Federal Mortgage-Related Laws - FCRA / FACTA / Red Flags Rule

Regulation V

the regulations promulgated pursuant to FCRA are known as...

red flag

a pattern, practice, or specific activity that indicates the possible existence of identity theft

customer

a person who has a "covered account" with a financial institution or creditor. In the field of mortgage lending, a ___ would be a loan applicant or a borrower who applies for or obtains a mortgage from a mortgage broker or a financial institution

Disposal Rule

applies to all information in a CRA file that a lender or mortgage broker uses to establish the creditworthiness of a consumer and requires "reasonable measures" to ensure that unauthorized access to, or use of, consumer information cannot occur.

mortgage loans

are cited in regulations as an example of the types of accounts covered by the regulations

creating a fraud alert

at the request of a consumer who believes that he/she is or may be the victim of fraud, CRAs must _______ for the consumer's file and include it with any credit scores generated for the consumer. CRAs must keep an initial _____ on file for one year.

reasonable measures disposal rule

- burning, pulverizing, or shredding papers containing consumer information - destroying or erasing electronically-store information - conducting due diligence to verify compliance with the Disposal Rule by any third party that is employed to dispose of consumer information

illustrations of red flags

- notifications or warnings from a CRA - suspicious documents - suspicious personal identifying information - suspicious activity related to the covered account - notices from customers, identity theft victims, law enforcement

obligations for mortgage professionals

-disclosure of credit score -response to a consumer's request for information on fraudulent transactions -rule for proper disposal of consumer information

blocking information

CRAS must ___ the reporting of any information in a consumer's file that the consumer identifies as information that resulted from identity theft and must notify the furnisher of the information that the ______ information may be the result of identity theft. The ____ must be effective within four business days of receipt of copies of the consumer's identity, his/her identity theft report, and a description of the information in the consumer's file that relates to transactions that he/she did not make

CRA notification to users

CRAs must provide notices to any person who regularly and in the ordinary course of business furnishes information to a CRA and to any person who receives and uses a consumer report. The notice to furnishers and users must advise them of their responsibilities under the FCRA

providing notice of consumer rights

FACTA creates requirements for the issuance of a Victim's Notice of Rights when a consumer reports identity theft to a consumer reporting agency

30%

FICO amounts owed

15%

FICO length of credit history

FACTA Overview

In 2003, Congress added additional provisions to FCRA with the enactment of ______ Congress adopted these additional provisions in order to address the problem of identity theft, to facilitate consumers' access to the information retained by CRAs, and to improve the accuracy of consumer reports

Fair Issac Corporation

What does FICO stand for?

small business

a business that has assets of $165 million or less

investigative consumer report

a consumer report containing information about a consumer's character, general reputation, personal characteristics, and mode of living that is obtained through personal interviews

covered accounts

accounts subject to special protection under the Red Flags Rule include accounts: - offered or maintained by a financial institution or creditor - intended for personal, family, or household purposes - designed to permit multiple payments or transactions

civil liability for knowing noncompliance

any person who obtains a consumer report from a consumer reporting agency under false pretenses or knowingly obtains one without a permissible purpose is liable to the CRA for actual damages that the CRA incurs or $1,000, whichever is greater

criminal penalties for obtaining information under false pretenses

any person who obtains information about a consumer under false pretenses will be fined and/or imprisoned for not more than two years

penalties for violations of FCRA

civil liability for willful noncompliance civil liability for obtaining a consumer report under false pretenses civil liability for knowing noncompliance civil liability for negligent noncompliance criminal penalties for obtaining information under false pretenses criminal penalties for unauthorized disclosures by officers and employees

notification of adverse action based on information from affiliates

if ________ is based on information from an entity that is affiliated with the user by common ownership or control, the user must notify the consumer of the ________ and of the right to obtain a disclosure of the nature of the information relied on in taking the ________

five categories of information that make up the FICO credit score

payment history amounts owed length of credit history types of credit used new credit

the FTC

who implements and enforces the Red Flags Rule?

obligation of users

(a lender or mortgage broker that uses a consumer report in the process of making a mortgage loan is an example of this) certification of permissible purpose notification of adverse action notification of adverse action based on information from affiliates

obligations of CRAs

(examples of this are The Big Three) CRA disclosures to consumers CRA notification to users

obligations of furnishers

(loan servicers, lenders, and creditors that receive loan and credit line payments are examples of this) notification to CRAs of corrections notice of dispute notice regarding deliquencies duties after receipt of notice of dispute

consumer reports may not include:

