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UPDATE 2-U.S. House panel approves credit report bill

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WASHINGTON, July 24 (Reuters) - A U.S. House of Representatives panel overwhelmingly approved legislation on Thursday that would give consumers easier access to credit reports in exchange for barring stronger state credit laws.

"We will have a product that preserves the essence of the way the system contributes to our economy while making some consumer improvements," said Massachusetts Rep. Barney Frank, the senior Democrat on the House Financial Services Committee.

The committee approved the measure by a vote of 61-3 and it must now go to the full House for a vote.

Senators have held hearings on credit reporting laws, but have not introduced similar legislation.

The bill would grant consumers one free credit report a year from each of the major credit rating agencies and an annual look at their credit score for a nominal fee. Committee staff said the provision is modeled on a California law in which consumers typically pay less than $5 for their credit score.

The bill also contains a provision eagerly sought by banks and other providers of credit -- a ban on state passage of stronger credit reporting laws. Existing federal precedence over state credit reporting laws expires at the end of the year unless Congress acts to renew it.

Supporters of the bill, including senior Bush administration officials and Federal Reserve Chairman Alan Greenspan, say maintaining a uniform national standard for credit reporting is vital to keeping credit costs low and making credit widely available.

Opponents of the bill, who include consumer advocacy groups, said the system makes it hard for consumers to correct mistakes and takes away states' abilities to enact stronger safeguards than those in federal law.

The bill also takes aim at preventing identity theft, the fast-growing crime of racking up bills through purchases in another person's name. Consumers could notify credit agencies if they fear they are a target of identity theft. Lenders would have to seek explicit approval before offering the consumer new credit.

Retailers expressed concern over language inserted by Frank to make it easier for consumers to sue lenders over errors.

"This amendment would ultimately reduce participation in our U.S. credit reporting system by retailers and others," said Steve Pfister, the chief government relations official for the National Retail Federation.