MBA Compliance Essentials: Fair Credit Reporting Act Resource Guide


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The MBA Compliance Essentials Fair Credit Reporting Act Resource Guide™ is a part of the MBA Compliance Essentials Program, which includes deep-dive webinars and comprehensive resource guides to serve as base for the development of your company's policies and procedures in these important areas. This is only a sample purchase the full Resource Guide at

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MBA Compliance Essentials: Fair Credit Reporting Act Resource Guide

  1. 1. MBA Compliance Essentials io n. or g SM ba ed uc at Fair Credit Reporting Act Resource Guide m Mitchel H. Kider Managing Partner, Weiner Brodsky Kider P.C. James M. Milano Member, Weiner Brodsky Kider P.C. 13597
  2. 2. FAIR CREDIT REPORTING ACT MBA COMPLIANCE ESSENTIALS℠ RESOURCE GUIDE 15 USC §§ 1681 - 1681x g 12 C.F.R. §§ 1022.1 – 1022.140 (Regulation V) m ba ed uc at io n. or 16 C.F.R. §§ 314.1 - ; 314.5; 681.1 - 681.3, and 682.1 - 682.5
  3. 3. MBA Compliance Essentials℠: Fair Credit Reporting Act Resource Guide Disclaimer io n. or g PLEASE TAKE NOTE: These materials have been produced by Weiner Brodsky Kider PC. These materials provide an overview of some of the federal laws and regulations that may affect or apply to users of consumer reports, or those that furnish information to consumer reporting agencies, including mortgage lenders, servicers or investors. These materials are designed to provide the reader with a general overview and understanding of the provisions of the federal Fair Credit Reporting Act (the FCRA), as amended by the FACT Act and the Dodd-Frank Act. These materials are not intended to and do not provide legal advice, and does not create an attorney-client relationship between the firm of Weiner Brodsky Kider PC and the recipient. Provisions of the FCRA described herein are, in many instances, paraphrased, and a careful reading of the relevant laws, regulations or cases thereunder may reveal exceptions or different interpretations that might be applicable to a particular set of facts. These materials cover areas in which the proper interpretation of law and regulation can be highly dependent upon particular facts. Accordingly, taking action simply upon the basis of information provided in these materials is not advisable. The materials are not a substitute for consultation with qualified legal counsel regarding the manner in which the laws and regulations referenced herein may be interpreted and apply to particular facts or to particular business models. These materials are for informational and educational purposes only, and are not a solicitation and should not be construed as such. m ba ed uc at ©2013 Weiner Brodsky Kider PC                                             Copying or other unauthorized redistribution of this publication — in whole or in part — violates U.S. copyright law. No part of this publication may be reproduced, stored in a retrieval system or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior written permission of the copyright owner. MBA is not responsible for the content of these materials 2
  4. 4. MBA Compliance Essentials℠: Fair Credit Reporting Act Resource Guide TABLE OF CONTENTS Author Biographies and Information about the Firm............................................................................. Page 4 Introduction and Summary of Compliance Resource Contents ........................................................... Page 6 Statutory Background ............................................................................................................................... Page 7 Implications and Specific Requirements ................................................................................................ Page 9 g Interplay of the FCRA with Other Federal and State Laws .................................................................. Page 41 n. or Model Policies and Procedures ........................................................................................... Page 48, Exhibit A m ba ed uc at io Internal FCRA Compliance Audit Checklist ........................................................................................ Exhibit B 3
  5. 5. MBA Compliance Essentials℠: Fair Credit Reporting Act Resource Guide AUTHOR BIOGRAPHIES AND INFORMATION ABOUT THE FIRM n. or g Mitchel H. Kider is an attorney and author residing in the Washington, DC metropolitan area. He has been actively involved in the housing policy arena for 38 years. Currently, Mitch is the Chairman and Managing Partner of Weiner Brodsky Kider PC, a national law firm specializing in the representation of financial institutions, residential homebuilders, and real estate settlement service providers. In his 31 years as a practicing attorney, Mitch has represented banks, mortgage companies, homebuilders, credit card issuers, and other financial service companies in a broad range of regulatory, compliance, policy and litigation matters. As a litigator, Mitch has defended clients in more than 100 class action lawsuits in federal and state courts throughout the country. In addition, he represents his clients in investigative and enforcement matters before the United States Consumer Financial Protection Bureau, Department of Housing and Urban Development, the Department of Veterans Affairs, the Department of Justice, the Federal Trade Commission, Ginnie Mae, Fannie Mae, Freddie Mac, and various state and local regulatory authorities and Attorneys General offices. uc at io Mitch acts as outside General Counsel to smaller companies and special regulatory and litigation counsel to Fortune 500 companies. He is a frequent speaker on real estate