Credit Reports and Credit Scores

QUESTION

Is there a requirement to provide the credit report to a consumer? If so, do we need to also give the credit score to the consumer?

ANSWER

The Fair Credit Report Act (FCRA) does not place a requirement on a financial institution to provide to the consumer a copy of a credit report that the institution obtains on the consumer. However, the FCRA’s provisions provide that a consumer reporting agency (“CRA”) may not prohibit the user of a credit report furnished by the CRA from disclosing the contents of the report to the consumer in instances where an adverse action is taken against the consumer based in whole or in part on the credit report. [15 USC § 1681e(c)]

Under the FCRA, specifically section 609(g), a financial institution who makes or arranges loans and who uses a consumer credit score in connection with an application initiated or sought by a consumer for a closed-end or open-end loan for a consumer purpose, that is secured by one to four units of residential real property, must provide the following to the consumer:

1.     A copy of the credit score and accompanying information that is obtained from a CRA or which was developed and used by the user of the information; and,

2.     A copy of the “Notice to the Home Loan Applicant” (“Notice”).

[15 USC §§ 1681g(g)(1)(A), 1681g(f)]

The Notice must include the name, address, and telephone number of each CRA that provided a credit score that was used. [15 USC § 1681g(g)(1)(D)]

Jonathan Foxx

President & Managing Director

Lenders Compliance Group

GLBA and Affiliates

QUESTION

We would like to know how to handle nonpublic personal information where our affiliates are involved. Do we both have the same restrictions on disclosure?

ANSWER

A financial institution may disclose nonpublic personal information (NPI) to its affiliates, but the affiliates are subject to the same restrictions on reusing or re-disclosing the information as the originating financial institution. [15 USC § 6802(c)]

The Gramm-Leach-Bliley Act (GLBA) defines an “affiliate” as “any company that controls, is controlled by, or is under common control with another company.” [15 USC § 6809(6)]

Subject to certain exceptions, GLBA prohibits disclosure of a consumer’s NPI to non-affiliates unless the disclosing financial institution has given the consumer a privacy notice and an opt-out notice, along with a reasonable opportunity to opt out, and the consumer does not opt out of the information sharing with non-affiliates. [16 CFR § 313.10]

The exceptions where financial institutions may share NPI with certain non-affiliated third parties without having to comply with the privacy notice and opt-out requirements are:

1.     Administering or enforcing transactions authorized by the consumer;

2.     Effectuating transactions with the consent of the consumer;

3.     Protecting the confidentiality of the financial institution’s records;

4.     Providing information to rating agencies;

5.     Disclosing data to law enforcement agencies to the extent required;

6.     Providing information to consumer reporting agencies as delineated in FCRA; and

7.     Complying with all federal, state or local laws or regulations.

[15 USC § 6802(e); 16 CFR §§ 313.14, 313.15]

Mention also should be given to the condition where an exemption is allowed for the opt-out requirements, but not the notice requirements. This condition exists for entities that market the financial institution’s products and services, and products or services “offered pursuant to joint agreements between two or more financial institutions.”

[15 USC § 6802(b)(2); 16 CFR § 313.13]

Jonathan Foxx

President & Managing Director

Lenders Compliance Group

Determination of APOR upon Relock of Loan

QUESTION

We are having an internal debate as to how the HPML APOR is determined when a rate lock has expired and the rate is relocked.

When the rate lock expires, we need to relock the interest rate which provides a new lock in date, which in turn results in a new APOR being used for the purposes of the HPML test. This can be problematic in an improving market. For example, in instances in which we have relocked the interest rate and terms identical to those set forth in the expired lock, the new APOR is lower and the loan may now fail the HPML test. This situation often arises when the loan officer allows the rate to expire in order to enable the loan officer to relock at the same rate and pricing without charging the borrower a rate lock extension fee.  

Our Secondary Department has determined that the APOR for the HPML test should be based on the rate sheet date used to price the loan as that is how the rate is “set”. 

Can you please provide us with some guidance as to the date to be used?  Also, if the rate lock has expired completely, can we simply extend the rate lock keeping the same rate/pricing and lock in date, as opposed to relocking the loan? 

ANSWER

For the purposes of the HPML test, the APOR should be based on the date the rate is actually locked pursuant to the last rate lock agreement. 

See Official Commentary to paragraph 35(a):

“2. Rate set. A transaction's annual percentage rate is compared to the average prime offer rate as of the date the transaction's interest rate is set (or “locked”) before consummation. Sometimes a creditor sets the interest rate initially and then re-sets it at a different level before consummation. The creditor should use the last date the interest rate is set before consummation.”

See also FFIEC’s “Data Requirements for the Rate Spread Calculator”:

“If an interest rate is set pursuant to a "lock-in" agreement between the lender and the borrower, then the date on which the agreement fixes the interest rate is the date the rate was set. If a rate is re-set after a lock-in agreement is executed (for example, because the borrower exercises a float-down option or the agreement expires), then the relevant date is the date the rate is re-set for the final time before closing. If no lock-in agreement is executed, then the relevant date is the date on which the institution sets the rate for the final time before closing."

As to “extending” a rate, when the rate lock agreement has completely expired instead of relocking, you cannot do so. If the rate has expired completely, the loan has started to float.  Thus, you need to relock. 

Joyce Wilkins Pollison

Director/Legal & Regulatory Compliance

Lenders Compliance Group

TRID: State-specific Disclosures

QUESTION

Do we still have to use state law pre‐closing disclosures on or after the August 1, 2015 TRID effective date?

ANSWER

TRID does not eliminate or replace other state‐mandated disclosures. The new disclosure regime only serves to replace existing federal law requirements. The comments to RESPA’s Regulation X specifically provide that “[s]tate laws that give greater protection to consumers are not inconsistent with and are not preempted by RESPA or Regulation X.” [Regulation X § 1024.5(c)(1)]

This provision is not changed by TRID, so it remains in effect on or after August 1, 2015. Because state law disclosures are generally deemed to provide more protection for the borrower, TRID will not affect existing state‐mandated forms and procedures. For instance, states give deference to TRID with respect to the intent to proceed requirement. However, a state may provide greater protection to consumers with respect to other regulatory requirements set forth in the CFPB’s TRID rule. States are currently aligned with the CFPB regarding the intent to proceed mandate.

Thus, states permit the exception allowing a creditor or other person to impose a bona fide and reasonable fee for obtaining the consumer’s credit report, while also accepting the CFPB’s prohibition under TRID that a creditor or other person may not impose a fee on a consumer before the consumer has received the Loan Estimate and Indicated an intent to proceed with the transaction. [Regulation X § 1024.7(a)(4) and (b)(4) and TILA Regulation Z § 1026.19(a)(1)]

You should check your individual state laws and regulations to determine whether adjustments to state disclosures are planned in conjunction with TRID implementation.

Brennan Holland

Director/Legal & Regulatory Compliance 

Lenders Compliance Group