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Federal Reserve, FTC Tackle Amendments for Credit Score Disclosures

Posted on March 4, 2011

It was just recently announced by the Federal Reserve Board and the Federal Trade Commission that there will be new proposed legislations concerning the disclosure for credit score requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act. These proposed measures are meant to make it easier for consumers to grasp the realities of their personal financial situation.

The Board has proposed to amend Regulation V of the Fair Credit Reporting Act. The content is expected to be revised concerning the risk-based pricing notices. The Board also proposes to amended parts of the Regulation B related to the Equal Credit Opportunity which combines the adverse action notice requirements for Regulation B and the Fair Credit Reporting Act. Both of the amendments would change the model notices to include the new credit score disclosure requirements as they have been proposed. Previous amendments to these regulations went into effect on January 1.

What Would the New Legislation Mean?

If the proposed amendments are accepted, the changes to the risk-based pricing notices would include:

  • A numerical credit score that is utilized for making credit decisions
  • A range of possible credit scores for the model of credit-scoring used
  • Listing of factors which negatively influenced the consumer credit score based on the scoring model used
  • The date the consumer credit score was created
  • The name of the individual or business providing the credit score information.

The proposed regulations, if accepted, would go into effect as of July 21, 2011. The Federal Trade Commission and the Federal Reserve Board will be seeking the commentary from the public relevant to the proposed amendments.

What Are Risk-Based Pricing Notices?

Risk-based pricing refers to the act of establishing or adjusting pricing and other terms and conditions of a credit agreement provided to a consumer based on their credit history and score.

Since January 2011, creditors have been required to send consumers such notices when credit scores have resulted in the higher interest fees or other less favorable terms have been approved for the consumer when compared to other consumers with better credit histories. Any consumer who receives a copy of this notice will then be permitted to request a free copy of their credit report so they can check for erroneous information. There is also an alternative option for creditors who don’t wish to provide such notices. In this situation, the creditor can instead provide the consumer with a free credit score and relevant information pertaining to the score.

This information and the proposed new legislation would make the information provided in the disclosure more comprehensible to the consumer who may elect to repair their credit scores to secure better rates and terms in the future.

To read more about the propose regulations of the FRS for Risk-Based Pricing Regulations, click here and here.

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