Federal Register, Volume 76 Issue 136 (Friday, July 15, 2011)

[Federal Register Volume 76, Number 136 (Friday, July 15, 2011)]
[Rules and Regulations]
[Pages 41590-41602]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-17585]

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FEDERAL RESERVE SYSTEM

12 CFR Part 202

[Regulation B; Docket No. R-1408]
RIN 7100-AD67

Equal Credit Opportunity

AGENCY: Board of Governors of the Federal Reserve System (Board).

ACTION: Final rule.

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SUMMARY: Section 701 of the Equal Credit Opportunity Act (ECOA)
requires a creditor to notify a credit applicant when it has taken
adverse action against the applicant. The ECOA adverse action
requirements are implemented in the Board's Regulation B. Section
615(a) of the Fair Credit Reporting Act (FCRA) also requires a person
to provide a notice when the person takes an adverse action against a
consumer based in whole or in part on information in a consumer report.
Certain model notices in Regulation B include the content required by
both the ECOA and the FCRA adverse action provisions, so that creditors
can use the model notices to comply with the adverse action
requirements of both statutes. The Board is amending these model
notices in Regulation B to include the disclosure of credit scores and
related information if a credit score is used in taking adverse action.
The revised model notices reflect the new content requirements in
section 615(a) of the FCRA as amended by section 1100F of the Dodd-
Frank Wall Street Reform and Consumer Protection Act.

DATES: These rules are effective August 15, 2011.

FOR FURTHER INFORMATION CONTACT: Krista P. Ayoub, Counsel; Mandie K.
Aubrey or Nikita M. Pastor, Senior Attorneys; or Catherine Henderson,
Attorney, Division of Consumer and Community Affairs, (202) 452-3667 or
(202) 452-2412, Board of Governors of the Federal Reserve System, 20th
and C Streets, NW., Washington, DC 20551. For users of a
Telecommunications Device for the Deaf (TDD) only, contact (202) 263-
4869.

SUPPLEMENTARY INFORMATION:

I. Background

The Equal Credit Opportunity Act (ECOA), 15 U.S.C. 1691 et seq.,
makes it unlawful for creditors to discriminate in any aspect of a
credit transaction on the basis of sex, race, color, religion, national
origin, marital status, or age (provided the applicant has the capacity
to contract), because all or part of an applicant's income derives from
public assistance, or because an applicant has in good faith exercised
any right under the Consumer Credit Protection Act. The Board's
Regulation B (12 CFR part 202) implements the ECOA.
Section 701(d) of the ECOA generally requires a creditor to notify
a credit applicant against whom it has taken an adverse action. Under
section 701(d)(6) of the ECOA, an adverse action generally means a
denial or revocation of credit, a change in the terms of an existing
credit arrangement, or a refusal to grant credit in substantially the
amount or on substantially the terms requested.
Section 615(a) of the FCRA, 15 U.S.C. 1681m(a), also requires a
person to provide an adverse action notice when the person takes an
adverse action based in whole or in part on information in a consumer
report. The definition of adverse action in section 603(k) of the FCRA
incorporates, for purposes of credit transactions, the definition of
adverse action under the ECOA. The adverse action provisions in both
the ECOA and the FCRA require certain disclosures to be given to
consumers.
The ECOA adverse action provisions are implemented in Regulation B.
There are no implementing regulations for the adverse action
requirements of section 615(a) of the FCRA. However, as explained in
staff commentary that accompanies Regulation B, certain model notices
in Regulation B include the content required by both the ECOA and the
FCRA, so that persons can use the model notices to comply with the
adverse action requirements of both statutes.
On July 21, 2010, the Dodd-Frank Wall Street Reform and Consumer
Protection Act (Dodd-Frank Act) was signed into law. Public Law 111-
203, 124 Stat. 1376. Section 1100F of the Dodd-Frank Act amends section
615(a)

[[Page 41591]]

of the FCRA to require creditors to disclose on FCRA adverse action
notices a credit score used in taking any adverse action and
information relating to that score. The effective date of these
amendments is July 21, 2011.\1\
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\1\ Section 1100H of the Dodd-Frank Act provides that the
amendments in Subtitle H of Title X, which includes Section 1100F,
become effective on the ``designated transfer date.'' The Secretary
of the Treasury set the designated transfer date as July 21, 2011.
75 FR 57252 (Sept. 20, 2010).
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On March 15, 2011, the Board proposed to amend the model adverse
action notices in Regulation B that incorporate the content
requirements of FCRA section 615(a) to reflect the new content
requirements added by section 1100F of the Dodd-Frank Act. 76 FR 13896.
The comment period closed on April 14, 2011.\2\ The Board received more
than 30 comment letters regarding the proposal from banks and other
creditors, industry trade associations, consumer groups, individual
consumers, and others. After considering the comments received,
pursuant to its authority in section 703(a) of the ECOA, the Board is
issuing revised model adverse action notices substantially as proposed.
As revised, the adverse action model notices in Regulation B are
consistent with the requirements of section 1100F of the Dodd-Frank Act
to help facilitate compliance with that provision when it becomes
effective.
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\2\ Commenters also had until May 16, 2011 to provide comments
on the Board's analysis of the proposal under the Paperwork
Reduction Act.
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II. Section-by-Section Analysis

Section 202.12(b)(4)

In 2007, the Board redesignated Sec. 202.17 of Regulation B as
Sec. 202.16. See 72 FR 63451, November 9, 2007. However, a reference
to Sec. 202.17 in Sec. 202.12(b)(4) was not revised to reflect the
change. The Board is correcting the citation in Sec. 202.12(b)(4) so
that it refers to Sec. 202.16.

Appendix C to Part 202--Sample Notification Forms

Under section 701(d) of the ECOA, a creditor must provide to
applicants against whom adverse action is taken either: (1) A statement
of reasons for taking the adverse action as a matter of course; or (2)
a notification of adverse action which discloses the applicant's right
to a statement of reasons within thirty days after receipt by the
creditor of a request made by the applicant within sixty days after the
written notification. Section 615(a) of the FCRA requires a person to
provide, in an adverse action notice, information regarding the
consumer reporting agency that furnished the consumer report used in
taking the adverse action. It also requires a person to disclose that a
consumer has a right to a free consumer report and a right to dispute
the accuracy or completeness of any information in a consumer report.
Section 1100F of the Dodd-Frank Act amends section 615(a) of the
FCRA to require that creditors disclose additional information on FCRA
adverse action notices. The statute generally requires that a FCRA
adverse action notice include: (1) A numerical credit score used in
making the credit decision; (2) the range of possible scores under the
model used; (3) up to four key factors that adversely affected the
consumer's credit score (or up to five factors if the number of
inquiries made with respect to that consumer report is a key factor);
(4) the date on which the credit score was created; and (5) the name of
the person or entity that provided the credit score.

Model Notices C-1 Through C-5

General Content
As explained in paragraph 2 of Appendix C to Part 202, model
notices C-1 through C-5 may be used to comply with the adverse action
provisions of both the ECOA and the FCRA. The Board is amending model
notices C-1 through C-5 substantially as proposed to incorporate the
additional content requirements prescribed by section 1100F of the
Dodd-Frank Act.
The Board proposed to revise Forms C-1 through C-5 to include, as
applicable, a statement that the creditor obtained the consumer's
credit score from a consumer reporting agency named in the notice, and
used the score in making the credit decision. The proposed model
notices also contained language stating that a credit score is a number
that reflects the information in the consumer's consumer report, and
that the consumer's credit score can change, depending on how the
information in the consumer report changes. The proposed model notices
provided space for the creditor to include the content required under
section 1100F of the Dodd-Frank Act that is specific to the consumer.
This content includes: the consumer's credit score, the date the credit
score was created, the range of possible credit scores under the model
used, and up to four key factors that adversely affected the consumer's
credit score (or up to five factors if the number of inquiries made
with respect to that consumer report is a key factor). The Board also
proposed additional changes to Form C-3 for clarity, which are
discussed in more detail below.
In the proposal, the Board noted that section 1100F of the Dodd-
Frank Act requires a creditor to provide, if applicable, a consumer's
credit score and related information to a consumer, regardless of
whether the creditor provides a statement of specific reasons for
taking the adverse action or a disclosure of the applicant's right to a
statement of specific reasons for an adverse action. Therefore, a
creditor would not comply with the adverse action provisions in section
1100F by providing the required FCRA disclosures only if a consumer
responds with a request for a statement of specific reasons for an
adverse action. As a result, proposed Form C-5 reflected the
requirement to provide the disclosures required by section 615(a) of
the FCRA, including the consumer's credit score and key factors that
adversely affected the consumer's credit score, at the time a creditor
provides a disclosure of the applicant's right to a statement of
specific reasons for the adverse action.
The Board also proposed to amend comment 9(b)(2)-9 to clarify that
the FCRA requires a creditor to disclose, as applicable, a credit score
it used in taking adverse action along with related information,
including up to four key factors that adversely affected the consumer's
credit score (or up to five factors if the number of inquiries made
with respect to that consumer report is a key factor). Proposed comment
9(b)(2)-9 also would have clarified that disclosing the key factors
that adversely affected the consumer's credit score under the FCRA does
not satisfy the ECOA requirement to disclose specific reasons for
denying or taking other adverse action on an application or extension
of credit.
In addition, the Board proposed to amend paragraph 2 of Appendix C
to discuss the new disclosure requirements set forth in section 1100F
of the Dodd-Frank Act. Paragraph 2 of Appendix C discusses the
disclosure requirements of section 615 of the FCRA that are contained
in Forms C-1 through C-5. Paragraph 2 explains that Form C-1 contains
the disclosures required by FCRA sections 615(a) and (b), and Forms C-2
through C-5 contain only the disclosures required by FCRA section
615(a).
Paragraph 2 as revised would also state that the combined ECOA-FCRA
disclosures in Form C-1 through Form C-5 must state that a creditor
obtained information from a consumer reporting agency that was
considered in the credit decision. Consistent with section 1100F of the
Dodd-Frank Act, the Board

