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The Fair Credit Reporting Act - Side-effect obligations for credit score holders with effect from 21 July 2011

One of the numerous amendments adopted under last year's Dodd-Frank Wall Street Reform and Consumer Protection Act (Public Law 111-209) (Dodd- Frank) is an Amendment to the Fair Credit Reporting Act (FCRA), 15 U.S.C. § 1681 ff. which requires any individual (not only creditors) who uses creditworthiness to take an unfavourable measure against a user to make further disclosure to users as part of the disclosure of side-effects already requested in FCRA Section 615(a), 15 U.S.C. Section 1681m(a).

These new requirements are due to come into force on 21 July 2011, which has been set as the "planned date " for the take-over of certain functionality under various applicable legislation, such as the Financial Market Stabilisation and Association Act (FCRA), by the new CFPB. Whilst the new requirements will not come into force until July, Score holders will have to check whether they have commitments in anticipation so that any necessary changes to announcements of undesirable side effects and related procedures can be made by July.

Currently FCRA Section 615(a) requests any individual who uses information in a consumers' report to take an unfavourable measure against a citizen in order to inform the citizen orally, in writing or electronically about that unfavourable measure, such as: contacting the designated authority that submitted the consumers' report; a declaration that the designated authority has not taken the determination to take the unfavourable measure and is not in a position to communicate to the citizen the particular grounds for the measure; the consumer's right to the correctness or integrity of the information containing the unfavourable measure; the consumer's right to the correctness or integrity of the information; and the consumer's right to the information containing the unfavourable measure.

Dodd-Frank's Section 1100F extends the above mentioned preexisting side effect disclosures to include a requirement for any individual who has a side effect wholly or partly related to numeric creditworthiness to supply information in writing or electronically (in contrast to the present requirement, verbal disclosures would be insufficient).

It would also be necessary for the following information on creditworthiness to be provided by the users of the report to the consumers (who may need to obtain it from a reporter if this is the credit source): Bandwidth of possible creditworthiness according to the type of credit assessment used; the date on which the credit assessment was made; the order of importance of the various keys that have had a negative impact on the assessment of the consumers in the type of credit assessment used.

However, the new side-effect disclosures requirement applies to any credit worthiness taker of an adverse effect of the FCR, not just a creditor. If, for example, a lessor seizes a side effect on the basis of a credit score in the context of a consumer's request for a standard rental agreement, the new obligations to disclose side effects shall be applicable even if the rental agreement is not a credit deal.

Inversely, if the lessor used a user-defined valuation that was not used by the loan providers to forecast credit behaviour, the disclosures requirement would not be applicable. Whereas the creditworthiness jargon in the Federal Reserve's suggested credit alert models only covers the creditor, any creditworthiness borrower who has termination clauses under FCRA Section 615(a) should consider including the appropriate jargon from the Federal Reserve's credit alert models in its side effect announcements as soon as they are completed.

Federal Trade Commission (FTC) employees have expressed support for the Federal Reserve's suggested modelling idiom and may see it as a useful yardstick for further litigation against credit rating holders under the FTC's jurisdictions, such as lessors and those who act on their behalf. However, the FTC's FTC has not yet adopted the modelling idiom. Even credit score practitioners who are not vendors could be well serviced by considering the credit score discloser modelling idiom.