure and insurance is taking less of a bite of the household incomes than in the past. this is good for the economy because the maximize competition forces prices down to the lower seasonal levels people have money to spend on other things. insurance scoring has played a major role in creating deposit for all concerned. by empowering effective risk assessment pricing majority of the population pays less. insurance is more available and more people can receive reasonably priced coverage instead of being relegated to the high risk pools because insurers have a cost-effective tool to assess price for risk giving them the certainty they need to provide coverage to nearly everyone. you asked us to address issues related to the insurance scoring.

in summary it is race and income blind and has repeatedly has been proven to be an accurate predictor of risk indeed one of the most accurate. the states effectively regulated insurance commissioners have full access to all of the information they desire. in response to the request for recommendations we suggest all states adopt the national conference of insurance legislator model law. second they should make sure they capture and analyze all of the credit complaints they can and communicate with insurance companies about them individually and in the trend is. we know for example from the director's testimony that the rate of complaints under the existing system for the credit based insurance scores is about one complaint out of every 1.5 million policies issued to renew. in addition we need to work together more effectively on financial literacy to help the american people understand how insurance is reduced by insurance companies to provide them with coverage. there is one other recommendation we did not

emphasize in the written statement that is to make it more possible to innovate on a pilot basis for example to introduce more direct measures of driving performance such as ability to assess risk based not only on mileage but how when and where they're driven. one other factor in the strength of the personal lines of the insurance market is that we have collectively reduced risk. thanks to the leadership and that of the safety groups, insurance industry and the state's far fewer americans are injured and killed on the highways than would ever have been expected. using fertility rates of 1964 last year alone we have collectively saved 120,000 lives and prevented millions of injuries. this has created a solid foundation of a healthy auto insurance system we have today. now the insurance industry is focused on building safety as never before. for advocacy of small tecum smoke detectors and codes requiring sprinkler lawyers eminent testing centers with

wind turbines, powerful enough to test the structural integrity of buildings. we hope to see the pattern of positive change similar to that which we helps bring about all those c2 with your cooperation and assistance. thank you for inviting me to speak with you today and i would be pleased to answer any questions you may have. >> good morning. my name is john wilson, director of analytics for the insurance group at lexus nexus risk solutions. lexus nexus provides technology and information that helps businesses, government agencies and other organizations reduce fraud and mitigate risk. in the entrance to the services group will provide a variety of products and services to support the insurance industry including credit based insurance scores. in my remarks today i will focus specifically on how the insurance is to twist and regulated.

credit based insurance was have long been used by insurance underwriters and actress to accurately to the credit the as as homeowners policies. insurance scores provide objectives effective and consistent tools that insurers use with other information such as dredging history and prior claims to better predict the likelihood of the future plans and cost of the claims. deriding the score follows as straightforward process. a carrier compiles historical policy experience including earned premiums and incurred losses by a population of risks. lexus nexus works with a credit bureau to mask the policy experience to the historical consumer credit from the particular point in time to which the policy performance data pertains. then using regression techniques we identify the credit variables that taken together provide the best representation of the observed loss ratio performance. most credit variables can be grouped into one of five primary areas. one of how long you've had the account established.

to cut the number and type of account to hold. three, indications of recent activities including inquiries and new account openings. for, the degree of utilization on the accounts and number five, payment history. the relative weight of each of these areas can vary depending on the line of business being modeled. but for any specific model the insurance regulator is given access to the individual variable description and point assignments. entrance scores do not consider factors such as race, religion, national origin, miracle status, age, sexual orientation, address, income, occupation disability or education. also inquiries made to account review or promotional insurance purposes are not yet used in calculating entrance scores. we also exclude medical collections through. it's important to note what alexis lexis provides insurance course we are not an insurance company. we are not involved in insurance rates sitting determinations' or decisions with respect to groups of individuals of individual

consumers. lexus nexus is not a consumer credit bureau and we don't make credit decisions. our role was to supply information to the insurance carriers to assist them making underwriting decisions. the credit based scoring process is currently regulated at multiple levels. lexus nexus is considered a consumer reporting agency under the federal fair eckert reporting act and state analogues. as required by that lexus nexus provides consumers upon request with all access to the information and a consumer final at the time of the request. we also set a process by which any consumer may order a copy of their insurance or via the choice trust website. additionally because insurance is regulated lexus nexus must have models to the state statutes regulations and guidelines relative to insurance scoring. most states have adopted a regulation based on the model on insurance soaring default by the national insurance legislators. pursuant to the state requirement a third-party vendor

