View original document

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.

41602

Federal Register / Vol. 76, No. 136 / Friday, July 15, 2011 / Rules and Regulations

mstockstill on DSK4VPTVN1PROD with RULES

marital status, age (provided the applicant
has the capacity to enter into a binding
contract), 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 llll.
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 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 received 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
[We also obtained your credit score from
this consumer reporting agency and used it
in making our credit decision. Your credit
score is a number that reflects the
information in your consumer report. Your
credit score can change, depending on how
the information in your consumer report
changes.
Your credit score: llllllllllll
Date: llllllllllllllllll
Scores range from a low of llllll to
a high of llllll
Key factors that adversely affected your
credit score:
lllllllllllllllllllll
lllllllllllllllllllll
lllllllllllllllllllll

VerDate Mar<15>2010

15:47 Jul 14, 2011

Jkt 223001

lllllllllllllllllllll
[Number of recent inquiries on consumer
report, as a key factor]
[If you have any questions regarding your
credit score, you should contact [entity that
provided the credit score] at:
Address: llllllllllllllll
lllllllllllllllllllll
[Toll-free] Telephone
number:llllllllll]]
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).

*

*
*
*
*
4. Supplement I to part 202 is
amended by revising paragraph 9(b)(2)–
9 to read as follows:

■

both the ECOA and FCRA disclosures. See
also comment 9(a)(2)–1.

*

*

*

*

*

By order of the Board of Governors of the
Federal Reserve System, July 6, 2011.
Jennifer J. Johnson,
Secretary of the Board.
[FR Doc. 2011–17585 Filed 7–14–11; 8:45 am]
BILLING CODE 6210–01–P

FEDERAL RESERVE SYSTEM
12 CFR Part 222
[Regulation V; Docket No. R–1407]
RIN 7100–AD66

FEDERAL TRADE COMMISSION
16 CFR Parts 640 and 698
RIN R411009

Fair Credit Reporting Risk-Based
Pricing Regulations

Supplement I to Part 202—Official Staff
Interpretations

Board of Governors of the
Federal Reserve System (Board) and
Federal Trade Commission
(Commission).
ACTION: Final rules.

*

SUMMARY:

*

*

*

*

Section 202.9—Notifications

*

*

*

*

*

*

*

Paragraph 9(b)(2)

*

*

*

9. Combined ECOA–FCRA disclosures. The
ECOA requires disclosure of the principal
reasons for denying or taking other adverse
action on an application for an extension of
credit. The Fair Credit Reporting Act (FCRA)
requires a creditor to disclose when it has
based its decision in whole or in part on
information from a source other than the
applicant or its own files. Disclosing that a
consumer report was obtained and used in
the denial of the application, as the FCRA
requires, does not satisfy the ECOA
requirement to disclose specific reasons. For
example, if the applicant’s credit history
reveals delinquent credit obligations and the
application is denied for that reason, to
satisfy § 202.9(b)(2) the creditor must
disclose that the application was denied
because of the applicant’s delinquent credit
obligations. The FCRA also requires a
creditor to disclose, as applicable, a credit
score it used in taking adverse action along
with related information, including up to
four key factors that adversely affected the
consumer’s credit score (or up to five factors
if the number of inquiries made with respect
to that consumer report is a key factor).
Disclosing the key factors that adversely
affected the consumer’s credit score does not
satisfy the ECOA requirement to disclose
specific reasons for denying or taking other
adverse action on an application or extension
of credit. Sample forms C–1 through C–5 of
Appendix C of the regulation provide for

PO 00000

Frm 00014

Fmt 4700

Sfmt 4700

AGENCIES:

On January 15, 2010, the
Board and the Commission published
final rules to implement the risk-based
pricing provisions in section 311 of the
Fair and Accurate Credit Transactions
Act of 2003 (FACT Act), which
amended the Fair Credit Reporting Act
(FCRA). The final rules generally
require a creditor to provide a risk-based
pricing notice to a consumer when the
creditor uses a consumer report to grant
or extend credit to the consumer on
material terms that are materially less
favorable than the most favorable terms
available to a substantial proportion of
consumers from or through that
creditor. The Board and the Commission
are amending their respective risk-based
pricing rules to require disclosure of
credit scores and information relating to
credit scores in risk-based pricing
notices if a credit score of the consumer
is used in setting the material terms of
credit. These final rules reflect the new
requirements in section 615(h) of the
FCRA that were added by section 1100F
of the Dodd-Frank Wall Street Reform
and Consumer Protection Act.
DATES: These rules are effective August
15, 2011.
FOR FURTHER INFORMATION CONTACT:
Board: Krista P. Ayoub, Counsel;
Mandie K. Aubrey or Nikita M. Pastor,
Senior Attorney; or Catherine
Henderson, Attorney, Division of
Consumer and Community Affairs, (202)

E:\FR\FM\15JYR1.SGM

15JYR1

Federal Register / Vol. 76, No. 136 / Friday, July 15, 2011 / Rules and Regulations
452–3667 or (202) 452–2412, Board of
Governors of the Federal Reserve
System, 20th and C Streets, NW.,
Washington, DC 20551. For users of a
Telecommunications Device for the Deaf
(TDD) only, contact (202) 263–4869.
Commission: Manas Mohapatra and
Katherine White, Attorneys, Division of
Privacy and Identity Protection, Bureau
of Consumer Protection, (202) 326–
2252, Federal Trade Commission, 600
Pennsylvania Avenue, NW.,
Washington, DC 20580.
SUPPLEMENTARY INFORMATION 1:
I. Background

mstockstill on DSK4VPTVN1PROD with RULES

The Fair and Accurate Credit
Transactions Act of 2003 (FACT Act)
was signed into law on December 4,
2003. Public Law 108–159, 117 Stat.
1952. Section 311 of the FACT Act
added section 615(h), 15 U.S.C.
1681m(h), to the Fair Credit Reporting
Act (FCRA) to address risk-based
pricing. Risk-based pricing refers to the
practice of setting or adjusting the price
and other terms of credit offered or
extended to a particular consumer to
reflect the risk of nonpayment by that
consumer. Information from a consumer
report is often used in evaluating the
risk posed by the consumer. Creditors
that engage in risk-based pricing
generally offer more favorable terms to
consumers with good credit histories
and less favorable terms to consumers
with poor credit histories.
Under section 615(h) of the FCRA, a
person generally must provide a riskbased pricing notice to a consumer
when the person uses a consumer report
in connection with an extension of
credit and, based in whole or in part on
the consumer report, extends credit to
the consumer on terms that are
materially less favorable than the most
favorable terms available to a substantial
proportion of consumers. The risk-based
pricing notice is designed primarily to
improve the accuracy of consumer
reports by alerting consumers to the
existence of negative information in
their consumer reports, so that
consumers can, if they choose, check
their consumer reports for accuracy and
1 The Board is placing the final rules in the part
of its regulations that implements the FCRA—12
CFR PART 222. For ease of reference, the
discussion in the SUPPLEMENTARY INFORMATION
section uses the numerical suffix of each of the
Board’s regulations. The FTC also is placing the
final rules and model forms in the part of its
regulations implementing the FCRA, specifically,
16 CFR part 640. However, the FTC uses different
numerical suffixes that equate to the numerical
suffixes discussed in the SUPPLEMENTARY
INFORMATION section as follows: suffix .70 = FTC
suffix .1, suffix .71 = FTC suffix .2, suffix .72 = FTC
suffix .3, suffix .73 = FTC suffix .4, suffix .74 = FTC
suffix .5, and suffix .75 = FTC suffix .6.

VerDate Mar<15>2010

15:47 Jul 14, 2011

Jkt 223001

correct any inaccurate information. The
Board and the Commission (the
Agencies) jointly published regulations
implementing these risk-based pricing
provisions on January 15, 2010, which
had a mandatory compliance date of
January 1, 2011. 75 FR 2724 (January
2010 Final Rule).
On July 21, 2010, the Dodd-Frank
Wall Street Reform and Consumer
Protection Act (Dodd-Frank Act) was
signed into law. Pub. L. 111–203, 124
Stat. 1376. Section 1100F of the DoddFrank Act amends section 615(h) of the
FCRA to require that additional content
be disclosed to consumers in risk-based
pricing notices; specifically, if a credit
score is used in making the credit
decision, the creditor must disclose that
score and certain information relating to
the credit score. The effective date of
these amendments is July 21, 2011.2
The Agencies published proposed
regulations and model forms to reflect
these requirements on March 15, 2011.
76 FR 13902. The comment period
closed on April 14, 2011, and comments
on the Paperwork Reduction Act
analysis closed on May 16, 2011. The
Agencies received more than 35
comment letters regarding the proposal
from banks and other creditors, industry
trade associations, consumer groups,
individual consumers, and others.
Title X of the Dodd-Frank Act also
establishes a Bureau of Consumer
Financial Protection (the Bureau), to
which rulewriting authority for certain
consumer protection laws will transfer.
Section 1088(a)(9) of the Dodd-Frank
Act amends section 615(h)(6) to provide
that rulewriting authority for section
615(h) will transfer to the Bureau.
Pursuant to section 1100H of the DoddFrank Act, however, this rulewriting
authority does not transfer to the Bureau
until July 21, 2011.3 Thus, rulewriting
authority for the risk-based pricing
provisions of the FCRA, including the
amendments prescribed by section
1100F of the Dodd-Frank Act, will not
be vested in the Bureau until the date
that the section 1100F amendments
become effective.
The Agencies believe it is important
to have implementing regulations and
revised model forms in place as close as
possible to July 21, 2011. This will help

41603

ensure that consumers receive
consistent disclosures of credit scores
and information relating to credit
scores, and will help facilitate uniform
compliance when section 1100F of the
Dodd-Frank Act becomes effective.
Accordingly, the Agencies are
finalizing amendments to the risk-based
pricing rules and notices to incorporate
the additional content required by
section 1100F of the Dodd-Frank Act,
pursuant to their existing authority
under section 615(h) of the FCRA.
Section 615(h) gives the Agencies the
authority to issue rules implementing
the risk-based pricing provisions, and
requires the Agencies to address in
those rules the form, content, timing,
and manner of delivery of risk-based
pricing notices.
In particular, section 615(h)(5)
prescribes certain content requirements
for the risk-based pricing notices, but
provides that the required content
elements are the minimum that must be
disclosed. Moreover, section
615(h)(6)(B)(iv) provides that the
Agencies must provide a model notice
that can be used to comply with section
615(h). Therefore, the Agencies have the
authority to add content to the riskbased pricing notices that they deem
appropriate. The Agencies believe that
adding to the requirements for the riskbased pricing notice the content
required by section 1100F of the DoddFrank Act, and providing revised model
notices is appropriate to avoid
consumer confusion, and to ensure
timely and consistent compliance with
the new content provisions.
As discussed more fully below, the
Agencies received some comments from
industry and consumer advocates that
did not relate to the changes to the
model notices to incorporate the section
1100F requirements, such as a new
request to exempt certain entities from
the risk-based pricing rules entirely.
Given the impending transfer of
rulemaking authority to the Bureau,
however, the Agencies are not making
changes to the risk-based pricing rules
and notices beyond those required by
section 1100F of the Dodd-Frank Act.
Such changes are beyond the scope of
this rulemaking.
II. Section-by-Section Analysis

1100H of the Dodd-Frank Act provides
that the amendments in Subtitle H of Title X, which
includes Section 1100F, become effective on a
‘‘designated transfer date.’’ The Secretary of the
Treasury set the designated transfer date as July 21,
2011. 75 FR 57252 (Sept. 20, 2010).
3 Section 1100H of the Dodd-Frank Act provides
that the amendments in Subtitle H of Title X, which
includes Section 1088, become effective on a
‘‘designated transfer date.’’ The Secretary of the
Treasury set the designated transfer date as July 21,
2011. 75 FR 57252 (Sept. 20, 2010).

PO 00000

2 Section

Frm 00015

Fmt 4700

Sfmt 4700

Section ll.73 Content, Form, and
Timing of Risk-Based Pricing Notices.
Section ll.73(a) Content of the Notice
Content
Section 615(h) of the FCRA requires a
person to include certain information in
a risk-based pricing notice. The January
2010 Final Rule implements the general

E:\FR\FM\15JYR1.SGM

15JYR1

mstockstill on DSK4VPTVN1PROD with RULES

41604

Federal Register / Vol. 76, No. 136 / Friday, July 15, 2011 / Rules and Regulations

content requirements for risk-based
pricing notices in § 222.72(a)(1) and
§ 640.3(a)(1) (hereafter ‘‘general riskbased pricing notice’’). The January
2010 Final Rule also sets forth the
content requirements for any risk-based
pricing notice required to be given as a
result of the use of a consumer report in
an account review in § 222.72(a)(2) and
§ 640.3(a)(2) (hereafter ‘‘account review
notice’’).
Section 1100F of the Dodd-Frank Act
amends section 615(h) of the FCRA to
require that creditors disclose additional
information in risk-based pricing
notices. Consistent with section 1100F
of the Dodd-Frank Act, proposed
ll.73(a)(1) and (a)(2) amended the
content requirements of the general riskbased pricing notice and the account
review notice, pursuant to section
615(h) of the FCRA. Proposed
ll.73(a)(1)(ix) required a person to
provide the additional content in a
general risk-based pricing notice if a
credit score of the consumer to whom a
person grants, extends, or otherwise
provides credit is used in setting the
material terms of credit. Similarly,
proposed ll.73(a)(2)(ix) required a
person to provide the additional content
in an account review notice if a credit
score of the consumer whose extension
of credit is under review is used in
increasing the annual percentage rate.
Specifically, § ll.73(a)(1)(ix)(B)–(F)
and § ___.73(a)(2)(ix)(B)–(F) of the
proposed rules required the following
disclosures: (1) the credit score 4 used
by the person in making the credit
decision; (2) the range of possible credit
scores under the model used to generate
the credit score; (3) all of the key factors
that adversely affected the credit score,
which shall not exceed four key factors,
except that if one of the key factors is
the number of enquiries made with
respect to the consumer report, the
number of key factors shall not exceed
five; (4) the date on which the credit
score was created; and (5) the name of
the consumer reporting agency or other
person that provided the credit score. In
addition, to provide context for the
additional content requirements,
proposed § ll.73(a)(1)(ix)(A) and
§ ll.73(a)(2)(ix)(A) required a
statement that a credit score is a number
that takes into account information in a
consumer report, and that a credit score
can change over time to reflect changes
in the consumer’s credit history.
4 ‘‘Credit score’’ is defined in the January 2010
Final Rule in ___.71(l) to have the same meaning
as in section 609(f)(2)(A) of the FCRA, 15 U.S.C.
1681g(f)(2)(A). This is consistent with the definition
of ‘‘numerical credit score’’ in section 1100F of the
Dodd-Frank Act.