[[Page 41592]]

proposed to revise the paragraph to state that the combined disclosure
must also include, as applicable, a credit score used in taking adverse
action along with related information.
The Board received several comments on the proposed changes to the
model forms, as discussed below. The Board did not receive comments on
the proposed changes to comment 9(b)(2)-9 or paragraph 2 of Appendix C.
For the reasons discussed below, the final rule largely adopts the
proposed changes to Appendix C and model forms C-1 through C-5. For
clarity, a revision has been made pertaining to the optional disclosure
of contact information for the entity that provided the credit score.
Comment 9(b)(2)-9 is also adopted as proposed.
Contact information for the entity that provided the credit score.
Several industry commenters asked that the Board add language to the
model forms directing the consumer to the consumer reporting agency for
more information about the credit score. The commenters believed that
consumers may otherwise contact creditors with questions about their
credit score, even if creditors are not in a position to answer those
questions.
The Board is adding optional language to the model forms that
creditors may use to direct the consumer to the entity (which may be a
consumer reporting agency or the creditor itself, for a proprietary
score that meets the definition of a credit score) that provided the
credit score for any questions about the credit score, along with the
entity's contact information. Because this language is optional,
creditors may use or not use the additional language without losing the
safe harbor provided under Regulation B and the ECOA. Paragraph 2 of
Appendix C is revised to clarify that the disclosure of the entity's
contact information is optional.
Disclosure of source of credit score information. Some industry
commenters expressed concern about the reference to ``this consumer
reporting agency'' in the model form. One commenter requested that the
Board provide flexibility to creditors to replace the general reference
to ``this consumer reporting agency'' with a more specific reference to
the name of the particular consumer reporting agency from which the
creditor obtained the score being disclosed. This commenter noted that
creditors need flexibility when a creditor bases its decision on
reports from multiple consumer reporting agencies and only one score is
disclosed on the adverse action notice.
A creditor receives a safe harbor for compliance with Regulation B
for proper use of the model forms. See paragraph 5 of Appendix C.
Paragraph 3 of Appendix C notes that the model forms are illustrative,
however, and may not be appropriate for all creditors. The instructions
provide examples of instances where a creditor would need to modify the
model forms to ensure that they are accurate for the creditor's
purposes. Regulation B provides creditors flexibility to change the
model forms as applicable and still receive the safe harbor provided in
Regulation B, although creditors must make proper use of the model
forms.
When a creditor has based its adverse action decision on reports
from multiple consumer reporting agencies, the Board thus expects that
the creditor would replace the general reference to ``this consumer
reporting agency'' with a more specific reference to the name of the
consumer reporting agency from which the creditor obtained the score
being disclosed, to avoid ambiguity and consumer confusion. Moreover,
section 1100F of the Dodd-Frank Act requires disclosure of the source
of the credit score. The Board does not believe that a general
reference to ``this consumer reporting agency'' would satisfy the
requirements of the statute when a creditor has based its adverse
action decision on reports from multiple consumer reporting agencies.
Disclosure that credit score has been used. Model forms C-1 through
C-5 contain the following language: ``We also obtained your credit
score from this consumer reporting agency and used it in making our
credit decision.'' Some industry commenters requested that the Board
revise this language to allow a creditor in all cases to disclose that
the creditor ``may have used'' the credit score in making the credit
decision because the commenters believe there are circumstances where
it may be ambiguous whether a creditor used a credit score. For
example, one commenter stated that if a creditor judgmentally evaluates
a joint application, it might not be clear whether the underwriter used
one of the co-applicants' credit score. To ensure compliance with
section 1100F of the Dodd-Frank Act, these commenters noted that many
creditors may prefer to disclose the applicant's credit score (along
with related information) whenever they receive a score as part of the
application process. To facilitate this, the commenters suggested that
the Board change the new model language in Appendix C to indicate that
the creditor ``may have used'' the credit score in making the credit
decision. These commenters asserted that this revised language would
allow creditors to provide credit score disclosures even if there is
some ambiguity regarding whether a credit score was used in the credit
decision without raising the question of whether the model language is
accurate.
The model forms do not include the suggested change. The
commenters' suggestion would result in all consumers receiving a
disclosure stating that their credit score ``may'' have been used. The
Board believes that modifying the language in model forms C-1 through
C-5 as suggested by commenters would likely confuse consumers, would
not be consistent with the statute, and would substantially decrease
the value of the disclosures for consumers. Creditors may still use the
language in the model form stating that the creditor ``used'' a credit
score (instead of ``may have used''), even if there is some ambiguity
regarding whether a credit score obtained by the creditor was
considered in a judgmental evaluation. As discussed further below, the
Board does not believe that section 1100F of the Dodd-Frank Act sets a
high threshold for what constitutes use of a credit score.
Use of a credit score. In some cases, a creditor that is required
to provide an adverse action notice under the FCRA may use a consumer
report, but not a credit score, in taking the adverse action. Under
section 1100F of the Dodd-Frank Act, a person is not required to
disclose a credit score and related information if a credit score is
not used in taking the adverse action. Therefore, the proposed
amendments to Forms C-1 through C-5 generally were applicable only if a
credit score was used in taking an adverse action. Some industry
commenters stated that creditors should not be required to disclose
credit score information when a creditor obtains but does not use a
credit score, or when the credit score was not the primary cause of the
adverse action decision.
Section 1100F of the Dodd-Frank Act requires disclosure if a credit
score was used in taking adverse action. A creditor that obtains a
credit score and takes adverse action is required to disclose that
score, unless the credit score played no role in the adverse action
determination. If the credit score was a factor in the adverse action
decision, even if it was not a significant factor, the creditor will
have used the credit score for purposes of section 1100F of the Dodd-
Frank Act.
A trade association representing motor vehicle dealers submitted a

[[Page 41593]]

