[Federal Register Volume 62, Number 133 (Friday, July 11, 1997)]
[Proposed Rules]
[Pages 37166-37170]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-18097]


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FEDERAL RESERVE SYSTEM

12 CFR Part 202

[Regulation B; Docket No. R-0978]


Equal Credit Opportunity

AGENCY: Board of Governors of the Federal Reserve System.

ACTION: Proposed rule.

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SUMMARY: The Board is proposing to amend certain model forms in its 
Regulation B on equal credit opportunity to reflect recent statutory 
amendments to the Fair Credit Reporting Act (FCRA) disclosures 
contained in those forms. Creditors have the option of including the 
FCRA disclosures with the notice of action taken required under 
Regulation B.

DATES: Comments must be received on or before August 15, 1997.

ADDRESSES: Comments should refer to Docket No. R-0978, and may be 
mailed to William W. Wiles, Secretary, Board of Governors of the 
Federal Reserve System, 20th Street and Constitution Avenue, N.W., 
Washington, DC 20051. They may also be delivered to the Board's mail 
room between 8:45 a.m. and 5:15 p.m. weekdays, and to the security 
control room at all other times. The mail room and the security control 
room are accessible from the courtyard entrance on 20th Street between 
Constitution Avenue and C Street, N.W. Comments will be available for 
inspection and copying by members of the public in the Freedom of 
Information Office, Room MP-500 of the Martin Building between 9:00 
a.m. and 5:00 p.m. weekdays, except as provided in Section 261.8 of the 
Board's Rules Regarding Availability of Information.

FOR FURTHER INFORMATION CONTACT: Jane Jensen Gell, Senior Attorney, or 
Sheilah A. Goodman, Staff Attorney, Division of Consumer and Community 
Affairs, Board of Governors of the Federal Reserve System, at (202) 
452-3667; users of Telecommunications Device for the Deaf (TDD) only, 
contact Diane Jenkins at (202) 452-3544.

SUPPLEMENTARY INFORMATION:

I. Background

    Regulation B, which implements the Equal Credit Opportunity Act, 
requires creditors to provide a consumer with a notice of action taken 
if an application for credit is denied, an account is terminated, or 
the terms of an account are unfavorably changed. The Fair Credit 
Reporting Act (FCRA) (15 U.S.C. 1681a), requires creditors that take 
adverse action against a consumer, such as denying an application for 
credit, to

[[Page 37167]]

provide a consumer with certain disclosures if the action is based on 
information provided by a third party or a consumer reporting agency. 
The required FCRA disclosures include, for example, the name and 
address of the consumer reporting agency that supplied the information. 
For information obtained from a third party, the required disclosure 
includes a statement that the consumer has the right to request the 
reason for the denial within sixty days. Creditors have the option of 
including the FCRA disclosures with the notice of action taken required 
under Regulation B; Appendix C to Regulation B provides model forms 
that combine the current FCRA and ECOA disclosures.
    The Economic Growth and Regulatory Paperwork Reduction Act of 1996 
(Pub. L. 104-208, 110 Stat. 3009) made extensive changes to the FCRA. 
Among other changes, the amendments require that additional disclosures 
be given to consumers who are denied credit based on information from 
an affiliate or from a consumer reporting agency. The disclosure 
requirements for information from a third party are not affected.
    The Board is proposing changes to the FCRA portion of Regulation 
B's model forms C-1 through C-5 and to the general instructions for 
these forms. The forms include language that may be used when credit is 
denied based on information obtained from a consumer reporting agency, 
from a third party other than a consumer reporting agency, or from an 
affiliate. The Board anticipates adopting final amended model forms 
prior to the effective date of the FRCA amendments (September 30, 1997) 
to ease compliance for creditors that choose to use the forms.

