New Adverse Action Notice Requirements
The new Wall Street Reform and Consumer Protection Act of 2010 creates a bevy of requirements for a variety of financial institutions, including automobile dealerships. While it has been called many things by many people, as an attorney, I alternatively refer to it as “the gift that keeps on giving” and “my new retirement plan”. The reality is that it imposes a few immediate requirements on dealers, or the auto finance industry in general. By immediate, I mean July 21, 2011, the effective date of most of the provisions of the Act.
One change the Act made was to the adverse action notice requirements under the Fair Credit Reporting Act (FCRA). Most adverse action notices used by dealers (that I’ve seen, anyway) contain the model language one may use to comply with the existing FCRA requirements when a consumer report is used in the credit decision process. Come July 21st, additional disclosures will be required to the extent you use a “credit score” in the credit decision process. These additional disclosures include:
· The credit score itself
· The range of possible credit scores in the model used to score the consumer
· Up to four key factors that affected the consumer’s score
· The date on which the credit score was created
· The name of the “person or entity” (usually the credit bureau) that provided the credit score
This information is available from the credit bureaus, although you may have to pay a little extra to get it. Additionally, some service providers will have solutions available for dealers to meet their compliance obligations.
Many dealers have asked whether they need to give the credit score disclosure on the adverse action notice if they are already providing the credit score disclosure exception notice provided for in the Risk-Based Pricing (RBP) rule (the CSD notice). As illogical as it may seem, the answer is yes—some of your customers are going to get multiple credit score disclosures.
Why? For starters, the RBP rule is a creature of FCRA §615(h). The adverse action notice requirement is a creature of FCRA §615(a)—same section, but different subsections. So, we’re talking about two separate requirements. Most importantly, there is no provision in the FCRA that deems compliance with §615(h) compliance with the credit score disclosure requirement in §615(a).
On the other hand (ironically), if you give the FCRA §615(a) adverse action notice (with the new credit score disclosure requirement), you arguably don’t need to give the CSD notice provided for in the RBP rule. But forget I said that and don’t even go there. Stick with the best practice I’m sure you’ve implemented, i.e., every credit applicant gets the CSD notice, whether or not they get an adverse action notice. To do otherwise, is to set yourself up for a compliance nightmare.
July 21st is just around the corner, so time to get cracking. Check with your trusted vendors for their solutions, or reach out to your counsel to help you prepare a compliant adverse action notice for yourself. You’ll be glad you did.
Michael Benoit is a partner in the Washington, D.C., office of Hudson Cook LLP. He is a frequent speaker and writer on a variety of consumer credit topics. Michael can be reached at 202-327-9705 or firstname.lastname@example.org. Nothing in this article is intended to be legal advice and should not be taken as such. All legal questions should be addressed to competent counsel.