Compliance Blog

We’re almost done with our first Virtual Regulatory Compliance School and will have many joining the ranks of our existing NAFCU Certified Compliance Officers (NCCOs) at the end of the week. We cover a lot of ground in this training, from NCUA’s lending rule, to the Bank Secrecy Act, to the Telephone Consumer Protection Act. But seeing that our Fair Credit Reporting Act session is scheduled today reminded me that we have heard from some credit unions that a specific FCRA notice is coming up during NCUA exams.

The FCRA is one of NCUA’s 2020 supervisory priorities in terms of consumer compliance. It contains a variety of requirements, including limits on when a consumer report can be accessed, requirements for providing consumer data to consumer reporting agencies (CRAs), notices about risk-based pricing, and more. For exam purposes, NCUA indicated areas of focus include “credit reporting policies and procedures” and if applicable, “the accuracy of reporting to credit bureaus, particularly the date of first delinquency.” In addition to these requirements, credit unions that have recently had their NCUA exam indicated NCUA also reviewed the credit union’s notice of negative information.

Under section 623(a)(7) of the FCRA, credit unions that furnish negative information about consumers to CRAs that maintain files on consumers on a nationwide basis are required to provide a written notice to the consumer. Negative information includes:

·       Information regarding a borrower’s delinquency;

·       Details of late payments;

·       The borrower’s insolvency; or

·       Any form of default.

The notice must be provided “prior to, or no later than 30 days after” the credit union furnishes the negative information to a nationwide CRA. If being provided before furnishing negative information, the FCRA also states that the notice cannot be in the account opening disclosures required for open-end credit under Regulation Z. However, the disclosure can be provided with any notice of default or billing statement, but must be “clear and conspicuous.” While the FCRA and its implementing Regulation V do not provide much detail on what is “clear and conspicuous,” Appendix B to the rule does include two model forms that provides a safe harbor for compliance if used as set forth by the regulator.

Model Notice B-1 can be used to provide notice before negative information is furnished to a nationwide CRA. Model Notice B-2 can be used if providing notice after furnishing negative information to a nationwide CRA.

A common question is to what extent can the credit union make changes to the model form without losing the safe harbor. Comment d in Appendix B addresses this and states that certain changes to the language of the form are allowed but “may not be so extensive as to affect the substance, clarity, or meaningful sequence of the language in the model notices." There are a few examples of acceptable changes:

·       Rearranging the order of the references to “late payments” or “missed payments”

·       Pluralizing the terms credit bureau, credit report, and account; or

·       Specifying the type of account on which information may be furnished like “credit card account.”

Also, specifically for Model Notice B-1 (notice before furnishing information), it is permitted to rearrange the phrases slightly.

Note that the model notices are not mandatory, but can provide the benefit of a compliance safe harbor. When adopting the Model Notice, the Federal Trade Commission, which had rulemaking authority at the time, explained these changes as follows:

In particular, Appendix B provides that although use of the model notices is not required, a financial institution shall be deemed to be in compliance with the notice requirement if the institution properly uses the model notices in Appendix B. In addition, Appendix B provides that financial institutions may make certain changes to the language or format of the model notices without losing the safe harbor from liability provided by the model notices. Appendix B provides examples of acceptable changes, including rearranging the order of the references to “late payment(s)” and “missed payment(s),” or pluralizing the terms “credit bureau,” “credit report” and “account” as used in the model notices. Nonetheless, Appendix B provides that changes to the model notices may not be so extensive as to affect the substance, clarity, or meaningful sequence of the language in the model notices. Financial institutions making such extensive revisions will lose the safe harbor from liability that Appendix B provides.

Overall, making some revisions to the model notice will not necessarily remove the safe harbor, but beware of “extensive” edits that may actually alter the substance or clarity of the disclosure.

We Need Your Help – Feedback on the Qualified Mortgage Proposal

Don’t forget to check out NAFCU’s Regulatory Alert on the CFPB’s proposed QM rule. Feel free to provide your feedback via the link in the regulatory alert or to Kaley Schafer at kschafer@nafcu.org, we want to hear from you on this proposal!