Other than Truth-in-Lending, probably the most important consumer credit statute to know well is the Fair Credit Reporting Act (FCRA). Originally the FCRA was designed to rein-in the most troubling practices of credit reporting agencies (CRAs), with only incidental requirements placed upon credit grantors. Over the years though, amendments to the FCRA have placed more and more requirements directly on creditors. One of these is the requirement to alert consumers if negative information may be reported by creditors to CRAs in connection with the consumer’s account payment history.

Section 623(a)(7) of the FCRA requires creditors who regularly and in the ordinary course of business furnish negative information to a CRA regarding credit extended to a customer, to provide a notice of such furnishing of negative information, in writing, to the customer. There are two methods for meeting this requirement.

1. Tell the consumer prior to or within 30 days after furnishing the negative information.
2. Include such a notice on or with any notice of default, any billing statement, or any other materials provided to the customer.

In either event, such notice must be clear and conspicuous.

The first method described above puts the creditor in the position of having to make the disclosure post-closing. This is a burden that most of us do not want to add to our plates.

So, the second method actually allows creditors to use model notice language and make the disclosure in advance of such negative information reporting. By this method, we don’t have to remember to give the disclosure when the too-often occurrence of reporting negative information does occur.

Look for this Model Notice B-1 language in your closed-end contract/note form: 

“We may report information about your account to credit bureaus. Late payments, missed payments, or other defaults on your account may be reflected in your credit report.”

If you don’t see this language, then I trust that you are advising the consumer within 30 days that you indeed, “provided” [past tense] such negative information after so doing. If that is not what you are doing, then it is time to rethink your method of disclosing this FCRA requirement.

Please Note: This is the two hundred-thirty-fourth blog in a series of Back to Basics blogs, in which relevant and resourceful information can be easily accessed by clicking Dentons - Consumer Finance Report.