VerDate Mar<15>2010

15:47 Jul 14, 2011

Jkt 223001

Industry commenters generally
supported the additional content. Some
industry commenters, however,
requested additional flexibility in
disclosing the factors that adversely
affect the credit score, as discussed
below. Consumer advocates suggested
that the Agencies add additional
information related to credit scores to
the risk-based pricing notices, as
discussed below. For the reasons
discussed below, the final rules adopt
the changes to § __.73(a)(1)(ix)(A)–(F)
and § ___.73(a)(2)(ix)(A)–(F), as
proposed, with an addition to clarify
that the credit score was used in setting
the terms of credit.
Key factors. Several industry
commenters and a consumer advocate
argued that creditors should have
flexibility to disclose only factors that
substantially affected the credit score.
They asserted that requiring creditors to
disclose the top four key factors (or five
factors if the number of enquiries made
with respect to that consumer report is
one of the key factors) was burdensome
and expensive for creditors, and
confusing and of limited value to
consumers. In contrast, one commenter
stated that creditors should be required
to disclose all factors that affected the
credit score, not just the top four key
factors (or five factors if the number of
enquiries made with respect to that
consumer report is a key factor).
Section 1100F of the Dodd-Frank Act
requires a person engaging in risk-based
pricing to provide the consumer the
information set forth in subparagraphs
(B) through (E) of section 609(f)(1) of the
FCRA. Section 609(f)(1)(C) of the FCRA
requires disclosure of all of the key
factors that adversely affected the credit
score of the consumer in the model
used, up to four, subject to section
609(f)(9) of the FCRA. This section
requires that if the key factors that
adversely affected the credit score
include the number of enquiries made
with respect to the consumer report, the
number of enquiries must also be
disclosed as a key factor. Because the
statutes thus require disclosure of the
top four (or five) key factors that
adversely affected the credit score, the
Agencies adopt § ll.73(a)(1)(ix)(B)–(F)
and § ll.73(a)(2)(ix)(B)–(F) as
proposed.
An industry commenter requested
clarification that a creditor is permitted
to rely on and disclose the key factors
provided with the scores purchased
from consumer reporting agencies,
without verification. The commenter
further asked for guidance in the event
that a consumer reporting agency does
not provide the key factors with the
score.

PO 00000

Frm 00016

Fmt 4700

Sfmt 4700

Under section 1100F of the DoddFrank Act, the person setting the
material terms of credit is responsible
for providing the credit score disclosure,
including the key factors adversely
affecting the credit score. If a creditor is
using a credit score purchased from a
consumer reporting agency, the
consumer reporting agency is in the best
position to identify the key factors that
affected the score. Thus, the creditor
would need to and could rely on that
information in its disclosure to
consumers. With respect to the manner
in which this information may be
obtained from the consumer reporting
agencies, the Agencies acknowledge that
the contractual arrangements between
creditors and consumer reporting
agencies may vary as to how creditors
will receive the credit score information
necessary to comply with section 1100F,
but do not believe that imposing
specific disclosure requirements on
consumer reporting agencies is within
the scope of this rulemaking. In any
event, creditors have two options: (1)
they can write their contracts with
consumer reporting agencies to require
the consumer reporting agencies to
provide them the key factors adversely
affecting the credit score, or (2) they can
choose to send credit score disclosure
exception notices to all consumers
applying for non-mortgage credit. See
Exception Notices, below.
Number of enquiries. Several industry
commenters suggested that creditors not
be required to disclose the number of
enquiries as a key factor that adversely
affected the credit score if the number
of enquiries is not one of the top four
key factors. In these cases, the
commenters said that the effect of the
number of enquiries on the credit score
is marginal, so that disclosing the
number of enquiries as a key factor may
be confusing to consumers.
As discussed above, section 609(f)(9)
of the FCRA states that if the number of
enquiries is a key factor that adversely
affected the consumer’s credit score,
that factor must be disclosed pursuant
to section 609(f)(1)(C) of the FCRA,
without regard to the numerical
limitation. The FCRA accordingly
requires disclosure of the number of
enquiries as a key factor, regardless of
whether it is one of the top four key
factors. Thus, the Agencies adopt the
proposed provision without change.
Additional information regarding
credit scores. Consumer advocates
suggested that the Agencies add
additional information related to credit
scores to the risk-based pricing notices.
Specifically, consumer advocates
suggested that the risk-based pricing
notice include an explanation that the

E:\FR\FM\15JYR1.SGM

15JYR1

mstockstill on DSK4VPTVN1PROD with RULES

Federal Register / Vol. 76, No. 136 / Friday, July 15, 2011 / Rules and Regulations
consumer does not have a single credit
score, and that the credit score may vary
with the consumer reporting agency,
scoring model provider, or particular
credit product for which the consumer
applied. These commenters indicated
that consumers need this information to
help them understand why they are
receiving a particular score that may not
be the same as a generic score, such as
a FICO or Vantage score.
The Agencies believe that requiring
these additional disclosures might
create ‘‘information overload’’ for
consumers, and detract from the
primary purpose of the credit score
information, which is to inform
consumers of the credit score that has
been used to set the material terms of
credit, or used in the review of the
account. The Agencies agree, however,
that a disclosure that informs the
consumer that the disclosed score was
used in setting the credit terms, or in
review of the credit terms, would
further consumer understanding. The
Agencies are thus adding a requirement
that the notice include this information.
In addition, the Agencies are revising
the model forms H–6 and H–7 in the
Board’s rule and B–6 and B–7 in the
Commission’s rule to add the statement:
‘‘We used your credit score to set the
terms of credit we are offering you,’’ in
the ‘‘What you should know about your
credit score’’ box on the model forms.
This statement mirrors a sentence on the
current risk-based pricing notice,
informing consumers that their credit
report was used to set the terms of credit
being offered.
Other comments on content. The
January 2010 Final Rule requires that
the risk-based pricing notice include a
statement that the terms offered, such as
the annual percentage rate, have been
set based on information from a
consumer report. Model Form H–1
adopted as part of the January 2010
Final Rule, and proposed Model Form
H–6 state ‘‘We used information from
your credit report(s) to set the terms of
the credit we are offering you, such as
[Annual Percentage Rate/down
payment].’’
Some industry commenters objected
to language in the final rules and model
forms adopted as part of the January
2010 Final Rule that indicated that the
terms of credit were ‘‘set’’ or ‘‘based on’’
information from a consumer report.
These commenters instead
recommended language stating that the
terms of credit were ‘‘based in whole or
in part on information from a consumer
report.’’ The final rules retain the
current language in the regulation and
model forms, as described above. The
Agencies believe that the current

VerDate Mar<15>2010

15:47 Jul 14, 2011

Jkt 223001

language in the regulation and model
forms is more concise and
understandable to consumers than the
language suggested by the commenters.
Proprietary Scores
As discussed above, proposed
ll.73(a)(1)(ix) required a person to
provide the additional content (i.e., the
credit score and related information) in
a general risk-based pricing notice if a
credit score of the consumer to whom a
person grants, extends, or otherwise
provides credit is used in setting the
material terms of credit. Similarly,
proposed ll.73(a)(2)(ix) required a
person to provide the additional content
in an account review notice if a credit
score of the consumer whose extension
of credit is under review is used in
increasing the annual percentage rate.
Some industry commenters
specifically asked when a proprietary
score would be deemed a credit score
for purposes of § ll.73. Proprietary
scores are those developed by creditors
themselves or for specific creditors, as
opposed to those developed by
consumer reporting agencies or large
scoring companies such as FICO or
Vantage Score for use by individual
creditors. Commenters also asked for
clarification regarding the information a
creditor should disclose under § ll.73
and the model form a creditor should
use when a creditor uses a proprietary
score in setting the material terms of
credit. Some industry commenters
indicated that a proprietary score
should not be required to be disclosed
under section 1100F of the Dodd-Frank
Act because Congress intended for this
provision to apply only to credit scores
that are obtained from consumer
reporting agencies, and disclosing
proprietary scores would be confusing
to consumers. Consumer advocates
suggested that all proprietary scores, in
particular credit-based insurance scores,
be subject to disclosure under § ll.73.
‘‘Credit score’’ for purposes of section
1100F of the Dodd-Frank Act and
§ ll.71(1) of the January 2010 Final
Rule is defined to have the same
meaning as section 609(f)(2)(A) of the
FCRA, 15 U.S.C. 1681g(f)(2)(A).
Specifically, section 609(f)(2)(A) of the
FCRA defines a credit score to mean ‘‘a
numerical value or a categorization
derived from a statistical tool or
modeling system used by a person who
makes or arranges a loan to predict the
likelihood of certain credit behaviors,
including default[.]’’ Accordingly,
scores not used to predict the likelihood
of certain credit behaviors, such as
insurance scores or scores used to
predict the likelihood of false identity,

PO 00000

Frm 00017

Fmt 4700

Sfmt 4700

41605

are not credit scores by definition, and
thus are not required to be disclosed.
Most credit scores that meet the FCRA
definition are scores that creditors
obtain from consumer reporting
agencies. Section 609(f)(2)(A) of the
FCRA specifically excludes some—but
notall—proprietary scores. The
definition of credit score does not
include any mortgage score or rating of
an automated underwriting system that
considers one or more factors in
addition to credit information,
including the loan-to-value ratio, the
amount of down payment, or the
financial assets of a consumer.
Thus, if a creditor uses a proprietary
score that is based on one or more of
these factors in addition to information
obtained from a consumer reporting
agency, this proprietary score is not a
credit score for purposes of § ll.71(1)
and ll.73 and thus does not need to
be disclosed to the consumer. If,
however, the creditor uses both a
proprietary score that does not meet the
definition of a credit score and a credit
score from a consumer reporting agency
in setting the material terms of credit or
reviewing the account, the creditor
would disclose the credit score from the
consumer reporting agency under
§ ll.73(a)(1)(ix) and ll.73(a)(2)(ix),
as applicable. Similarly, if a creditor
uses a credit score from a consumer
reporting agency as an input to a
proprietary score, but that proprietary
score itself is not a credit score, the
creditor would disclose the credit score
from the consumer reporting agency
under § ll.73. The creditor may use
the ‘‘Your Credit Score and
Understanding Your Credit Score’’
section of Forms H–6 and H–7 of the
Board’s rules and Forms B–6 and B–7 of
the Commission’s rules for these
disclosures.
In contrast, if a creditor uses a
proprietary score that only includes
information acquired from a consumer
reporting agency in setting the material
terms of credit or reviewing the account,
the proprietary score would be a credit
score under section 609(f)(2)(A) of the
FCRA. Commenters asked for guidance
on how to disclose information required
under § ll.73(a)(1)(ix) and
ll.73(a)(2)(ix) when a creditor uses
only a proprietary score deemed a credit
score under 609(f)(2)(A) of the FCRA.
These commenters also suggested that
the rules should permit creditors to
purchase a credit score from a consumer
reporting agency and disclose that credit
score, instead of disclosing the
proprietary score that is used in setting
the material terms of credit or reviewing
the account. Section 1100F of the DoddFrank Act requires disclosure of the

E:\FR\FM\15JYR1.SGM

15JYR1

mstockstill on DSK4VPTVN1PROD with RULES

41606

Federal Register / Vol. 76, No. 136 / Friday, July 15, 2011 / Rules and Regulations

credit score used in setting the material
terms of credit or reviewing the account.
The Agencies do not believe that a
creditor would comply with the statute
by disclosing a different credit score
purchased after setting the material
terms of credit based on a proprietary
score.
In these situations, the creditor
should modify the ‘‘Your Credit Score
and Understanding Your Credit Score’’
section of Forms H–6 and H–7 of the
Board’s rules and Forms B–6 and B–7 of
the Commission’s rules to reflect that
the creditor did not obtain a credit score
from a consumer reporting agency, but
rather used a proprietary score that met
the definition of a credit score under
609(f)(2)(A) of the FCRA in setting the
material terms of credit or reviewing the
account. The creditor should disclose
the value of the proprietary score, the
date, the range of proprietary scores,
and the key factors adversely affecting
the consumer’s proprietary score. The
creditor should indicate that it is the
source of the proprietary score.
Alternatively, the creditor has the
option of providing all consumers
requesting an extension of credit with a
credit score disclosure exception notice
pursuant to the January 2010 Final Rule
discussed below.
Commenters also asked for guidance
on what information to disclose under
§ ll.73(a)(1)(ix) and ll.73(a)(2)(ix)
when a creditor uses both a proprietary
score that meets the definition of a
credit score, and a credit score from a
consumer reporting agency in setting
the material terms of credit or reviewing
the account. Both scores would be
deemed credit scores under section
609(f)(2)(A) of the FCRA. In such cases
where both credit scores are used, a
creditor has the option to choose which
credit score to disclose, as detailed in
§ ll.73(d) discussed below. The
creditor may use Forms H–6 and H–7 of
the Board’s rules and Forms B–6 and B–
7 of the Commission’s rules to comply
with the requirements of
§ ll.73(a)(1)(ix) and ll.73(a)(2)(ix).
If the creditor chooses to disclose the
proprietary score, it would amend the
model forms as discussed above. If the
creditor chooses to disclose the credit
score from a consumer reporting agency,
the creditor would disclose the value of
that credit score, the date, the range of
credit scores, and the key factors
adversely affecting the consumer’s
credit score. The creditor would
indicate the consumer reporting agency
that is the source of the credit score.
Use of a Credit Score
Section 1100F of the Dodd-Frank Act
requires a risk-based pricing notice to

VerDate Mar<15>2010

15:47 Jul 14, 2011

Jkt 223001

include disclosure of a credit score used
by a person in making the credit
decision. A person who is required to
provide a general risk-based pricing
notice or account review notice may use
a consumer report to set the credit terms
offered or extended to consumers
without using a credit score. In a case
where a person does not use a credit
score in making the credit decision
requiring a risk-based pricing notice or
account review notice, the person is not
required to disclose a credit score and
information relating to a credit score.
Several industry commenters agreed
that creditors should not disclose a
credit score when they do not use a
credit score in making the credit
decision. These commenters also asked
that a creditor not be required to
disclose credit score information when
a creditor obtains but does not use a
credit score, or when the credit score
was not the cause of the risk-based
pricing.
Section 1100F of the Dodd-Frank Act
requires disclosure if a credit score was
used in setting the material terms of
credit. A creditor that obtains a credit
score and engages in risk-based pricing
would need to disclose that score,
unless the credit score played no role in
setting the material terms of credit.
Moreover, even if the credit score was
not a significant factor in setting the
material terms of credit but was a factor
in setting those terms, the creditor will
have used the credit score for purposes
of section 1100F of the Dodd-Frank Act.
With respect to the scope of the term
‘‘use,’’ the Agencies received one
comment suggesting that the original
creditor in certain three-party financing
transactions should be considered
outside the scope of the risk-based
pricing rules altogether and, therefore,
would not be required to provide a riskbased pricing notice. The risk-based
pricing rules apply to the original
creditor if that person ‘‘uses a consumer
report in connection with’’ an
application for credit. 15 U.S.C.
1681m(h)(1). The commenter contended
that the original creditor does not obtain
and thus does not ‘‘use’’ a consumer
report; rather the consumer report is
‘‘used’’ by an underlying finance source.
The Commission believes that this view
of ‘‘use’’ is too narrow.
The specific financing situation raised
in the comment involves an automobile
financing transaction where an
automobile dealer is the original
creditor. In this three-party financing
transaction, a consumer visits the
automobile dealer and applies for
financing by completing a loan
application with the dealer. The dealer
submits the loan application to one or

