Federal Reserve Highlights Fair Credit Reporting Act Compliance Pitfalls

In a July Outlook Live webinar, Federal Reserve Bank examiners from Minneapolis and Chicago reviewed key compliance requirements under the Equal Credit Opportunity Act (ECOA) and the Fair Credit Reporting Act (FCRA), according to an article by Aja D. Finger of Ballard Spahr. The session focused on adverse action notification rules in Regulation B and related credit score disclosure obligations under the FCRA.

Examiners reported frequent Regulation B violations, including failure to provide sufficiently specific denial reasons and untimely notices for incomplete applications. Generic statements such as “credit score below bank policy” or “outside of risk tolerance” do not meet specificity standards; Sample Form C-1 in Regulation B offers 23 acceptable examples. They recommended disclosing up to four reasons for adverse actions.

For the Fair Credit Reporting Act, a common error is omitting credit score disclosures when the score is one factor in an adverse decision, regardless of its weight. Misconceptions persist that disclosure is needed only if the score is the primary reason or tied to a minimum threshold. Additional disclosure obligations apply under Section 609(g) for certain mortgage-related loans, which are often overlooked.

To address these gaps, examiners advised implementing detailed policies, maintaining updated automated disclosure systems, delivering robust training for underwriters and loan staff, and adopting internal controls such as secondary reviews and application tracking.

Accurate, timely, and specific adverse action notices, paired with correct credit score disclosures, are critical for avoiding violations. Strengthening procedures, staff training, and oversight can significantly reduce regulatory risk under both the ECOA and FCRA.