like lexus nexus must file its model for the review of the state insurance department. in many states carriers are required to include lexus nexus ogle file and materials in the rate filings. other states the carrier may be allowed to reference the lexus nexus model once it has been filed. finally the insurer must gain approval of the rate filing that may include insurance scoring component. as a result lexus nexus works on an ongoing basis with state department of insurance to explain the models and create state approved scoring solutions for insurance customers. in addition lexus nexus provides web sites to the consumer disclosure of that insurance scores and process is more readily accessible to the consumers and other interested individuals. in conclusion credit based insurance laws provide an objective effective consistent tool that insurers use with other information to better predict the likelihood of the future claims and cost of those claims. there are existing federal and

state regulator approval process these that provide comprehensive oversight by individuals the department of insurance over the entrance scores, insurance or developers and use of insurance scores. lexus nexus works cooperatively with commissioners and staff in seeking approval for the scoring models. so i appreciate the opportunity to provide the committee with information on insurance scoring and i had to address any questions you may have. >> thank you very much. welcome to all of you here. i know there is a lot of questions. there's quite a number of members that have shown up this morning. let me just a couple of minutes and then allow people to ask questions. and then make some general comments. that is to say that if someone has cancer and they become very ill and they don't have health insurance, they're likely to suffer great economic, and that is going to affect their credit

score. so that me ask you if someone becomes ill, is it more likely they are going to try quickly to get into an accident, dr. erotically -- drive erotically because as we know the chris or will be effective. in to the questions please left to right. mr. mcraith? >> mr. chairman first let me say also in reply to congresswoman kilroy's's concerned about medical expenses, we are where to third of all personal bankruptcies are based on medical cost. three-quarters of those people who file final even though they have health insurance. it's a significant problem. different states have adopted different approaches to dealing with an extraordinary life event like medical expenses. as you've described. and allowing --

>> if we use the deteriorated credit scores it is more likely i am going to cause the insurance company additional liability? >> right, and to answer that question i don't know the answer to that and i am not sure that anyone has explained directly that the nexus between credit score and driving. >> mr. snyder? >> am i more likely to survive cancer and have debt, is my house more likely to not have a fire? >> mr. sherman, the answer to that is no and that's why we supported language in the national insurance legislators model that removes collection accounts with the medical industry code. that is what was done first. in the past summer the national insurance legislators heightened that even more with our support this removes the consideration

of the negative factors resulting -- >> just for the record so we are clear to all of the members of the committee you're coming here representing who? just so we have it for the record. you are representing the american insurance? >> yes, sir. >> thank you. mr. wilson, you provide them the information so what do you think? >> we haven't tried to study the specific question that you asked and we also agree that medical collections should not be used in this course. >> but they are used in this course? >> they are not. >> and the reports they are. in the credit report they are. if someone fails to pay medical bill it has a derogatory impact on my credit report which is kind of a derogatory impact on my credit score. >> i'm not going to -- >> you can't. it's not that you're not. really it shows up.

in other words, mr. wilson, if someone has difficulty paying a hospital bill and it goes to a collection agency does that show up on the individual's credit report? >> it will show -- stila gindin as a derogatory effect on eckert is work. >> it is not used in our scores. >> but it is used in the credit report. >> it's on the credit report. >> thank you. and it is there on the credit reports. so, it's okay. everybody has witness is here. i don't think mr. wilson is to upset at me asking him the questions. and so what we are trying to get at here is how is it that people who have an accident, who has an illness in the end are not deprived of insurance even

though they had no way of dealing with this and maybe doesn't have anything to deal debate could do with them. so let me ask you if i am employed and become unemployed and, you know, i can't pay my bill because i've become unemployed does that mean i more likely to have an accident or fire in my house? mr. wilson? >> again, the scoring models that do look at dealing with payments which would potentially be a result of having lost a job show that those delinquencies or insect indicative of greater risk claim filing. sprick therefore i would be more on health care insurance? i'm sorry, therefore i would pay more on the home insurance? >> you could, yes. >> i would. >> not every carrier uses the credit scoring is -- >> thank you. >> mr. chairman, if i might to

