FRB Proposes New Adverse Action Notices

The Equal Credit Opportunity Act and Regulation B require creditors to notify the applicant whenever the creditor takes adverse action on an application. This Regulation B adverse action notice must contain several key items of information: the name and address of the creditor, a description of the action taken, the reasons for the action or a statement that the customer may request the reasons, the name and address of the creditor's regulatory agency, and a description of the applicant's rights under the ECOA. The Fair Credit Reporting Act also has an adverse action notification requirement. FCRA requires that when a creditor takes adverse action using information in a consumer report or information obtained from a third party (such as an employer or landlord) the creditor must notify the applicant of the action taken and provide the applicant with information about the source of the information.

Under the "old" FCRA, the creditor merely had to tell the customer that it had used information in the credit report in making the decision and provide the name and address of the credit reporter. If the information was from a third party, the creditor merely advised the applicant of that fact and notified the applicant that they had the right to request the nature of the information used.

Because the ECOA and FCRA notification requirements are very similar, particularly in timing, the FRB had designed model adverse action notification forms that comply with both laws. To ensure the model forms continue to provide this dual compliance, the FRB is proposing to revise the model forms to provide the additional information called for by the amendments to FCRA.

The proposed revisions are straightforward. The new notice forms would reflect two major changes. First, they would include the new information on consumer's rights in obtaining and correcting information in their credit report. This would include providing the toll-free number for the credit bureau.

The second change would provide new model notice language when the information used by the creditor was obtained from or through an affiliate. The FRB believes that in these circumstances, the creditor should provide the same disclosures that would be provided if the information had come from a third party source. Thus, the FRB is proposing a to revise the third party disclosure to also disclose that information was obtained from an affiliate and used in making the decision:

"Our credit decision was based in whole or in part on information obtained from an affiliate or from an outside source other than a consumer reporting agency. Under the Fair Credit Reporting Act, you have the right to make a written request, no later than 60 days after you receive this notice, for disclosure of the nature of this information."

Comments on this proposal are due by August 15, 1997. The amendments to the FCRA that this proposal would implement take final effect on September 30, 1997.

ACTION STEPS

Review your adverse action forms and procedures. Order or design new forms to comply with the FCRA requirements and be ready by September 30, 1997.
Schedule some brush-up training on adverse action notices. Review the new requirements in the training. Include some exercises for practice in selecting reasons for adverse action and which FCRA notices to provide.
Notify all lending staff (including anyone who takes applications for overdraft lines of credit) of the coming changes. Attach copies of your new forms. Request employees to place your memo and the new forms in their procedures manuals.