[Federal Register Volume 69, Number 70 (Monday, April 12, 2004)]
[Proposed Rules]
[Pages 19123-19125]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-8194]


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FEDERAL RESERVE SYSTEM

12 CFR Part 222

[Regulation V; Docket No. R-1187]


Fair Credit Reporting

AGENCY: Board of Governors of the Federal Reserve System.

ACTION: Proposed rule.

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SUMMARY: The Board is proposing to amend Regulation V that implements 
the Fair Credit Reporting Act (FCRA or Act), 15 U.S.C. 1681 et seq. The 
Board would add a model form to Regulation V that financial 
institutions may use to comply with the notice requirement relating to 
furnishing negative information contained in section 217 of the Fair 
and Accurate Credit Transactions Act of 2003 (FACT Act). Section 217 of 
the FACT Act amends the FCRA to provide that if any financial 
institution (1) extends credit and regularly and in the ordinary course 
of business furnishes information to a nationwide consumer reporting 
agency, and (2) furnishes negative information to such an agency 
regarding credit

[[Page 19124]]

extended to a customer, the institution must provide a clear and 
conspicuous notice about furnishing negative information, in writing, 
to the customer. Section 217 defines the term ``financial institution'' 
to have the same meaning as in the Gramm-Leach-Bliley Act (GLB Act), 15 
U.S.C. 6801 et seq., which generally is ``any institution the business 
of which is engaging in financial activities as described in section 
4(k) of the Bank Holding Company Act of 1956.'' 15 U.S.C. 6809(3). The 
Board's model form could be used by all financial institutions, as 
defined by section 217.

DATES: Comments must be received by May 9, 2004.

ADDRESSES: Comments should refer to Docket No. R-1187 and may be mailed 
to Jennifer J. Johnson, Secretary, Board of Governors of the Federal 
Reserve System, 20th Street and Constitution Avenue, NW., Washington, 
DC 20551. Please consider submitting your comments through the Board's 
Web site at www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm, 
by e-mail to [email protected], or by fax to the Office 
of the Secretary at 202/452-3819 or 202/452-3102. Rules proposed by the 
Board and other Federal agencies may also be viewed and commented on at 
www.regulations.gov.
    All public comments are available from the Board's Web site at 
www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm as submitted, 
except as necessary for technical reasons. Accordingly, your comments 
will not be edited to remove any identifying or contact information. 
Public comments may also be viewed electronically or in paper in Room 
MP-500 of the Board's Martin Building (20th and C Streets, NW.) between 
9 a.m. and 5 p.m. on weekdays.

FOR FURTHER INFORMATION CONTACT: Krista P. DeLargy, Senior Attorney; 
David A. Stein, Counsel; Minh-Duc T. Le or Ky Tran-Trong, Senior 
Attorneys; Division of Consumer and Community Affairs, (202) 452-3667 
or (202) 452-2412; Thomas E. Scanlon, Counsel, Legal Division, (202) 
452-3594, Board of Governors of the Federal Reserve System, 20th and C 
Streets, NW., Washington, DC 20551.

SUPPLEMENTARY INFORMATION: 

