• Regulatory Reform: Dodd-Frank, Credit Scores & the New Notice of Adverse Action Forms
  • November 18, 2011 | Author: Clint Heyworth
  • Law Firm: Chambliss, Bahner & Stophel, P.C. - Chattanooga Office
  • The Federal Reserve Board recently revised Regulation B in response to changes to the ECOA and FCRA made pursuant to the Dodd-Frank Act.  Although the new requirements went into effect in July 2011, many lenders are still confused as to whether the new requirements apply to their credit practices.

    Overview

    If you obtain a "credit score" on your customers from a consumer reporting agency (note: CRA is not limited to national companies like Experian), then the new requirements likely apply.

    The requirements may even apply if you internally generate a proprietary "score".  However, scores not used to predict the likelihood of certain credit behaviors, such as those used to predict the likelihood of false identity, are not credit scores by definition, and thus are not required to be disclosed.

    • Regulation B now requires that a creditor disclose:
    • A numerical credit score used in making the credit decision
    • The range of possible scores under the model used
    • Up to four key factors that adversely affected the consumer’s credit score (or up to five factors if the number of inquiries made with respect to that consumer report is a key factor)
    • The date the credit score was created
    • The name of the person or entity that provided the credit score.

    Appropriately, the Board also amended the Model Notices that creditors may use to notify a customer of adverse action.  Whether the new credit score disclosure requirements apply to the company, lenders should revisit those notices and revise accordingly.

    Supplemental Information from the Federal Reserve Board

    The Federal Reserve Board published supplemental information explaining the new rule, which we have summarized for you.