- bankruptcy cases that are more than ten years old - civil lawsuits that are more than seven years old, unless the statue of limitations has not yet expired - arrest records that are more than seven years old, unless the statue of limitations has not yet expired - tax liens that are more than seven years old - accounts place for collection (or charge off) that are more than seven years old - the name, address, and telephone number of any medical information provider, unless either: --- that information does not convey information on the nature of services --- the report is being provided to an insurance company for purposes related to an insurance matter not involving property and casualty insurance

obligations for CRAs

-providing notice of consumer rights -issuing free credit reports -creating a fraud alert -creating an extended fraud alert -creating an active duty alert -forwarding fraud alerts and active duty alerts to other CRAs -disclosing credit scores -blocking information -notification of decision to decline or rescind a block

10%

FICO new credit

10%

FICO payment history

10%

FICO types of credit used

notice of dispute

If a consumer disputes the accuracy and completeness of information provided by a furnisher, the furnisher cannot report the disputed information to a CRA without providing notice of the dispute.

notice regarding delinquencies

a furnisher that reports information on a delinquent account must provide the CRA with the month and year of the commencement of the delinquency that immediately precedes an action for collection

financial institution

a state or national bank, a state or federal savings and loan association, a mutual savings bank, a state or federal credit union, or any other person that, directly or indirectly, holds a transaction account belonging to a consumer

active duty alert

a statement in a consumer reporting agency's file for a particular individual, stating that the consumer is on ______ for the military

fraud alert

a statement in the file of a consumer that notifies all prospective users of a consumer report relating to the consumer that the consumer may be a victim of fraud, including identity theft, and that is presented in a manner that facilitates a clear and conspicuous view of that statement.

creating an extended fraud alert

after receipt of an identity theft report, CRAs must create an ______, maintain it in the file, and include it with any credit report generated for the consumer for a period of seven years

National Consumer Assistance Plan

aims to improve consumer experience, data accuracy, and quality.

file

all information about a consumer that is recorded and retained by a CRA

consumer reporting agency (CRA)

any person who regularly engages for fees or on a cooperative nonprofit basis in the practice of assembling or evaluating of consumer credit information in order to provide consumer reports to third parties.

creditor

any person who regularly extends, renews, or continues credit; any person who regularly arranges for the extension, renewal, or continuation of credit; or any assignee of an original creditor who participates in the decision to extend, renew, or continue credit

civil liability for willful noncompliance

any person who willfully fails to comply with consumer protection provisions of FCRA is liable to the injured consumer for actual damages or for damages of not less than $100 and not more than $1,000, plus punitive damages, costs of bringing the action, and attorney's fees

FCRA applies to

any transaction that involves the use of credit reports, consumer investigatory reports, and employment background checks

creating an active duty alert

at the request of an active duty consumer, CRAs must create a statement that the consumer is on active duty for the military and include the statement with any credit reports generated for the active duty consumer. CRAs must keep this alert in the file for not less than 12 months.

disclosing credit scores

consumers have a right to purchase a copy of their credit scores. With _____, CRAs must explain that the CRA credit score may be different from a lender's credit score, and provide a list of factors used to compute the score and a list of factors that negatively impacted the score

FCRA Overview

enacted by Congress in 1970 to ensure the accuracy, fairness, and privacy of consumers' personal information that is assembled and used by consumer reporting agencies.

identity theft

fraud or attempted fraud using the identifying information of another person

civil liability for obtaining a consumer report under false pretenses

if a natural person obtains a consumer report under false pretenses or knowingly obtains one without a permissible purpose, he/she will be liable for actual damages or $1,000, whichever is greater

CRA disclosures to consumers

if requested by a consumer, CRAs must clearly and accurately disclose all information in the consumer's file, the sources of the information, and the identification of each person that procured a consumer report. The disclosure must also include a summary of the consumer's rights under FCRA. Unless otherwise authorized by the consumer, the disclosure must be in writing

notification to CRAs of corrections

if the furnisher of information regularly and in the ordinary course of business provides information to CRAs and determines that the information provided is not complete or accurate, the furnisher has a duty to correct the information and to provide the corrections to all CRAs that received inaccurate information.

