Pub. 3 2012 Issue 1

spring 2012 17 In the Winter 2011 issue of The West Virginia Banker , we discussed changes regarding the use of credit scores in evaluating loan applications. T hose changes were necessitated partially by the Fair Credit Re- porting Act of 2003 (FCRA) and partially by the Dodd-Frank Act of 2010 (Dodd-Frank). They require banks to issue risk based pricing notices that include credit score information to applicants who are receiving terms less favorable than the best terms offered by that bank. In this second part, we will discuss requirements for adverse action notices for lending decisions as ex- panded by Dodd-Frank but still covered by FCRA and the Equal Credit Oppor- tunity Act (ECOA). While this article deals with credit products only, use of credit scores in other adverse actions, including deposit taking or employ- ment, are also covered by FCRA. Section 1100F of Dodd-Frank amended FCRA to require disclosure of credit scores and related information for both risk-based pricing and FCRA adverse action notices. Final regulations were issued in July 2011 by both the Federal Reserve Board (Fed) and the Federal Trade Commission (FTC) implementing the new requirements to FCRA. In ad- dition, that same month the Fed adopted model Regulation B adverse action notices for providing credit scores and credit score information with FCRA adverse action notices. Rulemaking responsibility for both ECOA and FCRA has been transferred to the Consumer Financial Protection Bureau (CFPB), the new agency created Part 2 Credit Scores and the Perfect Storm By Richard C. Donovan, CPA CRCM CTP by Dodd-Frank. Except for some “technical and conforming changes” published for comment in December 2011, the CFPB has yet to modify Regulation B, the Fed’s regulation implementing ECOA, or Regulation V, the regulation maintained by the Fed and the FTC to implement FCRA. NOTICE REQUIREMENTS Regulation B generally requires a bank to notify a loan applicant of any adverse action. Under ECOA, adverse action includes a denial of a credit request or a refusal to grant credit in substantially the amount or terms requested by ap- plicant. FCRA likewise requires an adverse action notice when a bank takes adverse action when such action is based in whole or in part on information in a consumer credit report. Finally, section 1100F of Dodd-Frank requires banks to disclose on FCRA adverse action notices a credit score used in taking such adverse action, information about the credit score, and the top 4 or 5 factors contributing to a less-than-perfect score. CONTENT OF NOTICES Under Regulation B, a bank must provide a consumer whose application was not approved as requested either a statement of reasons for taking the adverse action or a notice of adverse action disclosing the applicant’s right to a statement of reasons for taking the adverse action. FCRA requires a bank to include in an adverse action notice information regarding the consumer reporting agency that furnished the consumer credit report used in taking the adverse action. If the Bank used a credit score whether purchased from a bureau or a proprietary score in its ad- verse action, the FCRA notice must now include the credit score, information related to the credit score and the 4 top factors negatively affecting the score. If the number of inquiries was a key factor, then the bank may need to disclose 5. DISCLOSURE OF CREDIT SCORES If a bank uses a credit score purchased from a consumer reporting agency