II. New Model Language

    When adverse action is taken against a consumer based on 
information from a consumer reporting agency, section 615(a) of the 
FCRA now requires the following additional disclosures: a telephone 
number for the consumer reporting agency (toll-free if the agency 
compiles and maintains files on consumers nationwide); a statement that 
the consumer reporting agency did not make the decision to take the 
adverse action, and cannot state the reason why the adverse action was 
taken; the consumer's right to a free copy of the credit report from 
the consumer reporting agency, if the request is made within 60 days of 
receipt of the adverse action notice; and the consumer's right to 
dispute with the consumer reporting agency the accuracy or completeness 
of the credit report.
    When the adverse action is based on a consumer report obtained from 
an affiliate, the Board believes that the creditor must provide the 
same disclosures as would be required if the report had come directly 
from the consumer reporting agency. Interpreting the statute otherwise 
would produce a result that does not appear to be consistent with the 
purposes of the law, by allowing creditors who could get consumer 
reports from affiliates rather than consumer reporting agencies to 
avoid giving consumers the FCRA disclosures and rights. This 
interpretation is reflected in the instructions to the model forms in 
Appendix C to Regulation B. The Board solicits comment on this 
approach.
    Creditors are not required to provide the consumer with any FCRA 
disclosures when the adverse action is based on a creditor's own 
experience. The amendments expand that exemption so that a creditor 
does not have to provide any FCRA disclosures if the adverse action 
taken against the consumer is based on the transactional experience of 
the creditor's affiliate. In the case of information obtained from an 
affiliate (other than a credit report or the affiliate's own 
transactional experience), the amendments require the creditor to give 
the consumer a disclosure that is substantially similar to the one 
currently required for information obtained from third parties. The 
proposed modifications to the Appendix C instructions, and model forms 
C-1 through C-5 of Regulation B reflect these changes.
    In the case of information from an affiliate that is neither a 
consumer report nor the affiliate's own transactional experience, the 
Board is proposing to allow creditors to use the current third party 
notice, as amended. See model form C-1. There is a difference, however, 
in the timing provisions of section 615(b)(1) (third-party notice) and 
section 615(b)(2) (affiliate notice). Under the third-party provision, 
the request must be submitted to the creditor within 60 days after the 
consumer learns of the action. Under the affiliate provision, the 
request must be submitted within 60 days after the ``transmittal of the 
notice.''
    To ease compliance for creditors and provide a more understandable 
time frame for consumers, the Board proposes that Regulation B's 
existing model language for information from a third party also be used 
for information from an affiliate. The language, which appears in model 
form C-1, states that the consumer has 60 days from receipt of the 
notice to submit a request to the creditor. The Board believes that 
relatively few transactions will require the affiliate notice; thus, it 
will be less burdensome for creditors to use the existing third-party 
notice rather than a separate notice for affiliate transactions. The 
Board solicits comment on whether the third-party notice is adequate or 
if model language for adverse action taken by affiliates would be 
desirable.

III. Section-by-Section Analysis

    In Appendix C, the second paragraph would be amended by adding two 
sentences to the end of the paragraph explaining the FCRA disclosure 
requirements for information obtained from an affiliate.

Model Form C-1

    Sample Notice of Action Taken and Statement of Reasons would be 
amended in Part II by adding at the end of the first paragraph the FCRA 
disclosures notifying the consumer of the right to request a copy of 
the consumer report, and the right to dispute the accuracy of the 
report with the reporting agency (collectively, the dispute 
disclosure). In addition, the words toll-free would be put in brackets 
before the reporting agency's telephone number. A reference to an 
affiliate would be added in the second paragraph.

Model Form C-2

    Sample Notice of Action Taken and Statement of Reasons would be 
amended by adding to the first sentence in the second paragraph the 
words toll-free in brackets before the reporting agency's telephone 
number. The dispute disclosure would be inserted before the last 
sentence.

Model Form C-3

    Sample Notice of Action Taken and Statement of Reasons (Credit 
Scoring) would be amended by adding to the third sentence in the fourth 
paragraph the words toll-free in brackets before the reporting agency's 
telephone number. The dispute disclosure would be added at the end of 
the paragraph.

Model Form C-4

    Sample Notice of Action Taken and Statement of Reasons, and 
Counteroffer would be amended by adding to the first sentence in the 
third paragraph the words toll-free in brackets before the reporting 
agency's telephone number. At the end of the paragraph the disclosure 
stating that the reporting agency played no part in the decision would 
be added along with the dispute disclosure.

