I have covered dozens of topics in this Back To Basics Series. Credit applications, credit reporting, and collections have received more of my attention than most topics. These subjects are integrally involved in consumer finance. One cannot make a loan or credit sale without first knowing the details of the applicant pursuant to the Equal Credit Opportunity Act; the Fair Credit Reporting Act assists creditors in evaluating the creditworthiness of the applicant; and then, if the loan or credit sale is made, but not collected, what is the point! So, I want to revisit just a few matters within each of these topics.
The Equal Credit Opportunity Act (ECOA) dictates the types of information that creditors may elicit in order to evaluate a prospective customer. The ECOA and Regulation B are very precise with respect to the substantive “do’s and don’ts.” But, the law is so much more instructive than just that. It also addresses adverse action notices, spouses as co-signers or guarantors and the challenge rights of applicants. While each of these matters is complex, the Regulation offers several sample credit applications and turn down notice forms to assist us with compliance. That is very helpful.
The Fair Credit Reporting Act (FCRA) is one of the most complex bodies of consumer finance law that we must deal with. This is because it not only speaks to its original target audience of credit reporting agencies, but now regulates furnishers of credit information and users of credit information—three distinctly different audiences. And, on top of that, within the FCRA there are rules relating to direct dispute responses, red flags and risk-based pricing. The FCRA is a treasure trove of potential claims and causes of action for plaintiffs’ lawyers and regulators. And, all of this is happening without sample forms.
And, then there is the wide-open subject of collections. This has long been the domain of state law. But, with the advent of the Fair Debt Collection Practices Act, and the creation of a cause of action for Unfair, Deceptive or Abusive Acts or Practices under the Dodd-Frank Act, the federal agencies—the Federal Trade Commission and the Consumer Financial Protection Bureau—have become key players in this area of consumer financial protection law.
When I think about compliance, these three areas offer the most opportunity for missteps by creditors. Of course, there are many others, and that is why I have had dozens of topics to write about.