comment letter asserting that in certain three-party transactions where
the dealer is the original creditor, the dealer should not be subject
to the requirements of section 1100F, because a third party that
purchases the debt obligation from the dealer obtains the creditor
score, rather than the dealer. This issue is outside the scope of this
rulemaking under Regulation B and the ECOA, because it seeks an
interpretation of the FCRA as it applies to a particular type of
transaction. This issue is addressed, however, in the FCRA rulemaking
under section 1100F of the Dodd-Frank Act published elsewhere in
today's Federal Register notice.
Disclosure that no credit score is available. In some cases, a
creditor may try to obtain a credit score for an applicant, but the
applicant may have insufficient credit history for the consumer
reporting agency to generate a credit score. One commenter asked that
the creditor have the option to provide the applicant notice that no
credit score was available from a consumer reporting agency in the
space available for the credit information disclosure.
Section 1100F only applies when a creditor uses a credit score in
taking adverse action. The creditor cannot disclose credit score
information if an applicant has no credit score. Nothing in section
1100F of the Dodd-Frank Act prevents a creditor, however, from
providing the applicant notice that no credit score was available from
a consumer reporting agency, although section 1100F does not require
such notice.
Key factors. Several industry commenters argued that creditors
should have flexibility to disclose only factors that substantially
affected the credit score. They asserted that requiring creditors to
disclose the top four key factors (or five factors if the number of
inquiries made with respect to that consumer report is a key factor) is
burdensome and expensive for creditors, is confusing and will be of
limited value to consumers. In contrast, one commenter stated that
creditors should be required to disclose all factors that affected the
credit score, not just the top four (or five) key factors.
Section 1100F of the Dodd-Frank Act expressly requires disclosure
of the top four (or five) key factors that adversely affected the
credit score, whether or not the effect was substantial. A person
taking adverse action must provide the consumer the information set
forth in subparagraphs (B) through (E) of section 609(f)(1) of the
FCRA. Section 609(f)(1)(C) of the FCRA requires disclosure of all of
the key factors that adversely affected the credit score in the model
used, up to four, subject to section 609(f)(9) of the FCRA, which
states that if the key factors that adversely affected the credit score
include the number of inquiries made with respect to the consumer
report, the ``number of inquiries'' must be disclosed as a key factor.
An industry commenter requested clarification that a creditor is
permitted to rely on and disclose the key factors provided by consumer
reporting agencies, without verification by the creditor. The commenter
further asked for guidance in the event that a consumer reporting
agency does not provide the key factors with the score.
Under section 615(a) of the FCRA as amended by section 1100F of the
Dodd-Frank Act, the person taking adverse action is responsible for
providing the credit score disclosure, including the key factors
adversely affecting the credit score. If a creditor is using a credit
score purchased from a consumer reporting agency, the consumer
reporting agency is in the best position to identify the key factors
that affected the score, and the creditor could rely on that
information in its disclosure to consumers. The Board acknowledges,
however, that the contractual arrangements between creditors and
consumer reporting agencies may vary as to how creditors will receive
the credit score information necessary to comply with section 1100F.
The imposition of requirements on consumer reporting agencies is not
within the scope of this rulemaking under the ECOA.
The proposed amendment to comment 9(b)(2)-9 clarified that
disclosing the key factors that adversely affected the consumer's
credit score does not satisfy the ECOA requirement to disclose specific
reasons for denying or taking other adverse action on an application or
extension of credit. Some industry commenters suggested that creditors
only disclose either the key factors adversely affecting the consumer's
credit score or the specific reasons for the adverse action decision,
but not both. Other industry commenters asked that creditors be
permitted to provide the list of key factors or specific reasons only
once when the key factors that adversely affected the consumer's credit
score are the same as the specific reasons for taking adverse action.
Commenters suggested making a cross-reference to the first list rather
than providing a second list.
As explained in the proposed rule, the Board recognizes that a key
factor(s) that adversely affected the consumer's credit score may be
the same as a specific reason(s) for denying credit or taking other
adverse action. However, some specific reasons for taking adverse
action may be unrelated to a consumer's credit score, such as reasons
related to the consumer's income, employment, or residency. Therefore,
the Board continues to believe the disclosure of both the key factors
that adversely affected the consumer's credit score and the specific
reasons for denying credit or taking other adverse action is necessary
to fulfill the separate requirements of the ECOA and the FCRA. The
Board believes providing separate lists, and thus distinguishing
factors that adversely affected the credit score from reasons for the
adverse action determination, will be more useful and clearer for
consumers.
Number of inquiries. Several industry commenters suggested that
creditors not be required to disclose the ``number of inquiries'' as a
key factor that adversely affected the credit score if the number of
inquiries is not one of the top four key factors. In these cases, the
commenters said that the effect of the number of inquiries on the
credit score is marginal, so that disclosing the ``number of
inquiries'' as a key factor may be confusing to consumers.
As discussed above, section 609(f)(9) of the FCRA states that if
the number of inquiries is a key factor that adversely affected the
consumer's credit score, that factor must be disclosed pursuant to
section 609(f)(1)(C) of the FCRA, without regard to the numerical
limitation. The FCRA accordingly requires disclosure of the ``number of
inquiries'' as a key factor, regardless of whether it is one of the top
four key factors.

Model Form C-3

In addition to the content added to each of Forms C-1 through C-5,
the Board proposed to amend Form C-3 for clarity. Form C-3 is a model
notice that can be used by creditors that use a proprietary credit
scoring system in taking adverse action. Proprietary scores are those
developed by or for a particular creditor, as opposed to those
developed by consumer reporting agencies or by a scoring company for
use by multiple creditors. In the proposal, the Board explained that
discussing two different types of credit scoring systems on Form C-3
could be confusing for consumers.
The Board proposed to amend Form C-3 to clarify the differences
between a proprietary score and a credit score obtained from a consumer
reporting agency. The proposed form allowed creditors to remove the
reference to credit scoring in the title of the form. The proposed text
permitted creditors to

[[Page 41594]]

clarify that the consumer's application was processed by a system that
assigns a numerical value to the various items of information the
creditor considers when evaluating the consumer's application, rather
than a credit scoring system. The proposed form also added topic
headings to help distinguish a proprietary score from a credit score
obtained from a consumer reporting agency when both types of scores are
used in making the credit decision. As explained in the supplemental
information to the proposal, a person may amend, at its option, Form C-
3 to remove the references to a credit scoring system and add the
additional headings, even if the creditor did not use both a
proprietary score and a credit score obtained from a consumer reporting
agency in taking adverse action. Form C-3 should help distinguish
proprietary scores from credit scores obtained from consumer reporting
agencies, even if both scores are not used in taking adverse action.
For the reasons discussed below, the final rule adopts these additional
changes to Form C-3.
Proprietary scores. Several industry commenters specifically asked
for guidance on when a proprietary score would be deemed a credit score
for purposes of disclosure under section 1100F of the Dodd-Frank Act.
These commenters also asked for clarification on what information a
creditor should disclose under section 1100F when a creditor uses a
proprietary score in taking adverse action. Some industry commenters
indicated that a proprietary score should not be required to be
disclosed under section 1100F of the Dodd-Frank Act because Congress
intended for this provision to apply only to credit scores that are
obtained from consumer reporting agencies, and disclosing proprietary
scores would be confusing to consumers. Consumer advocates suggested
that all proprietary scores, in particular credit-based insurance
scores, be subject to disclosure under section 1100F.
``Credit score'' for purposes of section 1100F of the Dodd-Frank
Act is defined to have the same meaning as in section 609(f)(2)(A) of
the FCRA, 15 U.S.C. 1681g(f)(2)(A). Specifically, section 609(f)(2)(A)
of the FCRA defines a credit score to mean ``a numerical value or a
categorization derived from a statistical tool or modeling system used
by a person who makes or arranges a loan to predict the likelihood of
certain credit behaviors, including default.'' Accordingly, scores not
used to predict the likelihood of certain credit behaviors, however,
such as insurance scores or scores used to predict the likelihood of
false identity, are not credit scores by definition, and thus are not
required to be disclosed.
Most credit scores that meet the FCRA definition are scores that a
creditor obtains from a consumer reporting agency. Section 609(f)(2)(A)
of the FCRA specifically excludes some--but not all--proprietary
scores. Some lenders develop their own ``proprietary'' scores that may
be based on one or more factors other than information in the
consumer's credit report. For example, the definition of credit score
does not include any mortgage score or rating of an automated
underwriting system that considers one or more factors in addition to
credit information, including the loan-to-value ratio, the amount of
down payment, or the financial assets of a consumer.
If a creditor uses a proprietary score that is based on one or more
factors that are not information obtained from a consumer reporting
agency, this proprietary score is not a credit score for purposes of
section 1100F of the Dodd-Frank Act and thus does not need to be
disclosed to the consumer. However, if the proprietary score is the
basis for the adverse action, the creditor would be required to
disclose the reasons the consumer did not score well compared to other
applicants. See Sec. 202.9(a)(2)(i). The creditor may disclose those
reasons in the ``Reasons for Denial of Credit'' section of Form C-3.
If a creditor uses a proprietary score that does not meet the
definition of a credit score for purposes of section 609(f)(2)(A) of
the FCRA and does not use a credit score from a consumer reporting
agency, the creditor would not be required to comply with section 1100F
of the Dodd-Frank Act, because the creditor would not have used a
credit score, as defined by section 609(f)(2)(A) of the FCRA, in taking
any adverse action. In that case, a creditor may use Form C-3, deleting
the heading and information about the consumer's credit score. A
creditor may amend Form C-3, at its option, to add the additional
headings and remove the references to a credit scoring system, even
through the creditor did not use a credit score in taking adverse
action. Form C-3 should help distinguish proprietary scores from credit
scores obtained from consumer reporting agencies, even if both scores
are not used in taking adverse action.
If the creditor uses both a proprietary score that does not meet
the definition of a credit score and a credit score from a consumer
reporting agency in taking adverse action, the creditor is only
required to disclose the credit score from the consumer reporting
agency under section 1100F of the Dodd-Frank Act. The creditor may use
the ``Information About Your Credit Score'' section of Form C-3 to
disclose the credit bureau score. Likewise, if a creditor uses a credit
score from a consumer reporting agency as an input to a proprietary
score but the proprietary score itself is not a credit score as defined
in section 609(f)(2)(A) of the FCRA, the creditor would disclose the
credit score from the consumer reporting agency per the requirements of
section 1100F of the Dodd-Frank Act. Again, the creditor may use the
``Information About Your Credit Score'' section of Form C-3 to disclose
the credit bureau score.
In contrast, a creditor in taking adverse action may have used a
proprietary score that only includes information obtained from a
consumer reporting agency. In that case, the proprietary score would be
a credit score under section 609(f)(2)(A) of the FCRA. In such cases,
the creditor is required to comply with section 1100F of the Dodd-Frank
Act and may use Form C-3. As noted in paragraph 3 of Appendix C, the
model forms are illustrative and may not be appropriate for all
creditors. Creditors should thus modify Form C-3 as necessary.
Specifically, the creditor should modify the ``Information about Your
Credit Score'' section in Form C-3 to reflect that the creditor did not
obtain a credit score from a consumer reporting agency, but rather used
a proprietary score that met the definition of a credit score under
section 609(f)(2)(A) of the FCRA in taking adverse action. The creditor
should disclose the value of the proprietary score, the date, the range
of proprietary scores, and the key factors adversely affecting the
consumer's proprietary score.
Commenters also asked for guidance on what information to disclose
under section 1100F of the Dodd-Frank Act when a creditor uses both a
proprietary score that meets the definition of a credit score, and a
credit score from a consumer reporting agency in taking adverse action.
If the proprietary score is the basis for the adverse action, under
Regulation B the creditor would be required to disclose the reasons the
consumer did not score well compared to other applicants, for the
proprietary score. See Sec. 202.9(a)(2)(i). The creditor may disclose
those reasons in the ``Reasons for Denial of Credit'' section of Form
C-3. In addition, under the FCRA the creditor must disclose one of the
scores that it used in taking adverse action and may do so in the
``Information About Your Credit Score'' section in Form C-3. If the
creditor chooses to disclose the proprietary

