The Federal Reserve Board and Federal Trade Commission have proposed changes to the Fair Credit Reporting Act (FCRA) risk-based pricing notices that would require creditors to include a disclosure of a consumer’s credit score and related information.
A notice of the change was published in the Federal Register on March 15, 2011. In a separate notice published on the same date in the Federal Register, the Fed proposed to change the combined FCRA and Regulation B (Equal Credit Opportunity Act (ECOA)) model adverse action notices to include a similar disclosure.
The two proposals are intended to implement provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act that amended the FCRA’s risk-based pricing and adverse action notice requirements to mandate the disclosure of credit score information. Under the Dodd-Frank Act, FCRA and ECOA rulewriting authority, generally, is to be transferred to the Bureau of Consumer Financial Protection on July 21, 2011. With the FCRA amendments taking effect on July 21, 2011, the Fed and FTC issued the proposals now to ensure that final rules could be in place by then. It is likely industry members will urge the Fed and FTC to delay the mandatory compliance date for the final rules to give them additional time to revise their notices, make data processing changes, and train staff. However, because the agencies might not respond favorably to such a request, creditors should not delay in preparing to implement the necessary changes.
Risk-Based Pricing Notices. The FCRA requires a creditor to provide a risk-based pricing notice to a consumer when the creditor uses a consumer report in connection with a credit application and, based on the report’s information, grants credit on terms that are materially less favorable than the most favorable terms obtained by a substantial portion of consumers. Under the final rule issued by the Fed and FTC to implement the FCRA risk-based notice requirement, which became effective on January 1, 2011, the notice is also required when an account review results in an increase in the consumer’s annual percentage rate, based on a consumer report.
The Fed and FTC’s current proposal would require the following additional information to be included in a risk-based pricing notice: (1) the credit score used, (2) the range of possible credit scores under the model used to generate the credit score, (3) all of the key factors that adversely affected the credit score (not to exceed four factors, unless one factor is the number of inquiries made with respect to the report, in which case the key factors may not exceed five), (4) the date on which the credit score was created, (5) the name of the consumer reporting agency or other person providing the score, and (6) a prescribed statement explaining credit scores.
The credit score disclosure would not be required when a creditor uses only the credit score of a guarantor, co-signer, surety, or endorser to set credit terms for the consumer to whom it extends credit or whose account is being reviewed. The proposal addresses situations in which a creditor obtains multiple credit scores or must provide multiple consumers, such as co-borrowers, with a risk-based pricing notice, and would add new model forms of risk-based pricing notices including the credit score information.
Adverse Action Notices. The FCRA also requires a person taking adverse action based in whole or in part on a consumer report to provide an adverse action notice. In credit transactions, the FCRA adverse action notice is typically combined with the adverse action notice required by the ECOA. The Fed’s other proposal would amend the combined ECOA/FCRA model adverse action notices in Regulation B to add the same six items described above for risk-based pricing notices.
A proposed amendment to the Regulation B Official Staff Commentary would provide that the key factors disclosure does not satisfy the ECOA requirement for the creditor to disclose the specific reasons for taking adverse action (although the Fed recognizes in the proposal that certain key factors and specific reasons may be the same for a particular consumer).
Comments on both proposals must be filed by April 14, 2011.