The Fair Credit Reporting Act

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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

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

Effective dates & rule issuance are a work in progress

The Good News

The expiration of Federal Preemption provisions in the FCRA providing for a national uniform credit reporting system have been removed permanently.

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??

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

Free Annual Credit Reports effective 12/1/04

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

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

A Dedicated Internet Website

A Toll-free telephone number

A Postal Address

The Centralized Source:

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

Availability in Cumulative Stages over 9 months

Rolling out West to East beginning 12/1/04

Transition to be complete by 9/1/05

Consumers eligible on the following schedule:

Western States – eligible 12/1/04

Midwestern States – eligible 3/1/05

Southern States – eligible 6/1/05

Western States – eligible 12/1/04

Alaska

Arizona

California

Colorado

Hawaii

Idaho

Montana

Nevada

New Mexico

Oregon

Utah

Washington

Wyoming

Midwestern States – eligible 3/1/05

Illinois

Indiana

Iowa

Kansas

Michigan

Minnesota

Missouri

Nebraska

North Dakota

Ohio

South Dakota

Wisconsin

Southern States – eligible 6/1/05

Alabama

Arkansas

Florida

Georgia

Kentucky

Louisiana

Mississippi

Oklahoma

South Carolina

Tennessee

Texas

Eastern States – eligible 9/1/05

Connecticut

Delaware

District of Columbia

Maine

Maryland

Massachusetts

New Hampshire

New Jersey

New York

North Carolina

Pennsylvania

Rhode Island

Vermont

Virginia

West Virginia

Puerto Rico

All U.S. territories

The Final Rule on Free Annual Credit Reports

Provides nationwide CRAs with relief from the capacity requirements during times of unusually heavy request volume

CRAs would be permitted to:

 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

Limits the use and Disclosure of personally identifiable information collected as the result of a consumer request for a free credit report to:

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

Nationwide Specialty CRAs maintain specific types of files on consumers such as:

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

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.

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

The Nationwide CRA shall supply to the consumer:

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:

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

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:

 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

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

Effective Date of this disclosure requirement is

December 1, 2004

To provide, as soon as reasonably practicable a copy of:

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.

_______________________________________

Applicant Date

_______________________________________

Applicant Date

_____________________________________

Loan Originator Date

Actions Not Required of the Lender

With this Notice

No originator is required to

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

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.

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

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.

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

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

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

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

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

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.

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

Will be coming up for comment

Prescreen List Opt-Outs

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.

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

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

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

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

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

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

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

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.

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