[[Page 37168]]

Model Form C-5

    Sample Disclosure of Right to Request Specific Reasons for Credit 
Denial would be amended by adding to the first sentence in the fourth 
paragraph the words toll-free in brackets before the reporting agency's 
telephone number. At the end of the paragraph the disclosure stating 
that the reporting agency played no part in the decision, and the 
consumer has a right under the FCRA to know the information in the 
credit file, would be added along with the dispute disclosure.

IV. Form of Comment Letters

    Comment letters should refer to Docket No. R-0978, and, when 
possible, should use a standard Courier typeface with a type size of 10 
or 12 characters per inch. This will enable the Board to convert the 
text in machine-readable form through electronic scanning, and will 
facilitate automated retrieval of comments for review. Also, if 
accompanied by an original document in paper form, comments may be 
submitted on 3\1/2\ inch or 5\1/4\ inch computer diskettes in any IBM-
compatible DOS-based format.

V. Regulatory Flexibility Analysis

    In accordance with section 3(a) of the Regulatory Flexibility Act 
(5 U.S.C. 603), the Board's Office of the Secretary has reviewed the 
proposed amendments to Regulation B. The amendments, which provide 
model language to facilitate compliance, are not expected to have a 
significant impact on small entities. A final regulatory flexibility 
analysis will be conducted after consideration of comments received 
during the public comment period.

VI. Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 
3506), the Board has reviewed the proposed rule under authority 
delegated to the Board by the Office of Management and Budget (OMB). 5 
CFR part 1320, Appendix A.1.
    The revised collection of information requirements in the proposed 
revised regulation are found in Appendix C to 12 CFR part 202. The 
purpose of the disclosures proposed to be revised is to provide 
consumers whose application for credit has been denied with the reasons 
for that action and with information about their rights if information 
from a third party was used in making the decision. The respondents 
and/or recordkeepers are all for-profit financial institutions, 
including small businesses, that regularly extend credit or participate 
in the decision of whether or not to extend credit.
    Under the Paperwork Reduction Act the Board accounts for the 
associated paperwork burden only for state member banks. Any estimates 
of paperwork burden for other financial institutions would be provided 
by the federal agency or agencies that supervise those lenders. The 
estimated average frequency of response for Regulation B disclosures is 
4,765 per state member bank each year and the current estimated burden 
ranges from fifteen seconds to five minutes per response. The current 
combined annual burden for all state member banks under Regulation B is 
estimated to be 129,015 hours. The burden per response for any of the 
five disclosures proposed to be revised is estimated to be two and one-
half minutes, on average. As the revisions are minor, this amount is 
not expected to change. There is estimated to be no annual cost burden 
over the annual hour burden. The start-up cost for modifying state 
member banks' current templates to conform to the revised models is 
estimated to be approximately $100,000 across all 1,005 state member 
banks.
    Comments are invited on: (a) Whether the proposed revised 
collection of information is necessary for the proper performance of 
the Federal Reserve's functions, including whether the information has 
practical utility; (b) the accuracy of the Federal Reserve's estimate 
of the burden of the proposed revised information collection, including 
the cost of compliance; (c) ways to enhance the quality, utility, and 
clarity of the information to be collected; and (d) ways to minimize 
the burden of information collection on respondents, including through 
the use of automated collection techniques or other forms of 
information technology. Comments on the collection or disclosure of 
information associated with this regulation should be sent to Mary M. 
McLaughlin, Chief, Financial Reports Section, Division of Research and 
Statistics, Mail Stop 97, Board of Governors of the Federal Reserve 
System, Washington, DC 20551, with copies of such comments sent to the 
Office of Management and Budget, Paperwork Reduction Project (7100-
0201), Washington, DC 20503.
    The disclosures under Regulation B are mandatory. Since the Federal 
Reserve does not collect any information, no issue of confidentiality 
normally arises. An agency may not collect or sponsor the collection or 
disclosure of information, and an organization is not required to 
collect or disclose information unless a currently valid OMB control 
number is displayed. The OMB control number for Regulation B is 7100-
0201.

