I. INTRODUCTION
The Federal Reserve Board issued amendments to Regulation V (which implements the Fair Credit Reporting Act or “FCRA”) on June 8, 2004, adding model notices for financial institutions to use if they furnish negative information to consumer reporting agencies. The amendments – required by § 217 of the Fair and Accurate Credit Transactions Act of 2003 (FACT Act) – also provide guidance for using the model notices. Although these regulatory amendments took effect on July 16, 2004, § 217 of the FACT Act became effective on December 1, 2004.
II. THE FACT ACT AND § 217
Section 217 of the FACT Act amended the FCRA to provide that if any financial institution (1) extends credit and regularly and in the ordinary course of business furnishes information to a nationwide consumer reporting agency and (2) furnishes negative information to such an agency regarding credit extended to a customer, the institution must provide a clear and conspicuous notice about furnishing negative information, in writing, to the customer. “Negative information” is defined in § 217 to mean information concerning a customer’s delinquencies, late payments, insolvency or any form of default.
The required notice to the customer must be provided prior to, or no later than 30 days after, furnishing the negative information to a nationwide consumer reporting agency. After providing the notice, the institution may submit additional negative information to a nationwide consumer reporting agency with respect to the same transaction, extension of credit, account or customer without providing additional notice to the customer. Even if a financial institution has provided customer notification prior to the furnishing of negative information, the institution is not required to furnish negative information about the customer to a nationwide consumer reporting agency.
A financial institution may provide the negative information notice on or with any notice of default, a billing statement or any other materials provided to the customer, so long as the notice is clear and conspicuous. The notice may not be included in the initial disclosures provided under § 127(a) of the Truth in Lending Act.
A “safe harbor” is also contained in § 217 regarding compliance with the negative information notice requirements. A financial institution will not be liable for failure to comply with the notice provisions if the institution maintains reasonable policies and procedures to comply with § 217 or the institution reasonably believed that it was prohibited by law from contacting the customer.
III. MODEL NOTICES
Amended 12 C.F.R. § 222.1(b) of Regulation V provides for model notices that financial institutions may use to comply with the negative information notice requirements. Pursuant to the regulation, two model notices are found in new Appendix B – one that may be used if the financial institution provides the notice in advance of furnishing negative information to a consumer reporting agency and the other that may be used if the institution provides the notice after furnishing negative information to a consumer reporting agency. While use of the model notices is not required, their utilization will be deemed to be in compliance with the regulation when properly used.
Model Notice B-1 may be used if the financial institution is providing the notice prior to furnishing negative information to a nationwide consumer reporting agency. The model notice states:
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.
Model Notice B-2 may be used if the financial institution is providing the notice after furnishing negative information to a nationwide consumer reporting agency. The model notice states:
We have told a credit bureau about a late payment, missed payment or other default on your account. This information may be reflected in your credit report.
Appendix B provides that financial institutions may make certain changes to both language and format of the model notices without jeopardizing the safe harbor provisions of the law. The safe harbor provision will be lost only when the changes to the model notices are “so extensive as to affect the substance, clarity, or meaningful sequence of the language in the model notices.” Acceptable changes include specific examples that are delineated in Appendix B: