[Federal Register Volume 59, Number 116 (Friday, June 17, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-14780]


[[Page Unknown]]

[Federal Register: June 17, 1994]


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FEDERAL TRADE COMMISSION

16 CFR Part 600

 

Statement of General Policy or Interpretation; Commentary on the 
Fair Credit Reporting Act

AGENCY: Federal Trade Commission.

ACTION: Proposed amendment to commentary.

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SUMMARY: The Commission is seeking public comment on a proposed 
amendment to its Commentary on the Fair Credit Reporting Act 
(``FCRA''), 16 CFR Part 600. The proposed amendment clarifies the 
Commission's interpretation that the FCRA requires the disclosure of 
``risk scores'' to consumers by consumer reporting agencies. This 
action responds to widespread interest in this issue, and various 
inquiries the Commission and its staff have received about it.

DATES: Comments must be received on or before August 16, 1994. This 
comment period will not be extended absent compelling circumstances.

ADDRESSES: Comments should be addressed to: Clarke Brinckerhoff, 
Attorney, Division of Credit Practices, Federal Trade Commission, 
Washington, DC 20580.

FOR FURTHER INFORMATION CONTACT: Clarke Brinckerhoff, Attorney, 
Division of Credit Practices, Federal Trade Commission, Washington, DC 
20580, 202-326-3208.

SUPPLEMENTARY INFORMATION:

Background

    During the late 1980s, the credit reporting industry developed a 
product, called the ``risk score,'' to evaluate a consumer's credit 
history for its clients. A risk score assesses the likelihood of a 
particular adverse event, such as default or bankruptcy, based on 
various factors in a consumer report. The result of this evaluation is 
communicated by means of a numerical score.
    Section 609 of the FCRA requires a consumer reporting agency, upon 
receiving a request and proper identification from a consumer, to 
``clearly and accurately disclose to the consumer . . . [t]he nature 
and substance of all information (except medical information) in its 
files on the consumer at the time of the request.'' A consumer 
reporting agency also must disclose, in most instances, the sources of 
the information in the consumer's file, as well as the recipients of 
any consumer report on the consumer which the reporting agency has 
furnished six months preceding the consumer's request (or two years, if 
the report is for employment purposes).
    On February 11, 1992, the Commission amended its FCRA Commentary to 
state that, pursuant to section 609 of the FCRA, ``a risk score (or 
other numerical evaluation, however named) that is reported by a 
consumer reporting agency to a client to assist in evaluating a 
consumer's eligibility for credit (or other permissible purposes) must 
be disclosed (along with an explanation of the risk score)'' to a 
consumer requesting disclosure of his or her credit file from the 
consumer reporting agency. 57 FR 4935-36 (Feb. 11, 1992). It noted that 
Congresswoman Leonor Sullivan, when introducing the conference report 
on the bill that ultimately enacted the FCRA, had stated:

    (The House conferees) stressed that the consumer should have 
access to all information in any form which would be relayed to a 
prospective employer, insurer or creditor in making a judgment as to 
the worthiness of the individual's application for such benefits.* * 
* It is not intended that the credit reporting firm should have a 
free hand in excluding from the consumer's access information other 
than medical information it just does not want to give him, but will 
give to a client-user.

116 Cong Rec. 36572 (October 12, 1970) (emphasis added)
    After the Commission amended the FCRA Commentary, several industry 
representatives requested clarification of the revision. As part of 
this process, some of these parties (as well as consumer 
representatives and other interested parties) submitted informal 
statements of their positions that appear on the Commission's public 
record. Commissioners and Bureau of Consumer Protection staff have 
discussed these issues with industry, consumer and state 
representatives. During these discussions, the following three 
principal issues arose concerning the applicability of the FCRA to risk 
scores: (1) When a consumer reporting agency must disclose a risk 
score; (2) what score(s) must be disclosed; and (3) what type of 
explanation of the score, if any, must be provided as part of the 
disclosure.
    In response to these inquiries, the Commission proposes to expand 
the discussion of risk scores in the FCRA Commentary as set forth 
below.

Proposed Revision

    The Commission proposes to delete the single sentence that 
discusses ``risk scores'' in comment 7 to section 609 of the FCRA 
Commentary, and to add a separate comment 12 to read as follows:

    12. Risk scores. A consumer reporting agency must disclose to a 
consumer in response to a consumer's disclosure request: (a) risk 
scores (or other numerical evaluations, however named), calculated 
at the time of the consumer's request; and (b) a brief statement 
that explains what the risk score predicts, how the score may be 
applied by its user, and how the consumer ranks against other 
consumers under the scoring model. The agency must disclose this 
information for each type of score, regardless of who developed the 
score, that the agency has reported to its clients within the six 
months preceding the date of the consumer's disclosure request (or 
within two years, if for employment purposes).

