RSK.IQ Question of the Week 3/20/17

FCRA and Disclosure of Credit Score

Issue/Inquiry

The Bank does not use a credit score when making credit decisions, although it relies on information contained in the credit report. On the Adverse Action Notice, it indicates that the credit decision was based in whole or in part on information contained in the report. Since the score is not used, the box referring to such is not checked off and the information is not completed. Can the Bank still provide the credit score information to each applicant separately, since credit was pulled?

Response Summary

The Bank is allowed to share a consumer report with a consumer if adverse action against the consumer has been taken based in whole or in part on the report. 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. Therefore, 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. It should also no longer obtain credit scores from the consumer reporting agency, if it does not use such scores, in order to avoid the implication that the credit score affected its credit decision.

Response Detail

There are really two questions posed in this situation. The first is whether the Bank can share a consumer report with a consumer. In this case, the answer is that the Bank can. The Fair Credit Reporting Act (“FCRA”) provides that a consumer reporting agency may not prohibit the user of a consumer report furnished by the agency from disclosing the contents of the report to the consumer on whom the report was made, if adverse action against the consumer has been taken by the user based in whole or in part on the report. 15 USC §1681e(c). Since the Bank is the user of the consumer report and has taken adverse action against the consumer on the basis of it, the Bank can share the report with the consumer.

The second question is whether the credit score should be disclosed in the adverse action notice. In this regard, the FCRA requires the 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:
    • Obtain a free copy of his or her consumer report from the consumer reporting agency providing the information if requested within 60 days
    • 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.  15 USC §1681m(a).

The FCRA also requires the disclosure of a numerical credit score, but only if it was a factor in the adverse action taken by the creditor. 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 the 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, which appears in Appendix C to Regulation B and incorporates the FCRA disclosure requirements, 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 the use it actually made of the consumer report. 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 of the score influencing 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.

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

The Bank will have to make a business decision as to whether the credit score should be disclosed. If the Bank determines that the credit score played no role in its decision, it should document that finding in a memorandum for the file. If the Bank does not use credit scores, this information should no longer be obtained from the consumer reporting agency, in order to avoid the implication that the credit score affected its credit decision.

This entry was posted on Monday, March 20th, 2017 at 1:34 pm.

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