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Financial Institution Letters


[Federal Register: July 11, 1997 (Volume 62, Number 133)]
[Proposed Rules]
[Page 37166-37170]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr11jy97-26]

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FEDERAL RESERVE SYSTEM

12 CFR Part 202

[Regulation B; Docket No. R-0978]


Equal Credit Opportunity

AGENCY: Board of Governors of the Federal Reserve System.

ACTION: Proposed rule.

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SUMMARY: The Board is proposing to amend certain model forms in its
Regulation B on equal credit opportunity to reflect recent statutory
amendments to the Fair Credit Reporting Act (FCRA) disclosures
contained in those forms. Creditors have the option of including the
FCRA disclosures with the notice of action taken required under
Regulation B.

DATES: Comments must be received on or before August 15, 1997.

ADDRESSES: Comments should refer to Docket No. R-0978, and may be
mailed to William W. Wiles, Secretary, Board of Governors of the
Federal Reserve System, 20th Street and Constitution Avenue, N.W.,
Washington, DC 20051. They may also be delivered to the Board's mail
room between 8:45 a.m. and 5:15 p.m. weekdays, and to the security
control room at all other times. The mail room and the security control
room are accessible from the courtyard entrance on 20th Street between
Constitution Avenue and C Street, N.W. Comments will be available for
inspection and copying by members of the public in the Freedom of
Information Office, Room MP-500 of the Martin Building between 9:00
a.m. and 5:00 p.m. weekdays, except as provided in Section 261.8 of the
Board's Rules Regarding Availability of Information.

FOR FURTHER INFORMATION CONTACT: Jane Jensen Gell, Senior Attorney, or
Sheilah A. Goodman, Staff Attorney, Division of Consumer and Community
Affairs, Board of Governors of the Federal Reserve System, at (202)
452-3667; users of Telecommunications Device for the Deaf (TDD) only,
contact Diane Jenkins at (202) 452-3544.

SUPPLEMENTARY INFORMATION:

I. Background

    Regulation B, which implements the Equal Credit Opportunity Act,
requires creditors to provide a consumer with a notice of action taken
if an application for credit is denied, an account is terminated, or
the terms of an account are unfavorably changed. The Fair Credit
Reporting Act (FCRA) (15 U.S.C. 1681a), requires creditors that take
adverse action against a consumer, such as denying an application for
credit, to

[[Page 37167]]

provide a consumer with certain disclosures if the action is based on
information provided by a third party or a consumer reporting agency.
The required FCRA disclosures include, for example, the name and
address of the consumer reporting agency that supplied the information.
For information obtained from a third party, the required disclosure
includes a statement that the consumer has the right to request the
reason for the denial within sixty days. Creditors have the option of
including the FCRA disclosures with the notice of action taken required
under Regulation B; Appendix C to Regulation B provides model forms
that combine the current FCRA and ECOA disclosures.
    The Economic Growth and Regulatory Paperwork Reduction Act of 1996
(Pub. L. 104-208, 110 Stat. 3009) made extensive changes to the FCRA.
Among other changes, the amendments require that additional disclosures
be given to consumers who are denied credit based on information from
an affiliate or from a consumer reporting agency. The disclosure
requirements for information from a third party are not affected.
    The Board is proposing changes to the FCRA portion of Regulation
B's model forms C-1 through C-5 and to the general instructions for
these forms. The forms include language that may be used when credit is
denied based on information obtained from a consumer reporting agency,
from a third party other than a consumer reporting agency, or from an
affiliate. The Board anticipates adopting final amended model forms
prior to the effective date of the FRCA amendments (September 30, 1997)
to ease compliance for creditors that choose to use the forms.

