Pub. 2 2011 Issue 4

www.wvbankers.org 6 I n 2011, the stakes for using credit scores increased dramatically. Some may see it as a “perfect storm,” where regulation changes necessitated by the 2003 Fair Credit Reporting Act (FCRA) rained on the industry just as the edge of Hurricane Dodd-Frank made landfall. In January 2010, the Federal Reserve Board (Fed) and the Federal Trade Commission (FTC) jointly promul- gated new regulations implementing the risk-based pricing notice require- ments of FCRA, which became effective January 2011. Those new rules require notice when credit is offered to consumers at terms less favorable than those offered others and were codified by changes to the Fed’s Regulation V and identical regulations issued by the FTC. The Dodd-Frank Act, in section 1100F, re- quires disclosures when a credit score is used in setting material terms or in taking adverse action. Dodd-Frank, therefore, required modifications to Regulation V to include credit scores in risk-based pricing notices, and modifications to Regulation B (Equal Credit Opportunity) to address adverse action notices. While those regulatory changes became effective August 15, 2011, Banks were still re- sponsible for complying with section 1100F on July 21, 2011. This article will deal only with the use of credit scores in risk-based pricing notices, while the adverse action requirements will be covered in a separate article. General Requirements Regulation V was adopted in 2003 to address the Fair and Accurate Credit Transactions Act (FACT Act) as it amended the Fair Credit Reporting Act (FCRA), with the objectives of providing consumer protections over the confidentiality, accuracy, relevancy, and utilization of their credit information. In January 2011, changes to Regulation V implemented the risk-based pricing provisions of the FACT Act. Under these changes, a creditor is required to provide a notice to a consumer when, using the consumer’s credit information, the creditor extends credit on less favorable terms than it provides to other consumers. Dodd-Frank expanded that by requiring disclosure of credit scores and information related to credit scores for risk-based pricing (and adverse action). The creditor is required to disclose the credit score and credit score in- formation when that score is a factor in setting the material terms of the credit, even when the credit score is not the sole or even primary factor. In addition to the score, the credi- tor must disclose credit related information . That includes a gen- eral description of a credit score, the credit score used by the creditor, the range of possible scores, the key fac- tors driving down the score, the date, and the consumer reporting agency Credit Scores, and the Perfect Storm By Richard C. Donovan, CPA CTP