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Fair Credit Reporting: 8.5.2.4 Credit Scoring Information

The Dodd-Frank Act added a requirement that users include in the adverse action notice the actual credit score used in making the decision.125 This provision applies to any user required to give an adverse action notice, which should include creditors, insurers, and others. However, it uses a definition of a credit score that is limited to scores for “predicting credit behaviors.”126 Thus, it is unclear whether the specialized scores used by insurers and others must be disclosed.

Fair Credit Reporting: 8.5.3.1 Who Must Provide Notice

The complexities of corporate structures have added a corresponding layer of complexity to the requirements of adverse action notices. Often, corporations that extend credit or issue insurance must consult with affiliates or obtain underwriting approval from third parties before approving a consumer’s application. In these situations, multiple parties may access or use a given individual’s consumer report even though only one of those entities has the legal authority to provide the services, and another may actually render the decision.

Fair Credit Reporting: 8.5.3.2 Oral, Electronic, or Written

The FCRA contains four separate provisions concerning the manner of giving notice: subsections 1681m(a)(1), 1681m(a)(2), 1681m(a)(3), and 1681m(a)(4). Three of these provisions specify that the notice may be made orally, electronically, or in writing; one provision—the credit score disclosure143—specifies that the disclosure may be made in writing or electronically.

Fair Credit Reporting: 8.5.4.1.1 Adverse action based on consumer report

For purposes of notice under the FCRA, an “adverse action” serves as both the triggering event as well as the subject of the notice. Thus, when a user of a consumer report takes an adverse action, that user must notify the consumer of the action taken. The FCRA does not state how quickly the user must provide this information, but the FTC and case law have illuminated this provision as requiring simultaneous notification.154

Fair Credit Reporting: 8.5.4.3.1 General requirements

A user must notify the consumer whenever the user takes an adverse action, based at least in part on a consumer report, in connection with a credit transaction.175 The FCRA gives the term “adverse action” the same meaning as it has under the Equal Credit Opportunity Act (ECOA).176 Under the ECOA, adverse action has been defined to include the following: (1) any refusal to grant credit in substantially the amount or on substantially the terms requested in an application; (2) a termination of an a

Fair Credit Reporting: 8.5.4.3.2 Definition of “credit”

The FCRA defines the term “credit” as having the same meaning as in section 1691a of the ECOA.189 Under the ECOA, credit is defined as “the right granted by a creditor to a debtor to defer payment of debt or to incur debts and defer its payment or to purchase property or services and defer payment therefor.”190 The definition of “credit” under the ECOA is broader than under the Truth in Lending Act (TILA), and thus it should not be limited to transactions covered by TILA.

Fair Credit Reporting: 8.5.4.3.6 Special situation: price quotes

Where the credit score or other information contained within the consumer report adversely affects the interest rate found in an initial quote offered to a consumer, the increase in rate constitutes an adverse action.222 Such is the case even where the consumer withdraws the application based upon the quote, rather than awaiting a firm commitment offer of credit at the higher rate.

Fair Credit Reporting: 8.5.4.3.7 Special situation: cosigners

Often in consumer credit transactions, more than one consumer signs a credit application. For example, a co-maker, guarantor, or surety may sign. The FCRA requires notice of adverse action in connection with transactions initiated by any consumer.223 However, the FTC Staff Summary distinguishes between adverse actions in connection with credit and other adverse actions with regard to whether guarantors are entitled to notice.

Fair Credit Reporting: 8.5.4.3.9 Special situation: account reviews

From time to time, many users who have an ongoing relationship with consumers will review their accounts with a consumer to determine whether the consumer continues to meet the requirements of the account. Users may rely upon consumer reports to make these determinations. Under the FCRA, if any action is taken adverse to the interest of the consumers, user notification is required.230

Fair Credit Reporting: 8.5.4.3.10 Other situations constituting credit

Whether or not check cashing, leasing, and sale of property constitute credit for purposes of the FCRA remains an open question.238 But, under the inclusive catchall definition of adverse action,239 it is clear that each of these situations would require a notice if any action was taken contrary to the interest of the consumer based on the use of a consumer report. These situations are considered in another section.240

Fair Credit Reporting: 8.5.4.4 Adverse Actions in Connection with Insurance

Whenever an insurer denies insurance or increases the charge for the insurance either wholly or partly because of information contained in a consumer report, the insurer must notify the consumer.241 The Supreme Court has ruled that an initial rate for a new insurance policy can be an “increase” when the rate exceeds the best rate offered by the insurer, even when the insurer and the applicant have had no prior dealings.242 However, the Court also held that if an insurer charges a rate that is th

Fair Credit Reporting: 8.5.4.5 Adverse Actions in Connection with Government Benefits

Government agencies may use consumer reports when they are required by law to consider an individual applicant’s financial responsibility or status in order to determine the individual’s eligibility for a license or other benefit.258 Whenever such an agency denies, conceals, increases a charge, or otherwise imposes an adverse or unfavorable change in the terms of a license or government benefit, based in whole or in part on a consumer report, the agency must notify the consumer.259

Fair Credit Reporting: 8.5.4.6.3 Leases

The denial of a lease is clearly an adverse action for purposes of the FCRA.273 An adverse action includes any action adverse to the interests of the consumer made in connection with any application made by the consumer or any transaction initiated by the consumer.274 Thus, a landlord that turns down a consumer on the basis of a consumer report must give notice of the adverse action.275 However, it is less clear that the ECOA notice is required whe

Fair Credit Reporting: 8.5.4.6.4 Sale of property

An adverse action includes any action adverse to the interests of the consumer made in connection with any application the consumer makes or any transaction the consumer initiates.277 If a consumer applies to purchase property or initiates a purchase transaction, and the seller turns the consumer down based in whole or in part on a consumer report, the seller must give notice of the adverse action.

Fair Credit Reporting: 8.5.6 Comparison to ECOA Notice

The federal Equal Credit Opportunity Act (ECOA)288 requires creditors to provide borrowers and potential borrowers with notice of any adverse action taken by the creditor.289 For purposes of the ECOA, creditors include “any person who regularly extends, renews, or continues credit; any person who regularly arranges for the extension, renewal or continuation of credit; or any assignee of an original creditor who participates in the decision to extend, renew, or continue credit.”

Fair Credit Reporting: 8.6.1.1 Nature and Content of Notice

The FCRA places notice requirements on creditors when they take an adverse action based on information obtained from a person other than a consumer reporting agency.314 This notice requirement does not apply to denials of insurance or employment, but only to denials of credit for personal, family, or household purposes.315 Furthermore, the information must bear upon the consumer’s creditworthiness, credit standing, credit capacity, character, general reputation, personal characteristics