Comments of the National Consumer Law Center on behalf of its
low income clients and Consumer Federation of America, Consumers Union, National
Association of Consumer Advocates, and U.S. Public Interest Research Group regarding
Model Notice of Furnishing Negative Information
Docket No. R-1187
May 7, 2004
These comments on the Board’s proposed model notice of furnishing negative
information are submitted by the National Consumer Law Center1
on behalf of its low income clients, as well as Consumers Union, the Consumer
Federation of America, the National Association of Consumer Advocates, and the
U.S. Public Interest Research Group.2
We have three specific points regarding the proposed rule on the notice to
consumers about the submission of negative information to a consumer reporting
agency:
The notice should only be sent to consumers about whom there is negative
information when the financial institution either a) intends to send it to
credit bureaus or b) has actually sent it to credit bureaus.
The notice should use clear, unambiguous terms which are understandable
by unsophisticated consumers.
The notice should be prominent and in bold face large type.
1. The notice should only be sent to consumers about whom there is negative
information when the financial institution either a) intends to send it to credit
bureaus or b) has sent it to credit bureaus.
The proposed notice, which allows a financial institution to provide a notice
which is not definitive, but which states that the institution “may provide
information” which is negative, does not comply with the law’s requirement.
Inclusion of the term “may” is too speculative and indirect to inform
any consumers about what a financial institution truly intends to do. The proposed
model notice looks to be generic, and likely to be provided to all consumers,
instead of only those who actually will have, or have had, negative information
furnished about them. A notice that is provided to all consumers which blandly
states that negative information might be furnished about them to an agency
will become so ubiquitous as to be virtually useless.
The new requirement in the Fair Credit Reporting Act (FCRA) does not allow
this conditional conjecture to satisfy the important goal of informing consumers
that the furnisher has negative information to report. The law clearly states:
If any financial institution that extends credit and regularly and in the
ordinary course of business furnishes information to a consumer reporting
agency described in section 603(p) furnishes negative information to such
an agency regarding credit extended to a customer, the financial institution
shall provide a notice of such furnishing of negative information, in writing,
to the customer.3
The financial institution is only to provide the notice to consumers if and
when they intend to furnish negative information in their files. Congress required
furnishers to provide the notice to consumers about negative information actually
possessed by the furnisher.4 By specifying that the notice
be provided to the customer who is the recipient of credit, the language indicates
that the intent is not to provide general information about reporting practices
broadly to an institution’s customers in general. Rather, the intent is
to alert a specific individual to a specific instance of negative information
reporting. It is that fact – the fact that there is negative information
about them – that consumers will want to know about, and potentially correct,
if they disagree with the basis for the negative information.
The notice is intended to provide true and valuable information to consumers.
Sending a combination of words to consumers which informs them that something
might happen, but does not explain when it would happen, or why it would happen,
or that it will definitely happen, is meaningless. The notice intended by Congress
must provide real information. The notice proposed in the regulation does not
inform consumers that any definitive event has happened or will happen. Telling
consumers that something might happen, without informing them also of what will
make that event happen, is meaningless, and could not have been the intent of
Congress.
Clearly the financial services industry would prefer to be able to send a
generic notice to all consumers informing them that negative information might
be provided by them. This would require no actual consideration of whether they
possessed negative information (which the consumer might want to dispute) or
whether they intended to actually provide it to a credit reporting agency (which
the consumer might want to know about, also to note the dispute). Such a generic
notice would be easy and cheap for the industry, completely meaningless for
consumers, and would not comply with either the intent of Congress, or the plain
language of the statute.
The statutory language permitting subsequent submissions of negative information
(15 U.S.C. 1681s-2(a)(7)(A)(ii) is only logically consistent if the initial
notice refers to actual negative information. If the notice is permitted to
be phrased as proposed, and provided at any time other than when the institution
intends to report negative information, there would be no antecedent for the
“additional negative information” covered by the statute.
Some might argue that the language in 15 U.S.C. § 1681s-2(a)(7)(E) would
support the conjectural nature of the proposed disclosure. The language of this
provision, stating that a financial institution that has provided a notice is
not required to actually furnish the negative information, must be construed
in the context of the entire subsection, and its purpose.
The purpose of the entire subsection was to protect consumers – to inform
consumers of the fact that negative information exists, and thus to trigger
a dispute and a correction if a consumer disagrees with the basis for the negative
information. In the context of protecting consumers by requiring that consumers
receive notice of the fact that furnishers possess negative information, it
is entirely logical that Congress went further to protect consumers by ensuring
that just because the financial institution possesses this information, the
notice requirement does not require the institution to provide that information
to the credit bureau. The consumer protection inherent in subparagraph (E) should
not be twisted to support a meaningless notice about negative information.