[[Page 41595]]

score, it would amend Form C-3 as discussed above. If the creditor
chooses to disclose the credit score from a consumer reporting agency,
the creditor would disclose the value of the credit score, the date,
the range of credit scores, and the key factors adversely affecting the
consumer's credit score.
Other comments on Form C-3. One commenter highlighted language in
Form C-3 that describes a proprietary score as based on the repayment
histories of a large number of the creditor's consumers. The commenter
thought it potentially misleading to indicate that a proprietary score
is only based on repayment histories rather than on an evaluation of
different categories. The commenter asked that the Board revise Form C-
3 so that consumers clearly understand the difference between
proprietary and other scores.
This issue is outside the narrow scope of this rulemaking to revise
the model forms consistent with section 1100F of the Dodd-Frank Act.
Moreover, the model forms are illustrative and may not be appropriate
for all creditors. See paragraph 3 of Appendix C. The instructions to
the model forms provide examples of when a creditor should amend the
forms to ensure that they accurately reflect the creditor's actual
practices. See paragraph 4 of Appendix. If a proprietary score is not
solely based on the repayment histories of a large number of the
creditor's consumers, the creditor can amend the language to describe
what the proprietary score is based on. Further, Form C-3 includes a
disclosure of the principal reasons why a consumer's proprietary score
is lower than the scores for the creditor's other consumers. This list
of reasons may provide consumers with a fuller understanding of the
difference between proprietary and other scores.

Form of the Notices

As discussed above, the Board proposed to revise Forms C-1 through
C-5 to incorporate disclosures required by section 1100F of the Dodd-
Frank Act and include, as applicable, a statement that the creditor
obtained the consumer's credit score from a consumer reporting agency
named in the notice, and used the score in making the credit decision.
The proposed model notices also stated that a credit score is a number
that reflects the information in the consumer's consumer report, and
that the consumer's credit score can change, depending on how the
information in the consumer report changes. The proposed model notices
provided space for the creditor to include the content required under
section 1100F of the Dodd-Frank Act that is specific to the consumer.
This content includes: The consumer's credit score, the date the credit
score was created, the range of possible credit scores under the model
used, and up to four key factors that adversely affected the consumer's
credit score (or up to five factors if the number of inquiries made
with respect to that consumer report is a key factor).
The Board proposed to include these new disclosures primarily in a
narrative format. In addition, the Board proposed to add this
additional information to the end of the model forms, after information
related the reasons for why adverse action was taken, and a statement
that the creditor obtained information from a consumer reporting
agency.
The Board received several comments on the format of the proposed
model forms, as discussed in more detail below. For the reasons
discussed below, the final rule retains the format of the credit score
information in the model forms, as proposed.
Order of content. An industry commenter asked that the credit score
information precede information regarding the consumer report in the
model forms. The final rule retains the order of the content of the
model forms as proposed. The Board believes that it is appropriate to
disclose the information related to consumer reports first because the
primary purpose of the adverse action notices is to alert consumers
that adverse action was taken as a result of their consumer reports.
Further, in the proposed format the content logically progresses
from more general consumer report information to more specific credit
score information. In addition, because a creditor may still use Forms
C-1 through C-5 when the creditor does not use the consumer's credit
score in taking adverse action, providing the credit score information
after the consumer report information will promote ease of use for
creditors. Because the credit score information comes at the end of
Forms C-1 through C-5, it may be easier for a creditor to delete that
information from the forms in cases where the creditor did not use a
credit score in taking adverse action.
Disclosing credit score information on a separate document. Several
industry commenters requested a model form that consumer reporting
agencies could use to provide creditors the credit score information
needed for adverse action notices under section 1100F of the Dodd-Frank
Act. These commenters asked that creditors be permitted to attach the
consumer reporting agency's form to their adverse action notices, and
provide both documents to the consumer. These commenters did not
believe that the creditor should be required to integrate the credit
score information into its adverse action notice.
Section 615(a)(1) of the FCRA requires a creditor to provide notice
of adverse action to consumers against whom it takes adverse action
based in whole or in part on information contained in a consumer
report. Section 1100F of the Dodd-Frank Act amended Section 615(a) to
require a creditor to provide such consumers credit score information.
Providing a form with credit score information separately from an
adverse action notice does not appear to be consistent with the
legislation.
Use of graphs or table formats. Some industry commenters requested
that creditors be permitted to use a graph or table format to provide
the information in the model forms without losing the safe harbor for
compliance with Regulation B. These commenters asserted that graphs,
tables, and other visual devices may be clearer and more useful to
consumers.
To comply with Regulation B, a creditor must provide the required
disclosures in a clear and conspicuous manner, in a reasonably
understandable format that does not obscure the required information.
See Sec. 202.4(d)(1). Use of a different format from the model forms,
such as by adding graphs or tables, could meet this standard for
compliance with the regulation, but this would be determined on a case
by case basis.

Substitute Notices and Combined Notices

As discussed above, section 1100F of the Dodd-Frank Act amends
section 615(a) of the FCRA to require creditors to disclose on FCRA
adverse action notices a credit score used in taking any adverse action
and information relating to that score. Creditors might, however,
disclose credit score information to consumers to satisfy other
disclosure requirements. Specifically, in January 2010, the Board and
the Federal Trade Commission (the Agencies) published final rules to
implement the risk-based pricing provisions in section 311 of the Fair
and Accurate Credit Transactions Act of 2003 (FACT Act), which amended
the FCRA (January 2010 Final Rule). 75 FR 2724. The January 2010 Final
Rule generally requires a creditor to provide a risk-based pricing
notice to a consumer when the creditor uses a consumer report to grant
or extend credit to the consumer on material terms that are materially
less favorable than

[[Page 41596]]

the most favorable terms available to a substantial proportion of
consumers from or through that creditor. See Sec. 222.72; Sec. 640.3.
The January 2010 Final Rule provides exceptions to the requirements to
provide general risk-based pricing notices for persons that provide
certain credit score disclosure notices to consumers who request credit
(so called ``credit score disclosure exception notices''). See
Sec. Sec. 222.74(d), (e), and (f); Sec. Sec. 640.5(d), (e), and (f).
In addition, section 609(g) of the FCRA requires creditors to provide
credit score information to consumers applying for loans secured by one
to four units of residential real property.
For loans secured by one to four units of residential real
property, the credit score disclosure exemption notice would be
required to be provided to the consumer concurrently and combined with
the notice required by section 609(g) of the FCRA, but in any event, at
or before consummation of a closed-end credit transaction or before the
first transaction under an open-end credit plan. Sec. 222.74(d)(3).
Section 609(g)(1) of the FCRA states that the notice required by that
subsection must be provided to the consumer ``as soon as reasonably
practicable.'' In the January 2010 Final Rule, the Agencies noted that
industry practice is generally to provide the credit score disclosure
within three business days of obtaining a credit score and the Agencies
would expect the integrated disclosure generally would be provided
within the same timeframe. 75 FR 2741. For loans not secured by one to
four units of residential real property, the credit disclosure
exemption notice must be provided to the consumer as soon as reasonably
practicable after the credit score has been obtained, but in any event
at or before consummation in the case of closed-end credit or before
the first transaction is made under an open-end credit plan. Sec.
222.74(e)(3).
Some industry commenters asked the Board to clarify that if a
creditor provides credit score exception notices or section 609 notices
to consumers, the creditor would not be required to include the
disclosures required by section 1100F of the Dodd-Frank Act in the
adverse action notice. One industry commenter also requested that the
Board clarify that a creditor is allowed to combine the section 609(g)
notice with an adverse action notice. For the reasons discussed below,
the Board does not believe a creditor would comply with the FCRA
adverse action provisions in section 1100F by providing a credit score
disclosure exception notice or section 609(g) notice. In addition, the
Board does not believe that the 609(g) notice may be integrated into a
FCRA adverse action notice.
Substitute notices. One industry commenter asked the Board to
clarify that if a creditor provides credit score disclosure exception
notices in connection with all loan applications, the creditor would
not be required to include the credit score disclosures required by
section 1100F of the Dodd-Frank Act in the adverse action notice.
In addition, one industry commenter suggested that if a creditor
provides consumers with the disclosures required by section 609(g) of
the FCRA, the creditor should not be required to disclose credit score
information under section 1100F of the Dodd-Frank Act in the adverse
action notice. This commenter noted that the credit score might change
between the 609(g) disclosure and adverse action notice, leading to
consumer confusion. The commenter argued that Congress likely did not
intend consumers to receive multiple credit disclosures in connection
with a single transaction.
The Board does not believe a creditor would comply with the FCRA
adverse action provisions by providing a credit score disclosure
exception notice or section 609(g) notice. These notices provide
different information and have different timing requirements than the
adverse action notice. In addition, the credit score disclosed on the
credit score disclosure exception notice or section 609(g) notice might
not be the credit score used in taking adverse action. For example, for
purposes of the credit score disclosure exception notice, if a person
uses a credit score that was not created by a consumer reporting
agency, such as a proprietary score, that person is permitted to
disclose either the proprietary score or a credit score it obtained
from an entity regularly engaged in the business of selling credit
scores, even if the latter credit score was not used in the credit
decision. Nonetheless, in that circumstance, the FCRA adverse action
notice must contain the proprietary score under 1100F. As discussed
above, if a creditor uses a proprietary ``credit'' score in taking
adverse action and does not use a credit score from a consumer
reporting agency, the creditor must disclose information about the
proprietary score under section 1100F.
Combined notices. One industry commenter requested that the Board
clarify that a creditor is allowed to combine the section 609(g) notice
with a FCRA adverse action notice. The Board does not believe a
creditor would comply with the FCRA adverse action provisions by
combining the section 609(g) notice with an adverse action notice for
the reasons discussed above. In addition, the Board believes that
allowing the section 609(g) notice to be combined with the adverse
action notice might detract consumers from the primary purposes of the
adverse action notice, which is to notify the consumer that adverse
action has been taken.