PO 00000

Frm 00018

Fmt 4700

Sfmt 4700

more unrelated finance sources, which
finance source(s) then conducts
underwriting on the consumer’s credit
application. Based in whole or in part
on the consumer report, the finance
source(s) provides the dealer with an
approval of the consumer’s application
and the wholesale buy rate at which the
finance source(s) will purchase the
resulting credit contract from the dealer.
The dealer then selects the finance
source to which it intends to assign the
contract and determines which credit
terms, including a retail finance rate
(‘‘APR’’), it will offer the consumer. The
commenter asserts that because the
original creditor (the automobile dealer)
does not directly obtain the consumer
report and/or credit score from a
consumer reporting agency, and instead
relies upon the buy rates from the
underlying financing sources, the
original creditor does not ‘‘use’’ the
consumer report and is outside the
scope of the risk-based pricing rules.
The Commission disagrees. The
automobile dealer must provide the
consumer with a risk-based pricing
notice.5
The original creditor has ‘‘used’’ a
consumer report in connection with an
application for credit because the
original creditor initiated the request
that caused the financing source to
obtain the consumer report and used the
resulting information from the financing
source to set the rate offered to
consumers. Applying a causal,
transaction-based analysis to the term
‘‘use’’ is consistent with the clear intent
of Congress to provide consumers with
information about the role that their
credit history plays in setting the terms
for credit.6 In the scenario set forth
above, the consumer report was used in
connection with the application for
credit made by the consumer to the
automobile dealer because the consumer
report was obtained by the financing
source in order to fulfill a request made
to it by the automobile dealer. The
finance source has not obtained and
used the consumer report and/or credit
score independently of the automobile
dealer. The finance source, at the behest
of the automobile dealer, has obtained
the reports and performed underwriting
and has told the automobile dealer the
wholesale buy rate at which it will
5 If the finance source used a credit score in its
underwriting, that automobile dealer must include
that score in the risk-based pricing notice.
6 This interpretation of ‘‘use’’ is also consistent
with the January 2010 Final Rule, where the
Agencies noted that the ‘‘automobile dealer’s use of
a consumer report to determine which third-party
financing source is likely to purchase the retail
installment sales contract and at what ‘buy rate’ is
conduct that fits squarely within the description of
risk-based pricing in [the final rules].’’ 75 FR 2730.

E:\FR\FM\15JYR1.SGM

15JYR1

Federal Register / Vol. 76, No. 136 / Friday, July 15, 2011 / Rules and Regulations
purchase the contract.7 The original
creditor incorporated the wholesale buy
rate in the rate offered to the consumer,
establishing a causal connection
between the consumer report and the
ultimate rate offered to the consumer.8
The original creditor has therefore
‘‘used’’ the consumer report.9
Guarantors and Co-Signers

mstockstill on DSK4VPTVN1PROD with RULES

In some cases, a creditor may use the
credit score of a guarantor, co-signer,
surety, or endorser, but not a credit
score of the consumer to whom it
extends credit or whose extension of
credit is under review. Proposed
§§ ll.73(a)(1)(ix) and ll.73(a)(2)(ix)
required a person to disclose a credit
score and information relating to a
credit score only when using the credit
score of the consumer to whom it grants,
extends, or otherwise provides credit or
whose extension of credit is under
review. As discussed in the January
2010 Final Rule, a person is not
required to provide a risk-based pricing
notice to a guarantor, co-signer, surety,
or endorser.10 A person may be
required, however, to provide a riskbased pricing notice to the consumer to
whom it grants, extends, or otherwise
provides credit, even if the person only
uses the consumer report or credit score
7 Indeed, it is unity of interest in the same credit
transaction between the original creditor/
automobile dealer and the underlying finance
source that provides the permissible purpose
pursuant to which the finance sources may obtain
the consumer’s report.
8 The Commission notes that the statute employs
the word ‘‘obtain’’ when addressing physical
possession, lending further support that ‘‘use’’ must
be a broader concept. See section 604(f) (providing
that ‘‘[a] person shall not use or obtain a consumer
report for any purpose unless * * * the consumer
report is obtained for a purpose for which the
consumer report is authorized to be furnished
[under the FCRA]’’); section 604(b)(1)(a) (a
consumer reporting agency cannot provide a
consumer report for employment purposes unless
the person who ‘‘obtains’’ the report provides a
certification to the consumer reporting agency that,
among other things, it will not be ‘‘used’’ in
violation of state or federal law).
9 The risk-based pricing rules require the
‘‘original creditor’’ to provide consumers with the
necessary notices. If the automobile dealer, the
original creditor in the situation described above,
was not required to provide the risk-based pricing
notice, consumers purchasing automobiles in threeparty financing transactions would never receive a
risk-based pricing notice or, in the alternative, a
credit score disclosure exception notice. Further, if
the responsibility for providing the risk-based
pricing notice was to be shifted to the underlying
finance sources in these types of transactions,
consumers could receive multiple risk-based
pricing notices per transaction from unfamiliar
entities, a result which would not be beneficial to
consumers. See 75 FR at 2730 (‘‘a consumer would
not benefit from receiving more than one risk-based
pricing notice in connection with a single extension
of credit and requiring multiple notices would
increase compliance burdens and costs’’).
10 See 75 FR at 2731 (Jan. 15, 2010).

VerDate Mar<15>2010

15:47 Jul 14, 2011

Jkt 223001

of the guarantor, co-signer, surety, or
endorser.
Some industry commenters and
consumer advocates supported the
proposed rules governing guarantors
and co-signers. The Agencies continue
to believe that the credit score of one
consumer, such as a guarantor, cosigner, surety, or endorser, should not
be disclosed to a different consumer
entitled to receive a risk-based pricing
notice. Therefore, when a person uses a
credit score only of a guarantor, cosigner, surety, or endorser to set the
terms of credit for the consumer to
whom it extends credit or whose
extension of credit is under review, a
person shall not include a credit score
in the general risk-based pricing notice
or account review notice provided to the
consumer.
Exception Notices
The Agencies note that the January
2010 Final Rule provides exceptions to
the requirements to provide general
risk-based pricing notices for persons
that provide credit score disclosure
exception notices to consumers who
request credit. See §§ 222.74(d), (e), and
(f); §§ 640.5(d), (e), and (f).
Many industry commenters argued
that section 1100F of the Dodd-Frank
Act does not affect creditors’ option to
provide credit score disclosure
exception notices to all consumers
instead of risk-based pricing notices.
Consumer advocates, however, urged
the Agencies to eliminate the credit
score disclosure exceptions. Consumer
advocates argued that giving creditors
the option to provide exception notices
would result in creditors rarely
providing risk-based pricing notices.
They stated that a key benefit of the
exception notices in comparison to the
risk-based pricing notices was that
consumers received a free credit score.
They asserted that section 1100F of the
Dodd-Frank Act eliminated this
comparative benefit of the exception
notices by requiring that risk-based
pricing notices also disclose credit
scores. Consumer advocates argued that
Congress did not eliminate the
exception notices in the Dodd-Frank Act
because the notices were created by
regulation, and were not the product of
Congress. Finally, consumer advocates
stated that section 1100F of the DoddFrank Act required disclosure of the
actual credit score used by the creditor,
while exception notices could contain a
generic credit score.
After the Dodd-Frank Act, there
remain strong arguments for retaining
the credit score disclosure exceptions.
The January 2010 Final Rule, which
includes the credit score disclosure

PO 00000

Frm 00019

Fmt 4700

Sfmt 4700

41607

exceptions, was published in January
2010 and became effective on January 1,
2011. Because the rules were published
more than six months before the DoddFrank Act was enacted, Congress could
have eliminated the credit score
disclosure exceptions but did not do so.
Moreover, the Agencies believe that the
credit score disclosure exception notices
continue to be consistent with the goals
of, and underlying reasons for, the riskbased pricing rule, which are to provide
consumers with education about their
credit profiles and alert them to
potentially inaccurate information in
their consumer reports that could have
a negative effect on the credit terms
being offered to them. Eliminating the
exception notices would result in fewer
consumers receiving their credit score
for free. To use the exception notice
provision, a creditor must provide
exception notices to all consumers who
apply for credit. By contrast, a creditor
must provide risk-based pricing notices
only to consumers receiving less
favorable terms from that particular
creditor. Thus, whether a consumer
with a particular credit profile would
receive a risk based pricing notice may
depend upon the creditor to which the
consumer applies. As a result, some
consumers of a given creditor may not
get risk-based pricing notices because
they do not receive materially less
favorable terms from that creditor, even
though they would generally receive
materially less favorable terms from
other creditors based on their credit
profiles. The credit score disclosure
exceptions arguably achieve a better
result—by requiring creditors using the
exception to provide notices to all
consumers who apply for credit—
consumers that would not have gotten
any notice would instead receive a free
credit score.11 In addition, consumers
are given exception notices earlier in the
credit decision process, thus giving
consumers an earlier opportunity to
identify any potential inaccuracies in
their consumer report.12 Consumers
benefit from knowing their credit score
earlier, even if they do not yet know
11 In addition, some consumers may not receive
a risk-based pricing notice even if they did not
receive the most favorable terms from that creditor
because creditors may not be able to precisely
distinguish those consumers who received the most
favorable terms from those who did not (or may
have used a proxy method). See 75 FR 2736. By
virtue of the fact that exception notices are
provided to all consumers who apply for credit, the
credit score disclosure exceptions avoid this
problem.
12 Credit score disclosure exceptions must be
given as soon as is reasonably practicable and, in
any event, no later than before consummation of the
transaction, whereas risk-based pricing notices are
required to be provided after the terms of credit are
set.

E:\FR\FM\15JYR1.SGM

15JYR1

41608

Federal Register / Vol. 76, No. 136 / Friday, July 15, 2011 / Rules and Regulations

mstockstill on DSK4VPTVN1PROD with RULES

what terms of credit they will be
offered. This earlier notice gives
consumers more time to consider, given
their current credit profile, whether they
want to continue with a credit
transaction at that time.
On the other hand, by requiring that
risk-based pricing notices disclose
credit scores when the credit scores
were used to set the terms of credit,
section 1100F of the Dodd-Frank Act
has eliminated one of the key
comparative benefits of the credit score
disclosure exception notices over the
risk-based pricing notices.13 Moreover,
while the exception notices contain
valuable information about how a
consumer’s credit score compares with
the credit scores of others, it does not
inform consumers that they may be
receiving less favorable credit terms or
an increase in their interest rate based
on their consumer report and/or their
credit score.
The Agencies note that eliminating
the credit score disclosure exception
notice would fundamentally change the
structure of the risk-based pricing rules
and may substantially affect compliance
costs. Given that rulemaking authority
will be transferred to the Bureau on July
21, 2011, the Agencies do not believe
that it is appropriate to make a
substantial and fundamental change to
the rules at this time. The final rules are
limited to implementing the
requirements of section 1100F of the
Dodd-Frank Act. Thus, the final rules
retain the credit score disclosure
exception notices.
Section ll.73(b) Form of the Notice
The Agencies provided model forms
that may be used for compliance with
the risk-based pricing requirements in
Appendices H and B of the January 2010
Final Rule. Paragraph (b)(2) of section
ll.73 of the January 2010 Final Rule
clarifies how each of the model forms of
the risk-based pricing notices required
by §§ ll.72(a) and (c), and by
§ ll.72(d) may be used. Paragraph
(b)(2) provides that appropriate use of
the model forms contained in
Appendices H–1 and H–2 of the Board’s
rules and Appendices B–1 and B–2 of
the Commission’s rules is deemed to
comply with §§ ll.72(a) and (c), and
§ ll.72(d), respectively. Use of these
model forms is optional.
Under the proposal, the Agencies
amended Appendices H and B of the
January 2010 Final Rule to add two new
model forms in Appendices H–6 and H–
7 of the Board’s proposed rules and
13 See 75 FR at 2742 (highlighting benefit to
consumers of providing credit scores to consumers
in exception notices).