I. Background

    On December 4, 2003, the President signed into law the FACT Act, 
which amends the FCRA. Pub. L. 108-159, 117 Stat. 1952. In general, the 
FACT Act enhances the ability of consumers to combat identity theft, 
increases the accuracy of consumer reports, and allows consumers to 
exercise greater control regarding the type and amount of marketing 
solicitations they receive. The FACT Act also restricts the use and 
disclosure of sensitive medical information. To bolster efforts to 
improve financial literacy among consumers, the FACT Act creates a new 
Financial Literacy and Education Commission empowered to take 
appropriate actions to improve the financial literacy and education 
programs, grants, and materials of the Federal government. Lastly, the 
FACT Act establishes uniform national standards in key areas of 
regulation regarding consumer report information.
    Section 217 of the FACT Act requires that if any financial 
institution (1) extends credit and regularly and in the ordinary course 
of business furnishes information to a nationwide consumer reporting 
agency, and (2) furnishes negative information to such an agency 
regarding credit extended to a customer, the institution must provide a 
clear and conspicuous notice about furnishing negative information, in 
writing, to the customer. Section 217 defines the term ``negative 
information'' to mean information concerning a customer's 
delinquencies, late payments, insolvency, or any form of default.
    Section 217 specifies that an institution must provide the required 
notice to the customer prior to, or no later than 30 days after, 
furnishing the negative information to a nationwide consumer reporting 
agency. After providing the notice, the institution may submit 
additional negative information to a nationwide consumer reporting 
agency with respect to the same transaction, extension of credit, 
account, or customer without providing additional notice to the 
customer. If a financial institution has provided a customer with a 
notice prior to the furnishing of negative information, the institution 
is not required to furnish negative information about the customer to a 
nationwide consumer reporting agency. A financial institution generally 
may provide the notice about furnishing negative information on or with 
any notice of default, any billing statement, or any other materials 
provided to the customer, so long as the notice is clear and 
conspicuous. Section 217 specifically provides, however, that the 
notice may not be included in the initial disclosures provided under 
section 127(a) of the Truth in Lending Act (15 U.S.C. 1637(a)). Section 
217 also provides certain safe harbors for institutions concerning 
their efforts to comply with the notice requirement.
    Section 217 requires the Board to publish, after notice and 
comment, a concise model form not to exceed 30 words in length that 
financial institutions may, but are not required to, use to comply with 
the notice requirement. The model form must be issued in final form 
within 6 months of the date of enactment of the FACT Act, or June 4, 
2004. In addition, section 217 provides that a financial institution 
shall not be liable for failure to perform the duties required by this 
section if, at the time of the failure, the institution maintained 
reasonable policies and procedures to comply with the section or the 
institution reasonably believed that the institution was prohibited by 
law from contacting the customer.
    Under section 217, the term ``financial institution'' is defined 
broadly to have the same meaning as in section 509 of the GLB Act, 
which generally defines financial institution to mean ``any institution 
the business of which is engaging in financial activities as described 
in section 4(k) of the Bank Holding Company Act of 1956,'' whether or 
not affiliated with a bank. 15 U.S.C. 6809(3). Thus, the term 
``financial institution'' includes not only institutions regulated by 
the Board and other federal banking agencies, but also includes other 
financial entities, such as merchant creditors and debt collectors that 
extend credit and report negative information. 16 CFR 313.3(k), 65 FR 
33646, 33655 (May 24, 2000).
    In this rulemaking, the Board is proposing a model form that 
financial institutions may use to comply with the notice requirement 
under section 217. In addition, the Board proposes to amend Regulation 
V to specify that although the regulation generally applies only to the 
financial institutions that the Board regulates, the model form 
relating to furnishing negative information may be used by all 
financial institutions, as that term is defined by section 217.

II. Section by Section

Section 222.1 Purpose, Scope, and Effective Dates

    Proposed paragraph 222.1(b)(2) describes the scope of the Board's 
Regulation V, which implements the FCRA. Generally, the Board's 
Regulation V covers the institutions under the Board's jurisdiction. 15 
U.S.C. 1681s(e). Nonetheless, the Board's proposed paragraph (b)(2) 
specifies that the Board's proposed model form in Appendix B relating 
to furnishing of negative information may be used by all financial 
institutions (as that term is defined in section 509 of the GLB Act)

[[Page 19125]]

to comply with the notice requirement contained in section 217 of the 
FACT Act.

Appendix B--Model Notice of Furnishing Negative Information

    The Board is proposing in Appendix B a model form that financial 
institutions may use to comply with the requirement to provide notice 
about furnishing negative information to a consumer reporting agency 
under section 217 of the FACT Act. Because a financial institution is 
allowed to send the notice relating to furnishing negative information 
prior to, or within 30 days after, it furnishes negative information, 
the proposed model form contains alternative language that a financial 
institution may use, depending on when the notice is given.

III. Solicitation of Comments Regarding the Use of ``Plain Language''

    Section 722 of the GLB Act requires the Board to use ``plain 
language'' in all proposed and final rules published after January 1, 
2000. The Board invites comments on whether the proposed rules are 
clearly stated and effectively organized, and how the Board might make 
the proposed text easier to understand.

IV. Initial Regulatory Flexibility Analysis

    In accordance with section 3(a) of the Regulatory Flexibility Act, 
the Board has reviewed the proposed amendments to Regulation V. The 
proposed amendments are not expected to have any significant impact on 
small entities. A final regulatory flexibility analysis will be 
prepared and will consider comments received during the public comment 
period.

V. Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 
3506; 5 CFR part 1320, Appendix A.1), the Board reviewed the proposed 
rule under the authority delegated to the Board by the Office of 
Management and Budget (OMB). The Federal Reserve may not conduct or 
sponsor, and an organization is not required to respond to, this 
information collection unless it displays a currently valid OMB control 
number. The control number will be obtained from OMB after the public 
comment period has ended.
    The collection of information that is proposed by this rulemaking 
is found in section 217 of the FACT Act, Pub. L. 108-159, 117 Stat. 
1952. This information is mandatory for financial institutions. The 
respondents are financial institutions as defined as in the privacy 
provisions of the GLB Act. The term ``financial institution'' includes 
not only institutions regulated by the Board and other federal banking 
agencies, but also includes other financial entities, such as merchant 
creditors and debt collectors that extend credit and report negative 
information.
    The proposed revisions to the FCRA would provide financial 
institutions with a general model form (provided in Appendix B) that 
they may use to comply with the notice requirement under section 217 of 
the FACT Act relating to furnishing negative information. It is 
expected that providing a notice to consumers would not significantly 
burden the financial institutions; the standardized, machine-generated 
notice is generally mailed to consumers. Financial institutions would 
face a one-time burden to reprogram and update systems to include the 
new notice requirement. With respect to financial institutions, 
approximately 30,000 furnish information to consumer reporting 
agencies. The estimated time to update systems is approximately 8 hours 
(one business day); therefore, the total annual burden is estimated to 
be 240,000 hours. This total annual burden represents approximately 5 
percent of the total Federal Reserve System paperwork burden.
    Because the records would be maintained at state member banks and 
the notices are not provided to the Federal Reserve, no issue of 
confidentiality arises under the Freedom of Information Act.
    Comments are invited on: a. whether the proposed 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 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 of information should be sent to 
Michelle Long, Acting Federal Reserve Board Clearance Officer, Division 
of Research and Statistics, Mail Stop 41, 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--to be obtained), Washington, DC 20503.

List of Subjects in 12 CFR Part 222

    Banks, banking, Holding companies, state member banks.

    For the reasons set forth in the preamble, the Board proposes to 
amend Regulation V, 12 CFR part 222, as set forth below:

PART 222--FAIR CREDIT REPORTING (REGULATION V)

    1. The authority citation for part 222 is revised to read as 
follows:

    Authority: 15 U.S.C. 1681s; Secs. 3 and 217, Pub. L. 108-159; 
117 Stat. 1953, 1986-88.
    2. Section 222.1 is revised by adding a new paragraph (b) to read 
as follows:

Subpart A--General Provisions


Sec.  222.1  Purpose, scope, and effective dates.

* * * * *
    (b) Scope.
    (1) [Reserved]
    (2) Institutions covered.
    (i) Except as otherwise provided in paragraph (b)(2), these 
regulations apply to banks that are members of the Federal Reserve 
System (other than national banks), branches and Agencies of foreign 
banks (other than Federal branches, Federal Agencies, and insured State 
branches of foreign banks), commercial lending companies owned or 
controlled by foreign banks, organizations operating under section 25 
or 25A of the Federal Reserve Act (12 U.S.C. 601 et seq., and 611 et 
seq.), and bank holding companies and affiliates of such holding 
companies.
    (ii) Financial institutions, as that term is defined in section 509 
of the Gramm-Leach-Bliley Act (12 U.S.C. 6809), may use the model form 
in Appendix B of this part to comply with the notice requirement in 
section 623(a)(7) of the Fair Credit Reporting Act (15 U.S.C. 1681s-
2(a)(7)).
* * * * *
    3. Part 222 is revised by adding a new Appendix B to read as 
follows:

Appendix A--[Reserved]

Appendix B--Model Notice of Furnishing Negative Information

    We [may provide]/[have provided] information to credit bureaus 
about an insolvency, delinquency, late payment, or default on your 
account to include in your credit report.

    By order of the Board of Governors of the Federal Reserve 
System, April 6, 2004.
Jennifer J. Johnson,
Secretary of the Board.
[FR Doc. 04-8194 Filed 4-9-04; 8:45 am]
BILLING CODE 6210-01-P