Co-Applicants

Several industry commenters asked who should receive an adverse
action notice when a credit application involves multiple applicants.
These commenters stated that applicants should not receive each other's
credit scores. They also recommended adding language to the model forms
to indicate that for co-applicants, the adverse action decision may be
based on either or both of the applicants' credit information. They
explained that such language would decrease consumer confusion, since
an applicant with an excellent credit profile who receives an adverse
action notice may not realize that the adverse action decision may have
been made because of the co-applicant's credit profile.
Section 202.9(f) of Regulation B permits a creditor to provide an
adverse action notice to only one applicant, and requires a creditor to
provide an adverse action notice to the primary applicant, when a
primary applicant is readily apparent. In contrast, section 615(a) of
the FCRA requires a creditor to provide the disclosures mandated by
that section to ``any consumer'' against whom adverse action is taken,
if the adverse action is based in whole or in part on information from
a consumer report. The FCRA's reference to ``any consumer'' would seem
to include co-applicants. Given privacy and customer relations
concerns, the Board expects that creditors would generally provide
separate FCRA adverse action notices to each applicant with only the
individual's credit score on each notice.
As discussed above, several commenters recommended adding language
to the model forms to indicate that for co-applicants, the adverse
action decision may be based on either or both of the applicants'
credit information. The Board believes that providing this additional
language on the model forms would complicate the disclosures without
providing a substantial benefit to consumers. An applicant with strong
credit who receives an adverse action notice will likely understand
that the adverse action decision was based on the co-applicant's credit
information or will contact the creditor to inquire.

[[Page 41597]]

Guarantors and Co-Signers

An application may involve a guarantor or co-signer. Some industry
commenters asked whether a guarantor or co-signer should receive an
adverse action notice. These commenters also asked whether the
guarantor's or co-signer's credit score should be disclosed to the
applicant, where the creditor uses the guarantor's or co-signer's
credit score in taking adverse action.
Under section 701(d)(6) of the ECOA and Sec. 202.2(c) of
Regulation B, only an applicant can experience adverse action. Further,
a guarantor or co-signer is not deemed an applicant under Sec.
202.2(e). Sections 603(k)(1)(A) and 603(k)(1)(B)(2) of the FCRA provide
that adverse action has the same meaning for purposes of the FCRA as is
provided in the ECOA and Regulation B in the context of a credit
application. Therefore, a guarantor or co-signer would not receive an
adverse action notice under the ECOA or the FCRA. The credit applicant
would, however, receive an adverse action notice, even if the adverse
action decision is made solely based on information in the guarantor's
or co-signer's consumer report. Section 1100F of the Dodd-Frank Act
does not address whether, in this circumstance, the adverse action
notice received by an applicant under the FCRA should include a
guarantor or co-signer's credit score. The Board does not believe,
however, that Congress intended for an individual to receive another
individual's credit score. Section 609(f)(2) of the FCRA associates a
credit score with a particular individual. The Board accordingly
believes that a guarantor or co-signer's credit score should not be
disclosed to an applicant in an adverse action notice.

Multiple Scores

Some creditors may obtain multiple credit scores from consumer
reporting agencies in connection with their underwriting processes. A
creditor may use one or more of those scores in taking adverse action.
Section 1100F of the Dodd-Frank Act only requires a person to disclose
a single credit score used in taking adverse action.
When a creditor obtains multiple scores but only uses one in making
the decision, the creditor must disclose the credit score that it used.
Commenters asked what credit score or scores creditors should disclose
when creditors use multiple scores in taking adverse action, for
example, from different consumer reporting agencies. Section 1100F of
the Dodd-Frank Act does not specify what credit score should be
disclosed in such cases, but only requires a person to disclose a
single credit score that is used by the person in making the credit
decision. A creditor would comply with the statute by disclosing any of
the credit scores that it used. The Board expects that creditors will
have policies and procedures to determine which of the multiple credit
scores was used in taking adverse action. For instance, a creditor
could have policies and procedures specifying that: (1) When the
creditor obtains or creates multiple credit scores but only uses one of
those credit scores in taking adverse action, for example, by using the
low, middle, high, or most recent score, the creditor would disclose
that credit score and information relating to that credit score; and
(2) when a creditor uses multiple credit scores in taking adverse
action, for example, by computing the average of all the credit scores
obtained, the creditor would disclose any one of those credit scores
and information relating to the credit score.
Because credit scoring models may differ considerably in nature and
the range of scores used, consumers would not necessarily benefit if
they receive and try to compare multiple scores. Disclosing multiple
credit scores could confuse consumers who do not understand the
differences, which might lessen the value of the section 1100F
disclosures. Moreover, section 1078(a) of the Dodd-Frank Act requires
the Consumer Financial Protection Bureau (CFPB) to conduct a study of
the different credit scoring systems, and whether these variations
disadvantage consumers. The CFPB's study might develop a record that
could serve as the basis for reconsidering this issue in a future
rulemaking.

Adverse Actions Not Limited to Credit

An industry commenter asked whether credit score information under
section 1100F of the Dodd-Frank Act must be disclosed in FCRA adverse
action notices for non-lending products. This commenter notes that the
definition of ``credit score'' for purposes of section 1100F of the
Dodd-Frank Act refers to a credit score ``used by a person who makes or
arranges a loan.'' The commenter asserted argued that Congress intended
to limit the section 1100F disclosures to credit decisions.
Section 202.2(c) of the ECOA limits the definition of adverse
action to decisions regarding credit. The FCRA, however, does not
include such a limitation. See section 603(k)(1) of the FCRA. The FCRA
therefore applies to adverse action decisions related to credit, but
also decisions regarding, for example, a deposit account, insurance
product, or employment. Although a credit score may generally be used
in making or arranging loans, a credit score may also be used in taking
adverse action not related to credit. The Board believes that a person
would need to disclose a credit score obtained from a consumer
reporting agency as part of the adverse action notice as set forth in
section 1100F of the Dodd Frank Act, even if the person used the credit
score to take adverse action for a non-lending product. In requiring
credit score disclosures, section 1100F does not state that the credit
score disclosures are only required for adverse action decisions
related to credit.

Implementation Date

Some industry commenters asked that the Board delay the rule's
implementation date by 6 months to at least 12 months. One commenter
suggested that the Board stay the rulemaking, and let the CFPB finalize
the rule.\3\ Another commenter requested that creditors should receive
a safe harbor for using the proposed model forms until creditors can
implement the requirements in the final rule.
---------------------------------------------------------------------------

\3\ Rule writing authority under the FCRA will transfer to the
CFPB on July 21, 2011.
---------------------------------------------------------------------------

Section 1100F of the Dodd-Frank Act is self-effectuating and will
become legally effective on July 21, 2011, even if there are no
implementing rules or model forms. To provide guidance to institutions
in establishing their compliance programs, this final rule will become
effective 30 days after the date of publication in the Federal
Register.