VerDate Mar<15>2010

15:47 Jul 14, 2011

Jkt 223001

Appendices B–6 and B–7 of the
Commission’s proposed rules, for
situations where a credit score and
information relating to such credit score
must be disclosed. See Model Forms,
below. Proposed paragraph (b)(2)
clarified that appropriate use of Model
Form H–1 or H–6, or B–1 or B–6, is
deemed to comply with the
requirements of §§ ll.72(a) and (c). It
also clarified that appropriate use of
Model Form H–2 or H–7, or B–2 or B–
7, is deemed to comply with the
requirements of § ll.72(d).
The final rules adopt § ll.73(b) as
proposed. The comments received on
the proposed model forms are discussed
below. See Model Forms, below.
Section ll.73(d) Multiple Credit
Scores
Some creditors may obtain multiple
credit scores from consumer reporting
agencies in connection with their
underwriting processes. A creditor may
use one or more of those scores in
setting the material terms of credit.
Section 1100F of the Dodd-Frank Act
only requires a person to disclose a
single credit score that is used by the
person in making the credit decision.
The Agencies proposed § ll.73(d) to
address situations where a creditor
obtains multiple credit scores from
consumer reporting agencies, or obtains
a credit score from a consumer reporting
agency in addition to using a
proprietary score deemed a credit score
under the FCRA, and must provide
either a general risk-based pricing notice
or an account review notice to a
consumer.
Proposed § ll.73(d)(1) provided that
when a person uses one of those credit
scores in setting the material terms of
credit, for example, by using the low,
middle, high, or most recent score, the
general risk-based pricing and account
review notices are required to include
that credit score and information
relating to that credit score as required
by proposed §§ ll.73(a)(1)(ix) and
(a)(2)(ix). When a person uses two or
more credit scores in setting the
material terms of credit, for example, by
computing the average of all the credit
scores obtained, the notices are required
to include any one of those credit scores
and information relating to the credit
score as required by proposed
§§ ll.73(a)(1)(ix) and (a)(2)(ix). The
notice may, at the person’s option,
include more than one credit score,
along with the information specified in
proposed §§ ll.73(a)(1)(ix) and
(a)(2)(ix) for each credit score disclosed.
Proposed § ll.73(d)(2) provided
examples to illustrate the notice
requirements for creditors that obtain

PO 00000

Frm 00020

Fmt 4700

Sfmt 4700

multiple credit scores from consumer
reporting agencies. The first example
described in proposed § ll.73(d)(2)(i)
applied when a person that uses
consumer reports to set the material
terms of credit cards granted, extended,
or provided to consumers regularly
requests credit scores from several
consumer reporting agencies and uses
the low score when determining the
material terms it will offer to the
consumer. Under the proposed rules,
that person must disclose the low score
in its notices. The example described in
proposed § ll.73(d)(2)(ii) applied
when a person that uses consumer
reports to set the material terms of
automobile loans granted, extended, or
provided to consumers regularly
requests credit scores from several
consumer reporting agencies, each of
which it uses in an underwriting
program in order to determine the
material terms it will offer to the
consumer. Under the proposal, that
person could choose any one of these
scores to include in its notices.
A consumer advocate and several
industry commenters supported the
Agencies’ proposal. Other consumer
advocates recommended that creditors
disclose all the credit scores used. For
the reasons described below, the final
rules adopt § ll73(d) as proposed
with revisions to make clear that these
rules apply to use of proprietary scores
that meet the definition of ‘‘credit
score’’ in § ll.71(l) as well as credit
scores obtained from consumer
reporting agencies.
The final rules do not require
creditors to disclose all the credit scores
used if a creditor uses multiple credit
scores in setting the material terms of
credit. The final rules permit creditors
at their option to disclose all the credit
scores used. As noted above, although a
creditor may use multiple credit scores
in setting the material terms of credit,
section 1100F of the Dodd-Frank Act
only requires a person to disclose a
single credit score that is used by the
person in making the credit decision.
Further credit scoring models may differ
considerably in nature and range. The
Agencies believe that disclosing
multiple credit scores may confuse
consumers and provide them little
value. Consumers may not understand
the extent to which credit scoring
models differ, and may try to compare
the different credit scores. Such
comparisons may confuse consumers
and lessen the value of the credit score
disclosures.
Moreover, the Agencies do not believe
that requiring disclosure of a particular
credit score, for example, the lowest
score, would be in the best interest of

E:\FR\FM\15JYR1.SGM

15JYR1

Federal Register / Vol. 76, No. 136 / Friday, July 15, 2011 / Rules and Regulations
consumers when multiple scores are
used. The lowest score may not truly be
the ‘‘worst’’ score, since credit scoring
models differ, and requiring businesses
to identify the ‘‘worst’’ score would add
a layer of complexity without a clear
benefit to consumers. The Agencies also
note that the Dodd-Frank Act requires
the Bureau to ‘‘conduct a study on the
nature, range, and size variations’’ of
different credit scoring systems, and on
whether these variations disadvantage
consumers. Section 1078(a). The Bureau
must submit a report to Congress with
the results of this study within one year
after the Dodd-Frank Act enactment
date. Section 1078(b). That study may
shed light on the extent to which
disclosure of multiple credit scores
would benefit consumers, and the
Bureau could revisit the Agencies’
judgment in view of the results of its
study.
For the reasons discussed above, the
final rules do not require that creditors
always disclose the lowest credit score
if a creditor uses two or more credit
scores in setting the material terms of
credit. The Agencies believe that section
1100F of the Dodd-Frank Act does not
mandate that a person disclose the
lowest credit score that is used by the
person in making the credit decision, if
the person uses multiple credit scores in
setting the material terms of credit. The
person must simply disclose a credit
score used.

mstockstill on DSK4VPTVN1PROD with RULES

Section ll.75 Rules of construction
Section ll.75(c) Multiple Consumers
The proposed rules amended
§ ll.75(c) to address circumstances
where a person must provide multiple
consumers, such as co-borrowers, with
a risk-based pricing notice in a
transaction. The proposed rules retained
the rule of construction that clarifies
that in a transaction involving two or
more consumers who are granted,
extended, or otherwise provided credit,
a person must provide a risk-based
pricing notice to each consumer. The
proposed rules, however, amended the
rules addressing the provision of a riskbased pricing notice when the
consumers have the same address and
when the consumers have different
addresses, to account for situations
where a risk-based pricing notice
contains a consumer’s credit score.
Proposed § ll.75(c)(1) provided that
whether the consumers have the same
address or not, the person must provide
a separate notice to each consumer if a
notice includes a credit score(s). Each
separate notice that includes a credit
score(s) must contain only the credit
score(s) of the consumer to whom the

VerDate Mar<15>2010

15:47 Jul 14, 2011

Jkt 223001

notice is provided, and not the credit
score(s) of the other consumer. If the
consumers have the same address, and
the notice does not include a credit
score(s), a person may satisfy the
requirements by providing a single
notice addressed to both consumers.
The proposed rules also amended
§ ll.75(c)(3)(i) to provide an example
illustrating the notice requirements
when a person must provide a riskbased pricing notice that includes credit
score information to multiple
consumers. Proposed § ll.75(c)(3)(i)
clarified that, in a situation where two
consumers jointly apply for credit with
a creditor and the credit decision is
based in part on the consumers’ credit
scores, a separate risk-based pricing
notice must be provided to each
consumer whether the consumers have
the same address or not. Each separate
risk-based pricing notice must contain
the credit score(s) of the consumer to
whom the notice is provided.
Consumer advocates supported the
proposed rules governing multiple
consumers. Several industry
commenters asked that creditors have
the option to provide risk-based pricing
notices to all the applicants or only to
the applicant whose credit score was
used in setting the material terms of
credit. Some industry commenters also
argued that co-applicants elect to share
information with one another, and that
creditors cannot prevent co-applicants
from accessing each other’s risk-based
pricing notices.
Under section 615(h) of the FCRA, a
person generally must provide a riskbased pricing notice to a consumer
when the person uses a consumer report
in connection with an extension of
credit and, based in whole or in part on
a consumer report, extends credit to the
consumer on material terms that are
materially less favorable than the most
favorable terms available to a substantial
proportion of consumers. A creditor
therefore must provide a risk-based
pricing notice to all co-applicants, and
not only to the applicant whose credit
score was used in setting the material
terms of credit.14 Further, the Agencies
do not believe co-applicants necessarily
choose, merely by applying for credit
together, to share sensitive information
with one another, in particular, credit
scores. The Agencies understand that
14 As noted above, a creditor that obtains a credit
score and engages in risk-based pricing would need
to disclose that score, unless the credit score played
no role in setting the material terms of credit. If the
credit score obtained for an applicant played no
role in setting the material terms of credit, then the
creditor does not need to include a credit score in
the risk-based pricing notice provided to that
applicant.

PO 00000

Frm 00021

Fmt 4700

Sfmt 4700

41609

creditors may not be able to prevent coapplicants from accessing each other’s
risk-based pricing notices. Yet the
Agencies believe that creditors must
provide each risk-based pricing notice
to the corresponding applicant, in
keeping with privacy concerns.
Appendix H of the Board’s Rules and
Appendix B of the Commission’s Rules
Model Forms
Appendix H of the Board’s rules and
Appendix B of the Commission’s rules
contain five model forms that the
Agencies prepared to facilitate
compliance with the rules. Two of the
model forms are for risk-based pricing
notices and three of the model forms are
credit score disclosure exception
notices. Each of the model forms is
designated for use in a particular set of
circumstances as indicated by the title
of that model form. Model forms H–1
and B–1 are for use in complying with
the general risk-based pricing notice
requirements in § ll.72. Model forms
H–2 and B–2 are for use in complying
with the risk-based pricing notices given
in connection with account review in
§ ll.72.
The proposed rules added two new
forms that could be used when a person
must disclose credit score information
to a consumer. Model forms H–6 and B–
6 set forth a risk-based pricing notice
with credit score information that could
be used to comply with the general riskbased pricing requirements if the
additional content requirements of
§ ll.73(a)(1)(ix) apply. Model forms
H–7 and B–7 set forth an account review
risk-based pricing notice with credit
score information that could be used to
comply with the account review notice
requirements if the additional content
requirements of § ll.73(a)(2)(ix)
apply.
Model forms H–1 and H–2, and B–1
and B–2, are retained. The general riskbased pricing and account review
notices could continue to be used to
comply with § ll.72 when the
additional content requirements
discussed in §§ ll.73(a)(1)(ix) and
(a)(2)(ix) do not apply. As with the other
model forms, use of the model forms H–
6 or H–7, or B–6 or B–7, by creditors is
optional. If a creditor appropriately uses
Model Form H–6 or H–7, or B–6 or B–
7, or modifies a form in accordance with
the rules or the instructions to the
appendix, that creditor will be within
the rules’ safe harbor and is deemed to
be acting in compliance with the general
risk-based pricing notice or account
review notice requirement when the
content provisions of §§ ll.73(a)(1)(ix)
or (a)(2)(ix) apply.

E:\FR\FM\15JYR1.SGM

15JYR1

mstockstill on DSK4VPTVN1PROD with RULES

41610

Federal Register / Vol. 76, No. 136 / Friday, July 15, 2011 / Rules and Regulations

Finally, the proposal amended
instructions 1. and 2. to Appendices H
and B to reflect the addition of H–6 and
H–7, and B–6 and B–7. The Agencies
did not receive comments on the
proposed changes to instructions 1. and
2. to Appendices H and B. The Agencies
are adopting the changes to instructions
1. and 2. to Appendices H and B as
proposed in the final rules.
In addition, as discussed in more
detail above, model forms H–6 and H–
7 of the Board’s rules and B–6 and B–
7 of the Commission’s rule are also
revised to add the statement: ‘‘We used
your credit score to set the terms of
credit we are offering you,’’ in the
‘‘What you should know about your
credit score’’ box on the model forms.
See Additional Information Regarding
Credit Scores, above.
The Agencies received several
comments on the proposed model
forms, as discussed in more detail
below. The final rules adopt model
forms H–6 and H–7 of the Board’s rule
and B–6 and B–7 of the Commission’s
rule as proposed with one revision
pertaining to the disclosure of contact
information for the entity that provided
the credit score.
Contact information for the entity that
provided the credit score. An industry
commenter asked that the Agencies add
language to the model forms directing
the consumer to the consumer reporting
agency for more information about the
credit score. The commenter believed
that consumers may otherwise contact
creditors with questions about their
credit score, but that creditors are not in
a position to answer those questions.
The Agencies are adding optional
language to model forms H–6 and H–7
of the Board’s rule and B–6 and B–7 of
the Commission’s rule directing the
consumer to the entity (which may be
a consumer reporting agency or, in the
case of a proprietary score that meets
the definition of a credit score, the
creditor itself) that provided the credit
score for any questions about the credit
score, along with the entity’s contact
information. Creditors may use or not
use the additional language without
losing the safe harbor, since the
language is optional. The final rules add
new instruction 4. to Appendices H and
B to make clear that this disclosure of
the entity’s contact information is
optional.
Co-applicants, guarantors, and cosigners. An industry commenter
recommended providing creditors with
the flexibility to add language to the
model forms to indicate that for coapplicants, the terms of credit may be
based on either or both of the
applicants’ credit information. A

VerDate Mar<15>2010

15:47 Jul 14, 2011

Jkt 223001

consumer advocate similarly suggested
adding language to the model forms
indicating that for applications with a
guarantor or co-signer, the terms of
credit may be based on either or both of
the applicant’s, guarantor’s, or cosigner’s credit information. The
commenters explained that such
language would decrease consumer
confusion, since an applicant with an
excellent credit profile who receives a
risk-based pricing notice may not realize
that the risk-based pricing decision may
have been made because of the coapplicant’s, guarantor’s, or co-signer’s
credit profile.
The Agencies believe the additional
language may simply complicate the
disclosures without providing a
substantial benefit to consumers. An
applicant with strong credit who
receives a risk-based pricing notice will
likely understand that the adverse
decision was based on the co-applicant,
guarantor, or co-signer’s credit
information or will contact the creditor
to inquire.
Disclosure that no credit score is
available. In some cases, a creditor may
try to obtain a credit score for an
applicant, but the applicant may have
insufficient credit history for the
consumer reporting agency to generate a
credit score. One commenter asked that
the creditor have the option to amend
the model forms to provide the
applicant notice that no credit score was
available from a consumer reporting
agency in the space available on the
model forms for the credit information
disclosure.
Section 1100F only applies when a
creditor uses a credit score in setting the
material terms of credit. The creditor
cannot and is not required to disclose
credit score information if an applicant
has no credit score. Nothing in section
1100F of the Dodd-Frank Act prevents
a creditor from providing the applicant
notice that no credit score was available
from a consumer reporting agency,
although section 1100F does not require
such notice.
Order of content. The Agencies
specifically solicited comment on the
ordering of the content in Model Forms
H–6 and H–7, and B–6 and B–7, and
whether the credit score and
information relating to a credit score
should be presented prior to the
information on consumer reports.
Some commenters indicated that the
Agencies should not change the order of
the content in the model forms to
present the credit score and information
relating to the credit score prior to
information on consumer reports. One
commenter indicated that changing the
order of content would impose

PO 00000

Frm 00022

Fmt 4700

Sfmt 4700

additional compliance burdens on
creditors without providing significant
additional benefits for consumers.
Another commenter proposed that the
credit score information should be
moved up and incorporated into the
information on consumer reports,
instead of disclosed separately at the
bottom of the notice. The final rules
retain the order of the content in the
model forms as proposed. The Agencies
believe that it is appropriate to disclose
the information related to credit reports
first because the primary purpose of the
risk-based pricing notices is to alert
consumers that risk-based pricing
occurred as a result of their consumer
reports. Further, in retaining the
proposed order of the content, the
model forms more logically progress
from more general consumer report
information to more specific credit score
information. In addition, given that a
creditor may still provide a consumer
Forms H–1 and H–2 of the Board’s rules
and Forms B–1 and B–2 of the
Commission’s rules when the creditor
does not use the consumer’s credit score
in setting the material terms of credit,
providing the credit score information
after the consumer report information
will promote ease of use for creditors
who use Forms H–1 and H–2 of the
Board’s rules and Forms B–1 and B–2 of
the Commission’s rules for some
consumers and the amended model
forms for other consumers.
Order of credit report information.
One commenter suggested that the
credit report information in the model
form should be reordered. Proposed
Model Forms H–6 and H–7 of the
Board’s rules and Forms B–6 and B–7 of
the Commission’s rules disclose the
credit score in the first row of the
section ‘‘Your Credit Score and
Understanding Your Credit Score.’’ An
explanation of what credit scores are is
disclosed in the second row of this
section. The commenter suggested that
the information would be more
understandable to consumer if the
explanation of what credit scores are
was disclosed in the first row of this
section.
The final rules retain the proposed
order of the credit report information in
model forms H–6 and H–7 of the
Board’s rules and Forms B–6 and B–7 of
the Commission’s rules. The Agencies
believe that disclosing the credit score
that is used in setting the material credit
terms or reviewing the account is the
primary purpose of the provisions of
section 1100F of the Dodd-Frank Act.
By placing the credit score that is
applicable to the consumer in the first
row of the section ‘‘Your Credit Score
and Understanding Your Credit Score,’’

