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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

Fair Credit Reporting: 8.6.1.3 Time and Manner of Notice

The nature of the section 1681m(b) adverse action notice is twofold. The user must give an initial notice of the adverse action along with notice of the consumer’s other rights. This notice of rights must include disclosure of the consumer’s right to request the reasons for the adverse action. This notice is not required, however, where the creditor obtained the information from a CRA, its own files, or directly from the consumer.326

Fair Credit Reporting: 8.6.1.4.1 Example: car financing transactions

The required disclosures should apply when a financial institution purchases dealer paper and the institution refuses to accept certain paper from the dealer based on information from an outside source. For example, if a car dealer calls a bank to ask whether it will purchase a customer’s contract and the bank then refuses to extend credit on the basis of information from an outside source, then both the dealer and the bank may have to make disclosures to the consumer.335

Fair Credit Reporting: 8.6.1.4.2 Example: verification of loan information

These disclosures would also apply to businesses engaged in obtaining bank loans for consumers. In this case, the bank, the loan broker who obtains the fees and credit information from the consumer and decides whether or not to forward the application to the bank, and the loan verifier who verifies the consumer’s information with that listed in a consumer report all must make disclosures if credit is denied.336

Fair Credit Reporting: 8.6.1.4.3 Example: accommodation parties

Where credit is denied based on adverse information obtained from an outside source that relates to the bad credit history of an accommodation party (e.g., cosigner or guarantor), the FTC and the federal finance regulatory agencies require that notice be given to the accommodation party, rather than to the primary credit applicant.337 This notification allows the accommodation party to determine whether the information is accurate and to correct inaccurate information.

Fair Credit Reporting: 8.6.1.5 Enforcement of Right

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.

Fair Credit Reporting: 8.6.2.1 Content and Nature of Notice

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.

Fair Credit Reporting: 8.6.2.2 Enforcement of Right

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.

Fair Credit Reporting: 8.7.1 Overview

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.

Fair Credit Reporting: 8.7.2.3 “Materially Less Favorable”

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 . . .

Fair Credit Reporting: 8.7.2.4 Exceptions

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:

Fair Credit Reporting: 8.7.3.1 Generally

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

Fair Credit Reporting: 8.7.3.2 Credit Scoring Information

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:

Fair Credit Reporting: 8.7.5 Enforcement of Notice Rights

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

Fair Credit Reporting: 8.8.1 Overview

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

Fair Credit Reporting: 8.8.2.1 Purpose of Notice

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.