II. New Model Language

    When adverse action is taken against a consumer based on
information from a consumer reporting agency, section 615(a) of the
FCRA now requires the following additional disclosures: a telephone
number for the consumer reporting agency (toll-free if the agency
compiles and maintains files on consumers nationwide); a statement that
the consumer reporting agency did not make the decision to take the
adverse action, and cannot state the reason why the adverse action was
taken; the consumer's right to a free copy of the credit report from
the consumer reporting agency, if the request is made within 60 days of
receipt of the adverse action notice; and the consumer's right to
dispute with the consumer reporting agency the accuracy or completeness
of the credit report.
    When the adverse action is based on a consumer report obtained from
an affiliate, the Board believes that the creditor must provide the
same disclosures as would be required if the report had come directly
from the consumer reporting agency. Interpreting the statute otherwise
would produce a result that does not appear to be consistent with the
purposes of the law, by allowing creditors who could get consumer
reports from affiliates rather than consumer reporting agencies to
avoid giving consumers the FCRA disclosures and rights. This
interpretation is reflected in the instructions to the model forms in
Appendix C to Regulation B. The Board solicits comment on this
approach.
    Creditors are not required to provide the consumer with any FCRA
disclosures when the adverse action is based on a creditor's own
experience. The amendments expand that exemption so that a creditor
does not have to provide any FCRA disclosures if the adverse action
taken against the consumer is based on the transactional experience of
the creditor's affiliate. In the case of information obtained from an
affiliate (other than a credit report or the affiliate's own
transactional experience), the amendments require the creditor to give
the consumer a disclosure that is substantially similar to the one
currently required for information obtained from third parties. The
proposed modifications to the Appendix C instructions, and model forms
C-1 through C-5 of Regulation B reflect these changes.
    In the case of information from an affiliate that is neither a
consumer report nor the affiliate's own transactional experience, the
Board is proposing to allow creditors to use the current third party
notice, as amended. See model form C-1. There is a difference, however,
in the timing provisions of section 615(b)(1) (third-party notice) and
section 615(b)(2) (affiliate notice). Under the third-party provision,
the request must be submitted to the creditor within 60 days after the
consumer learns of the action. Under the affiliate provision, the
request must be submitted within 60 days after the ``transmittal of the
notice.''
    To ease compliance for creditors and provide a more understandable
time frame for consumers, the Board proposes that Regulation B's
existing model language for information from a third party also be used
for information from an affiliate. The language, which appears in model
form C-1, states that the consumer has 60 days from receipt of the
notice to submit a request to the creditor. The Board believes that
relatively few transactions will require the affiliate notice; thus, it
will be less burdensome for creditors to use the existing third-party
notice rather than a separate notice for affiliate transactions. The
Board solicits comment on whether the third-party notice is adequate or
if model language for adverse action taken by affiliates would be
desirable.

III. Section-by-Section Analysis

    In Appendix C, the second paragraph would be amended by adding two
sentences to the end of the paragraph explaining the FCRA disclosure
requirements for information obtained from an affiliate.

Model Form C-1

    Sample Notice of Action Taken and Statement of Reasons would be
amended in Part II by adding at the end of the first paragraph the FCRA
disclosures notifying the consumer of the right to request a copy of
the consumer report, and the right to dispute the accuracy of the
report with the reporting agency (collectively, the dispute
disclosure). In addition, the words toll-free would be put in brackets
before the reporting agency's telephone number. A reference to an
affiliate would be added in the second paragraph.

Model Form C-2

    Sample Notice of Action Taken and Statement of Reasons would be
amended by adding to the first sentence in the second paragraph the
words toll-free in brackets before the reporting agency's telephone
number. The dispute disclosure would be inserted before the last
sentence.

Model Form C-3

    Sample Notice of Action Taken and Statement of Reasons (Credit
Scoring) would be amended by adding to the third sentence in the fourth
paragraph the words toll-free in brackets before the reporting agency's
telephone number. The dispute disclosure would be added at the end of
the paragraph.

Model Form C-4

    Sample Notice of Action Taken and Statement of Reasons, and
Counteroffer would be amended by adding to the first sentence in the
third paragraph the words toll-free in brackets before the reporting
agency's telephone number. At the end of the paragraph the disclosure
stating that the reporting agency played no part in the decision would
be added along with the dispute disclosure.

[[Page 37168]]

Model Form C-5

    Sample Disclosure of Right to Request Specific Reasons for Credit
Denial would be amended by adding to the first sentence in the fourth
paragraph the words toll-free in brackets before the reporting agency's
telephone number. At the end of the paragraph the disclosure stating
that the reporting agency played no part in the decision, and the
consumer has a right under the FCRA to know the information in the
credit file, would be added along with the dispute disclosure.

IV. Form of Comment Letters

    Comment letters should refer to Docket No. R-0978, and, when
possible, should use a standard Courier typeface with a type size of 10
or 12 characters per inch. This will enable the Board to convert the
text in machine-readable form through electronic scanning, and will
facilitate automated retrieval of comments for review. Also, if
accompanied by an original document in paper form, comments may be
submitted on 3\1/2\ inch or 5\1/4\ inch computer diskettes in any IBM-
compatible DOS-based format.

V. Regulatory Flexibility Analysis

    In accordance with section 3(a) of the Regulatory Flexibility Act
(5 U.S.C. 603), the Board's Office of the Secretary has reviewed the
proposed amendments to Regulation B. The amendments, which provide
model language to facilitate compliance, are not expected to have a
significant impact on small entities. A final regulatory flexibility
analysis will be conducted after consideration of comments received
during the public comment period.