finance and mortgage banking matters before trade associations and other industry groups, including the Mortgage Bankers Association (MBA), state and local mortgage bankers associations, the Real Estate Settlement Providers Council, Inc. (RESPRO), the National Association of Home Builders (NAHB), the Leading Builders of America, October Research, Thompson Reuters, and Building Champions. Mitch is frequently sought out by the national media for his expertise in real estate finance and mortgage banking. He is a Faculty Fellow of the Mortgage Bankers Association, and a former lecturer at the Learning Center for Real Estate Finance and the School of Mortgage Banking. ed Mitch is the author of six law books pertaining to residential mortgage finance and he has also written a number of articles on the subject. His most recent book, Consumer Protection and Mortgage Regulation Under Dodd-Frank (2012 Edition), was published by West/Thomson Reuters. ba Mitch is a member of a Housing Industry Advisory Council for the Residential Energy Services Network (RESNET). The Council’s role includes review of the RESNET Strategic Planning framework and the annual priorities of the organization. m Mitch received his undergraduate degree from the University of Wisconsin – Madison in 1978 and his law degree from Washington University School of Law in 1981. While in law school, Mitch was a law review editor and a research assistant to Daniel Mandelker the Howard A. Stamper Professor of Law and one of the nation’s leading legal authorities on land use, housing and environmental law. * * * Jim Milano is a Member of the law firm of Weiner Brodsky Kider PC. Jim focuses his practice on federal and state consumer financial services regulatory compliance, and transactional matters that affect consumer finance and mortgage companies, investors and the vendors that serve such entities. Jim is nationally recognized as one of the leading lawyers on reverse mortgage law. Jim currently serves as Outside General Counsel to the National Reverse Mortgage Lenders Association, and is a former Chairman of the Manufactured Housing Institute's Finance Lawyers Committee. Jim frequently publishes articles in journals and is a regular speaker at mortgage banking conferences and webinars. 4
  6. 6. MBA Compliance Essentials℠: Fair Credit Reporting Act Resource Guide Jim received several undergraduate degrees from Louisiana State University in 1983 and 1986, and his law degree from Louisiana State University in 1989, and an LL.M. from Emory University in 1991. Jim is licensed to practice law in the District of Columbia, Maryland and Virginia, as well as Georgia and Louisiana. Prior to joining Weiner Brodsky Kider in 2000, Jim worked as Corporate Counsel and General Counsel, starting in 1992, at several large consumer finance and mortgage banking companies. * * * n. or g Weiner Brodsky Kider PC is a Washington, D.C.-based firm with a national practice focused on compliance, regulatory, transactional and litigation matters related to financial services concerns. The firm represents a broad client base, from start-up businesses to Fortune 500 companies, throughout the United States. The firm concentrates its practice in consumer financial services and litigation. The firm also counsels clients with regard to corporate and trade association matters and assists clients in dealing with a variety of government agencies in connection with both compliance and transactional matters requiring regulatory approval. m ba ed uc at io Weiner Brodsky Kider's clients include financial institutions, mortgage banking companies, private equity firms, insurance companies, investment bankers, large municipalities, real estate developers, home builders, and trade associations. 5
  7. 7. MBA Compliance Essentials℠: Fair Credit Reporting Act Resource Guide INTRODUCTION This section of the guidebook discusses the various provisions of the Fair Credit Reporting Act (the “FCRA” or the “Act”) that apply to banks and other non-bank mortgage lenders, originators, and servicers (hereinafter sometimes referred to as “mortgage companies”). This chapter outlines the significant FCRA requirements applicable to mortgage companies and provides a template for implementing appropriate policies and procedures to comply with such requirements. Thus, this chapter can be used as a framework for implementing comprehensive FCRA policies and procedures that are tailored to an entity’s policies and practices. n. or g This chapter addresses the FCRA provisions that apply to mortgage companies. The FCRA imposes notice and disclosure requirements on mortgage companies that use consumer reports including affiliate information sharing and marketing opt out notices, rules regarding pre-screen lists and firms offers of credit, and adverse action, negative information, credit score, and riskbased pricing notices. In addition, the FCRA imposes certain notice, and investigation requirements on mortgage companies that furnish information to CRAs. io The FCRA also contains a number of provisions that are not discussed in this chapter, including provisions that apply to consumer reporting agencies as well as provisions regarding consumer reports issued in connection with insurance, employment applications and actions, and government investigations. uc at This chapter is structured with an introduction of the FCRA and an overview of the Statutory Background of the FCRA. The style of the chapter then moves into a policy statement that is designed to provide an operational presentation of the FCRA requirements for a mortgage originator and servicer. Afterwards, liability provisions of the FCRA are outlined. Also attached in Appendix A is an overview of other federal and state laws that