Substantial Changes To Required Credit Notices to Consumers

Some electric cooperatives consider consumers’ credit scores in reviewing their applications for electric service.  Cooperatives that sponsor financing programs for their members may review members’ credit scores as well.  The Federal Trade Commission and Federal Reserve Board recently made changes to the Risk-Based Pricing Rule (the “Rule”) that will now require cooperatives to disclose credit score information to consumers and members in certain situations.

Since January 1, 2011, the Rule has required cooperatives and other creditors to give a written risk-based pricing notice to a consumer if the cooperative, on the basis of the consumer’s credit report, gives the consumer credit on less favorable terms than provided to other consumers with higher credit scores.  Consumers receiving the notice can then obtain a free credit report to check the report’s accuracy.  Although creditors were already required to provide an adverse action notice to consumers when they were denied credit, no notice had previously been required when credit was extended on less favorable terms.

Additional requirements are now in effect pursuant to changes to the Rule brought about by the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act.   Notices to consumers of adverse action must now include the consumer’s credit score, together with key factors that adversely affected the credit score and other information.  These new requirements apply to all cooperatives that use a consumer credit report for such purposes as deciding whether to charge a security deposit or determining the interest rate for a financing program loan.   The requirements apply to both risk-based pricing notices and adverse action notices.  The final rule, together with model forms, can be found here.

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