2020Directory_FNL_FlippingBook

2020 MEMBERSHIP DIRECTORY & SERVICES GUIDE HOT TOPICS

The FCRA adverse action definition is more broadly drafted but includes the adverse action definition as set forth under the ECOA. Under FCRA, an adverse action notice is required when: (i) taking an adverse action with respect to a consumer, based in whole or in part on information contained in the consumer report; (ii) denying consumer credit or increase of credit, based on information obtained from a person other than credit reporting agency (e.g. credit worthiness, credit standing, credit capacity, character, reputation, etc.); (iii) taking adverse action based upon information, in whole or in part, received from an affiliate. Generally, a single form can be used to comply with both FCRA and ECOA adverse action notice requirements. Although, additional language is required if the dealer’s decision was based in whole or in part on information received directly from a third party that is not a consumer reporting agency. An adverse action noticemust inform the consumer of the adverse action; either give up to four primary reasons for the adverse action (or tell the consumer how they may contact the dealership within 60 days to get the reasons); identify any consumer reporting agency that provided a credit report or credit score used by the dealer; provide the consumer’s credit score, information about the credit score, and up to four to five “key factors” that adversely affected the credit score (up to four key factors unless one of the factors is the number of recent credit inquiries, in which case up to five key factors). The notice must contain other mandatory language as well. A sample adverse action notice is attached at the end of this Topic. If the adverse action is completely due to the credit score, the primary reasons must indicate which factors in the credit score caused the adverse action. Using a general statement like“credit score too low”as a primary reason for adverse action does not comply with ECOA. The primary reasons for the adverse action required by ECOA are not necessarily the same as the FCRA-required “key factors” that must be disclosed to describe what most adversely affected the credit score. These “key factors” are related to the credit score only, not the consumer’s overall application for credit, which may also consider other factors, for example, income and ability to repay. If the dealer uses credit information obtained from a third party that is not a consumer reporting agency, the adverse action notice must so inform the consumer and advise they may make a written request within 60 days of the notice to obtain the nature of that information. An example would be information received directly from the consumer’s employer, landlord, or a private creditor. Risk-Based Pricing Notices The Risk-Based Pricing Rule (RBP Rule) took effect January 1, 2011 and was amended effective August 15, 2011. Its purpose is to inform consumers that they received worse credit terms than other consumers because of information in their credit reports. Receipt of a consumer’s credit application triggers the RBP Rule notice requirement. A creditor who uses a consumer report and provides credit to the consumer on “material terms that are materially less favorable than the most favorable terms available to a substantial proportion of consumers from or through that person” either has to give these customers a “risk-based pricing notice” (RBP Notice) or give a “credit score disclosure exception notice” (CSD Notice) to all credit applicants. “Material terms” generally means the APR. Compliance with the RBP Rule is difficult and expensive, a fact that was recognized by the agencies that wrote it and evidenced by the inclusion of the CSD Notice exception. The CSD Notice exception permits a dealer to provide

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