List of Subjects in 12 CFR Part 202

    Aged, Banks, banking, Civil rights, Credit, Federal Reserve System, 
Marital status discrimination, Penalties, Religious discrimination, 
Reporting and recordkeeping requirements, Sex discrimination.
    Certain conventions have been used to highlight the proposed 
revisions to the regulation. New language is shown inside bold-faced 
arrows.
    For the reasons set forth in the preamble, the Board proposes to 
amend 12 CFR part 202 as set forth below:

PART 202--EQUAL CREDIT OPPORTUNITY (REGULATION B)

    1. The authority citation for part 202 continues to read as 
follows:

    Authority: 15 U.S.C. 1691-1691f.


    2. Appendix C would be amended as follows:
a. By revising the second paragraph;
b. By revising Form C-1;
c. By revising Form C-2;
d. By revising Form C-3;
e. By revising Form C-4;
f. By revising Form C-5.

    The revisions would read as follows:

Appendix C to 202--Sample Notification Forms

* * * * *
    Form C-1 contains the Fair Credit Reporting Act disclosure as 
required by sections 615 (a) and (b) of that act. Forms C-2 through C-5 
contain only the section 615(a) disclosure (that a creditor obtained 
information from a consumer reporting agency that played a part in the 
credit decision). A creditor must provide the section 615(b) disclosure 
(that a creditor obtained information from an outside source other than 
a consumer reporting agency that played a part in the credit decision) 
where appropriate. In addition, a creditor must provide the 
615(b) disclosure if the creditor obtained information from an 
affiliate, other than a credit report, or other than the affiliate's 
own experience with the consumer. If a creditor denies an application 
based on information in a credit report obtained from an affiliate, the 
creditor must provide the section 615(a) disclosure, including the 
name, address and telephone number of the consumer reporting agency 
from which the report was originally obtained.
* * * * *

[[Page 37169]]

Form C-1--Sample Notice of Action Taken and Statement of Reasons

Statement of Credit Denial, Termination, or Change

Date:------------------------------------------------------------------

Applicant's Name:------------------------------------------------------

Applicant's Address:---------------------------------------------------

Description of Account, Transaction, or Requested Credit:

----------------------------------------------------------------------

Description of Action Taken:

----------------------------------------------------------------------

----------------------------------------------------------------------

Part I--Principal Reason(s) for Credit Denial, Termination, or other 
Action Taken Concerning Credit. This section must be completed in 
all instances.
____Credit application incomplete
____Insufficient number of credit references provided
____Unacceptable type of credit references provided
____Unable to verify credit references
____Temporary or irregular employment
____Unable to verify employment
____Length of employment
____Income insufficient for amount of credit requested
____Excessive obligations in relation to income
____Unable to verify income
____Length of residence
____Temporary residence
____Unable to verify residence
____No credit file
____Limited credit experience
____Poor credit performance with us
____Delinquent past or present credit obligations with others
____Garnishment, attachment, foreclosure, repossession, collection 
action, or judgment
____Bankruptcy
____Value or type of collateral not sufficient
____Other, specify:

----------------------------------------------------------------------

Part II--Disclosure of use of information obtained from an outside 
source. This section should be completed if the credit decision was 
based in whole or in part on information that has been obtained from 
an outside source.

____Our credit decision was based in whole or in part on information 
obtained in a report from the consumer reporting agency listed 
below. You have a right under the Fair Credit Reporting Act to know 
the information contained in your credit file at the consumer 
reporting agency. The reporting agency played no part in our 
decision and is unable to supply specific reasons why we have denied 
credit to you. You also 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 receive is inaccurate or 
incomplete, you have the right to dispute the matter with the 
reporting agency.

Name:------------------------------------------------------------------

----------------------------------------------------------------------

Address:---------------------------------------------------------------

----------------------------------------------------------------------

[Toll-free] Telephone number:------------------------------------------
____Our credit decision was based in whole or in part on information 
obtained from ``an affiliate or from'' an outside source other than 
a consumer reporting agency. Under the Fair Credit Reporting Act, 
you have the right to make a written request, no later than 60 days 
after you receive this notice, for disclosure of the nature of this 
information.

----------------------------------------------------------------------

    If you have any questions regarding this notice, you should 
contact:

Creditor's name:-------------------------------------------------------

Creditor's address:----------------------------------------------------

Creditor's telephone number:-------------------------------------------

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).

