however, that the FCRA only applies to consumer transactions, so adverse action notices are not required under the FCRA for business transactions. TABLE 1 Regulation B (Consumer and Business) FCRA (Consumer) A creditor must provide a notice if it has: For a covered transaction, a person must provide notice if: Taken adverse action on a completed credit application; Taken adverse action on an incomplete credit application; Taken adverse action on an existing credit account; or Made a counteroffer to an application for credit and the applicant does not accept the counteroffer: Notice is not required if: The transaction does not involve credit; A credit applicant accepts a counteroffer; A credit applicant expressly withdraws an application; or The creditor approves a credit application and both parties expect that the applicant will inquire about its status, but the applicant does not inquire within 30 days after application (the approved application is treated as withdrawn) Adverse action was taken based in whole or in part on information in a consumer report; Consumer credit is denied or a charge for credit increased based on information obtained from third parties other than consumer reporting agencies bearing upon the consumer’s creditworthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living; or Adverse action was taken based on information furnished by a corporate affiliate of the person taking the action
The CFPB highlighted four of the findings from the Report: 26 million consumers (11% of U.S. adults) are “credit invisible” (i.e., they do not have a credit file with any of the three nationwide credit reporting agencies: Equifax, Experian, and TransUnion). 19 million consumers (8% of U.S. adults) have “unscored” credit records (i.e., they have insufficient credit history to generate a credit score). Consumers in low-income neighborhoods are more likely to be credit invisible or to have an unscored record. Black and Hispanic consumers are more likely to have limited credit records. Although the Report does not include any recommendations for the industry on how to address the Report’s findings, during a press call hosted by the CFPB prior to the release of the report, Kenneth Brevoort of the CFPB’s Office of Research noted that the CFPB will be working on the development of potential fixes to the problem either through regulatory actions or encouraging industry initiatives. The Report notes that several industry participants have already developed scoring products that are aimed specifically at these populations. As demonstrated in congressional testimony last year by Stuart Pratt, President and CEO of the Consumer Data Industry Association (CDIA), the trade association for the consumer reporting industry, “CDIA’s members are at the forefront of this movement and it is private investment which is expanding the data sets available for lenders to use as they reach new communities of consumers. These data ensure expanded fairness and access.” If the CFPB is suggesting that there need to be additional sources of alternative credit reports and credit scores, these new products and services must be developed carefully to ensure the reliability of any predictions; otherwise, the potential harm could be felt across all relevant stakeholders, from businesses that make decisions with inaccurate information and consumers that are impacted by those decisions. In prepared remarks, CFPB Director Richard Cordray acknowledged that, “Without credit reporting and credit scoring, it would be harder for financial service providers to assess and manage credit risk, and the supply of credit would be more expensive, more erratic, and more constrained.” Industry experts hope that the CFPB will be wary of any actions that could disrupt the U.S. credit reporting system, which the Report observes is currently serving 189 million American consumers.