III. Regulatory Analysis

A. Paperwork Reduction Act

In accordance with the Paperwork Reduction Act of 1995 (PRA) (44
U.S.C. 3501-3521; 5 CFR part 1320 Appendix A.1), the Board reviewed the
final rulemaking under the authority delegated to the Board by the
Office of Management and Budget (OMB). The collection of information
that is required by this final rulemaking is found in 12 CFR part 202.
In addition, as permitted by the PRA, the Board will extend for three
years the current recordkeeping and disclosure requirements in
connection with Regulation B. The Board may not conduct or sponsor, and
an organization is not required to respond to, this information
collection unless it displays a currently valid OMB control number. The
OMB control number is 7100-0201.
Section 703(a)(1) of the Equal Credit Opportunity Act (15 U.S.C.
1691b(a)(1)) authorizes the Board to issue regulations

[[Page 41598]]

to carry out the provisions of the Act. The purpose of the Act is to
ensure that credit is made available to all creditworthy customers
without discrimination on the basis of race, color, religion, national
origin, sex, marital status, age (provided the applicant has the
capacity to contract), receipt of public assistance income, or the fact
that the applicant has in good faith exercised any right under the
Consumer Credit Protection Act (15 U.S.C. 1600 et seq.). This
information collection is mandatory.
Regulation B applies to all types of creditors, not just State
member banks. However, under the PRA, the Board accounts for the burden
of the paperwork associated with the regulation only for entities that
are supervised by the Board. Appendix A of Regulation B defines these
creditors as State member banks, branches and agencies of foreign banks
(other than federal branches, federal agencies, and insured state
branches of foreign banks), commercial lending companies owned or
controlled by foreign banks, and organizations operating under section
25 or 25A of the Federal Reserve Act. Other federal agencies account
for the paperwork burden for the institutions they supervise. Creditors
are required to retain records for 12 to 25 months as evidence of
compliance.
As discussed above, on March 15, 2011, the Board published in the
Federal Register a notice of proposed rulemaking that is consistent
with new content requirements in section 615(a) of the FCRA that were
added by section 1100F of the Dodd-Frank Act. 76 FR 13896. The PRA
comment period expired on May 16, 2011.
In the proposal, the Board estimated that respondents potentially
affected by the additional notice would take, on average, 16 hours (2
business days) to update their systems and modify model notices to
comply with the proposed requirements. The Board recognized that the
amount of time needed for any particular creditor subject to the
proposed requirements may be higher or lower, but believed this average
figure was a reasonable estimate.
Several industry commenters believed that the Board underestimated
the compliance burden of the proposed rule. These commenters asserted
that compliance would require between 2 weeks and 8,000 hours.
Based on these comments, the Board is inclined to agree that some
additional time beyond 16 hours may be needed. The Board, therefore,
has revised upward its prior burden estimate. The Board believes that
32 hours (4 business days) is a reasonable estimate of the average
amount of time to modify existing database systems to incorporate these
new requirements. In addition, an industry commenter asked that the
Board clarify whether the Board proposed to extend current
recordkeeping requirements for 3 years, or to lengthen current
recordkeeping requirements. As explained in the proposed rule, the
Board is extending current recordkeeping and disclosure requirements
for 3 years.
Entities affected by this final rule are already familiar with the
existing adverse action provisions. It should not be overly burdensome
to persons using a credit score when making the decision requiring an
adverse action notice to add additional information to that notice. In
addition, the Board has provided model notices that should
significantly reduce the cost of compliance with the final rule.

B. Regulatory Flexibility Act

The Board prepared an initial regulatory flexibility analysis under
the Regulatory Flexibility Act (RFA) (5 U.S.C. 601 et seq.) in
connection with the proposed rule. The final rule covers certain banks,
other depository institutions, and non-bank entities that take adverse
action against consumers. The Small Business Administration (SBA)
establishes size standards that define which entities are small
businesses for purposes of the RFA.\4\ The size standard to be
considered a small business is: $175 million or less in assets for
banks and other depository institutions; and $7 million or less in
annual revenues for the majority of non-bank entities that are likely
to be subject to the final rule. Under section 605(b) of the RFA, 5
U.S.C. 605(b), the regulatory flexibility analysis otherwise required
under section 604 of the RFA is not required if an agency certifies,
along with a statement providing the factual basis for such
certification, that the final rule will not have a significant economic
impact on a substantial number of small entities. The Board hereby
certifies that the final rule will not have a significant economic
impact on a substantial number of small business entities. The Board
recognizes that the final rule will affect some small business
entities; however the Board does not expect that a substantial number
of small businesses will be affected or that the final rule will have a
significant economic impact on them, particularly in light of the
information already required to be disclosed under section 615(a) of
the FCRA. Nonetheless, the Board has decided to publish a final
regulatory flexibility analysis with the final rule and has prepared
the following analysis:
---------------------------------------------------------------------------

\4\ U.S. Small Business Administration, Table of Small Business
Size Standards Matched to North American Industry Classification
System Codes, available at http://www.sba.gov/idc/groups/public/documents/sba_homepage/serv_sstd_tablepdf.pdf.
---------------------------------------------------------------------------

1. Reasons for the Final Rule
Section 1100F of the Dodd-Frank Act amends section 615(a) of the
FCRA to require persons to disclose a credit score and information
relating to that credit score in adverse action notices when the person
uses a credit score in taking adverse action. Specifically, a person
must disclose, in addition to the information currently required by
section 615(a) of the FCRA: (1) A numerical credit score used in making
the credit decision; (2) the range of possible scores under the model
used; (3) up to four key factors that adversely affected the consumer's
credit score (or up to five factors if the number of inquiries made
with respect to that consumer report is a key factor); (4) the date on
which the credit score was created; and (5) the name of the person or
entity that provided the credit score. The effective date of these
amendments is July 21, 2011.
Certain model notices in Regulation B include the content required
by both the ECOA and the FCRA adverse action provisions, so that
creditors can use the model notices to comply with the adverse action
requirements of both statutes. The Board is issuing the final rule to
amend the combined ECOA-FCRA adverse action model notices in Regulation
B pursuant to its existing authority under section 703(a) of the ECOA,
to facilitate compliance with the new requirements under section 1100F
of the Dodd-Frank Act.
2. Statement of Objectives and Legal Basis
The SUPPLEMENTARY INFORMATION above contains information on the
objectives and legal basis of the final rule. The legal basis for the
final rule is section 703(a) of the ECOA. The final rule is consistent
with section 1100F of the Dodd-Frank Act.
3. Summary of Issues Raised by Commenters
Some industry commenters stated that the proposed rules would
create substantial compliance burdens, particularly for small entities.
They asked that small entities be exempt from the requirements, or that
the Board delay the implementation date for small entities.
This issue is outside the scope of this rulemaking, because the
Board does not have authority under the ECOA to carve

[[Page 41599]]

out small entities from the requirements of section 1100F of the Dodd-
Frank Act. Further, as discussed above, Congress set the effective date
for section 1100F of the Dodd-Frank Act for July 21, 2011. Section
1100F is self-implementing and will become legally effective on July
21, 2011, even if there is no implementing regulation or model forms.
The final rule will facilitate compliance by providing guidance for
institutions in establishing their compliance programs, and will become
effective 30 days after the date of publication in the Federal
Register.
4. Description of Small Entities to Which the Final Rule Applies
The final rule applies to any person that (1) is required to
provide an adverse action notice to a consumer; and (2) uses a credit
score in making the credit decision requiring an adverse action notice.
The total number of small entities likely to be affected by the final
rule is unknown, because the Board does not have data on the number of
small entities that use credit scores in taking adverse action in
connection with consumer credit. The adverse action provisions of
section 1100F of the Dodd-Frank Act have broad applicability to persons
who use credit scores in taking adverse action in connection with the
provision of consumer credit.
Based on estimates compiled by the Board, the Federal Deposit
Insurance Corporation, and the Office of Thrift Supervision, there are
approximately 9,458 depository institutions that could be considered
small entities and that are potentially subject to the final rule.\5\
The available data are insufficient to estimate the number of non-bank
entities that would be subject to the final rule and that are small as
defined by the SBA. Such entities would include non-bank mortgage
lenders, auto finance companies, automobile dealers, other non-bank
finance companies, insurance companies, employers, telephone companies,
and utility companies.
---------------------------------------------------------------------------

\5\ The estimate includes 1,459 institutions regulated by the
Board, 659 national banks, and 4,099 federally-chartered credit
unions, as determined by the Board. The estimate also includes 2,872
institutions regulated by the FDIC and 369 thrifts regulated by the
OTS. See 75 FR 36016, 36020 (Jun. 24, 2010).
---------------------------------------------------------------------------

It also is unknown how many of these small entities that meet the
SBA's size standards and that are potentially subject to the final rule
use credit scores in taking adverse action in connection with the
provision of consumer credit. The final rule does not, however, impose
any requirements on small entities that do not use credit scores in
taking adverse action in connection with consumer credit.
5. Projected Reporting, Recordkeeping and Other Compliance Requirements
The compliance requirements of the final rule are described in
detail in the SUPPLEMENTARY INFORMATION above.
A person must currently determine if it takes adverse action in
connection with the provision of consumer credit, based in whole or in
part on consumer reports. If the person takes adverse action based on
consumer reports, the person must provide adverse action notices with
the information currently required by section 615(a) of the FCRA.
Section 1100F of the Dodd-Frank Act amends section 615(a) of the
FCRA to require a person who takes adverse action and uses a credit
score in making the adverse action determination to provide credit
score information in the adverse action notice, in addition to the
information currently required by section 615(a) of the FCRA. Under the
FCRA, the person would need to design, generate, and provide notices
that include the credit score information. This final rule provides
model forms that may be used by creditors to comply with these new
requirements.
The Board does not expect that the costs associated with this final
rule will place a significant burden on small entities.
6. Identification of Duplicative, Overlapping, or Conflicting Federal
Regulations
The Board has not identified any federal statutes or regulations
that would duplicate, overlap, or conflict with the final rule. As
discussed in Part II above, the amendments to the adverse action
notices are consistent with section 1100F of the Dodd-Frank Act. The
Board is issuing the final rule pursuant to its existing authority
under section 703(a) of the ECOA. The amendments to the adverse action
model notices have been designed to work in conjunction with the
requirements of section 1100F of the Dodd-Frank Act to help facilitate
uniform compliance when this section becomes effective.
7. Steps Taken To Minimize the Economic Impact on Small Entities
The Board solicited comments on any significant alternatives
consistent with section 703(a) of the ECOA and the provisions of
section 1100F of the Dodd-Frank Act that would minimize the impact of
the final rule on small entities. As noted above, several industry
commenters suggested that small entities be exempt from the proposed
rules, or that the Board delay the implementation date for small
entities.
The Board has sought to minimize the economic impact on small
entities by providing model notices to ease creditors' burden. As
explained above, however, the Board does not have authority under the
ECOA to carve out small entities from the requirements of section 1100F
of the Dodd-Frank Act. In addition, Congress set the effective date for
section 1100F of the Dodd-Frank Act for July 21, 2011. Section 1100F is
self-implementing and will become legally effective on July 21, 2011,
even if there is no implementing regulation. This final rule will
provide guidance to institutions in establishing their compliance
programs. Accordingly, the final rule will become effective 30 days
after the date of publication in the Federal Register.

