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10/4/2013 1 Adverse Action and Risk-Based Pricing Notices Presented by: Kristen Tatlock October 16, 2013 ©2013 COMPASS4CUs,LLC 2 Defining adverse action Adverse action notification requirements Risk-based pricing notices Today’s Topics

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Page 1: Adverse Action and Risk-Based Pricing Notices...Adverse Action and Risk-Based Pricing Notices Presented by: Kristen Tatlock October 16, 2013 ... Denial of loan b/c not offered by credit

10/4/2013

1

Adverse Action and Risk-Based Pricing Notices

Presented by: Kristen Tatlock

October 16, 2013

©2013 COMPASS4CUs,LLC 2

Defining adverse action

Adverse action notification

requirements

Risk-based pricing notices

Today’s Topics

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©2013 COMPASS4CUs,LLC 3

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

©2013 COMPASS4CUs,LLC 4

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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©2013 COMPASS4CUs,LLC 5

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

©2013 COMPASS4CUs,LLC 6

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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©2013 COMPASS4CUs,LLC 7

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

©2013 COMPASS4CUs,LLC 8

Application

Oral/written request for credit

Made in accordance with CU’s

procedures

Application Defined

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©2013 COMPASS4CUs,LLC 9

When does inquiry become

application?

When you ask for information to

evaluate creditworthiness of applicant

Reg B – Inquiry or Application

©2013 COMPASS4CUs,LLC 10

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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©2013 COMPASS4CUs,LLC 11

Adverse action

30 days

Written

Counteroffer

30 days

90 days – adverse action notice

Option – combine counteroffer and

adverse action notice

Timeframe for Notice Requirements

©2013 COMPASS4CUs,LLC 12

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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©2013 COMPASS4CUs,LLC 13

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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©2013 COMPASS4CUs,LLC 15

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

©2013 COMPASS4CUs,LLC 16

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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©2013 COMPASS4CUs,LLC 17

__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

©2013 COMPASS4CUs,LLC 22

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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©2013 COMPASS4CUs,LLC 23

Top section is Reg B

Bottom section is FCRA

Combined AAN

©2013 COMPASS4CUs,LLC 24

Reg B - Primary loan applicant

FCRA – Person whose consumer

report information was used to

make decision

AAN Delivery Requirement

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©2013 COMPASS4CUs,LLC 25

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

©2013 COMPASS4CUs,LLC 26

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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©2013 COMPASS4CUs,LLC 27

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

©2013 COMPASS4CUs,LLC 28

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

©2013 COMPASS4CUs,LLC 32

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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©2013 COMPASS4CUs,LLC 37

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

©2013 COMPASS4CUs,LLC 38

Regulation B – 25 months

FCRA – not specified

Record Retention

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©2013 COMPASS4CUs,LLC 39

Policies and procedures

Review and periodically test

automated disclosure systems

Training

Compliance Steps

©2013 COMPASS4CUs,LLC 40

Questions

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©2013 COMPASS4CUs,LLC 41

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

©2013 COMPASS4CUs,LLC 42

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

[email protected]

www.compass4cus.com

43

©2013 COMPASS4CUs,LLC 44

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!