Transcript The Fair Credit Reporting Act

Updates to the
Fair Credit Reporting Act
As Amended by
The
Fair and Accurate Credit Transactions Act
December 4, 2003
Amendment of the FCRA Rules
Under the FACT Act of 2003
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President Bush signed into law the Fair and
Accurate Credit Transactions (FACT) Act on
12/4/03
The FACT Act reauthorized provisions of the Fair
Credit Reporting Act (FCRA) that would have
expired at the end of 2003
The FTC, the Federal Reserve and the National
Credit Union Administration are responsible for
adopting a number of rules to implement its
provisions amending the Fair Credit Reporting
Act
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Effective dates & rule issuance are a work in progress
The Good News
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The expiration of Federal Preemption
provisions in the FCRA providing for a
national uniform credit reporting system
have been removed permanently.
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Current State laws regarding credit reporting
or prescreened lists, unless in effect on
9/30/96, are preempted
Current State Credit Score disclosure
requirements, unless in effect 12/4/03, are
preempted
But What Did Congress Do??
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Under Section 211 (d) of FACTA the FTC must
draft rules for purposes of prescribing how
various types of CRAs (Consumer Reporting
Agencies) must provide free annual disclosures
of credit files once a year upon request of the
consumer.
Will the new rules issued by the FTC over the
next 12 to 36 months be positive or will it choke
the credit information delivery systems and the
dispute process systems?
FACTA and
Consumer Reporting Agencies
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Free Annual Credit Reports effective 12/1/04
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Section 612 (a) (1)The three Nationwide
Consumer Reporting Agencies (CRAs) – Equifax,
Experian and TransUnion – must provide to the
consumers, upon request, a free copy of their
credit report once every twelve months
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Approximately fifty percent of all file disclosures result
in consumer contacts & often submissions of disputes
The CRAs must establish a “Centralized Source”
for accepting the consumers requests for the
annual file disclosures
The Centralized Source
Must Include
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A Dedicated Internet Website
A Toll-free telephone number
A Postal Address
The Centralized Source:
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Must have Adequate Capacity to accept requests
from the reasonably anticipated volume of
consumers making requests
May collect only as much personally identifiable
information as necessary
Must provide clear easily understandable
information and instructions on how to make
requests
May not include any advertising or marketing that
interferes with, detracts from or undermines the
purpose of the centralized source
Structured Roll-out for the
Centralized Source for Requests
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Availability in Cumulative Stages over 9
months
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Rolling out West to East beginning 12/1/04
Transition to be complete by 9/1/05
Consumers eligible on the following schedule:
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Western States – eligible 12/1/04
Midwestern States – eligible 3/1/05
Southern States – eligible 6/1/05
Western States – eligible 12/1/04
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Alaska
Arizona
California
Colorado
Hawaii
Idaho
Montana
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Nevada
New Mexico
Oregon
Utah
Washington
Wyoming
Midwestern States – eligible 3/1/05
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Illinois
Indiana
Iowa
Kansas
Michigan
Minnesota
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Missouri
Nebraska
North Dakota
Ohio
South Dakota
Wisconsin
Southern States – eligible 6/1/05
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Alabama
Arkansas
Florida
Georgia
Kentucky
Louisiana
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Mississippi
Oklahoma
South Carolina
Tennessee
Texas
Eastern States – eligible 9/1/05
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Connecticut
Delaware
District of Columbia
Maine
Maryland
Massachusetts
New Hampshire
New Jersey
New York
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North Carolina
Pennsylvania
Rhode Island
Vermont
Virginia
West Virginia
Puerto Rico
All U.S. territories
The Final Rule
on Free Annual Credit Reports
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Provides nationwide CRAs with relief from the
capacity requirements during times of unusually
heavy request volume
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CRAs would be permitted to:
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place consumer requests in a queue for processing at a later
time
Request that the consumer return to the centralized source at a
reasonable time later
Requires nationwide CRAs to develop and
implement reasonable procedures to anticipate the
volume of consumer requests and a contingency
plan
The Final Rule
on Free Annual Credit Reports
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Limits the use and Disclosure of personally
identifiable information collected as the
result of a consumer request for a free credit
report to:
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Update the nationwide CRAs databases
To process transactions the consumer requested
at the same time as the free annual credit report
request
To comply with applicable law
The Final Rule Requirements for
the Nationwide Specialty CRAs
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Nationwide Specialty CRAs maintain specific
types of files on consumers such as:
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Employment history, tenant history, medical records,
and insurance claims
Nationwide Specialty CRAs are also required to
maintain a toll-free telephone number through
which consumers may request a free copy of
their credit file once every 12 months
Disclosures of Credit Scores by
Nationwide CRAs
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Section 609 (f) (2) defines a credit score as a numerical
value derived from a statistical tool or modeling system
used by a person who makes or arranges loans a loan to
predict the likelihood of certain credit behaviors.