List of Subjects in 12 CFR Part 202

Aged, Banks, Banking, Civil rights, Consumer protection, Credit,
Discrimination, Federal Reserve System, Marital status discrimination,
Penalties, Religious discrimination, Reporting and recordkeeping
requirements, Sex discrimination.

For the reasons set forth in the preamble, the Board amends 12 CFR
part 202 and the Official Staff Commentary, as follows:

PART 202--EQUAL CREDIT OPPORTUNITY ACT (REGULATION B)

0
1. The authority citation for part 202 continues to read as follows:

Authority: 15 U.S.C. 1693b.

0
2. Section 202.12(b)(4) is amended as follows:

Sec. 202.12 Record retention.

* * * * *
(b) * * *
(4) Enforcement proceedings and investigations. A creditor shall
retain the information beyond 25 months (12 months for business credit,
except as provided in paragraph (b)(5) of this section) if the creditor
has actual notice that it is under investigation or is subject to an
enforcement proceeding for an alleged violation of the Act or this
part, by the Attorney General of the United States or by an enforcement
agency charged with monitoring that creditor's compliance with the Act
and this regulation, or if it has been served with notice of an action
filed pursuant to section 706 of the Act and Sec. 202.16 of this part.
The creditor shall retain the information until final disposition of
the

[[Page 41600]]

matter, unless an earlier time is allowed by order of the agency or
court.
* * * * *

0
3. Appendix C to Part 202 is amended by revising paragraph 2 and Forms
C-1 through C-5 to read as follows:

APPENDIX C To Part 202--Sample Notification Forms

* * * * *
2. Form C-1 contains the Fair Credit Reporting Act disclosure as
required by sections 615(a) and (b) of that act. Forms C-2 through
C-5 contain only the section 615(a) disclosure (that a creditor
obtained information from a consumer reporting agency that was
considered in the credit decision and, as applicable, a credit score
used in taking adverse action along with related information). A
creditor must provide the section 615(a) disclosure when adverse
action is taken against a consumer based on information from a
consumer reporting agency. A creditor must provide the section
615(b) disclosure when adverse action is taken based on information
from an outside source other than a consumer reporting agency. In
addition, a creditor must provide the section 615(b) disclosure if
the creditor obtained information from an affiliate other than
information in a consumer report or other than information
concerning the affiliate's own transactions or experiences with the
consumer. Creditors may comply with the disclosure requirements for
adverse action based on information in a consumer report obtained
from an affiliate by providing either the section 615(a) or section
615(b) disclosure. Optional language in Forms C-1 through C-5 may be
used to direct the consumer to the entity that provided the credit
score for any questions about the credit score, along with the
entity's contact information. Creditors may use or not use this
additional language without losing the safe harbor, since the
language is optional.
* * * * *

Form C-1--Sample Notice of Action Taken and Statement of Reasons
Statement of Credit Denial, Termination or Change

Date:------------------------------------------------------------------

Applicant's Name:------------------------------------------------------

Applicant's Address:---------------------------------------------------

Description of Account, Transaction, or Requested Credit:

-----------------------------------------------------------------------

Description of Action Taken:

-----------------------------------------------------------------------

Part I--Principal Reason(s) for Credit Denial, Termination, or Other
Action Taken Concerning Credit

This section must be completed in all instances.
----Credit application incomplete
----Insufficient number of credit references provided
----Unacceptable type of credit references provided
----Unable to verify credit references
----Temporary or irregular employment
----Unable to verify employment
----Length of employment
----Income insufficient for amount of credit requested
----Excessive obligations in relation to income
----Unable to verify income
----Length of residence
----Temporary residence
----Unable to verify residence
----No credit file
----Limited credit experience
----Poor credit performance with us
----Delinquent past or present credit obligations with others
----Collection action or judgment
----Garnishment or attachment
----Foreclosure or repossession
----Bankruptcy
----Number of recent inquiries on credit bureau report
----Value or type of collateral not sufficient
----Other, specify:------------

Part II--Disclosure of Use of Information Obtained From an Outside
Source

This section should be completed if the credit decision was
based in whole or in part on information that has been obtained from
an outside source.
----Our credit decision was based in whole or in part on
information obtained in a report from the consumer reporting agency
listed below. You have a right under the Fair Credit Reporting Act
to know the information contained in your credit file at the
consumer reporting agency. The reporting agency played no part in
our decision and is unable to supply specific reasons why we have
denied credit to you. You also have a right to a free copy of your
report from the reporting agency, if you request it no later than 60
days after you receive this notice. In addition, if you find that
any information contained in the report you receive is inaccurate or
incomplete, you have the right to dispute the matter with the
reporting agency.
Name:------------------------------------------------------------------

Address:---------------------------------------------------------------

-----------------------------------------------------------------------
[Toll-free] Telephone number:------------------------------------------
[We also obtained your credit score from this consumer reporting
agency and used it in making our credit decision. Your credit score
is a number that reflects the information in your consumer report.
Your credit score can change, depending on how the information in
your consumer report changes.

Your credit score:------------
Date:------------
Scores range from a low of------------to a high of------------
Key factors that adversely affected your credit score:
------------
------------
------------
------------
[Number of recent inquiries on consumer report, as a key factor]

[If you have any questions regarding your credit score, you
should contact [entity that provided the credit score] at:
Address:---------------------------------------------------------------

-----------------------------------------------------------------------
[Toll-free] Telephone number:]]----------------------------------------

----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.
If you have any questions regarding this notice, you should
contact:

Creditor's name:-------------------------------------------------------

Creditor's address:----------------------------------------------------

Creditor's telephone number:-------------------------------------------

Form C-2--Sample Notice of Action Taken and Statement of Reasons

Date

Dear Applicant: Thank you for your recent application. Your
request for [a loan/a credit card/an increase in your credit limit]
was carefully considered, and we regret that we are unable to
approve your application at this time, for the following reason(s):

Your Income:
----is below our minimum requirement.
----is insufficient to sustain payments on the amount of credit
requested.
----could not be verified.
Your Employment:
----is not of sufficient length to qualify.
----could not be verified.
Your Credit History:
----of making payments on time was not satisfactory.
----could not be verified.
Your Application:
----lacks a sufficient number of credit references.
----lacks acceptable types of credit references.
----reveals that current obligations are excessive in relation to
income.
Other:-----------------------------------------------------------------

The consumer reporting agency contacted that provided
information that influenced our decision in whole or in part was
[name, address and [toll-free] telephone number of the reporting
agency]. The reporting agency played no part in our decision and is
unable to supply specific reasons why we have denied credit to you.
You have a right under the Fair Credit Reporting Act to know the

[[Page 41601]]

information contained in your credit file at the consumer reporting
agency. You also have a right to a free copy of your report from the
reporting agency, if you request it no later than 60 days after you
receive this notice. In addition, if you find that any information
contained in the report you receive is inaccurate or incomplete, you
have the right to dispute the matter with the reporting agency. Any
questions regarding such information should be directed to [consumer
reporting agency]. If you have any questions regarding this letter,
you should contact us at [creditor's name, address and telephone
number].
[We also obtained your credit score from this consumer reporting
agency and used it in making our credit decision. Your credit score
is a number that reflects the information in your consumer report.
Your credit score can change, depending on how the information in
your consumer report changes.
Your credit score:-----------------------------------------------------

Date:------------------------------------------------------------------

Scores range from a low of------------to a high of------------

Key factors that adversely affected your credit score:
-----------------------------------------------------------------------

-----------------------------------------------------------------------

[Number of recent inquiries on consumer report, as a key factor]
[If you have any questions regarding your credit score, you
should contact [entity that provided the credit score] at:
Address:---------------------------------------------------------------

-----------------------------------------------------------------------

[Toll-free] Telephone number:--------------------]]