As a result, there should be a clear, unambiguous standard underlying when
the notice is provided. The standard should be:
The financial institution should only send the notice to the consumer
when there is actually negative information which can be submitted about the
consumer, which they either have already submitted, or which they intend to
submit.
2. The notice should use clear, unambiguous terms which are understandable
by unsophisticated consumers.
The readability of the notice is important to ensure that it informs consumers,
including those consumers who may not be familiar with the terms of the financial
services world, of imminent or recent negative information reporting. Using
words like “insolvency,” or “delinquency,” will not actually
explain to consumers the type of event that is negative, and would trigger negative
information to the credit reporting agency.
Again the purpose of the notice is to inform consumers about the types of
events which affect their ability to access affordable credit. If the notice
is in legalese and conjecture, it will be useless.
The model notice must be direct and must clearly state that the furnisher
“will” provide or has provided negative information. This will leave
the consumer without any doubt as to actions taken by financial institutions
with respect to negative information
Instead of using the words “delinquency,” or “insolvency,”
the meaning of these words should be made clear and in simple English. All of
these terms will be unfamiliar to many unsophisticated consumers and thus fail
to provide the appropriate notice intended by Congress. We are aware of the
statutory limit of 30 words for the notice,5 yet the meaning
of the words can be quite plain even within this limitation.
We propose that financial institutions choose between one of the following
two notices (each of which is 28 words long). The choice will be only dependent
upon whether the notice is sent before the institution has provided the
information it intends to provide to the credit bureau, or after it has
actually provided the information:
“We will tell credit reporting agencies about you regarding late
payments, missed payments, or partial payments, other default, or bankruptcy.
This will be included in your credit report.”
Or
“We have told credit reporting agencies about you regarding late payments,
missed payments, or partial payments, other default, or bankruptcy. This will
be included in your credit report.”
3. The notice should be prominent and in bold face large type.
Finally, the notice must be required to be prominently disclosed in a way
that consumers will really notice it. This can be done by requiring it to be
on the front page of the notice or billing statement to which it is attached,
and by requiring that it be in bold face type, and that it be in a larger print
then the information that it accompanies. Because there is flexibility in the
delivery of the notice, consumers will not know where to look for the notice
– it can be delivered with “any” materials provided to the consumer.
This makes the requirement that the notice be in bold face large type especially
important to ensure that it actually reaches consumers and is not overshadowed
by other information from the furnisher.
_________________________________
1 The National Consumer Law Center is a nonprofit
organization specializing in consumer credit issues on behalf of low-income
people. We work with thousands of legal services, government and private attorneys
around the country, representing low-income and elderly individuals, who request
our assistance with the analysis of credit transactions to determine appropriate
claims and defenses their clients might have. As a result of our daily contact
with these practicing attorneys, we have seen numerous examples of invasions
of privacy, embarrassment, loss of credit opportunity, employment and other
harms that have hurt individual consumers as the result of violations of the
Fair Credit Reporting Act. It is from this vantage point – many years of
dealing with the abusive transactions thrust upon the less sophisticated and
less powerful in our communities – that we supply these comments. Fair
Credit Reporting (5th ed. 2002) is one of eighteen practice treatises which
NCLC publishes and annually supplements. These comments are written by Margot
Saunders.
2 The Consumer Federation of America is a non-profit
association of 300 organizations that, since 1968, has sought to advance the
consumer interest through research, advocacy and education. Consumers Union, the nonprofit publisher of Consumer Reports magazine,
is an organization created to provide consumers with information, education
and counsel about goods, services, health, and personal finance; and to initiate
and cooperate with individual and group efforts to maintain and enhance the
quality of life for consumers. Consumers Union's income is solely derived from
the sale of Consumer Reports, its other publications and from noncommercial
contributions, grants and fees. Consumers Union's publications carry no advertising
and receive no commercial support.
The National Association of Consumer Advocates (NACA) is a non-profit
corporation whose members are private and public sector attorneys, legal services
attorneys, law professors, and law students, whose primary focus involves the
protection and representation of consumers. NACA’s mission is to promote
justice for all consumers.
The U.S. Public Interest Research Group is the national lobbying office
for state PIRGs, which are non-profit, non-partisan consumer advocacy groups
with half a million citizen members around the country.
3 15 U.S.C. § 1681s-2(a)(7)(A)(i).
4 H. Rep. No. 108-263, p. 50 (Sept. 4, 2003); Statement
of Rep. Hooley, H.R. 2622 Conference Rep. Cong. Rec. H12216 (Nov. 21, 2003).