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It does not include any mortgage score or rating of an
automated underwriting system that considers one or more
factors in addition to credit information
It does not include any other elements of the underwriting
process or decision
Section 609 (a) (6) requires as part of the disclosure
when a consumer requests the free annual credit report
without the credit score, that a statement be included
which indicates that the consumer may request and
obtain a credit score.
Upon Request by the Consumer
for a Credit Score from the CRA
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The Nationwide CRA shall supply to the consumer:
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A statement that the information and scoring model may
be different than the credit score that may be used by the
lender and a notice that contains:
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The consumer’s current score or most recent score that was
previously calculated by the CRA for a purpose related to the
extension of credit
The range of possible scores under the model used
All the key factors, up to 4 (plus inquiries if applicable), that
adversely affected the score in the model used
The date the score was calculated
The name of the CRA that provided the score or credit file upon
which the score was created
The score required is one derived from a credit scoring
model widely distributed by the CRA in connection with
mortgage loans
Upon Request by the Consumer
for a Credit Score from the CRA
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The CRA is not required to develop or disclose a score if
the agency does not distribute scores in connection with
residential property loans or develop scores
The CRA is not required to:
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further explain the scores developed by another entity
Process a dispute
Maintain credit scores in its credit files
The CRA may charge a reasonable fee for the score as
determined by the FTC
If a key factor adversely affecting the score consists of
the number of inquiries made with respect to a credit
report, the factor must be included in the key factors
regardless of the numerical (4 reason code) limitation
Disclosure of Credit Scores
by Mortgage Lenders
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Section 609 (g) & (f) provide for State laws relating to
the disclosure of credit scores used for the granting of
credit to be exempt from federal preemption, if they
were in existence as of 12/4/03. Those state laws have
been grandfathered in to the current regulation.
Section 609 (g) States a User of a credit score that
makes or arranges loans and who uses a credit score in
connection with an application initiated or sought by a
consumer for a closed end loan or the establishment of
an open-end loan that is secured by 1 to 4 units of
residential real property shall provide certain disclosures
as soon as reasonably practicable
Mortgage Lender Credit Score
Disclosure Requirements
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Effective Date of this disclosure requirement is
December 1, 2004
To provide, as soon as reasonably practicable a copy of:
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The Credit Scores calculated by the CRA for the purpose related
to the extension of credit
The range of possible scores under the model used
All of the key factors that adversely affected the score of the
consumer in the model used
The date on which the credit score was created
The name, address and telephone number of the CRA that
provided the credit score or credit file upon which the score was
created
To provide a copy of the information obtained from the
CRA to the consumer along with the mandatory
statement - “Notice to the Home Loan Applicant”
Notice to The Home Loan Applicant
In connection with your application for a home loan, the lender must disclose to you the score that a consumer
reporting agency distributed to users and the lender used in connection with your home loan, and the key
factors affecting your scores.
The credit score is a computer generated summary calculated at the time of the request and based on the
information that a consumer reporting agency or lender has on file. The scores are based on data about your
credit history and payment patterns. Credit scores are important because they are used to assist the lender in
determining the rate you may be offered on the mortgage. Credit scores can change over time, depending on
your conduct, how your credit history and payment patterns change, and how credit scoring technologies
change.
Because the score is based on information in your credit history, it is very important that you review the creditrelated information that is being furnished to make sure it is accurate. Credit records may vary from one
company to another.
If you have questions about your credit score or the credit information that is furnished to you, contact the
consumer reporting agency at the address and telephone number provided with this notice, or contact the
lender, if the lender developed or generated the credit score. The consumer reporting plays no part in the
decision to take any action on the loan application and is unable to provide you with specific reasons for the
decision on a loan application.
If you have questions concerning the terms of the loan, contact the lender.
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Applicant
Date
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Applicant
Date
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Loan Originator
Date
Actions Not Required of the Lender
With this Notice
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No originator is required to
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Explain the information provided pursuant to subsection (f)
Disclose any information other than the credit score or key
factors
Disclose any credit score or related information obtained by the
user after the loan has closed
Provide more than one disclosure per transaction
Provide the disclosure required by this subsection when another
person has made the disclosure to the consumer for that loan
transaction
No liability on the part of any originator pursuant to this
subsection for the content of the information or for the
omission of any information within the report provided
by the CRA
Disputes & Reinvestigations
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Section 611 (f) Allows for a reseller to convey a
notice of dispute directly with the relevant
information provided by the consumer, to each
CRA that provided the reseller the information
that is subject to dispute.
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The CRA will notify the consumer through the reseller
upon completion of the reinvestigation as to the
accuracy or completeness of the disputed information
in the file.
The reseller shall immediately convey such notice to
the consumer, including any notice of deletion by
telephone
Disputes & Reinvestigations
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Section 623 (a) (8) Allows the consumer to dispute
information directly in writing with the furnisher of credit
at the address specified by the furnisher effective
12/1/04.
