adverse action and risk-based pricing notices...adverse action and risk-based pricing notices...
TRANSCRIPT
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Adverse Action and Risk-Based Pricing Notices
Presented by: Kristen Tatlock
October 16, 2013
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Defining adverse action
Adverse action notification
requirements
Risk-based pricing notices
Today’s Topics
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Two laws that require Adverse
Action Notices (AANs)
Equal Credit Opportunity Act (ECOA)
and Regulation B
Applications/requests for credit
Fair Credit Reporting Act (FCRA) and
Regulation V
Use of a consumer report
Extends beyond credit applications
Adverse Action
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Regulation B
Adverse action on a
completed credit
application
Adverse action on an
incomplete application
Adverse action on an
existing credit account
Made counteroffer that
was not accepted
When Adverse Action Notices Are
RequiredFCRA
Adverse action taken based on whole or in part on info in a consumer report
Adverse action taken based on info from an affiliate
Credit is denied based on information from third party other than consumer reporting agency
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What is adverse action?
Refusal to grant credit on terms
requested
Termination of an account/unfavorable
change in terms
Refusal to increase credit limit
Reg B - Adverse Action
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What is not adverse action?
Change in terms agreed to by applicant
Action tied to inactivity, default, or
delinquency
Denial of loan b/c not offered by credit
union
Reg B - Adverse Action
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FCRA definition same as Reg B
Also includes action taken based on
information in consumer report that
is adverse to the consumer
Denying draft account or debit card
FCRA – Adverse Action
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Application
Oral/written request for credit
Made in accordance with CU’s
procedures
Application Defined
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When does inquiry become
application?
When you ask for information to
evaluate creditworthiness of applicant
Reg B – Inquiry or Application
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Approved application
30 days
Oral/written
Withdrawn application
No notice required
Incomplete application
30 days adverse action or
Notice of incompleteness
Timeframe for Notice Requirements
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Adverse action
30 days
Written
Counteroffer
30 days
90 days – adverse action notice
Option – combine counteroffer and
adverse action notice
Timeframe for Notice Requirements
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Action taken
Refusal to increase limit
Reduction of credit limit
Deny any change requested
Provide notice within 30 days
Adverse Action – Existing Accounts
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Statement of action takenDear 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):
Name and address of credit union
Reg B - Adverse Action Notice
ECOA noticeNotice: 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).
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Name and address of federal agency that administers compliance
Federal Credit Unions – NCUA Office of Consumer Protection
State Credit Unions - FTC
Either statement of specific reasons for action or a disclosure of applicant’s rights to a statement of specific reasons
Reg B - Adverse Action Notice
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Based on the statement of reasons, the member should:
Be able to determine if he/she has been unfairly treated by a creditor
Know how he/she may become creditworthy in the future
Point out mistakes, if any have been made
Reg B - Adverse Action Notice
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__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: ___
Reg B Adverse Action Reasons
AAN – Credit Score Info
Notice must also contain:Credit score information
Applicant’s score
4 major factors contributing to the score
Range of scores
Date score was generated
Entity that created score
Must be given to any applicant whose score was used
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FCRA
Adverse Action Notice
Denying/closing account
Denying/closing electronic funds
transfer service
Freezing an account
Denying/revoking a loan
FCRA AAN – Info from CRA
Oral, written, or electronic
Information in noticeAdverse action based on info in credit report
Name, address, telephone number of credit bureau
Credit bureau did not make decision
Consumer’s right to obtain a free credit report
Consumer’s right to dispute accuracy of info
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FCRA AAN – Info from CRA
If credit score was used in decision, notice must also contain:
Credit score information
Applicant’s score
4/5 major factors contributing to the score
Range of scores
Date score was generated
Entity that provided the score
Must be given to any applicant whose score was used
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Notice must state that information
Was furnished by affiliate
Reflects consumer’s creditworthiness,
capacity, reputation, etc.
