Back to Basics, Continued—Magic in Less than 30 Words

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Dentons

Those who work in the consumer finance industry are accustomed to disclosure requirements of federal and state laws and regulations. But, here is one that you may not have heard about lately: The Fair Credit Reporting Act Section 623 requires financial institutions that report negative or derogatory information on consumers to credit reporting agencies to so notify consumers unless they have already given a pre-emptive notice in a form that does not exceed 30 words. Really! Let me elaborate.

When the Fair Credit Reporting Act (FCRA) was amended by the Fair and Accurate Credit Transactions Act (FACTA) (together the “Act”), a duty was placed on furnishers of credit information to credit reporting agencies. One of those duties, set forth at Section 623(a)(7) of the Act, is to tell consumers that the furnishing creditor routinely reports to credit reporting agencies and that the information reported may be negative.

To comply with this reporting requirement, the law permits a pre-emptive disclosure notice in “materials provided to the customer” if clear and conspicuous. And, the law requires the CFPB to prepare a brief model disclosure that does ”not exceed 30 words.”

Well, the CFPB or its predecessor, the Federal Trade Commission, performed its duty and has given us a Model Notice B-1 in the FCRA Regulations. The model notice language is:

We may report information about your account to credit bureaus. Late payments, missed payments, or other defaults on your account may be reflected in your credit report.

Take a look at your Note or Retail Installment Contract forms. If you don’t find this disclosure notice, then ask why not. The disclosure may be handled in a different manner—but find out.

Interestingly, there is a related notice that can give furnishers of information another level of protection. The Act also prohibits reporting of inaccurate information with actual knowledge of errors. However, this duty is somewhat mitigated if the creditor has clearly and conspicuously specified to the consumer an address for the notice. So, while not required, a well written disclosure will also advise the consumer of exactly where and how to notify the creditor of alleged inaccuracy of information.

You may want to look to see if your forms contain this language also.

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