[Federal Register Volume 63, Number 64 (Friday, April 3, 1998)]
[Rules and Regulations]
[Pages 16392-16401]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-8749]


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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: Final rule.

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SUMMARY: The Board is amending certain model forms in its Regulation B 
to reflect 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. In addition, a technical revision has been made to 
Appendix A.

DATES: The rule is effective April 30, 1998.

FOR FURTHER INFORMATION CONTACT: Jane Jensen Gell, Senior Attorney, or 
Pamela Morris Blumenthal, Staff Attorney, Division of Consumer and 
Community Affairs, Board of Governors of the Federal Reserve System, at 
(202) 452-3667 or 452-2412; 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 consumers 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 by denying an application 
for credit, to provide consumers 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 
disclosures include 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 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.
    On July 11, 1997, the Board published for public comment proposed 
amendments to several model forms in Regulation B (61 FR 37166). The 
Board is issuing a final rule amending the FCRA portion of Regulation 
B's model forms C-1 through C-5 and the general instructions for these 
forms to reflect the changes to the FCRA, which were effective 
September 30, 1997. 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. To minimize the number of changes to the 
forms, and thereby ease compliance for creditors, the Board is changing 
the language only in the forms that are affected by the FCRA 
amendments.

II. New Model Language

Action Based on Information From a Consumer Reporting Agency

    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. These revisions have been incorporated into the 
model forms that may be used to comply with the FCRA when credit is 
denied, an account is terminated, or the terms of an account are 
unfavorably changed based on information from a consumer reporting 
agency.

Action Based on Information From an Affiliate

    The Board specifically solicited comment on which, if any, 
disclosure should be provided when adverse action is based on a 
consumer report obtained from an affiliate. The Board proposed

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that a creditor using information in a consumer report obtained from an 
affiliate must provide the same disclosures as would be provided if the 
report had come directly from the consumer reporting agency 
(disclosures required under 615(a) of the FCRA). Some commenters agreed 
with the Board's approach. These commenters believed that creditors 
should provide consumers the same disclosures under FCRA whether a 
consumer report is obtained from an affiliate or directly from a 
consumer reporting agency.
    A number of commenters disagreed with the Board's approach. They 
believed that the Board's reading of the statute did not reflect 
congressional intent. These commenters argued that the amendments to 
the FCRA specifically require a different adverse action notice when a 
consumer report is obtained from an affiliate, if the affiliate has 
provided certain ``opt-out'' disclosures mentioned in the statute's 
amended definition of ``consumer report.''
    After reviewing the comment letters and consulting with other 
federal financial regulatory agencies, the Board has determined that 
this issue merits further consideration and would more appropriately be 
addressed in an interpretation of the FCRA. The Board and the FTC 
anticipate that they will issue jointly for public comment a proposed 
interpretation of the FCRA that will clarify the disclosures that are 
to be provided when adverse action is based on a consumer report 
obtained from an affiliate. In the interim, institutions may provide 
either the 615(a) notice or the 615(b) notice.

Third Party Notice

    In the case of information from an affiliate that is neither a 
consumer report nor the affiliate's own transactional experience, the 
Board proposed allowing creditors to use the current third-party 
notice, as amended. There is a difference, however, between the timing 
provisions of section 615(b)(1) (third-party notice) and of section 
615(b)(2) (affiliate notice). Under the third-party provision, a 
consumer's request for the reasons for adverse action must be submitted 
to the creditor within 60 days after the consumer receives the notice. 
Under the affiliate provision, the request must be submitted within 60 
days after the ``transmittal of the notice.''
    The Board proposed that Regulation B's existing language for model 
form C-1 (used for information from a third party) also be used for 
information from an affiliate, and solicited comment on this approach. 
Commenters generally agreed with the Board that the proposed language--
60 days from receipt of the notice--would ease compliance for creditors 
and provide a more understandable time frame for consumers. 
Accordingly, the Board has adopted this language in the final rule.

Technical Revisions

    Commenters suggested several technical modifications to the forms. 
Several commenters believed that the Board was requiring the use of 
certain terms, such as ``toll-free.'' The Board did not intend this 
result. The use of the words ``toll-free'' before ``telephone'' in 
model forms C-1 through C-5 is not required. Although a form need not 
state ``toll-free,'' a creditor must provide a toll-free number 
established by the consumer reporting agency if the agency compiles and 
maintains files on consumers on a nationwide basis.
    In addition, to be consistent with the language in the FCRA, the 
phrase ``affiliate's own experience'' in the second paragraph in 
Appendix C is modified to read ``affiliates's own transactions or 
experiences.'' Finally, the proposed statement concerning consumers' 
right under the FCRA to know the information in their credit files in 
Model Form C-5 (included in brackets) need not be provided. Commenters 
noted that the revised FCRA does not require this notice, and that the 
notice of the right to receive a free copy of a credit report 
adequately informs consumers that they may obtain the information in 
their credit report.

III. Section-by-Section Analysis

    In Appendix C, the second paragraph is amended by adding two 
sentences at the end of the paragraph explaining the FCRA disclosure 
requirements for information obtained from an affiliate. For model 
forms C-1 through C-5, the words ``toll-free'' are included in brackets 
to reflect that the telephone number for the consumer reporting agency 
must be toll-free if it compiles and maintains files on consumers on a 
nationwide basis. Creditors have the option of using the words ``toll-
free'' before the reporting agency's telephone number when a toll-free 
number is provided.