E:\FR\FM\15JYR1.SGM

15JYR1

mstockstill on DSK4VPTVN1PROD with RULES

Federal Register / Vol. 76, No. 136 / Friday, July 15, 2011 / Rules and Regulations
the Agencies believe that consumers are
more likely to continue reading the
notice to find out additional information
about the credit score.
Attaching the credit score information
to the current model form. One industry
commenter asked the Agencies to clarify
that a creditor may staple or append the
credit score information using a
supplemental document to a current
model form on general risk-based
pricing (H–1 and B–1) or an account
review notice (H–2 and B–2). The
Agencies note that information
contained on the first page of H–1 and
B–1 is the same as the information
contained on the first page of H–6 and
B–6. Likewise, the information
contained on the first page of H–2 and
B–2 is the same as the information
contained on the first page of H–7 and
B–7. The difference between H–1 (or B–
1) and H–6 (or B–6) is the inclusion of
the credit score information contained
in the section ‘‘Your Credit Score and
Understanding Your Credit Score’’ that
is contained on the second page of H–
6 and B–6. Likewise, the difference
between H–2 (or B–2) and H–7 (or B–
7) is the inclusion of the credit score
information contained in the section
‘‘Your Credit Score and Understanding
Your Credit Score’’ that is contained on
the second page of H–7 and B–7. Thus,
the Agencies believe that a creditor will
be deemed to have used H–6 or B–6 if
it staples or appends to H–1 or B–1 the
credit score information contained in
the section ‘‘Your Credit Score and
Understanding Your Credit Score’’ that
is contained on the second page of H–
6 and B–6. Instruction 3. to Appendices
H and B sets out the modifications that
may be made to the model forms
without losing the benefit of safe harbor.
The combined H–1 or B–1 and
attachment must comply with
Instruction 3. to Appendices H and B for
the creditor to retain the safe harbor for
using H–6 or B–6. Likewise, a creditor
will be deemed to have used H–7 or B–
7 if it staples or appends to H–2 or B–
2 the credit score information contained
in the section ‘‘Your Credit Score and
Understanding Your Credit Score’’ that
is contained on the second page of H–
7 and B–7, in a format substantially
similar to H–7 and B–7. The combined
H–2 or B–2 and attachment must
comply with Instruction 3. to
Appendices H and B for the creditor to
retain the safe harbor for using H–7 or
B–7.
Use of graphs or table format. An
industry commenter requested that the
Agencies clarify that creditors may use
a graph or table format to provide the
information in the model forms without
losing the safe harbor. The commenter

VerDate Mar<15>2010

15:47 Jul 14, 2011

Jkt 223001

stressed that graphs, tables, and other
visual devices may be clearer and more
useful to consumers.
Although the Agencies certainly
encourage simplicity, one of the key
benefits of a safe harbor is uniformity.
Thus, it is difficult to make a blanket
statement that creditors may substitute
graphs or tables without losing the safe
harbor.
The Agencies reiterate the
interpretation in the proposed rule. A
creditor may rearrange the format of the
model forms or make technical
modifications to the language of the
model forms, so long as the creditor
does not change the substance of the
disclosures. See Instruction 3. to
Appendices H and B. The creator may
not, however, make such an extensive
rearrangement or modification of the
language of the model forms as to
materially affect the substance, clarity,
comprehensibility, or meaningful
sequence of the model forms. See
Instruction 3. to Appendices H and B.
Such extensive rearrangements or
modification of the language of the
model forms would result in loss of the
safe harbor. See Instruction 3. to
Appendices H and B. Whether a graph
or table could be used without losing
the safe harbor would have to be
determined on a case by case basis using
this standard.
Implementation Date
The Agencies noted in the proposal
that the amendments in section 1100F
of the Dodd-Frank Act are effective on
July 21, 2011. Several industry
commenters asked that the Agencies
delay the implementation date by 6
months to at least 12 months. One
commenter suggested that the Agencies
stay the rulemaking, and let the Bureau
finalize the rules. Another commenter
requested that creditors receive the
benefit of the safe harbor for using the
proposed model forms until creditors
can implement the requirements in the
final rule.
Several industry commenters argued
that the risk-based pricing requirements
in section 1100F do not become
effective until incorporated by rules,
because section 1100F amends section
615(h) of the FCRA, and that section
615(h)(6) of the FCRA states that
regulations are required to implement
risk-based pricing requirements.
Further, one industry commenter
asserted that section 1088(a)(9) of the
Dodd-Frank Act amends the FCRA to
require the Bureau to issue regulations
implementing section 1100F. This
commenter argued that Congress could
not have intended section 1100F of the
Dodd-Frank Act to take effect on July

PO 00000

Frm 00023

Fmt 4700

Sfmt 4700

41611

21, 2011 since the Bureau would not yet
be operational. The commenter
concluded that section 1100F of the
Dodd-Frank Act is an exception to the
July 21, 2011 effective date.
Section 1100F of the Dodd-Frank Act
provides that the amendments in
Subtitle H of Title X, which includes
Section 1100F, become effective on a
‘‘designated transfer date.’’ The
Secretary of the Treasury set the
designated transfer date as July 21,
2011. 75 FR 57252 (Sept. 20, 2010).
Thus, effective July 21, 2011, section
1100F of the Dodd-Frank Act amends
section 615(h)(5) of the FCRA, which
sets forth the minimum content required
for risk-based pricing notices. Even if
the Agencies did not modify the model
forms to incorporate this additional
minimum content, creditors would be
required to disclose this information
pursuant to the statute.
Rather than have creditors create their
own notices in order to comply with
section 1100F of the Dodd-Frank Act,
the Agencies are exercising their
existing authority to amend the model
notices to reflect these changes to avoid
consumer confusion, and to ensure
timely, consistent, and uniform
compliance with the new content
provisions. Section 615(h) gives the
Agencies the authority to issue rules
implementing the risk-based pricing
provisions, including authority to
address ‘‘the form, content, timing, and
manner of delivery’’ of risk-based
pricing notices. The Agencies believe
that adding to the requirements for the
risk-based pricing notice the content
required by section 1100F of the DoddFrank Act, and providing revised model
notices is appropriate. These final rules
are thus effective and compliance is
mandatory beginning 30 days after the
date of publication in the Federal
Register.
III. Regulatory Analysis
A. Paperwork Reduction Act
The Agencies have reviewed the final
rules and determined that they contain
‘‘collections of information’’ subject to
the Paperwork Reduction Act of 1995,
44 U.S.C. 3501–3521 (PRA). An agency
may not conduct or sponsor, and a
respondent is not required to respond
to, an information collection unless it
displays a currently valid Office of
Management and Budget (OMB) control
number.
The Board has reviewed and
approved the final rulemaking under the
authority delegated by OMB. 5 CFR part
1320, Appendix A.1. The collections of
information required by this final

E:\FR\FM\15JYR1.SGM

15JYR1

41612

Federal Register / Vol. 76, No. 136 / Friday, July 15, 2011 / Rules and Regulations

mstockstill on DSK4VPTVN1PROD with RULES

rulemaking are found in 12 CFR
222.73(a)(1) and (a)(2).15
The Commission submitted the
information collection requirements
contained in the proposed rulemaking
to OMB for review and approval under
the PRA; OMB withheld formal action
on the rulemaking pending its further
review of the joint final rules. The
collections of information required by
this final rulemaking are found in 16
CFR 640.4(a)(1) and (a)(2).
As discussed above, on March 15,
2011, the Agencies published in the
Federal Register a joint notice of
proposed rulemaking that is consistent
with new content requirements in
section 615(h) of the FCRA that were
added by section 1100F of the DoddFrank Act. 76 FR 13902. The final rules
require creditors to disclose credit score
information to consumers when a credit
score is used to set or adjust the terms
of credit. Specifically, the final rules
would require the following disclosures:
(1) The credit score used by the person
in making the credit decision; (2) the
range of possible credit scores under the
model used to generate the credit score;
(3) all of the key factors that adversely
affected the credit score, which shall not
exceed four key factors, except that if
one of the key factors is the number of
enquiries made with respect to the
consumer report, the number of key
factors shall not exceed five; (4) the date
on which the credit score was created;
and (5) the name of the consumer
reporting agency or other person that
provided the score. In addition, the final
rules require a statement that a credit
score is a number that takes into
account information in a consumer
report, that the consumer’s credit score
was used to set the terms of credit
offered, and that a credit score can
change over time to reflect changes in
the consumer’s credit history.
In the proposal, the Agencies
collectively estimated that respondents
potentially affected by the additional
notice would take, on average, 16 hours
(2 business days) to update their
systems and modify model notices to
comply with the proposed
requirements. The Agencies recognized
that the amount of time needed for any
particular creditor subject to the
proposed requirements may be higher or
15 The information collections (ICs) in this rule
will be incorporated with the Board’s
Recordkeeping and Disclosure Requirements
Associated with Regulation V (OMB No. 7100–
0308). The burden estimates provided in this rule
pertain only to the ICs associated with this final
rulemaking. The current OMB inventory for
Regulation V is available at: http://www.reginfo.gov/
public/do/PRAMain.

VerDate Mar<15>2010

15:47 Jul 14, 2011

Jkt 223001

lower, but believed this average figure
was a reasonable estimate.
Comments Received
The Agencies received 13
comments—two from banks, three from
utilities, two from credit union trade
association, two from banking trade
associations, two from credit and
financial services companies, one from
a consumer credit trade association, and
one from a law firm on behalf of an
unspecified client—in response to the
PRA section of the proposal. The
commenters asserted that the time
needed to update their systems to
incorporate these requirements and
coordinate with consumer reporting
agencies as necessary would exceed the
16 hours estimated by the Agencies.
Burden Statement
Based on these comments, the
Agencies agree that some additional
time beyond 16 hours may be needed.
The Agencies, therefore, have revised
upward their prior burden estimate. The
Agencies believe that 32 hours (4
business days) is a reasonable estimate
of the average amount of time to modify
existing database systems to incorporate
these new requirements. Entities
affected by these final rules are already
familiar with the existing provisions of
section 615(h) of the FCRA, which
require risk-based pricing disclosures
when a person uses a consumer report
in setting the material terms of credit.
The new requirement to require
creditors to disclose credit score
information to consumers when a credit
score is used to set or adjust the terms
of credit should not be burdensome. In
addition, the Agencies have provided
model notices that should significantly
reduce the cost of compliance with the
final rules. Moreover, the Agencies have
provided exceptions to the final rules,
whereby creditors may fulfill their
compliance obligation by providing
credit score disclosure exception
notices.
Frequency of Response: On occasion.
Affected Public: Any person that is
required to provide a risk-based pricing
notice and uses a credit score in making
the credit decision requiring a riskbased pricing notice.
Board:
For purposes of the PRA, the Board is
estimating the burden for entities
regulated by the Board, Office of the
Comptroller of the Currency, Federal
Deposit Insurance Corporation, Office of
Thrift Supervision, National Credit
Union Administration, and the U.S.
Department of Housing and Urban
Development (collectively, the ‘‘Federal
financial regulatory agencies’’). Such

PO 00000

Frm 00024

Fmt 4700

Sfmt 4700

entities may include, among others,
State member banks, national banks,
insured nonmember banks, savings
associations, Federally-chartered credit
unions, and other mortgage lending
institutions.
Number of Respondents: 18,173.
Estimated Time per Response: 32
hours (four business days) to update
systems and modify model notices to
comply with final requirements.
Total Estimated Annual Burden:
581,536 hours.
Commission:
For purposes of the PRA, the
Commission is estimating the burden for
entities that extend credit to consumers
for personal, household, or family
purposes, and are subject to
administrative enforcement by the FTC
pursuant to section 621(a)(1) of the
FCRA (15 U.S.C. 1681s(a)(1)). These
businesses include, among others, nonbank mortgage lenders, consumer
lenders, utilities, state-chartered credit
unions, and automobile dealers and
retailers that directly extend credit to
consumers for personal, non-business
uses.
Number of Respondents: 199,500.16
Estimated Time per Response: 32
hours (4 business days) to update
systems and modify model notices.
Total Estimated Annual Burden:
Based on an estimated 199,500
respondents, the one-time burden,
annualized for a 3 year PRA clearance,
would be 2,128,000 hours [(32 ×
199,500) ÷ 3]. The Commission believes
that, on a continuing basis, the revision
to the final rules would have a
negligible effect on the annual burden.
The estimated one-time labor cost for all
categories of FTC covered entities under
the final rule, annualized for a 3 year
PRA clearance, is $91,397,600.
Total Estimated Cost Burden:
Commission staff derived labor costs by
applying appropriate estimated hourly
cost figures to the burden hours
described above. It is difficult to
16 This estimate derives in part from an analysis
of the figures obtained from the North American
Industry Classification System (NAICS)
Association’s database of U.S. businesses. See
http://www.naics.com/search.htm. Commission
staff identified categories of entities under its
jurisdiction that also directly provide credit to
consumers. Those categories include retail, vehicle
dealers, consumer lenders, and utilities. The
estimate also includes state-chartered credit unions,
which are subject to the Commission’s jurisdiction.
See 15 U.S.C. 1681s. For the latter category,
Commission staff relied on estimates from the
Credit Union National Association for the number
of non-federal credit unions. See http://
www.ncua.gov/news/quick_facts/Facts2007.pdf. For
purposed of estimating the burden, Commission
staff made the conservative assumption that all of
the included entities engage in risk-based pricing
and use a credit score in making the credit decision
requiring a risk-based pricing notice.