provide a further response to that of the extraordinary life circumstances language added to the national insurance legislator model specifically excludes the use of loss of employment for a period of three months or more as it results from the one to recriminations suggest that is a factor we are trying to work with consistent with your question. >> mr. jimenez could -- unanimous consent for ten more seconds. >> if medical expenses are not considered then there would be no reason to have an extraordinary life exception to read also the end quote model has been adopted in different states and different variations as i said the state of illinois' only requires the company consider such an event. >> thank you.

>> this is a remarkably important topic and i think there is a lot of misinformation that is coming into the debate and a lot of hyperbole that occurs and i'm hopeful throughout the question period we will be able to sort out some of that. mr. wilson, you mentioned in your testimony that the main variables, the primary areas where the credit variables are looked at are the length of time of an account, number and type of credit account, indication of recent activity, degree of utilization and payment practices. and in the next statement that he made this is a quote, insurance scores do not consider factors such as race, religion, national origin and gender, marital status, age 06 orientation to address some income, occupation. given that, why do you think there is always this misinformation out there about what goes into a crevice or?

>> i do think some of the comments introductory to this are accurate. not every consumer has a clear understanding of all of the details of credit reports, credit scoring on how these things are used in making decisions about them so i do think we have tried to be all there making information available to the consumers. we've difficult training programs for continuing education credit for agents and insurance agents because they're often the first line of answering questions about these things. >> but providing information, providing the score you're not an insurance company? you're not a credit bureau, don't provide credit, you provide information. >> right. sprick there's a lot of information that goes into the rationale for why a consumer

might be excluded from gaining credit. i would be interested in the opinion of the panel if we as a congress determined that we ought to exclude certain things from being considered is it possible that what actually harm consumers as opposed to helping them? mr. willson? mr. snyder? >> mr. price, the ftc estimated 59% of the people pay less as a result of credit scores. frankly in the testimony given by companies in the states the numbers are much higher for many companies. so we would envision first of all a very negative effect on the fast majority of policyholders directly. second, it would deprive the market a critical tool that has allowed the market to evolves much more towards objective underwriting individually tailored to each risk which is given the company's confidence to write virtually everybody

under the old system that was sort of past and feel you were either very good, normal or relegated to the high cost risk plans. now because of the toll that is capable of individuals accurate and objective risk assessment insurance companies are pretty much able to write anyone who comes to them which has resulted in the shrinkage to the historic lows of the high risk pools so there are a number that would come some directly to the majority of policyholders and then indirectly to the market as a whole resulting in less competition and potentially less availability of insurance. >> and higher cost. it was available the entire cost. mr. mcraith to you agree? >> we should always be concerned about unintended consequences and certainly the pricing of one risk in a company pool affect the pricing of another risk in the sample. however, we should not accept as gospel that 60% of people

benefit from the use of credit based insurance scores because we don't know what the baseline is. >> do you dispute that number? >> what i am saying is what i described earlier our effort was the data to collect inflation from insurance companies. one is to get behind the rhetoric to reduce a certain percentage of consumers benefit from the use of the credit insurance scores. we don't know when we hear the word benefit what is the starting point. we don't know what the baseline is and that is what we intend to find all and we will report back. >> mr. wilson, do you have a comment? >> and the remaining seconds, congress relied -- what factors to the congress lie on the mahlon lending uses of credit information while amending the fair credit reporting act of 96 and backend 03? mr. snyder? >> congress continued ability of insurers to use credit

information for insurance underwriting and that has long been the case and congress continued to the recent amendment. they also made the whole credit scoring system better and frankly we of the major interest making sure scores are accurate and that people have access to their credit scores and their ability to collect any issues that may exist and i think the congress and approved all of that through the most recent amendments but did maintained a longstanding ability on the part of insurers to use credit for underwriting subject to the federal law under the fair credit reporting act and all that implies as well as being currently sit regulated all of the state regulation that applies as well.