Final Rules Issued to Implement the Credit Score Disclosure Requirements For Risk-Based Pricing and Adverse Action Notices
On July 6, 2011, the Federal Reserve Board (“the Board”) and the Federal Trade Commission (“FTC”) issued final rules to implement the credit score disclosure requirements contained in Section 1100F of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“the Dodd-Frank Act”). Under Section 1100F of the Dodd-Frank Act, if a credit score is used in setting material terms of credit or in taking adverse action, the statute requires creditors to disclose credit scores and related information to consumers in adverse action notices under the Fair Credit Reporting Act (“FCRA”) and the Equal Credit Opportunity Act (“ECOA”). Creditors, including banks, credit unions, credit card issuers, and utilities, are all affected by these changes.
The Board issued two separate final rules to implement Section 1100F:
- A final rule amending Regulation B's Model Forms, which include combined Regulation B/FCRA adverse action notices; and
- A final rule, jointly issued with the FTC, amending the Federal Reserve's Regulation V, which requires risk-based pricing notices.
The Board and the FTC had issued proposed rules on March 15, 2011, and the final rules make only minor changes to the rules as originally proposed, including providing additional guidance to creditors that use both proprietary scores that meet the definition of a credit score and a credit score from a consumer reporting agency. In addition, minor changes have been made to some of the language of the model forms that may be used to comply with the new credit score disclosure requirements.
Section 1100F of the Act amended Section 615 of the FCRA to add credit score and other disclosure obligations in connection with adverse action and risk-based pricing notices provided to consumers. Companies that send out such notices must amend them so that they contain the following additional information:
- A numerical credit score used in taking any adverse action;
- The range of possible credit scores under the model used;
- The factors that adversely affected the credit score of the consumer, which should be ranked in the order of their importance and should not exceed four factors — unless the number of credit inquiries is a factor and is not already reflected in the top four, in which case, five factors must be disclosed (i.e., the top four, plus the “inquiries” factor);
- The date on which the credit score was created;
- The name of the consumer reporting agency or other person providing the score; and
- A prescribed statement explaining credit scores.
The final rules are effective thirty days after the date of publication in the Federal Register, which is expected to occur shortly. However, because Section 1100F of the Dodd-Frank Act is self-effectuating, its requirements will continue to become legally effective on July 21, 2011, and creditors should ensure that they are compliant as of that date.
Troutman Sanders’ CFPB Team monitors the development and activities of the CFPB on its blog and also advises clients on CFPB and Dodd-Frank issues.