E:\FR\FM\15JYR1.SGM

15JYR1

Federal Register / Vol. 76, No. 136 / Friday, July 15, 2011 / Rules and Regulations
calculate with precision the labor costs
associated with the final rules, as they
entail varying compensation levels of
clerical, management, and/or technical
staff among companies of different sizes.
In calculating the cost figures,
Commission staff assumes that
managerial and/or professional
technical personnel will update systems
for providing risk-based pricing notices
and adapt the written notices as
necessary at an hourly rate of $42.95.17
Based on the above estimates, the
estimated one-time labor cost for all
categories of FTC covered entities under
the final rule, annualized for a 3 year
PRA clearance, is $91,397,600 [((32
hours × $42.95) × 199,500) ÷ 3].
Commission staff does not anticipate
that compliance with the final rules will
require any new capital or other nonlabor expenditures. The final rules
provide a simple and concise model
notice that creditors may use to comply,
and, as creditors already are providing
risk-based pricing notices to consumers
under the FCRA, they already have the
necessary resources to generate and
distribute these notices. Thus, any
capital or non-labor costs associated
with compliance would be negligible.

mstockstill on DSK4VPTVN1PROD with RULES

B. Regulatory Flexibility Act
Board:
The Board prepared an initial
regulatory flexibility analysis under the
Regulatory Flexibility Act (RFA) (5
U.S.C. 601 et seq.) in connection with
the proposed rules. The final rules cover
certain banks, other depository
institutions, and non-bank entities that
extend credit to consumers. The Small
Business Administration (SBA)
establishes size standards that define
which entities are small businesses for
purposes of the RFA.18 The size
standard to be considered a small
business is: $175 million or less in
assets for banks and other depository
institutions; and $7 million or less in
annual revenues for the majority of nonbank entities that are likely to be subject
to the final rules. Under Section 605(b)
of the RFA, 5 U.S.C. 605(b), the
regulatory flexibility analysis otherwise
required under section 604 of the RFA
is not required if an agency certifies,
along with a statement providing the
factual basis for such certification, that
the rules will not have a significant
17 This cost is derived from the median hourly
wage for management occupations found in the
May 2009 National Occupational Employment and
Wage Estimates of the Bureau of Labor Statistics,
Table 1.
18 U.S. Small Business Administration, Table of
Small Business Size Standards Matched to North
American Industry Classification System Codes,
available at http://www.sba.gov/idc/groups/public/
documents/sba_homepage/serv_sstd_tablepdf.pdf.

VerDate Mar<15>2010

15:47 Jul 14, 2011

Jkt 223001

economic impact on a substantial
number of small entities. The Board
hereby certifies that the final rules will
not have a significant economic impact
on a substantial number of small
business entities. The Board recognizes
that the final rules will affect some
small business entities; however the
Board does not expect that a substantial
number of small businesses will be
affected or that the final rules will have
a significant economic impact on them.
Nonetheless, the Board has decided to
publish a final regulatory flexibility
analysis with the final rules and has
prepared the following analysis:
1. Reasons for the Final Rules
Section 1100F of the Dodd-Frank Act
amends section 615(h) of the FCRA to
require persons to disclose a credit score
and information relating to that credit
score in risk-based pricing notices when
the person uses a credit score in setting
the material terms of credit.
Specifically, a person must disclose, in
addition to the information currently
required by the January 2010 Final Rule:
(1) A numerical credit score used in
making the credit decision; (2) the range
of possible scores under the model used;
(3) the key factors that adversely
affected the credit score of the consumer
in the model used; (4) the date on which
the credit score was created; and (5) the
name of the person or entity that
provided the credit score. The effective
date of these amendments is July 21,
2011.
The Agencies are issuing final rules to
amend the risk-based pricing rules
pursuant to their existing authority
under section 615(h) of the FCRA, to
facilitate compliance with the new
requirements under section 1100F of the
Dodd-Frank Act.
2. Statement of Objectives and Legal
Basis
The SUPPLEMENTARY INFORMATION
above contains information on the
objectives and legal basis of the final
rules. The legal basis for the final rules
is section 615(h) of the FCRA. The final
rules are consistent with section 1100F
of the Dodd-Frank Act.
3. Summary of Issues Raised by
Commenters
Some industry commenters stated that
the proposed rules would create
substantial compliance burdens,
particularly for small entities. They
asked that small entities be exempt from
the requirements, or that the Board
delay the implementation date for small
entities.
The compliance burdens identified by
these commenters are not substantially

PO 00000

Frm 00025

Fmt 4700

Sfmt 4700

41613

different from the burdens imposed by
the January 2010 Final Rule. In
addition, the exemption requested by
the commenters would also affect the
underlying January 2010 Final Rule.
Further, changes to the risk-based
pricing rules and notices beyond those
required by section 1100F of the DoddFrank Act are outside the scope of this
rulemaking. Finally, the Agencies do
not believe such changes to the January
2010 Final Rule are appropriate in light
of the impending transfer of rulemaking
authority to the Bureau.
4. Description of Small Entities to
Which the Regulation Applies
The final rules apply to any person
that (1) is required to provide a riskbased pricing notice to a consumer; and
(2) uses a credit score in making the
credit decision requiring a risk-based
pricing notice. The total number of
small entities likely to be affected by the
final rules is unknown, because the
Agencies do not have data on the
number of small entities that use credit
scores for risk-based pricing in
connection with consumer credit. The
risk-based pricing provisions of section
1100F of the Dodd-Frank Act have
broad applicability to persons who use
credit scores for risk-based pricing in
connection with the provision of
consumer credit.
Based on estimates compiled by the
Board, the Federal Deposit Insurance
Corporation, and the Office of Thrift
Supervision, there are approximately
9,458 depository institutions that could
be considered small entities and that are
potentially subject to the final rules.19
The available data are insufficient to
estimate the number of non-bank
entities that would be subject to the
final rules and that are small as defined
by the SBA. Such entities would
include non-bank mortgage lenders,
automobile finance companies,
automobile dealers, other non-bank
finance companies, telephone
companies, and utility companies.
It also is unknown how many of these
small entities that meet the SBA’s size
standards and that are potentially
subject to the final rules use credit
scores for risk-based pricing in
connection with the provision of
consumer credit. The final rules do not
impose any requirements on small
entities that do not use credit scores for
19 The estimate includes 1,459 institutions
regulated by the Board, 659 national banks, and
4,099 federally-chartered credit unions, as
determined by the Board. The estimate also
includes 2,872 institutions regulated by the FDIC
and 369 thrifts regulated by the OTS. See 75 FR
36016, 36020 (Jun. 24, 2010).

E:\FR\FM\15JYR1.SGM

15JYR1

41614

Federal Register / Vol. 76, No. 136 / Friday, July 15, 2011 / Rules and Regulations

risk-based pricing in connection with
consumer credit.

mstockstill on DSK4VPTVN1PROD with RULES

5. Projected Reporting, Recordkeeping
and Other Compliance Requirements
The compliance requirements of the
final rules are described in detail in the
SUPPLEMENTARY INFORMATION above.
The final rules generally require a
person that is required to provide a riskbased pricing notice to a consumer and
uses a credit score in making the credit
decision to provide a credit score and
information relating to that credit score
in the notice, in addition to the
information currently required by the
January 2010 Final Rule.
Pursuant to the January 2010 Final
Rule, a person is required to determine
if it engages in risk-based pricing, based
in whole or in part on consumer reports,
in connection with the provision of
consumer credit. If the person does
engage in risk-based pricing based on
consumer reports, the person generally
is currently required to establish
procedures for identifying those
consumers to whom it must provide
risk-based pricing notices.
A person that is required to provide
risk-based pricing notices to certain
consumers would need to analyze the
regulations. The person would need to
determine whether it used credit scores
for risk-based pricing of the consumers
to whom it must provide risk-based
pricing notices. Pursuant to the final
rules, a person that uses credit scores for
risk-based pricing would need to
provide a credit score and information
relating to that credit score to those
consumers to whom it must provide an
risk-based pricing notice, in addition to
the information currently required by
the January 2010 Final Rule. The person
would need to design, generate, and
provide notices, including a credit score
and information relating to that credit
score, to the consumers to whom it must
provide a risk-based pricing notice.
The Board does not expect that the
costs associated with the final rules will
place a significant burden on small
entities.
6. Identification of Duplicative,
Overlapping, or Conflicting Federal
Regulations
The Board has not identified any
federal statutes or regulations that
would duplicate, overlap, or conflict
with the final rules. As discussed in Part
II above, the amendments to the riskbased pricing rules are consistent with
section 1100F of the Dodd-Frank Act.
The Agencies are issuing the final rules
pursuant to their existing authority
under section 615(h) of the FCRA. The
amendments to the risk-based pricing

VerDate Mar<15>2010

15:47 Jul 14, 2011

Jkt 223001

rules have been designed to work in
conjunction with the requirements of
section 1100F of the Dodd-Frank Act, to
help facilitate uniform compliance
when this section becomes effective.
7. Steps Taken To Minimize the
Economic Impact on Small Entities
The Board solicited comments on any
significant alternatives consistent with
section 615(h) of the FCRA, including
the provisions of section 1100F of the
Dodd-Frank Act, that would minimize
the impact of the final rules on small
entities. As noted above, several
industry commenters suggested that
small entities be exempt from the
proposed rules, or that the Board delay
the effective date for small entities.
The Board has sought to minimize the
economic impact on small entities by
adopting rules that are consistent with
those adopted by the Commission, and
providing model notices to ease
creditors’ burden. As explained above,
given the impending transfer of
rulemaking authority to the Bureau, the
Agencies do not believe it is appropriate
to make changes to the January 2010
risk-based pricing rules and notices
beyond those required by section 1100F
of the Dodd-Frank Act. Such changes
are beyond the scope of this rulemaking.
In addition, Congress set the effective
date for section 1100F of the DoddFrank Act for July 21, 2011. To facilitate
compliance, the final rules are effective
and compliance is mandatory beginning
30 days after the date of publication in
the Federal Register.
Commission
The Regulatory Flexibility Act
(‘‘RFA’’), 5 U.S.C. 601–612, requires that
the Commission provide an Initial
Regulatory Flexibility Analysis (IRFA)
with a proposed rules and a Final
Regulatory Flexibility Analysis (FRFA)
with the final rules, unless the
Commission certifies that the rules will
not have a significant economic impact
on a substantial number of small
entities. See 5 U.S.C. 603–605.
The Commission hereby certifies that
the final rules will not have a significant
economic impact on a substantial
number of small business entities. The
Commission recognizes that the final
rules will affect some small business
entities; however we do not expect that
a substantial number of small
businesses will be affected or that the
final rules will have a significant
economic impact on them.
The Commission continues to believe
that a precise estimate of the number of
small entities that fall under the final
rules is not feasible. The Commission
did not receive any comments relating

PO 00000

Frm 00026

Fmt 4700

Sfmt 4700

to the total number of small entities that
would be affected by the final rules. We
did receive some comments from
industry suggesting that the compliance
with the final rules would be
burdensome. One comment stated that
publicly owned utilities, many of which
qualify as small entities, will incur
‘‘significant’’ costs to comply with the
final rules and requested that the
Commission conduct the full FRFA
analysis. The Commission considered
these comments, and based on the
Commission’s own experience and
knowledge of industry practices, the
Commission continues to believe that
the cost and burden to small entities of
complying with the final rules are
minimal. Accordingly, this document
serves as notice to the Small Business
Administration of the agency’s
certification of no effect. Nonetheless,
the Commission has decided to publish
a FRFA with the final rules and has
prepared the following analysis:
1. Need for and Objectives of the Rules
Section 1100F of the Dodd-Frank Act
amends section 615(h) of the FCRA to
require persons to disclose a credit score
and information relating to that credit
score in risk-based pricing notices when
the person uses a credit score in setting
the material terms of credit.
Specifically, a person must disclose, in
addition to the information currently
required by the January 2010 Final Rule:
(1) The numerical credit score used in
making the credit decision; (2) the range
of possible scores under the model used;
(3) the key factors that adversely
affected the credit score of the consumer
in the model used; (4) the date on which
the credit score was created; and (5) the
name of the person or entity that
provided the credit score. The effective
date of these amendments is July 21,
2011.
The Agencies are issuing final rules to
amend the risk-based pricing rules
pursuant to their existing authority
under section 615(h) of the FCRA, to
facilitate compliance with the new
requirements under section 1100F of the
Dodd-Frank Act.
2. Significant Issues Received by Public
Comment
The Commission received a number
of comments in response to the
proposed rules. Some of the industry
comments stated that the proposed rules
would create substantial compliance
burdens, particularly for small entities.
They asked that certain small entities be
exempt from the requirements, or that
the Commission delay the
implementation date for small entities.

E:\FR\FM\15JYR1.SGM

15JYR1

Federal Register / Vol. 76, No. 136 / Friday, July 15, 2011 / Rules and Regulations
The compliance burdens identified by
these comments are not substantially
different or distinct from the burdens
imposed by the original Final Rule,
which became effective January 1, 2011.
Therefore the exemption requested by
the comments—to be excluded from the
requirement to provide risk-based
pricing notices—would affect the
underlying Rule. Given the impending
transfer of rulemaking authority to the
Bureau, however, the Agencies do not
believe it is appropriate to make
changes to the risk-based pricing rules
and notices beyond those required by
section 1100F of the Dodd-Frank Act.
Such changes are beyond the scope of
this rulemaking.

mstockstill on DSK4VPTVN1PROD with RULES

3. Small Entities to Which the Final
Rules Will Apply
The final rules apply to any person
that (1) Is required to provide a riskbased pricing notice to a consumer; and
(2) uses a credit score in making the
credit decision requiring a risk-based
pricing notice. The total number of
small entities likely to be affected by the
final rules is unknown, because the
Commission does not have data on the
number of small entities that use credit
scores for risk-based pricing in
connection with consumer credit.
Moreover, the entities under the
Commission’s jurisdiction are so varied
that there is no way to identify them in
general and, therefore, no way to know
how many of them qualify as small
entities. Generally, the entities under
the Commission’s jurisdiction that also
are covered by section 311 include statechartered credit unions, non-bank
mortgage lenders, automobile dealers,
and utility companies. The available
data, however, are not sufficient for the
Commission to realistically estimate the
number of small entities, as defined by
the SBA, that the Commission regulates
and that would be subject to the
proposed rules.20 The Commission
received one comment stating that a
majority of publicly owned utilities
qualified as small entities and would,
therefore, be affected by these final
rules. The final rules do not, however,
20 Under the SBA’s size standards, many
creditors, including the majority of non-bank
entities that are likely to be subject to the proposed
regulations and are subject to the Commission’s
jurisdiction, are considered small if their average
annual receipts do not exceed $6.5 million.
Automobile dealers have a higher size standard of
$26.5 million in average annual receipts for new car
dealers and $21 million in average annual receipts
for used car dealers. A list of the SBA’s size
standards for all industries can be found in the
SBA’s Table of Small Business Size Standards
Matched to North American Industry Classification
Codes, which is available at http://www.sba.gov/
idc/groups/public/documents/sba_homepage/
serv_sstd_tablepdf.pdf.

