On July 21, 2010, President Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) which includes the creation of a new Consumer Financial Protection Agency (CFPA). The law was initially proposed on December 2, 2009, in the House of Representatives by Barney Frank and in the Senate Banking Committee by Chairman Chris Dodd. The Act, which was passed as a response to the late 2000s recession, is the most sweeping change to financial regulation in the United States since the Great Depression and represents a significant change in the American financial regulatory environment affecting all Federal financial regulatory agencies and affecting almost every aspect of the nation’s financial services industry.
The Dodd-Frank Act has brought about amendments in FCRA and the way a credit check is conducted and will take effect from 21st July 2011. Section 1100f of the Dodd-Frank Act requires that creditors add five disclosures to their adverse action and risk-based pricing notices:
- the consumer’s credit score;
- the range of possible credit scores under the model used to generate the score;
- the key factors that adversely affected the consumer’s credit score in the model used;
- the date on which the score was created; and
- the name of the person or entity that provided the credit score.
One of the amendments to the FCRA deals with the use of credit scores by anyone who takes adverse action based on the scores. If an employer uses a consumer report that includes a credit score in order to determine eligibility for employment, the employer will be required to disclose that a credit score was used and to disclose information on the credit score, including the credit score itself, and the identity of the agency that provided the score so that an applicant may contact the agency to correct any error.
The rules outlined in FCRA for credit checks have changed and are changing from state to state in the light of economic downturn and recession in these past years. Therefore it is imperative especially for small businesses to know the regulations and abide by them while conducting a credit check. Many are not aware of giving a pre-adverse letter and allowing the applicant to contest the case before taking an adverse decision against any applicant.
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Disclaimer: The content of this post does not constitute direct legal advice and is designed for informational purposes only. Any issues regarding compliance and obligations under United States or International laws or regulations should be addressed through your legal department or outside counsel.