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Furnisher must conduct the reinvestigation, review information
and complete the investigation within a 30 day timeframe
If information is inaccurate, the furnisher must notify any CRA to
which it furnished the information and provide any information
necessary to make the information accurate.
This method is not allowed if the notice is submitted by or is
submitted on a form supplied to the consumer by a credit repair
organization
This requirement does not apply if the furnisher of credit
determines that the dispute is frivolous, but the furnisher of
credit must notify the consumer within 5 days of such
determination
Accuracy Guidelines & Regs
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Section 623(a) (1) Prohibits the reporting of
information with actual knowledge of errors or
specific knowledge, other than solely allegations
by the consumer, that would cause a reasonable
person to have substantial doubts about the
accuracy of the information
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The furnisher of credit has a duty to correct the
information and shall not thereafter furnish to the
CRA any information that remains not complete or
accurate
Negative Credit Notice
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Section 623 (a) (7) (A) If any financial institution that
extends credit and regularly and in the normal course of
business furnishes negative information to a CRA
regarding credit extended to a customer, the financial
institution shall provide a notice of such furnishing of
negative information to the consumer in writing
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Can be provided prior to or no later than 30 days after furnishing
the negative information to the CRA
After providing this notice to the consumer, no new notices must
be given for subsequent negative reporting
Notice can be given with any billing statement as long as clear
and conspicuous
Risk Based Pricing
Adverse Action Notice
effective 12/1/04
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FTC & the FRB must address the form, content, time and manner of
delivery of notice
Section 615 (h) states in general if any creditor uses a consumer
report in connection with an application for or extension of credit on
material terms less favorable than the most favorable terms
available to a substantial proportion of the consumers from or
through that furnisher of credit, that company shall provide written,
oral or electronic notice to the consumer.
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Notice may be provided at the time of application
Notice must at minimum state terms being offered are based on
information from a credit report & that the consumer may obtain a free
copy of the report from the CRA at no charge and include contact
information for the CRA
The FTC and FRB will jointly prescribe the rules addressing the form,
content, and delivery time
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Will be coming up for comment
Prescreen List Opt-Outs
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Section 615 (d) (2) (B) States that prescreen disclosures
on written solicitations must be presented in a type and
size as to be simple, easy to understand as established
by the FTC, Federal Reserve, and the National Credit
Union Administration.
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The final form must be issued by 12/4/05
Prescreen Opt-out duration has now been extended to 5 years
from the current two years.
The FTC must actively publicize the toll free number for the optout system 888-567-8688
The FRB must study the ability of the consumer to avoid
receiving written unsolicited offers for credit or insurance and
the potential impact of further restrictions on providing such
offers to consumers. The FRB must deliver a report regarding
that study to Congress by 12/4/05.
Prescreen Opt Outs
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The notice must allow consumers to prohibit all covered
marketing solicitations or elect to prohibit only certain
solicitations from affiliates.
The opt out must be clear concise and Simple
Upon the expiration of the 5 year opt out term, the
consumer must receive another opt out election notice
before receiving a covered solicitation
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This section does not apply to an entity with whom the
consumer has a pre-existing business relationship, or is
providing an employee benefit or service, or is responding to a
consumer request, or if compliance would restrict compliance
with certain state insurance laws
Identity Theft Initiatives Included
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Section 605 A (a) Initial Fraud Alerts for 90 days without a theft
report and can request a free credit report within 3 days
Section 605 A (b) Extended Fraud alerts with a formal police report
about the Identity theft for 7 years. Excludes consumer from
prescreened lists for 5 years and the consumer can request 2 free
credit reports over the next 12 months
Active duty can be put into the consumer’s credit file at the
consumer’s request for 12 months and exclude consumer from
prescreened lists for 2 years
Each CRA must refer alerts to the other CRAs upon receipt of
request for posting
CRAs must allow consumer requests for Fraud alerts and Active
Duty alerts to be easy and simple, including by telephone
Duties of Users of Credit Reports
Containing
Fraud or Active Duty Alerts
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May not establish a new credit account, issue a
new card or increase the credit limit on an
existing account without contacting the
consumer in the manner requested to
determine request is not the result of identity
theft
May not transfer, sell, or place for collection a
debt that a creditor has been notified is blocked
by a nationwide CRA because the debt was
caused by Identity Theft
Truncation of
Credit Card Numbers
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No person that accepts a credit card or debt
card shall print the expiration date or more than
the last 5 digits of the card number upon any
receipt at the point of sale or transaction
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Applicable only to electronically printed receipts, not
handwritten or imprinted receipts
Effective 12/1/07 for machines put in use prior to
1/1/05
Effective 12/4/05 for machines put in use after 1/1/05
Time Will Tell
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Will all of the Changes Congress made “in
the Consumer’s best interest” really be in
the Consumer’s best interest?
NAMB will be working with The FTC by
giving input on various up-coming
proposed rules impacting our delivery of
credit system.
Thank you for your attention.