Fed Unveils FCRA Change

The Federal Reserve Board has issued a proposed rule requiring lenders to notify consumers if they furnish "negative information" about the consumers to credit reporting agencies.

And this is just the first of many expected regulatory proposals stemming from legislation that revised credit reporting laws. Under the Fair and Accurate Credit Transaction Act, which amended the existing Fair Credit Reporting Act, creditors must disclose to consumers that they have given information about delinquencies, late payments, insolvency, or any form of default to a credit bureau.

The proposal includes a model form for financial institutions to use if they furnish negative information to credit reporting agencies. The form outlines how that information should be communicated to the affected consumer. The model disclosure is a single sentence in length.

Melanie Brodie, an attorney with Kirkpatrick & Lockhart, said that use of the board's model would constitute a "safe harbor" for compliance with the FACT Act's notice obligation. However, use of the model form is not mandatory.

Ms. Brodie said the current Fed proposal is "relatively small" compared to other rulemaking that the Fed and the Federal Trade Commission are expected to propose related to the FACT legislation.

"This is just one regulation out of a lot that we are going to be seeing," she said.

Comments on the proposed form are due to the Fed by May 9, 2004.

Financial institutions covered by the FACT Act are the same as those defined by Gramm-Leach-Bliley Act, which generally is any institution engaging in financial activities as described by the Bank Holding Company Act of 1956.

FACT requires lenders to provide "clear and conspicuous" notice to consumers when negative information about them is reported to credit bureaus.

Under FACT, the FTC has the right to impose penalties for violations of the disclosure rule.

If a lender is deemed to knowingly engage in a pattern and practice of violations, the FTC can impose a penalty of up to $2,500 per violation.

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