notification of decision to decline or rescind a block

in certain circumstances in which the CRA resonably determines there is not a basis for blocking the information, it can decline the request for a block or rescind a block and must prompt notification to the consumer

disclosure of credit score

in mortgage lending transactions, the "person who make or arranges loans" must provide mortgage loan applications with information about the credit score used to evaluate their creditworthiness and must provide this information with a notice that advises them of the importance of reviewing their credit scores and of their right to contact the CRA or the lender that generated the credit score

issuing free credit reports

in order to encourage consumers to self-monitor their credit reports as a means of detecting identity theft, Congress requires each of the three national credit bureaus to provide this annually, when requested by the consumer

Identity Theft Prevention Program

must have provisions for: - identifying patterns, practices, or specific activities that may indicate the possible existence of identity theft - detecting irregularities when obtaining information from a person opening an account or accepting a change of address on existing accounts - preventing and mitigating identity theft by responding appropriately to the types of risks posed by particular types of accounts - updating the identity theft program periodically to identify new risks to the security of personal information

civil liability for negligent noncompliance

negligent failure to comply with the law may result in the payment of actual damages, costs, and attorney's fees to the injured consumer

criminal penalties for unauthorized disclosures by officers and employees

officers or employees of a CRA who knowingly and willfully provide information about a consumer to a person not authorized to receive the information will be fined and/or imprisoned for no more than two years

suspicious documents

such as ______ that show evidence of tampering or _______ containing information that is inconsistent with prior information provided

suspicious personal identifying information

such as information that does not match the information found in the consumer report

suspicious activity related to the covered account

such as irregular payment activity

notifications or warnings from a CRA

such as notice that there is activity on an account that is inconsistent with the account's prior history

notices from customers, identity theft victims, law enforcement

that fraudulent activity is associated with the account

identity theft report

the FTC defines this an "a report that alleges theft with as much specificity as the consumer can provide."

consumer report

the communication of any information from a consumer reporting agency that relates to a consumer's credit worthiness, credit standing, credit capacity, character, personal characteristics, or mode of living which is used or expected to be used in order to determine the consumer's eligibility for credit or insurance to be used for personal, family, or household purposes or to evaluate a consumer for employment

adverse action

this term is given the same meaning under FCRA as under ECOA, meaning a denial of credit or an extension of credit in a substantially smaller amount, or for terms substantially different, than that requested by the loan applicant. It also means any denial or unfavorable change in insurance coverage, or a denial of employment based on an investigative consumer report.

duties after receipt of notice of dispute

upon receipt of a notice of dispute from a CRA, a furnisher must conduct an investigation, report the results to the CRA that provided notice of the dispute, report any inaccuracies to all CRAs that received the inaccurate information, and delete the inaccurate information.

certification of permissible purpose

users must provide a consumer reporting agency with a certification that states the permissible purpose for which the user is requesting the consumer report. Permissible purposes include consumer requests for reports, such as a consumer's request for credit report required by a mortgage lender. Another permissible purpose is to determine a consumer's eligibility for a license, such as the loan officer license under certain state laws

notification of adverse action

when a user takes any type of ___________ based on information in a consumer report, the user must provide the consumer with written, oral or electronic notification which includes a statement that the CRA did not make the ____ decision and must advise the consumer of the right to obtain a free copy of the report used by the creditor in making the decision of the right to contact the CRA to dispute the accuracy and completeness of the report

response to consumer's request for information on fraudulent transactions

when identity theft occurs in lending transactions, mortgage professionals must comply with the alleged victim's written request for copies of any records of transactions conducted by a person who made unauthorized use of the victim's identity.

rule for the proper disposal of consumer information

when it was enacted, FACTA directed the FTC and the federal banking agencies to issue rules for this. The preamble to the rule cited mortgage brokers as an example of entities that are subject to the rule, and the stated purpose is to prevent the careless disposal of documents that can lead to identity theft and to other forms of theft and fraud.

forwarding fraud alerts and active duty alerts to other CRAs

when one of the three national credit bureaus receives a consumer's request for fraud alert or an active duty alert, it must forward the information to other CRAs