Doesn’t pertain solely to transactions
between consumer and affiliate
Doesn’t include info from consumer
report
FCRA AAN – Info from Affiliate
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Top section is Reg B
Bottom section is FCRA
Combined AAN
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Reg B - Primary loan applicant
FCRA – Person whose consumer
report information was used to
make decision
AAN Delivery Requirement
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One loan applicant , consumer report not used – ECOA info
One loan applicant, consumer report used – ECOA & FCRA info; credit score if applicable
One applicant for service/product, consumer report used – FCRA notice
AAN Delivery Requirements
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Joint loan application, credit report not
used – Primary applicant gets ECOA
notice
Joint loan application, primary
applicant’s credit report used –
Primary applicant gets ECOA and
FCRA notice, credit score if applicable
AAN Delivery Requirements
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Joint loan application, both applicants’ credit report used – primary applicant gets ECOA and both applicants get FCRA notice with credit score, if applicable
Joint loan application, co-applicant’s credit report used – Primary applicant gets ECOA notice with “credit history of co-applicant” as reason for denial; Co-applicant gets ECOA and FCRA notice with credit score, if applicable
AAN Delivery Requirements
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Joint application for product/service,
consumer reports used and service
denied – FCRA notice, with credit
score if applicable, sent to applicant
whose report was basis for denial of
service
AAN Delivery Requirements
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Use of Credit Score by Mortgage
Lenders
Disclose score
Notice to Home Loan Applicants
Mortgage Loan Credit Score
Disclosure
Consumer’s credit score
Range of scores
Key factors
Date score was created
Person/entity that created score
Model Form H-3
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Risk-Based Pricing
Risk-Based Pricing Notice, Model
Form H-1
Terms are set based on info from a
consumer report
Identify the consumer reporting agency
Statement of right to obtain copy of
report
Contact information for consumer
reporting agency
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3 Methods
Consumer-to-consumer comparison
Credit score proxy
40%/60%
Tiered-pricing
Provide to borrowers below top tier if 4 or
fewer tiers or top 2 tiers if 5 or more tiers
Determining Who Gets a Risk-Based
Pricing Notice
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Risk-Based Pricing Notice
Additional Information on the Risk-Based Pricing Notice, Model Forms H-6 and H-7
Credit score information
Specific credit score
Range of scores
Key factors that adversely affected score
Date credit score was created
Entity that provided the credit score
Risk-Based Pricing Notice
Account review – Model Form H-2
Terms are set based on info from a
consumer report
Identify the consumer reporting agency
Statement of right to obtain copy of
report
Contact information for consumer
reporting agency
Credit score information
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Credit Score Exception Notices
Credit Score Exception Notice, Model Form H-4
Applicant’s credit score
Information about credit scores
Range of scores
Comparison to other consumers’ scores
Credit Score Disclosure –
No Credit Score Available
Credit score disclosure notice minus
the score
Model Form H-5
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Risk-Based Pricing NoticeClosed-end account – before consummation
Open-end account – before first transaction is made
Account review – with change-in-terms notice or within 5 days
Credit Score Exception Notice – no later than consummation or first transaction is made
No Credit Score Notice – no later than consummation or first transaction is made
Timing for RBP Notices
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Regulation B – 25 months
FCRA – not specified
Record Retention
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Policies and procedures
Review and periodically test
automated disclosure systems
Training
Compliance Steps
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Questions
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League InfoSight
CUNA Eguide
Philadelphia Fed Consumer Compliance Outlook, 2nd quarter 2013 edition – Adverse Action Notices
Philadelphia Fed Consumer Compliance Outlook, 1st quarter 2012 edition – Risk Based Pricing Notices
Adverse Action Notice Cheat Sheet,http://www.bankersonline.com/tools/bd_ecoa_fcrachart.pdf
Adverse Action Reasons Guide, http://www.bankersonline.com/tools/adversereasonschart.pdf
Resources
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This program is designed to provide
accurate and authoritative information.
It is done with the express
understanding that COMPASS 4 CUs,
LLC and its employees are not
engaged in rendering legal advice. If
legal advice is required, consult an
attorney.
Disclaimer
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Speaker Information
Kristen Tatlock
Vice President
COMPASS 4 CUs, LLC
www.compass4cus.com
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General compliance support
Compliance and Risk Assessments
Staff and volunteer training
Advertising and marketing review
Web site review
Independent tests (BSA, ACH, SAFE Act)
Pre/post exam areas of concern
Policy review
How COMPASS Can Help
Full Line of Services
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THANK YOU!