Credit Scoring, High Rates and FCRA

by Mary Beth Guard

On June 28, 2001, the FTC responded to an inquiry about whether a company that approved an application for credit only under its highest rates, based on a "risk score" derived from information reported by a credit bureau, should have provided an FCRA adverse action notice to the applicant.

In its letter to a Mr. Latour, the FTC noted that the term "adverse action" for purposes of the FCRA has the same meaning as it does under the Equal Credit Opportunity Act, when the adverse action takes place in the credit context. Under that definition, adverse action includes a refusal to grant credit in substantially the amount or on substantially the terms requested in an application. However, there is an exception. If the creditor makes a counteroffer to grant credit in a different amount or on different terms and the applicant uses or expressly accepts the credit offered, no adverse action would have taken place. If credit was applied for on particular terms, the consumer was offered credit only on less favorable terms (such as a lower credit limit, higher interest rate) based on information in a consumer report, and the consumer refused to accept those less favorable terms or use the credit offered, adverse action would have occurred and a notice would be required. If the counteroffer was accepted, however, no notice would be necessary.

Originally appeared in the Oklahoma Bankers Association Compliance Informer.

First published on BankersOnline.com 11/12/01