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Dodd-Frank Act brings changes to adverse action notice requirement

June 10, 2011
Dealers must be prepared for a new federal disclosure requirement that takes effect July 21, 2011, the designated transfer date under the Dodd-Frank Act. 
 
Section 1100f of the Dodd-Frank Act requires that creditors add five disclosures to their adverse action and risk-based pricing notices: 
 
1) the consumer’s credit score;
2) the range of possible credit scores under the model used to generate the score;
3) the key factors that adversely affected the consumer’s credit score in the model used;
4) the date on which the score was created; and
5) the name of the person or entity that provided the credit score.
 
The key factors (the third item) explain the credit score and are provided by the entity that provided the score. Creditors must list up to four key factors; if one of the key factors is the number of inquiries made with respect to that credit report, then the creditor must list up to five key factors.  
           
The changes to the risk-based pricing notice do not affect dealers who issue credit score disclosure exception notices in lieu of risk-based pricing notices.
           
Regarding the changes to the adverse action notice, the new disclosures apply to creditors who used a credit score in taking adverse action. The new disclosures add to the disclosures that must be made under the Fair Credit Reporting Act. (Keep in mind that the Equal Credit Opportunity Act imposes on participating creditors who take adverse action a separate adverse action notice requirement with different disclosures.)
           
The NADA will revise its Driven publication entitled “A Dealer Guide to Adverse Action Notices” to explain the changes and to modify its sample adverse action notice form (at Appendix B). However, the NADA cannot do so yet because the Federal Reserve Board has not finalized the changes to its model forms (from which the dealer association’s model form is derived). Several vendors who produce adverse action notices for dealers also are waiting on the Fed to release its final model forms before modifying their own.
           
The NADA is developing the following resources to assist dealers in complying with the new credit score disclosure requirements:
           
1) a soon-to-be-released short video that generally outlines the forthcoming disclosure requirements;
2) a revision to the NADA’s Driven adverse action guide that will be released shortly after the Fed finalizes the modifications to its model adverse action notice forms (dealers will be able to access the guide at www.nadauniversity.com); and
3) a Learning Hub webinar on the new requirements, scheduled for 12-2 p.m. CDT Wednesday, July 6.
           
NADA University will disseminate information on the registration procedures and pricing for the webinar.
 
 

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