This is going to be long, but I believe it is helpful. We have compiled a list of questions that came up during out seminars the past few weeks, along with out answers. I'm interested in your opinions. If you disagree with any of the following, please post the questions number along with what you believe is the correct answer.
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Fair Credit Reporting Act Q&A

1. Does anything need to be signed or is there any record retention requirements with FACT Act?

There are no requirements for any FACT Act disclosures to be signed or retained. However, as always, you will need to show evidence of compliance. This may be as easy as having a system without retention of specific customer documents.


2. How do you show that you are complying with the requirements of the FACT Act?

You will need to be able to demonstrate your procedures in providing necessary disclosures and responding to requests.


3. Do you need to retain the documentation used to prove the true identity of a customer?

Retention of identification and verification of customers is required by CIP, but not by the FACT Act.


Negative Pricing Disclosure (Section 311)
4. The bank always charges non-customers a higher interest rate than customers. Does this trigger the negative pricing disclosure?

This does not trigger the negative pricing disclosure as they are receiving the best rate available to all non-customers.


5. When the rate being charged is based on the year of the vehicle and would not be the best rate for all vehicle loans is the negative pricing disclosure required?

If the consumer is getting the best rate for that year of vehicle a negative pricing disclosure would not be required.


6. When a bank does not have a formal rate sheet for pricing how do they determine when the negative pricing disclosure is provided?

We believe that all banks have some form of pricing sheet for the officers to use as a guide. Since this is a gray area, you may want to take the conservative approach and provide it to all applicants.


7. When a bank has a rate sheet that states rates based on credit criteria (loan value, debt to income, etc.) if the consumer gets the best rate for the category that is not the best rate for that type of loan should they receive the negative pricing disclosure?

The negative pricing disclosure should be provided.


8. We provide tiered interest rates for our auto dealers to offer to consumers. If they do not offer the best rate in the tier do they need to give the notice?

Yes.


Notice of Negative Information (Section 217)

9. If you have the capability to pull credit reports from different consumer reporting agencies (CRA’s), how can you give the Negative Pricing Disclosure at the time of application?

The disclosure must be specific to the CRA's that were used. Therefore, if you know, at the time of application, which CRA you will use, this notice may be provided at the time of application. However, there is proposal that may require banks to provide this notice at the time or pricing.


10. If this notice is put on the past due notice do you need to send this notice to each borrower?

It would appear that one past due notice addressed to both borrowers at the same address would be sufficient. It the borrowers live at different addresses, the notice needs to be sent to each address. The rule is final on this section, however, this may still be up for debate.



11. If you attach the notice to an application with two borrowers does each borrower need to receive this notice?

Each applicant should receive this notice. If both applicants sign the application, you have evidence that they received the notice.


12. If sending a notice to an overdrawn account, can this notice be placed on it?

We do not believe this applies to deposit accounts, however, it may be placed on this notice providing it is clear and conspicuous.


13. Does a non-owner, authorized user of a credit card need this notice?

If any derogatory information on them will be sent to the credit reporting agency, they will need to receive this notice.


14. Does this notice need to be given with each account, loan, etc. or just each customer?

One time to each customer for each account (loan). One notice for all banking relationships is not sufficient.


15. Does this notice need to be given in a form the consumer can keep?

No. Your procedures would need to evidence that the notice is provided.


16. Can this notice be combined with another notice or does it need to stand on its own?

It may be included on or with any notice of default, any billing statement or any other materials provided to the customer. However, it cannot be included with the initial Truth in Lending disclosure.


17. Is this just a consumer regulation?

Yes. Since this requirement comes from the FACT Act, which amends the Fair Credit Reporting Act and is a consumer protection law, it is consumer customers that are potential recipients.


18. Do you need to provide this notice to guarantors of a business or ag loan?

Yes, if you are going to report the information on their credit report.


19. Are ChexSystems and TeleCheck considered credit reporting agencies under the FACT Act and subject to the notice of negative information?

It is our opinion that ChexSystems and TeleCheck are not credit reporting agencies for the FACT Act. We are seeking additional opinions on this issue.


20. If an overdraft protection delinquency is reported to a credit reporting agency does this trigger a Notice of Negative Information?