VI. Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C.
3506), the Board has reviewed the proposed rule under authority
delegated to the Board by the Office of Management and Budget (OMB). 5
CFR part 1320, Appendix A.1.
    The revised collection of information requirements in the proposed
revised regulation are found in Appendix C to 12 CFR part 202. The
purpose of the disclosures proposed to be revised is to provide
consumers whose application for credit has been denied with the reasons
for that action and with information about their rights if information
from a third party was used in making the decision. The respondents
and/or recordkeepers are all for-profit financial institutions,
including small businesses, that regularly extend credit or participate
in the decision of whether or not to extend credit.
    Under the Paperwork Reduction Act the Board accounts for the
associated paperwork burden only for state member banks. Any estimates
of paperwork burden for other financial institutions would be provided
by the federal agency or agencies that supervise those lenders. The
estimated average frequency of response for Regulation B disclosures is
4,765 per state member bank each year and the current estimated burden
ranges from fifteen seconds to five minutes per response. The current
combined annual burden for all state member banks under Regulation B is
estimated to be 129,015 hours. The burden per response for any of the
five disclosures proposed to be revised is estimated to be two and one-
half minutes, on average. As the revisions are minor, this amount is
not expected to change. There is estimated to be no annual cost burden
over the annual hour burden. The start-up cost for modifying state
member banks' current templates to conform to the revised models is
estimated to be approximately $100,000 across all 1,005 state member
banks.
    Comments are invited on: (a) Whether the proposed revised
collection of information is necessary for the proper performance of
the Federal Reserve's functions, including whether the information has
practical utility; (b) the accuracy of the Federal Reserve's estimate
of the burden of the proposed revised information collection, including
the cost of compliance; (c) ways to enhance the quality, utility, and
clarity of the information to be collected; and (d) ways to minimize
the burden of information collection on respondents, including through
the use of automated collection techniques or other forms of
information technology. Comments on the collection or disclosure of
information associated with this regulation should be sent to Mary M.
McLaughlin, Chief, Financial Reports Section, Division of Research and
Statistics, Mail Stop 97, Board of Governors of the Federal Reserve
System, Washington, DC 20551, with copies of such comments sent to the
Office of Management and Budget, Paperwork Reduction Project (7100-
0201), Washington, DC 20503.
    The disclosures under Regulation B are mandatory. Since the Federal
Reserve does not collect any information, no issue of confidentiality
normally arises. An agency may not collect or sponsor the collection or
disclosure of information, and an organization is not required to
collect or disclose information unless a currently valid OMB control
number is displayed. The OMB control number for Regulation B is 7100-
0201.

List of Subjects in 12 CFR Part 202

    Aged, Banks, banking, Civil rights, Credit, Federal Reserve System,
Marital status discrimination, Penalties, Religious discrimination,
Reporting and recordkeeping requirements, Sex discrimination.
    Certain conventions have been used to highlight the proposed
revisions to the regulation. New language is shown inside bold-faced
arrows.
    For the reasons set forth in the preamble, the Board proposes to
amend 12 CFR part 202 as set forth below:

PART 202--EQUAL CREDIT OPPORTUNITY (REGULATION B)

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

    Authority: 15 U.S.C. 1691-1691f.

    2. Appendix C would be amended as follows:
a. By revising the second paragraph;
b. By revising Form C-1;
c. By revising Form C-2;
d. By revising Form C-3;
e. By revising Form C-4;
f. By revising Form C-5.

    The revisions would read as follows:

Appendix C to 202--Sample Notification Forms

* * * * *
    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 played a part in the
credit decision). A creditor must provide the section 615(b) disclosure
(that a creditor obtained information from an outside source other than
a consumer reporting agency that played a part in the credit decision)
where appropriate. In addition, a creditor must provide the
615(b) disclosure if the creditor obtained information from an
affiliate, other than a credit report, or other than the affiliate's
own experience with the consumer. If a creditor denies an application
based on information in a credit report obtained from an affiliate, the
creditor must provide the section 615(a) disclosure, including the
name, address and telephone number of the consumer reporting agency
from which the report was originally obtained.
* * * * *

[[Page 37169]]

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
____Garnishment, attachment, foreclosure, repossession, collection
action, or judgment
____Bankruptcy
____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:------------------------------------------
____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:-------------------------------------------

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-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 is unable to
supply specific reasons why we have denied credit to you. You do,
however, have a right under the Fair Credit Reporting Act to know
the information contained in your credit file. 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).

    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.
    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 why you did not score well compared with other applicants
were:
 Insufficient bank references
 Type of occupation
 Insufficient credit experience

    In evaluating your application the consumer reporting agency
listed below provided us with information that in whole or in part
influenced our decision. The reporting agency played no part in our
decision other than providing us with credit information about you.
Under the Fair Credit Reporting Act, you have a right to know the
information provided to us. 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.

[[Page 37170]]

    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.
    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, marital status, age 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 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. 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

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).
* * * * *
    By order of the Board of Governors of the Federal Reserve
System, July 7, 1997.
William W. Wiles,
Secretary of the Board.
[FR Doc. 97-18097 Filed 7-10-97; 8:45 am]
BILLING CODE 6210-01-P
Last Updated 07/17/1999 communications@fdic.gov