Notice: The federal Equal Credit Opportunity Act prohibits
creditors from discriminating against credit applicants on the basis
of race, color, religion, national origin, sex, marital status, age
(provided the applicant has the capacity to enter into a binding
contract); because all or part of the applicant's income derives
from any public assistance program; or because the applicant has in
good faith exercised any right under the Consumer Credit Protection
Act. The federal agency that administers compliance with this law
concerning this creditor is (name and address as specified by the
appropriate agency listed in appendix A).
Form C-3--Sample Notice of Action Taken and Statement of Reasons
[(Credit Scoring)]
Date
Dear Applicant: Thank you for your recent application for ------
--. We regret that we are unable to approve your request.
[Reasons for Denial of Credit]
Your application was processed by a [credit scoring] system that
assigns a numerical value to the various items of information we
consider in evaluating an application. These numerical values are
based upon the results of analyses of repayment histories of large
numbers of customers.
The information you provided in your application did not score a
sufficient number of points for approval of the application. The
reasons you did not score well compared with other applicants were:
Insufficient bank references
Type of occupation
Insufficient credit experience
Number of recent inquiries on credit bureau report
[Your Right to Get Your Consumer Report]
In evaluating your application the consumer reporting agency
listed below provided us with information that in whole or in part
influenced our decision. The consumer reporting agency played no
part in our decision and is unable to supply specific reasons why we
have denied credit to you. You have a right under the Fair Credit
Reporting Act to know the information contained in your credit file
at the consumer reporting agency. It can be obtained by contacting:
[name, address, and [toll-free] telephone number of the consumer
reporting agency]. You also have a right to a free copy of your
report from the reporting agency, if you request it no later than 60
days after you receive this notice. In addition, if you find that
any information contained in the report you receive is inaccurate or
incomplete, you have the right to dispute the matter with the
reporting agency.
[Information about Your Credit Score]
We also obtained your credit score from this consumer reporting
agency and used it in making our credit decision. Your credit score
is a number that reflects the information in your consumer report.
Your credit score can change, depending on how the information in
your consumer report changes.
Your credit score:-----------------------------------------------------

Date:------------------------------------------------------------------

Scores range from a low of --------to a high of--------

Key factors that adversely affected your credit score:

-----------------------------------------------------------------------

[Toll-free] Telephone number:--------------------]]

If you have any questions regarding this letter, you should
contact us at

Creditor's Name:-------------------------------------------------------

Address:---------------------------------------------------------------

-----------------------------------------------------------------------

Telephone:-------------------------------------------------------------
Sincerely,

Notice: The federal Equal Credit Opportunity Act prohibits
creditors from discriminating against credit applicants on the basis
of race, color, religion, national origin, sex, marital status, age
(with certain limited exceptions); because all or part of the
applicant's income derives from any public assistance program; or
because the applicant has in good faith exercised any right under
the Consumer Credit Protection Act. The federal agency that
administers compliance with this law concerning this creditor is
(name and address as specified by the appropriate agency listed in
appendix A).

Form C-4--Sample Notice of Action Taken, Statement of Reasons and
Counteroffer

Date
Dear Applicant: Thank you for your application for --------. We
are unable to offer you credit on the terms that you requested for
the following reason(s):

-----------------------------------------------------------------------

We can, however, offer you credit on the following terms:

----------------------------------------------------------------------

If this offer is acceptable to you, please notify us within
[amount of time] at the following address: --------.

Our credit decision on your application was based in whole or in
part on information obtained in a report from [name, address and
[toll-free] telephone number of the consumer reporting agency]. You
have a right under the Fair Credit Reporting Act to know the
information contained in your credit file at the consumer reporting
agency. The reporting agency played no part in our decision and is
unable to supply specific reasons why we have denied credit to you.
You also have a right to a free copy of your report from the
reporting agency, if you request it no later than 60 days after you
receive this notice. In addition, if you find that any information
contained in the report you receive is inaccurate or incomplete, you
have the right to dispute the matter with the reporting agency.
[We also obtained your credit score from this consumer reporting
agency and used it in making our credit decision. Your credit score
is a number that reflects the information in your consumer report.
Your credit score can change, depending on how the information in
your consumer report changes.

Your credit score:-----------------------------------------------------
Date:------------------------------------------------------------------
Scores range from a low of ------------ to a high of ----------
--

Key factors that adversely affected your credit score:

-----------------------------------------------------------------------

[Number of recent inquiries on consumer report, as a key factor]
[If you have any questions regarding your credit score, you
should contact [entity that provided the credit score] at:

Address:---------------------------------------------------------------

-----------------------------------------------------------------------

[Toll-free] Telephone
number:--------------------]]

You should know that the federal Equal Credit Opportunity Act
prohibits creditors, such as ourselves, from discriminating against
credit applicants on the basis of their race, color, religion,
national origin, sex,

[[Page 41602]]

marital status, age (provided the applicant has the capacity to
enter into a binding contract), because they receive income from a
public assistance program, or because they may have exercised their
rights under the Consumer Credit Protection Act. If you believe
there has been discrimination in handling your application you
should contact the [name and address of the appropriate federal
enforcement agency listed in appendix A].
Sincerely,

Form C-5--Sample Disclosure of Right to Request Specific Reasons for
Credit Denial Date

Dear Applicant: Thank you for applying to us for --------.

After carefully reviewing your application, we are sorry to
advise you that we cannot [open an account for you/grant a loan to
you/increase your credit limit] at this time. If you would like a
statement of specific reasons why your application was denied,
please contact [our credit service manager] shown below within 60
days of the date of this letter. We will provide you with the
statement of reasons within 30 days after receiving your request.

Creditor's Name

Address

Telephone Number

If we obtained information from a consumer reporting agency as
part of our consideration of your application, its name, address,
and [toll-free] telephone number is shown below. The reporting
agency played no part in our decision and is unable to supply
specific reasons why we have denied credit to you. [You have a right
under the Fair Credit Reporting Act to know the information
contained in your credit file at the consumer reporting agency.] You
have a right to a free copy of your report from the reporting
agency, if you request it no later than 60 days after you receive
this notice. In addition, if you find that any information contained
in the report you received is inaccurate or incomplete, you have the
right to dispute the matter with the reporting agency. You can find
out about the information contained in your file (if one was used)
by contacting:

Consumer reporting agency's name

Address

[Toll-free] Telephone number

[We also obtained your credit score from this consumer reporting
agency and used it in making our credit decision. Your credit score
is a number that reflects the information in your consumer report.
Your credit score can change, depending on how the information in
your consumer report changes.

Your credit score:-----------------------------------------------------

Date:------------------------------------------------------------------

Scores range from a low of ------------ to a high of ------------

Key factors that adversely affected your credit score:

-----------------------------------------------------------------------

[Number of recent inquiries on consumer report, as a key factor]
[If you have any questions regarding your credit score, you
should contact [entity that provided the credit score] at:

Address:---------------------------------------------------------------

-----------------------------------------------------------------------

[Toll-free] Telephone number:--------------------]]

Sincerely,
Notice: The federal Equal Credit Opportunity Act prohibits
creditors from discriminating against credit applicants on the basis
of race, color, religion, national origin, sex, marital status, age
(provided the applicant has the capacity to enter into a binding
contract); because all or part of the applicant's income derives
from any public assistance program; or because the applicant has in
good faith exercised any right under the Consumer Credit Protection
Act. The federal agency that administers compliance with this law
concerning this creditor is (name and address as specified by the
appropriate agency listed in appendix A).
* * * * *

0
4. Supplement I to part 202 is amended by revising paragraph 9(b)(2)-9
to read as follows:

Supplement I to Part 202--Official Staff Interpretations

* * * * *

Section 202.9--Notifications

* * * * *

Paragraph 9(b)(2)

* * * * *
9. Combined ECOA-FCRA disclosures. The ECOA requires disclosure
of the principal reasons for denying or taking other adverse action
on an application for an extension of credit. The Fair Credit
Reporting Act (FCRA) requires a creditor to disclose when it has
based its decision in whole or in part on information from a source
other than the applicant or its own files. Disclosing that a
consumer report was obtained and used in the denial of the
application, as the FCRA requires, does not satisfy the ECOA
requirement to disclose specific reasons. For example, if the
applicant's credit history reveals delinquent credit obligations and
the application is denied for that reason, to satisfy Sec.
202.9(b)(2) the creditor must disclose that the application was
denied because of the applicant's delinquent credit obligations. The
FCRA also requires a creditor to disclose, as applicable, a credit
score it used in taking adverse action along with related
information, including up to four key factors that adversely
affected the consumer's credit score (or up to five factors if the
number of inquiries made with respect to that consumer report is a
key factor). Disclosing the key factors that adversely affected the
consumer's credit score does not satisfy the ECOA requirement to
disclose specific reasons for denying or taking other adverse action
on an application or extension of credit. Sample forms C-1 through
C-5 of Appendix C of the regulation provide for both the ECOA and
FCRA disclosures. See also comment 9(a)(2)-1.
* * * * *

By order of the Board of Governors of the Federal Reserve
System, July 6, 2011.
Jennifer J. Johnson,
Secretary of the Board.
[FR Doc. 2011-17585 Filed 7-14-11; 8:45 am]
BILLING CODE 6210-01-P