VerDate Mar<15>2010

15:47 Jul 14, 2011

Jkt 223001

impose any requirements on small
entities that do not use credit scores for
risk-based pricing in connection with
the provision of consumer credit.
4. Projected Reporting, Recordkeeping
and Other Compliance Requirements
The compliance requirements of the
final rules are described in detail in the
SUPPLEMENTARY INFORMATION above.
The final rules generally require a
creditor that is required to provide a
risk-based pricing notice to a consumer,
and uses a credit score in making the
credit decision to provide a credit score
and information relating to that credit
score in the notice, in addition to the
information that is currently required by
the January 2010 Final Rule. Pursuant to
the January 2010 Final Rule, a person is
required to determine if it engages in
risk-based pricing, based in whole or in
part on consumer reports, in connection
with the provision of consumer credit.
If the person does engage in risk-based
pricing based on consumer reports, the
person generally is required to establish
procedures for identifying those
consumers to whom it must provide
risk-based pricing notices.
A person that is required to provide
risk-based pricing notices would need to
analyze the rules. The person would
need to determine whether it used
credit scores for risk-based pricing of
the consumers to whom it must provide
risk-based pricing notices. Pursuant to
the final rules, a person that uses credit
scores for risk-based pricing would need
to provide credit score information
relating to that credit score to those
consumers to whom it must provide a
risk-based pricing notice, in addition to
the information currently required by
the January 2010 Final Rule. The person
would need to design, generate, and
provide notices, including a credit score
and information relating to that credit
score, to the consumers to whom it must
provide a risk-based pricing notice.
Compliance with the final rules will
involve some expenditure of time and
resources, although Commission staff
anticipates that the costs per entity will
not be significant. Most of the costs will
be incurred initially as entities update
their systems for determining which of
their consumers should receive riskbased pricing notices, and update
notices to include a credit score and
information relating to that score, as
necessary, and as they train staff to
comply with the rules. In calculating
these costs, Commission staff assumes
that for all entities managerial or
professional technical personnel will
handle the initial aspects of compliance
with the rule, and that sales associates
or administrative personnel will handle

PO 00000

Frm 00027

Fmt 4700

Sfmt 4700

41615

any ongoing responsibilities. To further
minimize the costs associated with the
final rules, the Agencies have provided
a model notice to facilitate compliance.
Cost estimates for compliance with the
final rules are described in detail in the
PRA section of this Notice.
Commission staff does not expect that
the costs associated with the final rules
will place a significant burden on small
entities.
5. Steps Taken To Minimize Significant
Economic Impact of the Rules on Small
Entities
The Commission considered whether
any significant alternatives, consistent
with section 615(h) of the FCRA,
including the provisions of section
1100F of the Dodd-Frank Act, could
further minimize the final rules’ impact
on small entities. As noted above, some
industry commenters suggested that
small entities be exempt from the rules,
or that the Commission delay the
effective date for small entities.
As explained above, given the
impending transfer of rulemaking
authority to the Bureau, however, the
Agencies do not believe it is appropriate
to make changes to the risk-based
pricing rules and notices beyond those
required by section 1100F of the DoddFrank Act. Such changes are beyond the
scope of this rulemaking. In addition,
Congress set the effective date for
section 1100F of the Dodd-Frank Act for
July 21, 2011. The final rules are
effective and compliance is mandatory
beginning 30 days after the date of
publication in the Federal Register.
The Commission has sought to
minimize the economic impact on small
entities by providing a model notice to
ease creditor’s burden and facilitate
compliance. By using the model notice,
creditors qualify for the safe harbor.
Creditors are not required to use the
model notice, however. If they provide
a notice that clearly and conspicuously
conveys the required information, these
creditors would comply with the
requirements of the rules, though they
would not receive the benefit of the safe
harbor. In addition, compliance with
this notice requirement is formatneutral. Finally, a creditor may comply
with the January 2010 Final Rule by
providing consumers with a credit score
disclosure notice. By providing a range
of options, the Agencies have sought to
help businesses of all sizes reduce the
burden of complying with the final
rules.

E:\FR\FM\15JYR1.SGM

15JYR1

41616

Federal Register / Vol. 76, No. 136 / Friday, July 15, 2011 / Rules and Regulations

List of Subjects
12 CFR Part 222
Banks, Banking, Consumer protection,
Fair Credit Reporting Act, Holding
companies, Privacy, Reporting and
recordkeeping requirements, State
member banks.
16 CFR Part 640
Credit, Trade practices.
16 CFR Part 698
Credit, Trade practices.
Board of Governors of the Federal
Reserve System
12 CFR Chapter II
Authority and Issuance
For the reasons set forth in the joint
preamble, the Board is amending
chapter II of title 12 of the Code of
Federal Regulations by amending 12
CFR part 222, as follows:
PART 222—FAIR CONSUMER
REPORTING (REGULATION V)
1. The authority citation for part 222
continues to read as follows:

■

Authority: 15 U.S.C. 1681b, 1681c, 1681m
and 1681s; Secs. 3, 214, and 216, Pub. L.
108–159, 117 Stat. 1952.

2. Section 222.73 is amended as
follows:
■ A. Paragraphs (a)(1)(vii) and (viii) are
revised.
■ B. Paragraph (a)(1)(ix) is added.
■ C. Paragraphs (a)(2)(vii) and (viii) are
revised.
■ D. Paragraph (a)(2)(ix) is added.
■ E. Paragraph (b)(2) is revised.
■ F. Paragraph (d) is added.
■

mstockstill on DSK4VPTVN1PROD with RULES

§ 222.73 Content, form, and timing of riskbased pricing notices.

(a) * * *
(1) * * *
(vii) A statement informing the
consumer how to obtain a consumer
report from the consumer reporting
agency or agencies identified in the
notice and providing contact
information (including a toll-free
telephone number, where applicable)
specified by the consumer reporting
agency or agencies;
(viii) A statement directing consumers
to the Web sites of the Federal Reserve
Board and Federal Trade Commission to
obtain more information about
consumer reports; and
(ix) If a credit score of the consumer
to whom a person grants, extends, or
otherwise provides credit is used in
setting the material terms of credit:
(A) A statement that a credit score is
a number that takes into account

VerDate Mar<15>2010

15:47 Jul 14, 2011

Jkt 223001

information in a consumer report, that
the consumer’s credit score was used to
set the terms of credit offered, and that
a credit score can change over time to
reflect changes in the consumer’s credit
history;
(B) The credit score used by the
person in making the credit decision;
(C) The range of possible credit scores
under the model used to generate the
credit score;
(D) All of the key factors that
adversely affected the credit score,
which shall not exceed four key factors,
except that if one of the key factors is
the number of enquiries made with
respect to the consumer report, the
number of key factors shall not exceed
five;
(E) The date on which the credit score
was created; and
(F) The name of the consumer
reporting agency or other person that
provided the credit score.
(2) * * *
(vii) A statement informing the
consumer how to obtain a consumer
report from the consumer reporting
agency or agencies identified in the
notice and providing contact
information (including a toll-free
telephone number, where applicable)
specified by the consumer reporting
agency or agencies;
(viii) A statement directing consumers
to the Web sites of the Federal Reserve
Board and Federal Trade Commission to
obtain more information about
consumer reports; and
(ix) If a credit score of the consumer
whose extension of credit is under
review is used in increasing the annual
percentage rate:
(A) A statement that a credit score is
a number that takes into account
information in a consumer report, that
the consumer’s credit score was used to
set the terms of credit offered, and that
a credit score can change over time to
reflect changes in the consumer’s credit
history;
(B) The credit score used by the
person in making the credit decision;
(C) The range of possible credit scores
under the model used to generate the
credit score;
(D) All of the key factors that
adversely affected the credit score,
which shall not exceed four key factors,
except that if one of the key factors is
the number of enquires made with
respect to the consumer report, the
number of key factors shall not exceed
five;
(E) The date on which the credit score
was created; and
(F) The name of the consumer
reporting agency or other person that
provided the credit score.

PO 00000

Frm 00028

Fmt 4700

Sfmt 4700

(b) * * *
(2) Model forms. Model forms of the
risk-based pricing notice required by
§ 222.72(a) and (c) are contained in
Appendices H–1 and H–6 of this part.
Appropriate use of Model Form H–1 or
H–6 is deemed to comply with the
requirements of § 222.72(a) and (c).
Model forms of the risk-based pricing
notice required by § 222.72(d) are
contained in Appendices H–2 and H–7
of this part. Appropriate use of Model
Form H–2 or H–7 is deemed to comply
with the requirements of § 222.72(d).
Use of the model forms is optional.
*
*
*
*
*
(d) Multiple credit scores—(1) In
general. When a person obtains or
creates two or more credit scores and
uses one of those credit scores in setting
the material terms of credit, for
example, by using the low, middle,
high, or most recent score, the notices
described in paragraphs (a)(1) and (2) of
this section must include that credit
score and information relating to that
credit score required by paragraphs
(a)(1)(ix) and (a)(2)(ix). When a person
obtains or creates two or more credit
scores and uses multiple credit scores in
setting the material terms of credit by,
for example, computing the average of
all the credit scores obtained or created,
the notices described in paragraphs
(a)(1) and (2) of this section must
include one of those credit scores and
information relating to credit scores
required by paragraphs (a)(1)(ix) and
(a)(2)(ix). The notice may, at the
person’s option, include more than one
credit score, along with the additional
information specified in paragraphs
(a)(1)(ix) and (a)(2)(ix) of this section for
each credit score disclosed.
(2) Examples. (i) A person that uses
consumer reports to set the material
terms of credit cards granted, extended,
or provided to consumers regularly
requests credit scores from several
consumer reporting agencies and uses
the low score when determining the
material terms it will offer to the
consumer. That person must disclose
the low score in the notices described in
paragraphs (a)(1) and (2) of this section.
(ii) A person that uses consumer
reports to set the material terms of
automobile loans granted, extended, or
provided to consumers regularly
requests credit scores from several
consumer reporting agencies, each of
which it uses in an underwriting
program in order to determine the
material terms it will offer to the
consumer. That person may choose one
of these scores to include in the notices
described in paragraph (a)(1) and (2) of
this section.

E:\FR\FM\15JYR1.SGM

15JYR1

Federal Register / Vol. 76, No. 136 / Friday, July 15, 2011 / Rules and Regulations
3. Section 222.75 is amended by
revising paragraphs (c)(1) and (c)(3)(i) to
read as follows:

■

§ 222.75

Rules of construction.

*
*
*
*
(c) Multiple consumers—(1) Riskbased pricing notices. In a transaction
involving two or more consumers who
are granted, extended, or otherwise
provided credit, a person must provide
a notice to each consumer to satisfy the
requirements of § 222.72(a) or (c).
Whether the consumers have the same
address or not, the person must provide
a separate notice to each consumer if a
notice includes a credit score(s). Each
separate notice that includes a credit
score(s) must contain only the credit
score(s) of the consumer to whom the
notice is provided, and not the credit
score(s) of the other consumer. If the
consumers have the same address, and
the notice does not include a credit
score(s), a person may satisfy the
requirements by providing a single
notice addressed to both consumers.
*
*
*
*
*
(3) Examples. (i) Two consumers
jointly apply for credit with a creditor.
The creditor obtains credit scores on
both consumers. Based in part on the
credit scores, the creditor grants credit
to the consumers on material terms that
are materially less favorable than the
most favorable terms available to other

mstockstill on DSK4VPTVN1PROD with RULES

*

VerDate Mar<15>2010

15:47 Jul 14, 2011

Jkt 223001

41617

consumers from the creditor. The
creditor provides risk-based pricing
notices to satisfy its obligations under
this subpart. The creditor must provide
a separate risk-based pricing notice to
each consumer whether the consumers
have the same address or not. Each riskbased pricing notice must contain only
the credit score(s) of the consumer to
whom the notice is provided.
*
*
*
*
*
■ 4. Appendix H is amended by revising
paragraphs 1.,2., and 4. and adding
Model Forms H–6 and H–7 to read as
follows:

loans secured by residential real property.
Model form H–4 is for use in connection with
the credit score disclosure exception for
loans that are not secured by residential real
property. Model form H–5 is for use in
connection with the credit score disclosure
exception when no credit score is available
for a consumer. Model form H–6 is for use
in complying with the general risk-based
pricing notice requirements in Sec. 222.72 if
a credit score is used in setting the material
terms of credit. Model form H–7 is for riskbased pricing notices given in connection
with account review if a credit score is used
in increasing the annual percentage rate. All
forms contained in this appendix are models;
their use is optional.

Appendix H to Part 222—Appendix H—
Model Forms for Risk-Based Pricing
and Credit Score Disclosure Exception
Notices

*

1. This appendix contains four model
forms for risk-based pricing notices and three
model forms for use in connection with the
credit score disclosure exceptions. Each of
the model forms is designated for use in a
particular set of circumstances as indicated
by the title of that model form.
2. Model form H–1 is for use in complying
with the general risk-based pricing notice
requirements in Sec. 222.72 if a credit score
is not used in setting the material terms of
credit. Model form H–2 is for risk-based
pricing notices given in connection with
account review if a credit score is not used
in increasing the annual percentage rate.
Model form H–3 is for use in connection with
the credit score disclosure exception for

PO 00000

Frm 00029

Fmt 4700

Sfmt 4700

*

*

*

*

4. Optional language in model forms H–6
and H–7 may be used to direct the consumer
to the entity (which may be a consumer
reporting agency or the creditor itself, for a
proprietary score that meets the definition of
a credit score) that provided the credit score
for any questions about the credit score,
along with the entity’s contact information.
Creditors may use or not use the additional
language without losing the safe harbor, since
the language is optional.

*

*

*

*

*

H–6 Model form for risk-based pricing notice
with credit score information
H–7 Model form for account review riskbased pricing notice with credit score
information

*

*

*

*

BILLING CODE 6210–01–P
BILLING CODE 6750–01–P

E:\FR\FM\15JYR1.SGM

15JYR1

*

VerDate Mar<15>2010

Federal Register / Vol. 76, No. 136 / Friday, July 15, 2011 / Rules and Regulations

15:47 Jul 14, 2011

Jkt 223001

PO 00000

Frm 00030

Fmt 4700

Sfmt 4725

E:\FR\FM\15JYR1.SGM

15JYR1

ER15JY11.000</GPH>

mstockstill on DSK4VPTVN1PROD with RULES

41618

VerDate Mar<15>2010

15:47 Jul 14, 2011

Jkt 223001

PO 00000

Frm 00031

Fmt 4700

Sfmt 4725

E:\FR\FM\15JYR1.SGM

15JYR1

41619

ER15JY11.001</GPH>

mstockstill on DSK4VPTVN1PROD with RULES

Federal Register / Vol. 76, No. 136 / Friday, July 15, 2011 / Rules and Regulations

VerDate Mar<15>2010

Federal Register / Vol. 76, No. 136 / Friday, July 15, 2011 / Rules and Regulations

15:47 Jul 14, 2011

Jkt 223001

PO 00000

Frm 00032

Fmt 4700

Sfmt 4725

E:\FR\FM\15JYR1.SGM

15JYR1

ER15JY11.002</GPH>

mstockstill on DSK4VPTVN1PROD with RULES

41620

BILLING CODE 6210–01–C
BILLING CODE 6750–01–C

■

Federal Trade Commission

§ 640.4 Content, form, and timing of riskbased pricing notices.