Model Form C-1

    Sample Notice of Action Taken and Statement of Reasons is 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. In addition, in cases where a toll-
free number is provided, creditors have the option of adding the words 
``toll-free'' before the reporting agency's telephone number. A 
reference to an affiliate is added in the second paragraph.

Model Form C-2

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

Model Form C-3

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

Model Form C-4

    Sample Notice of Action Taken, Statement of Reasons and 
Counteroffer is amended by adding to the first sentence in the third 
paragraph the words ``toll-free'' 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 is added along 
with the dispute disclosure.

Model Form C-5

    Sample Disclosure of Right to Request Specific Reasons for Credit 
Denial is amended by adding to the first sentence in the fourth 
paragraph the words ``toll-free'' before the reporting agency's 
telephone number. At the end of the paragraph the disclosure that the 
reporting agency played no part in the decision has been added, along 
with the dispute disclosure. In addition, the disclosure that the 
consumer has a right under the FCRA to know the information in the 
credit file may be provided, but is not required.

IV. Technical Change to Appendix A

    Appendix A--Federal Enforcement Agencies has been revised to 
reflect a new address for the Office of the Comptroller of the Currency 
(OCC). Under section 202.9(b) of Regulation B, a creditor's notice of 
adverse action is required to include the name and address of the 
federal agency that has enforcement responsibility for that creditor. 
The OCC is the appropriate agency for national banks and federal 
branches and federal agencies of foreign banks. This is a technical 
revision and is not related to the FCRA amendments.

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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 
amendments to Regulation B. The amendments, which provide model 
language to facilitate compliance, are not likely to have a significant 
impact on institutions' costs, including the costs to small 
institutions.

VI. Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 
3506), the Board reviewed the rule under the authority delegated to the 
Board by the Office of Management and Budget (5 CFR 1320 Appendix A.1).
    The current estimated total annual burden for this information 
collection is 125,177 hours. This amount reflects the burden estimate 
of the Federal Reserve System for the 996 state member banks under its 
supervision. This regulation applies to all types of creditors, not 
just state member banks. However, under Paperwork Reduction Act 
regulations, the Federal Reserve accounts for the burden of the 
paperwork associated with the regulation only for state member banks. 
Other agencies account for the paperwork burden for the institutions 
they supervise.
    The revised collection of information requirements are found in 
Appendix C to 12 CFR Part 202. The burden per response for any of the 
five revised disclosures is estimated to be two and one-half minutes, 
on average. As the revisions are minor, this amount is not expected to 
change. The Board estimates that there is no annual cost burden over 
the annual hour burden associated with the revisions. 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 996 
state member banks. No comments specifically addressing the burden 
estimate were received.
    This information collection is mandatory (15 USC 1691b(a)(1) and 
Pub. L. 104-208, Sec. 2302(a)) to ensure that credit is made available 
to all creditworthy customers without discrimination on the basis of 
race, color, religion, national origin, sex, marital status, age 
(provided the applicant has the capacity to contract), receipt of 
public assistance, or the fact that the applicant has in good faith 
exercised any right under the Consumer Credit Protection Act (15 USC 
1600 et. seq.). The respondents/recordkeepers are for-profit financial 
institutions, including small businesses. Creditors are required to 
retain records for twelve to twenty-five months as evidence of 
compliance.
    Since the Federal Reserve does not collect any information, no 
issue of confidentiality normally arises. However, the information may 
be protected from disclosure under exemptions (b)(4), (6), and (8) of 
the Freedom of Information Act (5 USC 522 (b)). The adverse action 
disclosure is confidential between the institution and the consumer 
involved. An agency may not conduct or sponsor, and an organization is 
not required to respond to, an information collection unless it 
displays a currently valid OMB control number. The OMB control number 
for the Recordkeeping and Disclosure Requirements in Connection with 
Regulation B is 7100-0201.
    The Federal Reserve has a continuing interest in the public's 
opinions of our collections of information. At any time, comments 
regarding the burden estimate, or any other aspect of this collection 
of information, including suggestions for reducing the burden, may be 
sent to: Secretary, Board of Governors of the Federal Reserve System, 
20th and C Streets, N.W., Washington, DC 20551; and to the Office of 
Management and Budget, Paperwork Reduction Project (7100-0201), 
Washington, DC 20503.

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.
    For the reasons set forth in the preamble, 12 CFR part 202 is 
amended to read as follows:

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 A is amended by revising the second paragraph to read 
as follows:

Appendix A to Part 202--Federal Enforcement Agencies

* * * * *

National Banks, and Federal Branches and Federal Agencies of 
Foreign Banks

    Office of the Comptroller of the Currency, Customer Assistance 
Unit, 1301 McKinney Avenue, Suite 3710, Houston, Texas 77010.
* * * * *
    3. Appendix C is 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 read as follows:

Appendix C to Part 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 615(a) 
disclosure when adverse action is taken against a consumer based on 
information from a consumer reporting agency. A creditor must 
provide the section 615(b) disclosure when adverse action is taken 
based on information from an outside source other than a consumer 
reporting agency. In addition, a creditor must provide the 615(b) 
disclosure if the creditor obtained information from an affiliate 
other than information in a consumer report or other than 
information concerning the affiliate's own transactions or 
experiences with the consumer. Creditors may comply with the 
disclosure requirements for adverse action based on information in a 
consumer report obtained from an affiliate by providing either the 
615(a) or 615(b) disclosure.
* * * * *

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* * * * *
    By order of the Board of Governors of the Federal Reserve 
System, March 30, 1998.
William W. Wiles,
Secretary of the Board.
[FR Doc. 98-8749 Filed 4-2-98; 8:45 am]
BILLING CODE 6210-01-C