FCRA and Disclosure of the Credit Score

Issue/Inquiry

The Bank denied a request for a residential mortgage loan based on an insufficient down payment. Although it ran a credit report on the applicant, the credit score was not a factor in its decision. On the adverse action form, there is a box indicating that the information from a consumer credit report played a part in its decision. As the applicant’s credit score did not have an impact on the decision, is the Bank required to check the box and provide the other required information regarding the credit report?

Response Summary

The Bank is required to disclose the credit score on the adverse action notice if it was a factor in the credit decision, even if it was an insignificant one. Having a credit report on file which provides a credit score implies that the credit score affected the credit decision. Federal examiners are known to adopt this approach. The Bank must make a business decision as to whether it should address that possibility by disclosing the credit score and related information. If the Bank determines that the credit score played no role in the credit decision, it should document such finding in a memorandum for the file.

Response Detail

When a credit report is used in making a credit decision, the Fair Credit Reporting Act (“FCRA”) requires the Adverse Action Notice to provide the following information:

• Notice that adverse action was taken based on information obtained from a consumer reporting agency
• The consumer’s right to:

o Obtain a free copy of his or her consumer report from the consumer reporting agency providing the information if requested within 60 days

o Dispute the accuracy or completeness of any information in a consumer report furnished by the consumer reporting agency

• The name, address, and telephone number of the consumer reporting agency that furnished the report to the person
• A statement that the consumer reporting agency did not make the credit decision and is unable to provide to the consumer the specific reasons why the adverse action was taken.
• The numerical credit score, if it was a factor in the adverse action taken by the creditor.  15 USC §1681m(a).

When the final rule regarding credit report disclosures in the adverse action notice was published, the official commentary acknowledged that, in some cases, a creditor required to provide an adverse action notice under FCRA may have used a consumer report, but not the credit score provided by it. The commentary notes that under section 1100F of the Dodd-Frank Act, a creditor is not required to disclose a credit score if it played no role in the credit decision. However, if a credit score was even an insignificant factor in that decision, then it must be disclosed. Federal Register, vol. 76 41590, 41592.

Model Form C-1 appears in Appendix C to Regulation B and incorporates the FCRA disclosure requirements. As noted by the Bank, it provides a clause to be completed with the credit score and related information when a credit score was a factor in the credit decision. The clause states, “We also obtained your credit score from the consumer reporting agency and used it in making our credit decision.”

In this case, if the Bank did not use a credit score in making its credit decision, the disclosure of the score on the adverse action notice would be contrary to what it actually did. As a practical matter, however, it is difficult for a creditor to have a consumer report on file which discloses a credit score, yet maintain that the score played no part in its credit decision. This implication that the score influenced the credit decision is especially true if the creditor has minimum credit score requirements for its loans. Federal examiners are known to take this position and require the credit report information to be disclosed.

On the other hand, disclosing the credit score in the adverse action notice even though it was not used might imply that there is something wrong with the score.

The Bank will have to make a business decision as to whether the credit score and related information should be disclosed. If the Bank determines that the credit score played no role in its decision and should not be disclosed, it should document that finding in a memorandum for the file.

 

 

This entry was posted on Tuesday, May 30th, 2017 at 1:34 pm.