16 CFR Chapter I

(a) * * *
(1) * * *
(vii) A statement informing the
consumer how to obtain a consumer
report from the consumer reporting
agency or agencies identified in the
notice and providing contact
information (including a toll-free
telephone number, where applicable)
specified by the consumer reporting
agency or agencies;
(viii) A statement directing consumers
to the Web sites of the Federal Reserve
Board and Federal Trade Commission to
obtain more information about
consumer reports; and
(ix) If a credit score of the consumer
to whom a person grants, extends, or
otherwise provides credit is used in
setting the material terms of credit:
(A) A statement that a credit score is
a number that takes into account
information in a consumer report, that
the consumer’s credit score was used to
set the terms of credit offered, and that

Authority and Issuance
For the reasons discussed in the joint
preamble, the Federal Trade
Commission is amending chapter I, title
16, Code of Federal Regulations, as
follows:
PART 640—DUTIES OF CREDITORS
REGARDING RISK–BASED PRICING
5. The authority citation for part 640
continues to read as follows:

■

Authority: Pub. L. 108–159, sec. 311; 15
U.S.C. 1681m(h).

6. Section 640.4 is amended as
follows:
■ A. Paragraphs (a)(1)(vii) and (viii) are
revised.
■ B. Paragraph (a)(1)(ix) is added.
■ C. Paragraphs (a)(2)(vii) and (viii) are
revised.
■ D. Paragraph (a)(2)(ix) is added.
■ E. Paragraph (b)(2) is revised.

mstockstill on DSK4VPTVN1PROD with RULES

■

VerDate Mar<15>2010

15:47 Jul 14, 2011

Jkt 223001

PO 00000

F. Paragraph (d) is added.

Frm 00033

Fmt 4700

Sfmt 4700

41621

a credit score can change over time to
reflect changes in the consumer’s credit
history;
(B) The credit score used by the
person in making the credit decision;
(C) The range of possible credit scores
under the model used to generate the
credit score;
(D) All of the key factors that
adversely affected the credit score,
which shall not exceed four key factors,
except that if one of the key factors is
the number of enquiries made with
respect to the consumer report, the
number of key factors shall not exceed
five;
(E) The date on which the credit score
was created; and
(F) The name of the consumer
reporting agency or other person that
provided the credit score.
(2) * * *
(vii) A statement informing the
consumer how to obtain a consumer
report from the consumer reporting
agency or agencies identified in the
notice and providing contact
information (including a toll-free
telephone number, where applicable)

E:\FR\FM\15JYR1.SGM

15JYR1

ER15JY11.003</GPH>

Federal Register / Vol. 76, No. 136 / Friday, July 15, 2011 / Rules and Regulations

mstockstill on DSK4VPTVN1PROD with RULES

41622

Federal Register / Vol. 76, No. 136 / Friday, July 15, 2011 / Rules and Regulations

specified by the consumer reporting
agency or agencies;
(viii) A statement directing consumers
to the Web sites of the Federal Reserve
Board and Federal Trade Commission to
obtain more information about
consumer reports; and
(ix) If a credit score of the consumer
whose extension of credit is under
review is used in increasing the annual
percentage rate:
(A) A statement that a credit score is
a number that takes into account
information in a consumer report, that
the consumer’s credit score was used to
set the terms of credit offered, and that
a credit score can change over time to
reflect changes in the consumer’s credit
history;
(B) The credit score used by the
person in making the credit decision;
(C) The range of possible credit scores
under the model used to generate the
credit score;
(D) All of the key factors that
adversely affected the credit score,
which shall not exceed four key factors,
except that if one of the key factors is
the number of enquiries made with
respect to the consumer report, the
number of key factors shall not exceed
five;
(E) The date on which the credit score
was created; and
(F) The name of the consumer
reporting agency or other person that
provided the credit score.
(b) * * *
(2) Model forms. Model forms of the
risk-based pricing notice required by
Sec. 640.3(a) and (c) are contained in
Appendices B–1 and B–6 of this part.
Appropriate use of Model form B–1 or
B–6 is deemed to comply with the
requirements of § 640.3(a) and (c).
Model forms of the risk-based pricing
notice required by § 640.3(d) are
contained in Appendices B–2 and B–7
of this part. Appropriate use of Model
form B–2 or B–7 is deemed to comply
with the requirements of § 640.3(d). Use
of the model forms is optional.
*
*
*
*
*
(d) Multiple credit scores—(1) In
general. When a person obtains or
creates two or more credit scores and
uses one of those credit scores in setting
the material terms of credit, for
example, by using the low, middle,
high, or most recent score, the notices
described in paragraphs (a)(1) and (2) of
this section must include that credit
score and information relating to that
credit score required by paragraphs
(a)(1)(ix) and (a)(2)(ix). When a person
obtains or creates two or more credit
scores and uses multiple credit scores in
setting the material terms of credit by,

VerDate Mar<15>2010

15:47 Jul 14, 2011

Jkt 223001

for example, computing the average of
all the credit scores obtained or created,
the notices described in paragraphs
(a)(1) and (2) of this section must
include one of those credit scores and
information relating to credit scores
required by paragraphs (a)(1)(ix) and
(a)(2)(ix). The notice may, at the
person’s option, include more than one
credit score, along with the additional
information specified in paragraphs
(a)(1)(ix) and (a)(2)(ix) of this section for
each credit score disclosed.
(2) Examples. (i) A person that uses
consumer reports to set the material
terms of credit cards granted, extended,
or provided to consumers regularly
requests credit scores from several
consumer reporting agencies and uses
the low score when determining the
material terms it will offer to the
consumer. That person must disclose
the low score in the notices described in
paragraphs (a)(1) and (2) of this section.
(ii) A person that uses consumer
reports to set the material terms of
automobile loans granted, extended, or
provided to consumers regularly
requests credit scores from several
consumer reporting agencies, each of
which it uses in an underwriting
program in order to determine the
material terms it will offer to the
consumer. That person may choose one
of these scores to include in the notices
described in paragraph (a)(1) and (2) of
this section.
7. Section 640.6 is amended by
revising paragraphs (c)(1) and (c)(3)(i) to
read as follows:

■

§ 640.6

Rules of construction.

*

*
*
*
*
(c) Multiple consumers—(1) Riskbased pricing notices. In a transaction
involving two or more consumers who
are granted, extended, or otherwise
provided credit, a person must provide
a notice to each consumer to satisfy the
requirements of § 640.3(a) or (c).
Whether the consumers have the same
address or not, the person must provide
a separate notice to each consumer if a
notice includes a credit score(s). Each
separate notice that includes a credit
score(s) must contain only the credit
score(s) of the consumer to whom the
notice is provided, and not the credit
score(s) of the other consumer. If the
consumers have the same address, and
the notice does not include a credit
score(s), a person may satisfy the
requirements by providing a single
notice addressed to both consumers.
*
*
*
*
*
(3) Examples. (i) Two consumers
jointly apply for credit with a creditor.
The creditor obtains credit scores on

PO 00000

Frm 00034

Fmt 4700

Sfmt 4700

both consumers. Based in part on the
credit scores, the creditor grants credit
to the consumers on material terms that
are materially less favorable than the
most favorable terms available to other
consumers from the creditor. The
creditor provides risk-based pricing
notices to satisfy its obligations under
this subpart. The creditor must provide
a separate risk-based pricing notice to
each consumer whether the consumers
have the same address or not. Each riskbased pricing notice must contain only
the credit score(s) of the consumer to
whom the notice is provided.
*
*
*
*
*
PART 698—MODEL FORMS AND
DISCLOSURES
8. The authority citation for part 698
continues to read as follows:

■

Authority: 15 U.S.C. 1681e, 1681g, 1681j,
1681m, 1681s, and 1681s–3; Pub. L. 108–159,
sections 211(d), 214(b), and 311; 117 Stat.
1952.

9. Appendix B to Part 698 is amended
by revising paragraphs 1., 2., and 4, and
adding Model Forms B–6 and B–7 to
read as follows:

■

Appendix B to Part 698—Model Forms
for Risk-Based Pricing and Credit Score
Disclosure Exception Notices
1. This appendix contains four model
forms for risk-based pricing notices and three
model forms for use in connection with the
credit score disclosure exceptions. Each of
the model forms is designated for use in a
particular set of circumstances as indicated
by the title of that model form.
2. Model form B–1 is for use in complying
with the general risk-based pricing notice
requirements in § 640.3 if a credit score is not
used in setting the material terms of credit.
Model form B–2 is for risk-based pricing
notices given in connection with account
review if a credit score is not used in
increasing the annual percentage rate. Model
form B–3 is for use in connection with the
credit score disclosure exception for loans
secured by residential real property. Model
form B–4 is for use in connection with the
credit score disclosure exception for loans
that are not secured by residential real
property. Model form B–5 is for use in
connection with the credit score disclosure
exception when no credit score is available
for a consumer. Model form B–6 is for use
in complying with the general risk-based
pricing notice requirements in § 640.3 if a
credit score is used in setting the material
terms of credit. Model form B–7 is for riskbased pricing notices given in connection
with account review if a credit score is used
in increasing the annual percentage rate. All
forms contained in this appendix are models;
their use is optional.

*

*

*

*

*

4. Optional language in model forms B–6
and B–7 may be used to direct the consumer

E:\FR\FM\15JYR1.SGM

15JYR1

Federal Register / Vol. 76, No. 136 / Friday, July 15, 2011 / Rules and Regulations

VerDate Mar<15>2010

15:47 Jul 14, 2011

Jkt 223001

Creditors may use or not use the additional
language without losing the safe harbor, since
the language is optional.

B–7 Model form for account review riskbased pricing notice with credit score
information

*

*

*

*

*

*

B–6 Model form for risk-based pricing
notice with credit score information

PO 00000

Frm 00035

Fmt 4700

Sfmt 4725

*

*

*

*

BILLING CODE 6210–01–P;6750–01–P

E:\FR\FM\15JYR1.SGM

15JYR1

ER15JY11.004</GPH>

mstockstill on DSK4VPTVN1PROD with RULES

to the entity (which may be a consumer
reporting agency or the creditor itself, for a
proprietary score that meets the definition of
a credit score) that provided the credit score
for any questions about the credit score,
along with the entity’s contact information.

41623

VerDate Mar<15>2010

Federal Register / Vol. 76, No. 136 / Friday, July 15, 2011 / Rules and Regulations

15:47 Jul 14, 2011

Jkt 223001

PO 00000

Frm 00036

Fmt 4700

Sfmt 4725

E:\FR\FM\15JYR1.SGM

15JYR1

ER15JY11.005</GPH>

mstockstill on DSK4VPTVN1PROD with RULES

41624

VerDate Mar<15>2010

15:47 Jul 14, 2011

Jkt 223001

PO 00000

Frm 00037

Fmt 4700

Sfmt 4725

E:\FR\FM\15JYR1.SGM

15JYR1

41625

ER15JY11.006</GPH>

mstockstill on DSK4VPTVN1PROD with RULES

Federal Register / Vol. 76, No. 136 / Friday, July 15, 2011 / Rules and Regulations

41626

BILLING CODE 6210–01–C; 6750–01–C

Federal Deposit Insurance
Corporation (‘‘FDIC’’).
ACTION: Final rule.

the orderly liquidation of a systemically
important financial institution under
the Dodd-Frank Act.
DATES: The effective date of the Final
Rule is August 15, 2011.
FOR FURTHER INFORMATION CONTACT: R.
Penfield Starke, Senior Counsel, Legal
Division, (703) 562–2422; or Marc
Steckel, Associate Director, Division of
Insurance and Research, (202) 898–
3618. For questions to the Legal
Division concerning the following parts
of the Final Rule contact:
Avoidable transfer provisions: Phillip
E. Sloan, Counsel (703) 562–6137.
Compensation recoupment: Patricia
G. Butler, Counsel (703) 516–5798.
Subpart B—Priorities of Claims:
Elizabeth Falloon, Counsel (703) 562–
6148.
Subpart C—Receivership
Administrative Claims Procedures:
Thomas Bolt, Supervisory Counsel (703)
562–2046.
SUPPLEMENTARY INFORMATION:

The FDIC is issuing a final
rule (‘‘Final Rule’’) to implement certain
provisions of its authority to resolve
covered financial companies under Title
II of the Dodd-Frank Wall Street Reform
and Consumer Protection Act (the
‘‘Dodd-Frank Act’’ or the ‘‘Act’’). The
Final Rule will establish a more
comprehensive framework for the
implementation of the FDIC’s orderly
liquidation authority and will provide
greater transparency to the process for

I. Background
The Dodd-Frank Act (Pub. L. 111–
203, 12 U.S.C. 5301 et seq., July 21,
2010) was enacted on July 21, 2010.
Title II of the Act provides for the
appointment of the FDIC as receiver of
a nonviable financial company that
poses significant risk to the financial
stability of the United States (a ‘‘covered
financial company’’) following the
prescribed recommendation,
determination, and judicial review

By order of the Board of Governors of the
Federal Reserve System, July 5, 2011.
Jennifer J. Johnson,
Secretary of the Board.
By the direction of the Commission.
Donald S. Clark,
Secretary.
[FR Doc. 2011–17649 Filed 7–14–11; 8:45 am]
BILLING CODE 6210–01–P; 6750–01–P

FEDERAL DEPOSIT INSURANCE
CORPORATION
12 CFR Part 380
Certain Orderly Liquidation Authority
Provisions under Title II of the DoddFrank Wall Street Reform and
Consumer Protection Act
AGENCY:

mstockstill on DSK4VPTVN1PROD with RULES

SUMMARY:

VerDate Mar<15>2010

15:47 Jul 14, 2011

Jkt 223001

PO 00000

Frm 00038

Fmt 4700

Sfmt 4700

process set forth in the Act. Title II
outlines the process for the orderly
liquidation of a covered financial
company following the FDIC’s
appointment as receiver and provides
for additional implementation of the
orderly liquidation authority by
rulemaking. The Final Rule is being
promulgated pursuant to section 209 of
the Act, which authorizes the FDIC, in
consultation with the Financial Stability
Oversight Council, to prescribe such
rules and regulations as the FDIC
considers necessary or appropriate to
implement Title II; section 210(s)(3),
which directs the FDIC to promulgate
regulations to implement the
requirements of the Act with respect to
recoupment of compensation from
senior executives or directors materially
responsible for the failed condition of a
covered financial company, which
regulation is required to include a
definition of the term ‘‘compensation;’’
section 210(a)(7)(D), with respect to the
establishment of a post-insolvency
interest rate; and section 210(b)(1)(C)–
(D), with respect to the index for
inflation applied to certain employee
compensation and benefit claims. While
it is not expected that the FDIC will be
appointed as receiver for a covered
financial company in the near future, it
is important for the FDIC to have rules
in place in a timely manner so that
stakeholders may plan transactions
going forward.

E:\FR\FM\15JYR1.SGM

15JYR1

ER15JY11.007</GPH>

Federal Register / Vol. 76, No. 136 / Friday, July 15, 2011 / Rules and Regulations