Yes.


21. If a closed checking account is reported to a credit reporting agency does this trigger the Notice of Negative Information?

Closed checking accounts are normally reported to ChexSystems; therefore, the Notice of Negative Information would not be required. If the closed checking account is reported to a credit reporting agency, the Notice of Negative Information would not be required as the FACT Act is limited to credit transactions. However, if you have an overdraft this is considered to be credit.


Responsibilities of furnishers of credit information (Section 312)

22. If you are sending an upload within 30 days to correct the information do you still need to send the results of the investigation to the consumer?

Yes.


23. If a customer disputes information every month do you still need to provide a notice to the consumer by mail within five days?

Yes. Therefore, you may want to design at template letter.


Sharing Information with Affiliates for Marketing (Section 214)

24. When would you give the opt- out notice?

When you are sharing information with affiliates for the purpose of solicitation.


25. If you send this notice out annually, isn't it confusing to the customer when they thought the opt-out is good for 5 years?

It is not required to give this notice annually, but it may be practical to add this to your privacy disclosure, which does need to be given annually. It may be confusing, but how many customers actually read the privacy disclosure.


26. If the customer closes the account is the opt-out still good for 5 years?

Yes.


Free Credit Reports (Section 211)

27. If a customer complains about something on their credit report that is not information from your bank, do you need to provide them the notice?

No, you would not be required to provide them with the notice.


Special Rule for Mortgage Loans (Section 212)

28. If I don’t use the credit score in making our credit decision, do I need this provide the consumer this notice?

No. However, if the credit bureau has the credit score on it, you may have a hard time proving that you did not use the score in your credit decision. Therefore, if you are not using the credit score you may want to request the CRA to remove it from your reports.


29. If we sell to the secondary market and they pull the credit report then whose responsibility is it to provide this notice?

If the secondary market is the lender who makes or arranges the loan, they should provide it. You should check with them to make sure that they are providing it, or you will need to.


30. If we close and fund the loan and then sell it to the secondary market who is responsible for the notice?

It would be your responsibility to provide the notice.


31. If you pull more than one credit bureau do you need to provide the name, address and phone number for all credit reporting agencies?

You would need to list the name, address, and phone number for each credit reporting agency used.


32. Since there is a free copy available to the consumer when we pull a credit report, do we still need to give them this notice?

Yes.


33. When is the best time to provide this notice?

The law indicates it must be provided as soon as reasonably practical.


34. For a bank with an internal scoring system when is the mortgage credit scoring disclosure required and what needs to be included?

A lender that uses a credit score, other than a credit score provided by a CRA, may satisfy the obligation to provide a credit score by disclosing a credit score and associated key factors supplied by a CRA.


35. When the credit report provided to the bank includes a credit score for all three credit reporting agencies does the bank provide all three scores to the consumer? This could be a total of 6 scores for a husband/wife.

You need to list all CRA's and the scores that were used.


36. Is the credit score on the credit report determined by the credit reporting agency or by Fair Isaac, Beacon or Emperica? Who do we disclose to the consumer as the source of the credit score?

The bank would disclose to the consumer the credit reporting agency that provided the report to the bank with the credit score no matter the source of the actual score. The consumer would contact the credit reporting agency with questions concerning the score and the credit reporting agency may refer the consumer on to the source of the actual score.


Fraud Alerts (Section 111)

37. Where do you find the phone number to call when you have a fraud alert?

We believe it will be on the credit report.


Medical Information (Section 411)

38. The purpose of the loan is to convert a van to be handicap accessible do we need to obtain a disclosure from the consumer to allow sharing of medical information?

The credit decision should be based on the credit worthiness of the consumer. Bank officials should not ask questions concerning the medical condition that has created the need to convert the van to be handicap accessible. It is permissible to verify the true cost of the conversion.

Is the negative pricing notice required on 12-1-04 or are we awaiting further direction???

David, thank you for taking the time to do this.

I have a question about the answer to the following question under Negative Notices (sec. 217);

14. Does this notice need to be given with each account, loan, etc. or just each customer?

One time to each customer for each account (loan). One notice for all banking relationships is not sufficient.


