Chairman Shelby and Ranking Member Sarbanes, thank you for holding today's hearing on affiliate sharing and the Fair Credit Reporting Act.
I would like to welcome today's witnesses, whose thoughtful written testimony has been helpful in laying out both the benefits of information sharing and some concerns that we should keep in mind as this debate goes forward.
I would also like to extend a special welcome to Terry Baloun, who is the regional president and group head of Wells Fargo Bank in South Dakota, North Dakota, Montana and western Minnesota. Terry has spent a good deal of time in communities throughout South Dakota, and he knows firsthand the challenges of bringing meaningful credit opportunities to rural America. We face particular challenges, from low population density to specialized issues related to agricultural lending, and Wells Fargo plays an important role in the financial services sector in the upper Midwest.
In fact, national firms like Wells Fargo and Citigroup, which is also represented here today, are critical to the economic vitality of rural states like South Dakota. While smaller local banks and credit unions are the lifeblood of our communities, and provide critical lending services to people throughout rural states, their services are complemented by larger financial conglomerates like Wells and Citi. Some people prefer to patronize small banks, some prefer credit unions, and some prefer the "one-stop shopping" they find at larger financial services firms.
The point is that people have a choice. And in rural America, we don't take that for granted. For example, in the area of health insurance, by August, we will have only two insurance companies left in my state offering individual policies, and the lack of competition has had devastating results on farmers, ranchers, and other self-employed workers. But the nationwide system of credit that now permits companies to operate around the country with one set of rules overcomes the negative economics of a small population living across a large state.
The expanded choice in the financial services marketplace extends beyond simply the type of financial institution to an exploding array of financial products now available to retail customers, ranging from the complex to the simple. For example, Citigroup allows mortgage customers to pledge from a Smith Barney brokerage account to collateralize the loan rather than liquidate the portfolio to come up with a downpayment. By the same token, Wells Fargo customers can pay their mortgage at any local branch or ATM, even though the mortgage company and the bank are separate entities within the same corporate family. Neither of these services would be possible without information sharing among affiliates.
On the retail side, affiliate sharing has benefits as well, as Mr. Prill notes in great detail in his written testimony. These range from making computerized returns without a receipt, to storage and retrieval of warranty information, to returns of Internet purchases to a brick-and-mortar storefront, to screening for bad checks through an instant authorization system. And of great relevance to our discussion last week, customer information is critical in preventing identity theft in both the retail and the banking sectors. In fact, Special Agent Caddigan of the Secret Service and Mr. Beales of the Federal Trade Commission stated unequivocally that information sharing, and in particular information sharing among affiliates, can play a critical role in our enforcement efforts against ID theft.
Are these new financial services absolutely necessary? Of course not. The world does not come to an end in a cash economy. And I want to make clear that I take seriously the concerns some of today's witnesses raise about affiliate sharing. But the impact of product innovation on economic growth, consumer choice and the democratization of credit have been undeniable.
In fact, it is this very balance between growth and innovation on the one side, and individual privacy rights on the other, that drove Congress' decision in 1996 to preempt seven critical provisions of the FCRA from state action. We wanted to encourage a national marketplace for credit that maximizes appropriate consumer access to affordable credit, and to a remarkable degree, we have succeeded.
Again, I believe this issue fundamentally is about consumer choice. And that includes a consumer's right to choose not to be part of an affiliate sharing arrangement. The first opportunity to choose comes when a consumer decides to establish a relationship with a company: in some sense, the decision to do business with a larger or smaller institution is the ultimate "opt in." The second opportunity to choose comes when the consumer is presented with an opportunity to "opt out" of affiliate sharing. To be effective, this option must be clear and meaningful. I am interested in hearing from the witnesses what steps, if any, they would suggest beyond the mandatory privacy notices to give customers a meaningful opt-out opportunity.
Thank you, Chairman Shelby, for the opportunity to hear more about affiliate sharing and how it relates to the FCRA.