Fair Credit Reporting: 8.6.1.4.4 Example: investigation of information in a consumer report
The notice provisions should apply when a creditor obtains information on its own as a result of information that the creditor received from a CRA.
The notice provisions should apply when a creditor obtains information on its own as a result of information that the creditor received from a CRA.
The disclosures are required by section 1681m(b) of the FCRA. The FACTA amendments to the FCRA have substantially undermined the ability of consumers to seek private enforcement of any provisions under section 1681m.339 As such, the viability of any claims for violation of these notice requirements is doubtful.
Information that is shared among companies who are affiliated by common ownership or corporate control is excluded from the definition of a consumer report and from the protections that normally attach to the use of consumer reports.340 Even so, a notice of an adverse action is required when the action is based on information obtained from the user’s affiliate.
The affiliate-sharing adverse action notices are required by section 1681m of the FCRA. The FACTA amendments to the FCRA substantially undermined the ability of consumers to seek private enforcement of any provisions under section 1681m.346 As such, the viability of any claims for violation of these notice requirements is doubtful.
With the FACTA amendments in 2003, Congress sought to address the frequent occurrence of creditors reviewing consumers’ reports and making risk-based adjustments to the terms offered to those consumers.347 A common example occurs when creditors offer credit, but offer it at an increased price to consumers on the basis of information in their consumer reports. The consumers may accept the proposed terms but be unaware that information in their consumer reports caused their credit to be more expensive.
In general, the regulations that require the risk-based pricing notice be provided whenever any person engages in the following:
The regulations define “material terms” to be limited to the annual percentage rate (APR) applicable to the extension of credit.361 This is the same APR used in Truth in Lending disclosures.362 For credit cards, this is the APR used for purchases, and excludes any promotional APRs and penalty APRs.363 For home equity lines of credit, this excludes any APRs for a fixed rate option.364
The regulations define “materially less favorable” to mean that the “material terms” granted to a consumer differ from [those] granted to another consumer by same creditor “such that the cost of credit to the first consumer would be significantly greater than the cost of credit . . .
The FCRA provides two exceptions to the risk-based pricing notice requirement.381 In addition, the FCRA permits the CFPB to exempt those “classes of persons or transactions regarding which the agencies determine that notice would not significantly benefit consumers.”382 Regulation V provides for three more exceptions, making a total of five exceptions. These exceptions are as follows:
The risk-based pricing notice must be clear and conspicuous and may be provided to the consumer in oral, written, or electronic form.398 The FCRA itself requires the notice to include certain information, and the accompanying regulation adds a number of other items. Altogether, the notice must inform the consumer of the following information:399
Creditors must include in the risk-based pricing notice the actual credit score that is used in the credit decision, if a credit score was used in deciding the material terms of the credit or to increase APR after an account review.402 Risk-based pricing notices must also include information about credit scores.
Specifically, risk-based pricing notices must include:
The FCRA provides that the risk-based pricing notice may be given either at the time of application for credit or when the approval of the application is communicated.409 The option of providing the notice at the time of application raised concerns that creditors would be permitted to provide a generic boilerplate notice to all applicants.
A major drawback to the risk-based pricing notice requirement is that no private right of action exists.431 Furthermore, the FCRA specifically provides that only the federal agencies and officials designated by section 1681s of the FCRA have the power to enforce it.432 States are preempted from regulating the subject matter of the provision.433
Prescreening is the process whereby consumer reporting agencies compile or edit lists of consumers who meet specific criteria, often specified by the user, and then provide the lists to users who solicit consumers with firm offers for credit and for insurance purposes.434 Each CRA that sells prescreened lists must maintain a system through which consumers may elect to opt out of prescreening.435 The system must include the maintenance of a toll-free number through which consumers may notify the
Each user of these prescreened lists must provide with their written solicitations a notice containing certain information.440 The notice serves two purposes. First, it provides the consumer with information about the immediate transaction. The consumer is given to believe that they preliminarily qualify for the offered transaction, but is warned that if they respond, further evaluation may determine that the consumer does not qualify after all. This is a partial description of how prescreening is allowed to work.
The FCRA requires the pre-screening notice to clearly and conspicuously disclose the following information:
The FCRA requires that the prescreening use notice must be “clear and conspicuous.”451 Prior to Regulation V, this had ordinarily been a question for the court to determine.452 Courts relied on cases under the Uniform Commercial Code and the Truth in Lending Act for guidance.453 However, the issuance of Regulation V in 2005 established definitive guidance on the format of the disclosure.
The prescreening use notices are required by section 1681m of the FCRA. Revisions to the FCRA by the 2003 FACTA amendments have been interpreted as removing any private right of action to enforce the provisions of section 1681m or its prescreening notice requirements.469 As such, the viability of any claims for violation of these notice requirements is in serious doubt.
If a consumer calls and elects to be removed from the prescreened lists over the telephone, the consumer reporting agencies are required to provide a written notice of the election along with a form to complete that election.470 The notification must also notify the consumer that the election to be excluded from prescreening will expire after five years unless the consumer completes and returns the exclusion form.471 If the consumer completes the form, the election remains valid until the consum
The CRAs must annually publish notice of the existence of the toll-free system that consumers may use to opt out of prescreening.473 Within five days of receipt of a notice over the toll-free telephone system from the consumer, the CRA must send a notice to opt out and an exclusion form to the consumer.474
The duty of a CRA to provide notices of the consumer’s right to opt out of prescreening remains enforceable under section 1681b.
The FCRA requires a one-time consumer notice when a financial institution furnishes negative information about that customer.478 However, a financial institution may take advantage of a safe-harbor provision if it maintained reasonable compliance policies and procedures or reasonably believed that it was prohibited from contacting the consumer.479 For a discussion of which entities are covered by this requirement, see
Following the completion of a reinvestigation of disputed information in the consumer’s credit file, the consumer reporting agency must send a notice to the consumer.487 This notice informs the consumer not only of the results of the investigation, but also the consumer’s further rights. As such, the notice provides the consumer with the opportunity to lodge a further dispute and take limited steps to address a CRA’s refusal to remove disputed information.