Questions for Public Comment

    The Commission requests public comment on this proposed revision to 
the FCRA Commentary, and is particularly interested in receiving 
comments on the questions that follow. Legal and policy analysis of 
these questions would be particularly useful. The Commission 
specifically requests comments based on reasoned analysis of provisions 
of the FCRA that discuss the impact of the proposal on consumers and 
the marketplace.
    (1) What type of risk score disclosure is mandated under section 
609 of the FCRA?
    (2) Consumer reporting agencies generally calculate risk scores 
only when they receive a request for such a score from a client. Is a 
consumer entitled to a risk score disclosure if the consumer reporting 
agency has never reported a score on that individual? Assuming some 
prior risk score report is necessary to trigger the disclosure 
requirement, does a risk score provided by a consumer reporting agency 
only in the context of ``prescreening'' provide an appropriate trigger?
    (3) If provision of a risk score to a client is an appropriate 
trigger for the disclosure requirement, in what time frame, if any, 
must that score have been provided? Are each of the proposed time 
frames, which are based on sections 609(a)(3) and 611(d) of the FCRA, 
proper and sensible? Are they unduly burdensome on credit bureaus or 
insufficient to provide adequate disclosure to consumers?
    (4) Risk scoring systems can be created by or for consumer 
reporting agencies themselves (``generic models''), or they can be 
created by or for one or more of the agency's clients (``custom 
models''). Should the disclosure requirement for risk scores based on 
generic models and custom models be the same?
    (5) Credit files are constantly changing. New items are added while 
older items become statutorily obsolete and are dropped. Because of the 
dynamic nature of consumer reports, the risk score that is reported to 
a creditor at any given time may differ from the score that would be 
assigned to that report at a time shortly thereafter. Should 
``historical'' risk scores (those actually provided to the agency's 
clients) or ``current'' risk scores (calculated at the time of the 
disclosure) be disclosed to consumers?
    (6) A consumer reporting agency may produce a variety of different 
risk scores, such as a bankruptcy risk score, a default risk score, or 
other types of scores. Should the consumer reporting agency be required 
to disclose to consumers each type of risk score it offers its clients 
the option of purchasing, or only those scores that have actually been 
provided about that consumer to one or more clients?
    (7) What explanation, if any, should a consumer reporting agency 
provide consumers about their risk scores? Should agencies discuss how 
the score may be used by their clients? Should agencies specify how the 
individual consumer ranks in regard to others? If so, should the 
ranking be done by percentile or other technique? Should the Commentary 
specify the precise form of explanation, or contain expanded 
requirements as to the details of the explanation? Is the proposal to 
require an explanation of the risk score too narrow or too broad? If 
so, in what way should it be expanded or contracted?
    (8) Is there some approach other than disclosure of actual risk 
scores that would better inform consumers of the information about them 
being reported by consumer reporting agencies? For example, might it be 
more useful for a consumer reporting agency to provide a single score 
to all consumers designed to show the likelihood of obtaining credit? 
Would it be more helpful for the consumer to receive a list of the 
elements on which the calculation of such a ``score'' is based, rather 
than the actual score and explanation required by the proposal?

List of Subjects in 16 CFR Part 600

    Credit, Trade practices.

    For the reasons set out in the preamble, the Commission proposes to 
amend title 16, chapter I, part 600 of the Code of Federal Regulations 
as follows:

PART 600--STATEMENT OF GENERAL POLICY OR INTERPRETATIONS

    1. The authority citation for part 600 continues to read as 
follows:

    Authority: 15 U.S.C. 1681s and 16 CFR 1.73.

    2. In the appendix to part 600, the Commission proposes to amend 
section 609 by revising comment 7 and adding a new comment 12, to read 
as follows:

Appendix--Commentary on the Fair Credit Reporting Act

* * * * *

Section 609--Disclosures to Consumers

* * * * *
    7. Ancillary Information
    A consumer reporting agency is not required to disclose 
information consisting of an audit trail of changes it makes in the 
consumer's file, billing records, or the contents of a consumer 
relations folder, if the information is not from consumer reports 
and will not be used in preparing future consumer reports. Such data 
is not included in the term ``information in the files'' which must 
be disclosed to the consumer pursuant to this section. A consumer 
reporting agency must disclose claims report information only if it 
has appeared in consumer reports.
* * * * *
    12. Risk Scores
    A consumer reporting agency must disclose to a consumer in 
response to a consumer's disclosure request: (a) Risk scores (or 
other numerical evaluations, however named), calculated at the time 
of the consumer's request; and (b) a brief statement that explains 
what the risk score predicts, how the score may be applied by its 
user, and how the consumer ranks against other consumers under the 
scoring model. The agency must disclose this information for each 
type of score, regardless of who developed the score, that the 
agency has reported to its clients within the six months preceding 
the date of the consumer's disclosure request (or within two years, 
if for employment purposes).
* * * * *
    By direction of the Commission.
Donald S. Clark,
Secretary.
[FR Doc. 94-14780 Filed 6-16-94; 8:45 am]
BILLING CODE 6750-01-M