Dodd-Frank Amends Regs B and V

8/18/2011

By Fran Sponsler, CRCM, CAMS, CCBCO

On July 6, 2011, the Federal Reserve Board approved final rules to implement the credit score disclosure requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Section 1100F of the Dodd-Frank Act amends sections of Regulation B and Regulation V. This change resulted in the requirement to provide additional disclosures when using a credit score in making a credit decision or when taking adverse action.

Effective Dates

Compliance with Section 1100F of the DFA was effective on July 21, 2011, and the revisions to Regulations B and V were effective on August 15, 2011.

Adverse Action Notices

Section 1100F modifies the FCRA adverse action notice to include:

• A numerical credit score that was used in making the credit decision;
• The range of possible scores;
• The top four (or five) key factors that adversely affected the consumer’s credit score (up to five can be provided if the number of inquiries made with respect to that consumer report is a key factor);
• The date on which the credit score was created; and
• The name of the person or entity that provided the credit score.

Use of Model Notices

The Federal Reserve Board has amended model notices C-1 through C-5 to include the additional disclosure requirements set forth by Section 1100F of the DFA and may be used to comply with the adverse action provisions of the Act.

Additional Key Points

• The new model notices are required to be provided, regardless if the creditor provided a Credit Score Exception Notice.
• Due to privacy issues, creditors should provide separate FCRA adverse action notices to each applicant with only the individual’s credit score on each notice.
• A guarantor or a co-signor’s credit score should not be disclosed to an applicant on an adverse action notice.
• When using a multiple scoring system, the creditor must develop policies and procedures that outlines which score (the highest, middle, or lowest) is used in making the credit decision and disclose that credit score information. If a scoring system is used that averages all three scores, the creditor may disclose any one of those credit scores and information relating to the credit score.

Risk-Based Pricing Notices

If on January 1, 2011, a creditor opted to utilize the risk-based pricing notice, the provisions of the Act also requires additional content to be disclosed to consumers. If a credit score is used in making the credit decision, the creditor must disclose the score and other information relating to the credit score on the risk-based pricing notice.

Additional Content to Notices

If a credit score of the consumer to whom a person grants, extends, or otherwise provides credit is used in setting the material terms of the credit, the notice must contain:

• A statement that a credit score is a number that takes into account information in a consumer report, that the consumer’s credit score was used to set the terms, and that a credit score can change over time;
• The credit score used by the person making the credit decision;
• The range of possible scores;
• All of the key factors that adversely affected the credit score;
• The date on which the credit score was created; and
• The name of the consumer reporting agency or other person that provided the credit score.

Use of Model Notices

The Federal Reserve Board has implemented model notices H-6 and H-7 to include the additional disclosure requirements set forth by Section 1100F of the DFA and may used to comply with the risk-based pricing provisions of the Act.

For additional information about Section 1100F of the Dodd-Frank Act, please visit the following link: http://www.federalreserve.gov/newsevents/press/bcreg/20110706a.htm