Form C-2--Sample Notice of Action Taken and Statement of Reasons

Date:------------------------------------------------------------------

Dear Applicant:

    Thank you for your recent application. Your request for [a loan/
a credit card/an increase in your credit limit] was carefully 
considered, and we regret that we are unable to approve your 
application at this time, for the following reason(s):

Your Income:

____ is below our minimum requirement.
____ is insufficient to sustain payments on the amount of credit 
requested.
____ could not be verified.
Your Employment:

____ is not of sufficient length to qualify.
____ could not be verified.
Your Credit History:

____ of making payments on time was not satisfactory.
____ could not be verified.

Your Application:

____ lacks a sufficient number of credit references.
____ lacks acceptable types of credit references.
____ reveals that current obligations are excessive in relation to 
income.
Other:-----------------------------------------------------------------
    The consumer reporting agency contacted that provided 
information that influenced our decision in whole or in part was 
[name, address and [toll-free] telephone 
number of the reporting agency]. The reporting agency is unable to 
supply specific reasons why we have denied credit to you. You do, 
however, have a right under the Fair Credit Reporting Act to know 
the information contained in your credit file. You also 
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 receive is inaccurate or incomplete, you have the 
right to dispute the matter with the reporting agency. 
Any questions regarding such information should be 
directed to (consumer reporting agency).
    If you have any questions regarding this letter, you should 
contact us at (creditor's name, address and telephone number).

    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).

Form C-3--Sample Notice of Action Taken and Statement of Reasons 
(Credit Scoring)

Date:------------------------------------------------------------------

Dear Applicant:

    Thank you for your recent application for ____________.
We regret that we are unable to approve your request.
    Your application was processed by a credit scoring system that 
assigns a numerical value to the various items of information we 
consider in evaluating an application. These numerical values are 
based upon the results of analyses of repayment histories of large 
numbers of customers.
    The information you provided in your application did not score a 
sufficient number of points for approval of the application. The 
reasons why you did not score well compared with other applicants 
were:
 Insufficient bank references
 Type of occupation
 Insufficient credit experience

    In evaluating your application the consumer reporting agency 
listed below provided us with information that in whole or in part 
influenced our decision. The reporting agency played no part in our 
decision other than providing us with credit information about you. 
Under the Fair Credit Reporting Act, you have a right to know the 
information provided to us. It can be obtained by contacting: [name, 
address, and [toll-free] telephone number of 
the consumer reporting agency]. You also 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 receive 
is inaccurate or incomplete, you have the right to dispute the 
matter with the reporting agency.

[[Page 37170]]

    If you have any questions regarding this letter, you should 
contact us at

Creditor's Name:-------------------------------------------------------

Address:---------------------------------------------------------------

----------------------------------------------------------------------

Telephone:-------------------------------------------------------------

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 
(with certain limited exceptions); 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).

Form C-4--Sample Notice of Action Taken, Statement of Reasons, and 
Counteroffer

Date:------------------------------------------------------------------

Dear Applicant:

    Thank you for your application for ____________. We are unable to 
offer you credit on the terms that you requested for the following 
reason(s):

----------------------------------------------------------------------

    We can, however, offer you credit on the following terms:

----------------------------------------------------------------------

    If this offer is acceptable to you, please notify us within 
(amount of time) at the following address:

----------------------------------------------------------------------

    Our credit decision on your application was based in whole or in 
part on information obtained in a report from (name, address and 
(toll-free) telephone number of the consumer 
reporting agency]. You have a right under the Fair Credit Reporting 
Act to know the information contained in your credit file at the 
consumer reporting agency. The reporting agency played no 
part in our decision and is unable to supply specific reasons why we 
have denied credit to you. You also 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 receive is 
inaccurate or incomplete, you have the right to dispute the matter 
with the reporting agency.
    You should know that the federal Equal Credit Opportunity Act 
prohibits creditors, such as ourselves, from discriminating against 
credit applicants on the basis of their race, color, religion, 
national origin, sex, marital status, age 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.--------------------------------------
    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 also 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 receive 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

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).
* * * * *
    By order of the Board of Governors of the Federal Reserve 
System, July 7, 1997.
William W. Wiles,
Secretary of the Board.
[FR Doc. 97-18097 Filed 7-10-97; 8:45 am]
BILLING CODE 6210-01-P