Would you please provide what the answer is based on? Although we will be providing the notice for each new relationship, the Reg. seems to indicate (or at least to me) that one notice per customer is sufficient, as long as the customer remains your customer. i.e. If the only relationship was a loan relationship, once the loan paid off they would no longer be your customer because they would no longer have a relationship with you.

217(a)(7)

(ii) NOTICE EFFECTIVE FOR SUBSEQUENT SUBMISSIONS — After providing such notice, the financial institution may submit additional negative information to a consumer reporting agency described in section 603(p) with respect to the same transaction, extension of credit, account, or customer without providing additional notice to the customer.

Your thoughts please.

Thanks David. This is another example of being thrown to the sharks. At least I think the "separate" disclosure has been resolved.

Due to the wide range of interpretations we have chosen to take the conservative route and provide the notice for each new relationship opened by the customer. This may prove to be overkill, but at least we will be compliant.

Thanks again for posting this Q&A.

Regarding the answer to #10 whether a separate notice should be mailed to each borrower, in another thread, there was a response credited by the poster to a David LaFluer of the FDIC in Washington. It stated that one mailing to the primary borrower listing the multiple names is sufficient. Is this response from Mr. LaFluer valid? Did I misinterpret the comment? If not, we will plan on just having the additional language on our current late notices.

Hey David - thanks for putting this Q&A together!

Thanks David!!!

Thanks David. Another prime example of the helpfulness of BOL.

If the bank pulls a credit report containing a fraud alert or active duty alert, the bank plans on applying its CIP. I understand that we must also follow the instructions contained in the alert (e.g. call customer at xxx).

1) What do we do if the "customer" is applying in person. Should we wait for them to leave and then call them at the number specified in the credit report?

2) What if the customer applies in person and is someone we know very well, and are sure of their identity? I hope we don't have to telephone them before making the loan.

David, regarding section 217, Question 16, does this mean that the disclosure cannot be "ON" to Initial TIL, or does it mean that the disclosure cannot be "GIVEN" at the same time as the Initial TIL is given to the applicant?

Thanks David. You're a life-saver.

From 217(7)(a)(B)(ii)

. . . .the notice may not be included in the initial disclosures provided under section 127(a) of the Truth in Lending Act. . . .

127(a) of the TILA deals with initial open-end credit disclosures. My interpretation is the negative information disclosure cannot be embedded within that disclosure. However, I don't see a prohibition from enclosing a separate notice that is clear and conspicuous with the materials provided. Just my thoughts.

So...just to keep this straight - if we send the Negative Information disclosure on a past due notice that goes to all borrowers at the same address, and find a way to send the notice to any other borrowers at a different address, then that should cover our disclosure requirements under 217.

Those institutions that decide to also include the disclosure with the application or at doc signing are simply being conservative? I don't see that this practice is a requirement IF the Notice is sent with a late notice before the negative information is reported OR within 30 days of the negative information being submitted to the credit reporting agency.

IMHO - The notice is best served when the customer is at risk of being reported as late, not at the outset of the loan when a payment is not even due.

I agree with you in all points you mentioned.

Can anyone give me a link to the actual FACT Act? I can't seem to find the written version anywhere. I just keep getting the FCRA and other bits and pieces...Should I just be reading Reg. V now?

This has been very helpful. I have two more questions concerning section 212 credit score disclosure- If we use a Consumer reporting service that compiles a report from all 3 CRAs do we use that reporting agencie's name at all? Their score is the average of the 3 scores provided by the major companies. (Individual scores are available to us).

A prior posting stated we should report the name of all companies that supplied information. Does that mean 4 disclosures to cover 3 major agencies and the one that compiled the information for us?

#2 I am not sure if we use the average score or do we report each score for each company?
thanks
Katye

I believe you should list all companies and scores that you "use". If you use 1 score, list it. If you use 3 scores, list all of them.

Thank you Ted. Perfect link!

David, it would seem logical (appropriate) that if a loan officer is dealing face to face with a customer they absolutely know through past personal/business dealings, would that not suffice as long as a description of the circumstances is retained?

I agree, but how do you document that (I know them). And what if you think you know them, but they are really the ID Thief?