by Fredric J. Gooch, DocuTech Corporation – General Counsel/VP Compliance
Section 1100F of the Dodd-Frank Wall Street Reform and Consumer Protection Act amends section 615(a) of the Fair Credit Reporting Act (“FCRA”) to require creditors to disclose certain credit score information on their adverse action notices provided under FCRA. The Dodd-Frank Act designates that Section 1100F becomes effective on the “designated transfer date” of July 21, 2011. This article will summarize the adverse action requirements under FCRA and the Equal Credit Opportunity ACT (“ECOA”) and discuss the changes required under Dodd-Frank.
Requirements for adverse action notices can be found in ECOA and FCRA. Section 701(d) of ECOA makes it illegal to discriminate in any aspect of a credit transaction on the basis of sex, race, color, religion, national origin, marital status or age, because all or part of an applicant’s income comes from public assistance or because the applicant has exercised their rights under the Consumer Credit Protection Act. The ECOA is implemented by the board through Regulation B. ECOA requires creditors to notify credit applicants when they have taken an adverse action against them. Creditors must provide applicants either: (1) A statement of reasons for taking the adverse action as a matter of course; or (2) a notification of adverse action which discloses the applicant’s right to a statement of reasons within thirty days after receipt by the creditor of a request made by the applicant within sixty days after the notification. Under ECOA an adverse action is defined as a denial or revocation of credit, a change in terms of an existing agreement, or a refusal to grant credit in substantially the same amount or on substantially the same terms.
The FCRA requires a person to provide an adverse action notice when the person takes and adverse action that is based in whole or in part on information obtained in a consumer (credit) report. FCRA requires the adverse action to contain information regarding the consumer reporting agency that issued the credit report used in taking the adverse action. FCRA also requires the person to disclose that the consumer has the right to a free credit report and the right to dispute the completeness or accuracy of any of the items contained in the credit report. FCRA incorporates the definition of adverse action that is provided in ECOA. The adverse action provisions in ECOA and FCRA provide for disclosures to be given to consumers. Model notices for these disclosures are provided in Regulation B, there are no implementing regulations for FCRA. The model notices found in Regulation B are designed to include all the content required under FCRA and ECOA so they can be used to comply with the notice requirements found in both statutes.
As mentioned above, the Dodd-Frank Act makes amendments to the FCRA which require creditors to disclose additional information related to a consumer’s credit score on the adverse action notices. These amendments become effective on the effective transfer date of July 21, 2011. The Federal Reserve Board is proposing to amend the model adverse action notices found in Regulation B to incorporate the new content requirements mandated under Dodd-Frank. Dodd-Frank requires a person to disclose on the FCRA adverse action notice a credit score that was used in taking any adverse action and information related to that score in addition to the other disclosures required under section 615(a) of FCRA. Dodd-Frank requires disclosure of (1) the numerical credit score used in making the credit decision; (2) the range of possible scores under the model used; (3) the key factors that adversely affected the credit score of the consumer in the model used; (4) the date on which the credit score was created; and (5) the name of the person or entity that created the score. This new information is consistent with the information that added to the risk-based pricing model notices last year.
The Board has amended model notices C-1 through C-5 found in the appendix to part 202 of ECOA to incorporate the additional credit score information required under the Dodd-Frank Act. The Board has also modified model form C-3 for clarity as it is generally used when a creditor uses a proprietary model credit system. The new form C-3 clarifies the differences between a proprietary score and one that is obtained from a credit reporting agency.
DocuTech is in the process of generating new standard adverse action forms that will be available for use through ConformX. The forms will follow the model forms found in the appendix to Regulation B. The new data requirements for these forms are essentially the same as the risk-based pricing notices that were released earlier this year. These forms will be available for clients currently utilizing an adverse action package type in advance of the July 21, 2011 deadline. If you would like to have an adverse action package type added to your ConformX account please contact your account manager or a DocuTech sales representative.