Adverse Action and Risk-Based Pricing Notices Presented by: Kristen Tatlock October 16, 2013

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

2 Adverse Action 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 2013 COMPASS4CUs,LLC 3 When Adverse Action Notices Are Required 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 FCRA 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 2013 COMPASS4CUs,LLC 4 2

3 Reg B - Adverse Action What is adverse action? Refusal to grant credit on terms requested Termination of an account/unfavorable change in terms Refusal to increase credit limit 2013 COMPASS4CUs,LLC 5 Reg B - Adverse Action 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 2013 COMPASS4CUs,LLC 6 3

4 FCRA Adverse Action 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 2013 COMPASS4CUs,LLC 7 Application Defined Application Oral/written request for credit Made in accordance with CU s procedures 2013 COMPASS4CUs,LLC 8 4

5 Reg B Inquiry or Application When does inquiry become application? When you ask for information to evaluate creditworthiness of applicant 2013 COMPASS4CUs,LLC 9 Timeframe for Notice Requirements Approved application 30 days Oral/written Withdrawn application No notice required Incomplete application 30 days adverse action or Notice of incompleteness 2013 COMPASS4CUs,LLC 10 5

6 Timeframe for Notice Requirements Adverse action 30 days Written Counteroffer 30 days 90 days adverse action notice Option combine counteroffer and adverse action notice 2013 COMPASS4CUs,LLC 11 Adverse Action Existing Accounts Action taken Refusal to increase limit Reduction of credit limit Deny any change requested Provide notice within 30 days 2013 COMPASS4CUs,LLC 12 6

7 Reg B - Adverse Action Notice Statement of action taken 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): Name and address of credit union 2013 COMPASS4CUs,LLC 13 ECOA notice 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). 7

8 Reg B - Adverse Action Notice 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 2013 COMPASS4CUs,LLC 15 Reg B - Adverse Action Notice 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 2013 COMPASS4CUs,LLC 16 8

9 Reg B Adverse Action Reasons 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: 2013 COMPASS4CUs,LLC 17 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 9

10 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 notice Adverse 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 10

11 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 FCRA AAN Info from Affiliate 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 2013 COMPASS4CUs,LLC 22 11

12 Combined AAN Top section is Reg B Bottom section is FCRA 2013 COMPASS4CUs,LLC 23 AAN Delivery Requirement Reg B - Primary loan applicant FCRA Person whose consumer report information was used to make decision 2013 COMPASS4CUs,LLC 24 12

13 AAN Delivery Requirements 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 2013 COMPASS4CUs,LLC 25 AAN Delivery Requirements 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 2013 COMPASS4CUs,LLC 26 13

14 AAN Delivery Requirements 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; Coapplicant gets ECOA and FCRA notice with credit score, if applicable 2013 COMPASS4CUs,LLC 27 AAN Delivery Requirements 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 2013 COMPASS4CUs,LLC 28 14

15 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 15

16 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 Determining Who Gets a Risk-Based Pricing Notice 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 2013 COMPASS4CUs,LLC 32 16

17 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 17

18 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 18

19 Timing for RBP Notices Risk-Based Pricing Notice Closed-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 2013 COMPASS4CUs,LLC 37 Record Retention Regulation B 25 months FCRA not specified 2013 COMPASS4CUs,LLC 38 19

20 Compliance Steps Policies and procedures Review and periodically test automated disclosure systems Training 2013 COMPASS4CUs,LLC 39 Questions 2013 COMPASS4CUs,LLC 40 20

21 Resources League InfoSight CUNA Eguide Philadelphia Fed Consumer Compliance Outlook, 2 nd quarter 2013 edition Adverse Action Notices Philadelphia Fed Consumer Compliance Outlook, 1 st quarter 2012 edition Risk Based Pricing Notices Adverse Action Notice Cheat Sheet, hart.pdf Adverse Action Reasons Guide, schart.pdf 2013 COMPASS4CUs,LLC 41 Disclaimer 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 COMPASS4CUs,LLC 42 21

22 Speaker Information Kristen Tatlock Vice President COMPASS 4 CUs, LLC kristen@compass4cus.com 43 How COMPASS Can Help Full Line of Services 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 2013 COMPASS4CUs,LLC 44 22

23 THANK YOU! 23