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New Regulation Raises Consumer Awareness of Credit Scores

While the FICO® Score is certainly no stranger to thousands of US banks and credit unions, a new federal regulation is introducing this important three-digit number to millions of consumers for the first time.

The Fair Credit Reporting Act’s risk-based pricing rule, issued by the Federal Reserve and the Federal Trade Commission, took effect last January 1. Under the rule, lenders have two compliance options in providing disclosure notices to consumers who have applied for credit: send a Risk-Based Pricing (RBP) notice to consumers who get credit but didn't receive the most favorable terms or, alternatively, send a Credit Score Disclosure (CSD) notice to all applicants. Here is a summary of each notice:

  1. The RBP notice includes information on where consumers can get their credit report and review it for accuracy.
  2. The CSD notice includes the credit score used by the lender to make the decision. Since the vast majority of lenders use FICO® Scores, most consumers receiving this notice will get a FICO Score.

We estimate that roughly 1 billion credit applications will be processed in 2011, and 500 million consumers will receive notices from their lenders because of these new rules. Many of these notices will include credit score disclosures. The result will undoubtedly be an increase in consumer awareness and interest in credit scores.

In response, FICO has launched a non-commercial educational website, ScoreInfo.org.  ScoreInfo.org is designed to inform consumers who receive RBP or CSD disclosures, as well as those who receive Adverse Action notices when denied credit. The site provides information to help consumers understand these communications, the credit information evaluated by lenders, and how to take control of their financial health.

ScoreInfo.org is a valuable tool for lenders, providing a self-service resource that can reduce customer care and service demands. Lenders are, as a result, encouraged to include the website’s URL on the bottom of the score distribution graph contained in the CSD notice, and link to www.ScoreInfo.org from their websites.

We will continue to update and enhance ScoreInfo.org, and plan to incorporate new changes in light of the Udall Amendment, a credit score provision within the Dodd-Frank regulatory reform bill adopted last July.  This requirement, effective July 21, 2011, will add credit score disclosures whenever lenders send a Risk-Based Pricing or Adverse Action notice.

On March 1, the Federal Reserve and the Federal Trade Commission issued proposed rules that provide guidance on how lenders would comply with the Udall requirements. Stay tuned to the blog for an upcoming post where we will discuss these new changes.  In the meantime, please visit www.ScoreInfo.org; we welcome your comments.

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