[Federal Register Volume 60, Number 170 (Friday, September 1, 1995)]
[Rules and Regulations]
[Pages 45659-45660]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-21789]



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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: Final amendment to commentary.

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summary: The Commission is amending its Commentary on the Fair Credit 
Reporting Act (``FCRA''), 16 CFR part 600, to state that the FCRA does 
not require the disclosure of ``risk scores'' to consumers by consumer 
reporting agencies. This action responds to comments the Commission and 
its staff received from the public in response to its Federal Register 
publication on June 17, 1994.

effective date: September 1, 1995.

addresses: 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 and Chronology

    Section 609(a)(1) of the FCRA requires each credit bureau to 
disclose to a properly identified consumer ``(t)he nature and substance 
of all information (except medical information) in its files on the 
consumer at the time of the request'' by the consumer for such 
disclosure. A risk score is a statistical assessment of the data in the 
consumer's file that a credit bureau can provide to its customer. 
Credit bureaus did not provide such scores until the late 1980's, and 
thus they were not contemplated, when the FCRA was enacted in 1970.

[[Page 45660]]

    On May 4, 1990, the Commission included in the final version of its 
Commentary on the FCRA (16 CFR part 600) a sentence in Comment 7 to 
Section 609 that adopted the position taken by an informal August 1988 
staff opinion letter that the provision did not require disclosure of 
risk scores (55 FR 18804, 18822).
    On February 11, 1992, the Commission reversed its position by 
publishing a notice in the Federal Register changing the sentence in 
Comment 7 to state the view that the provision required disclosure of 
risk scores, effective immediately (57 FR 4935). The Commission based 
its reversal on (1) Its subsequent investigations, which indicated that 
some credit report users got only a risk score, and (2) the legislative 
history of the FCRA, in particular a statement by Representative Leonor 
Sullivan that credit bureaus should have to disclose information ``in 
any form which would be relayed to a (bureau client) in making a 
judgment as to the worthiness of the individual's application . . .'' 
116 Cong. Rec. 36572 (Oct. 12, 1970).
    After the Commission amended the FCRA Commentary, several industry 
representatives requested clarification of the revision. 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 must be provided as part of the disclosure.
    On June 17, 1994, the Commission published for public comment a 
proposed revision to the FCRA Commentary addressing these issues (59 FR 
31176). The proposal, this time styled as an additional Comment 12 to 
Section 609, maintained the position set forth by the Commission in its 
February 1992 revision that risk score disclosure was required; it 
specified that the score needed to be computed and reported only as of 
the date of the consumer's disclosure request, that disclosure was 
required regardless of whether a credit bureau or a creditor created 
(or owned) the scoring system used to calculate the numerical score, 
and that only a brief explanation was required. In addition, it posed a 
number of questions on which it requested public comment.
    Eighty parties responded with written submissions for Commission 
consideration. On the industry side, the record includes extensive 
comments filed by or on behalf of credit bureaus that supply risk 
scores, creditors who purchase and use such scores, and the companies 
that prepare scoring systems that they use to produce them. Consumer 
interests were represented by a consortium of state Attorney General 
offices and a major national consumer advocacy group, among others.

Summary of Comments and Final Interpretation

    The industry commenters argued strongly that section 609 does not 
literally require the disclosure of risk scores. They contended that a 
credit bureau's risk score is not ``information * * * in its files * * 
* at the time of the request'' but rather is a system of analyzing that 
information for the credit bureau's client. For a fee, the credit 
bureau applies a statistical ``model'' to the information in its files 
and (generally combined with a full credit report) provides the 
resulting number (``score'') to its client. The score does not exist in 
the file until that function is performed, and is not retained by the 
credit bureau after it is provided to the bureau's client.
    The industry commenters also argued that the disclosure of risk 
scores would be costly to the credit-granting and credit-reporting 
industries, and further contended that the benefits to the public were 
uncertain and (if they existed at all) far outweighed by the costs. 
Finally, they noted that consumers already have access to information 
much more significant than a numerical score--the underlying 
information in the credit file (under Section 609) and a statement of 
the reasons why any user rejected their credit applications (under the 
Equal Credit Opportunity Act (``ECOA'') and its implementing Regulation 
B).
    The consumer representatives emphasized the quote from Rep. 
Sullivan on which the Commission had relied in its February 1992 
opinion. They pressed the view that it is only fair for consumers to 
have risk scores if credit bureau users are receiving them, and 
contended that consumers should not be deprived of disclosure of risk 
scores simply because credit bureaus do not retain them.
    Based on the comments, the Commission has decided to reinstate its 
original position that Section 609 does not require a credit bureau to 
disclose risk scores because they are not ``information . . . in its 
files on the consumer at the time of the request'' by the consumer for 
file disclosure. Section 603(g) defines the term ``file'' to mean ``all 
of the information on (the) consumer recorded and retained by a 
consumer reporting agency regardless of how the information is 
stored.'' (Emphasis added). In analyzing the application of Section 609 
to a risk score, the Commission has considered the process involved in 
generating a risk score. The comments indicate that a risk score is not 
``recorded and retained'' by the credit bureau; rather it is produced 
when the bureau applies the scoring model to the actual data in the 
consumer's credit history and provides the resulting numerical score to 
its client who pays to have that function performed by the bureau. In 
addition to not being in the credit bureau ``files'', the score does 
not even exist ``at the time of the request.''

List of Subjects in 16 CFR Part 600

    Credit, Trade practices.

    For the reasons set out in the preamble, the Commission amends 
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 amends 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 is not required to disclose a risk 
score (or other numerical evaluation, however named) that is 
provided to the agency's client (based on an analysis of data on the 
consumer) but not retained by the agency. Such a score is not 
information ``in (the agency's) files at the time of the request'' 
by the consumer for file disclosure.
* * * * *
    By direction of the Commission.
Donald S. Clark,
Secretary.
[FR Doc. 95-21789 Filed 8-31-95; 8:45 am]
BILLING CODE 6750-01-M