intersect with the FCRA. Finally, Appendix B is a sample FCRA Compliance Checklist. ed STATUTORY BACKGROUND AND THE CHANGING INDUSTRY ba The FCRA was enacted in 1970, with an effective date of April 25, 1971. At its core, the fundamental purpose of the Act addressed three potential sources of consumer harm: i) inaccurate or misleading information in a consumer report, ii) irrelevant information in a consumer report, and iii) maintaining the confidences regarding information in a consumer report. m The FCRA governs the collection, assembly, and use of consumer report information. The FCRA was enacted in response to the growing role of credit reporting in investigating and evaluating the creditworthiness, credit standing, credit capacity, character, and general reputation of consumers as well as the banking system’s dependence upon fair and accurate credit reporting. The FCRA regulates consumer reporting agencies (“CRAs”), entities that use consumer reports, and entities that furnish information to CRAs. Infrequent and minor amendments were made to the FCRA between 1970 and 1996. The 1 Consumer Credit Reporting Reform Act of 1996 made substantial changes to the FCRA. Those changes generally were focused on two overriding policy issues: i) inaccurate information in consumer reports, and ii) the difficulty for consumers to obtain corrections to such inaccuracies. These issues had become more challenging through the more prevalent use of computers, particularly the problem of “re-pollution” (i.e., re-reporting of older and inaccurate information). 1 Pub. L. No. 104-208 (Sept. 30, 1996). 6
  8. 8. MBA Compliance Essentials℠: Fair Credit Reporting Act Resource Guide Minor amendments were made to the FCRA in 1997, and in 1999 the FCRA was further amended with the enactment of the Gramm-Leach-Bliley Act to allow the Federal Trade Commission and other federal agencies to provide rules and regulations regarding the FCRA, and to allow federal banking agencies to examine depository institutions for FCRA compliance.2 n. or g In 2003, Congress enacted the FACT Act, which made substantial revisions to the FCRA.3 The FACT Act made changes or additions in the following areas: i) free credit reports for consumers, once annually, ii) identity theft (or "ID theft", including fraud alerts, blocking of information and military alerts), including limits on debt collectors' transferring or placing debts for collection when notice is provided that the debt is a result of ID theft), iii) consumer dispute mechanisms directly with furnishers of information to consumer reporting agencies, with enhanced accuracy requirements for furnishers, iv) risk based pricing and credit score notices, v) requirements for the truncation of credit card and social security numbers, vi) extension of the opt-out period from firm offers of credit from two to five years, and vii) enhanced protection regarding the handling and use of medical information. As stated above, the FACT Act also gave rulemaking authority to the FTC and the Federal Reserve Board. Several of the provisions of the FACT Act were only effective upon the issuance of regulations. By 2010, most such regulations had been issued. io The Dodd-Frank Wall Street Reform Act Reform and Consumer Protection Act (hereinafter, the "Dodd-Frank Act") grants general rulemaking authority under the FCRA to the Consumer Financial Protection Bureau (or "CFPB") with the exception of authority over automobile dealers, the "Red Flags" and Disposal rules which remain with the FTC and the prudential regulators, and 4 several other limited exceptions. uc at Enforcement authority over FCRA compliance remains with other federal agencies, subject to the transfer of supervisory power to the CFPB under subtitle B of Title X of the Dodd-Frank Act (the “Consumer Financial Protection Act of 2010”), and other agencies unrelated to mortgage lending as granted under the Dodd-Frank Act.5 Thus, the CFPB has FCRA supervision authority over large banks (over $10 billion in assets) regarding FCRA issues, and shares enforcement authority over non-bank mortgage companies with the FTC, and the federal functional regulators will have FCRA enforcement authority over "small" depository institutions ($10 billion or less).6 ba ed The CFPB re-issued FCRA regulations of the FTC and Federal Reserve Board in late 2011.7 Given the Congressional directive to and authority for the CFPB to promulgate regulations under the FCRA, judicial deference will be given to those regulations and future CFPB FCRA regulations, unlike some FTC guidance issued prior to the FACT Act.8 m The provisions of the Dodd-Frank Act amending FCRA transferring authorities generally became effective on July 21, 2011.9 2 See former FCRA sections 621(a)(4), and (e), and FCRA section 621(d), as amended by Pub. L. No. 106– 102, § 506(a)(2) and (b). Congress also made changes to the FCRA in 2001 as part of the USA Patriot Act, not addressed here. 3 Pub. L. No. 108–159 (Dec. 4, 2003). 4 15 U.S.C. § 1681s(e), FCRA sections 621(e), as amended by Pub. L. No. 111–203, § 1088(a)(10)(E). For instance, the Dodd-Frank Act provides rulemaking authority both to the CFPB and the FTC over affiliate marketing issues. 5 Pub. L. No. 111–203, § 1088(a)(10)(B). For instance, the Dodd-Frank Act granted enforcement authority to the CFTC and SEC. 6 12 U.S.C. § 5515(a); 12 U.S.C. §§ 5561 – 5565; and, 12 U.S.C. § 5581 (c)(2)(A). 7 76 Fed. Reg. 79,308 (Dec. 21, 2011). 8 Indeed, as revised by the Consumer Financial Services Protection Act of 2010 (Pub. L. No. 108-203, § 1087), FRCA section 621(e) provides for that deference, even in those instances wherein two agencies continue to have rulemaking authority under the FCRA. 15 U.S.C. § 1681s(e). 9 12 U.S.C. § 5582(c)(2). 7