"The information revolution has just begun. Ask Bill Gates."
So declared Jeane J. Kirkpatrick in a speech last week to the International Credit Association. The group attracted 300 people from various consumer-credit-related companies to its annual conference in Dallas.
Ms. Kirkpatrick's expertise is in international affairs, not information technology. She served as President Reagan's ambassador to the United Nations.
But her limited comments about credit issues and more extensive remarks on what she called the "internationalization of the world" appropriately set the stage for a parade of speakers on such issues as the credit market in Mexico, pending legislation, and consumer privacy.
The credit industry, it was clear, has been "internationalized" to the point that many U.S. issues and controversies resonate in other parts of the world.
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The liveliest debate featured Federal Trade Commission lawyer David Medine and D. Barry Connelly, president of Associated Credit Bureaus Inc., the Washington-based trade group.
The topic was whether the Fair Credit Reporting Act requires credit bureaus to disclose risk scores to consumers.
The FTC maintains that risk scores, which are used to help lenders decide whether to approve credit applications, are part of consumers' credit files and should therefore be disclosed.
Credit bureaus and credit grantors disagree. They argue that the law does not address this issue at all. And they say consumers would be confused if given these scores, because they change frequently and are treated differently by each lender, depending on its underwriting criteria.
In a contentious exchange, Mr. Connelly said he has been sending Mr. Medine anniversary notes marking the day in 1992 when the FTC stated in a public commentary that consumers have a right to see their risk scores.
"The original law never addressed risk scores, I'll give you that," Mr. Connelly said to the FTC attorney. "So let's fix it by saying that risk scores are not to be disclosed."
The strained relationship between the two organizations was exacerbated by the fact that the FTC's first commentary addressing risk scores in 1990 said it wasn't necessary to reveal such numbers to consumers.
Mr. Connelly accused the federal agency of not seeking the industry's opinion in 1992 when it reversed its position.
"The FTC's opinion changed because of an incredible discovery that sometimes only a number is given" to a lender by a credit bureau, said Mr. Connelly. "Well, so what?"
Mr. Medine argued that the risk score "is a critical piece of information in the credit-granting process. Consumers want to see if changes in their behavior can change their score over time."
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A feisty audience put the FTC official on the hot seat.
Oscar Marquis, Trans Union Corp.'s general counsel, asked Mr. Medine whether the FTC is relying on "any facts to back up its interpretation of the (fair credit act)."
Mr. Medine replied that the agency relies on the responses it receives to its public commentary, from its own investigations, and from discussions with people in the credit-reporting industry.
"We have actively solicited opinions," he asserted.
The FTC's last commentary about risk scores was published in the Federal Register last June. Since then, the FTC has been mulling over 80 responses to the commentary, totaling 300 pages.
Mr. Medine said the final revised commentary, which outlines how the FTC intends to enforce the act, will likely come out in two months.
In a subsequent interview, he added that the FTC could change its opinion again in favor of the credit industry's position.
Charlotte Rush, vice president of public affairs for MasterCard International, said the outcome is not at all clear.
"The FTC may decide that what motivated it initially is not a consumer need," she said.
Also, she believes risk scores have not been a concern of Congress. And Mr. Medine revealed that Congress has never sought the FTC's opinion on the matter.
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Mario Sanmiguel, a leader in the Mexican banking industry who is executive vice president of commercial and corporate banking for newly formed Banco Union SA, led a discussion on credit opportunities in his country.
Mr. Sanmiguel encouraged the audience to consider starting businesses in Mexico despite its recent economic upheavals.
He estimates that the Mexican consumer market will double over the next 20 years, and said Mexico can provide a gateway to other Latin American countries and their business opportunities.
"Local players are short on capital and want to enter into alliances," he said, "and the (Mexican) government looks at such partnerships favorably right now."
Mr. Sanmiguel offered some startling statistics about Mexico: Half the population is under 19. Only 20% of households have a telephone. Just 30% of credit card transactions are processed electronically, creating an environment in which fraud thrives.
Moreover, more than 75% of the country's deposits are in three cities - Mexico City, Guadalajara, and Monterey. The three largest banks - Bancomer, Serfin, and Banamex - have about half of those deposits.
In the past three years, those banks have seen their market share drop from 65% to 47%, and Mr. Sanmiguel predicts this further decline.
Interest rates, he said, have dropped from 100% to about 55%.
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"Smaller (credit card) players will get a bigger share" of the Mexican market, Mr. Sanmiguel said in an interview, in part because they are receptive to entering into partnerships with foreign banks and are more willing to be "leaders of change."
Mr. Sanmiguel believes that photo credit cards, which are relatively new in Mexico, will be more effective as an antifraud defense than they have been in the United States.
Unlike a large percentage of card-accepting U.S. merchants, Mr. Sanmiguel said, Mexican merchants do check customer signatures. The photo card, therefore, could provide an extra level of security for consumers and issuers.
This is especially good news for Mexican cardholders, since they are responsible for expenditures if their cards are stolen. An American cardholder's liability in such cases is limited by law to $50; Mexican cardholders are responsible for all transactions on a stolen card until the theft is reported to the bank.
Inverlat Bank, where Mr. Sanmiguel was in charge of consumer credit before he joined Banco Union, tries to use this situation as a marketing advantage.
According to Mr. Sanmiguel, Inverlat is the only bank that advertises its policy of allowing consumers 48 hours in which to report a missing or stolen card. Other issuers, like American Express and Bancomer, allow cardholders 24 hours, but they don't advertise their policy.
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Charlotte Rush of MasterCard said that the credit card industry is experiencing a "move away from pricing issues to how to manage information."
MasterCard accordingly is nearing completion of a statement of principles on consumer privacy issues. It is under review by the New York- based association's U.S. board of directors.
The Privacy Working Group of the White House's Information Infrastructure Task Force is also expected deliver its opinion on consumer privacy matters shortly, according to Ms. Rush.
The top 15 credit card issuers have privacy principles, but only a few of them make an effort to make them known.
"If you aren't their customers, you wouldn't know about their policies," Ms. Rush said.
She expects this to change over the next year as the industry perceives the marketing advantages in privacy protection.
