Proposed Notices of Rights and Duties Under the Fair Credit Reporting Act

FEDERAL TRADE COMMISSION

16 CFR Part 601

Proposed Notices of Rights and Duties Under the Fair Credit

Reporting Act

AGENCY: Federal Trade Commission.

ACTION: Publication of proposed guidance for forms, and request for

public comment.

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SUMMARY: The Federal Trade Commission is publishing for public comment

three notices that it is required to prescribe under recent amendments

to the Fair Credit Reporting Act. Under those amendments, which become

effective September 30, 1997, consumer reporting agencies will be

required to provide: A summary of rights under the law to consumers; a

notice of responsibilities under the law to parties who regularly

furnish such agencies with consumer information, and a notice of

responsibilities under the law to parties who obtain consumer reports

from the agency. Under the statute, a consumer reporting agency will be

in compliance with these requirements if it provides notice forms

substantially similar to those prescribed by the Commission.

DATES: Comments must be received on or before March 31, 1997.

ADDRESSES: Comments should be addressed to: Office of the Secretary,

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Federal Trade Commission, Room H-159, Sixth Street and Pennsylvania

Avenue NW, Washington, DC 20580. Submissions should be marked

``Proposed Notices of Rights and Duties under the Fair Credit Reporting

Act, 16 CFR Part 601--Comment.''

FOR FURTHER INFORMATION CONTACT: Clarke Brinckerhoff or William Haynes,

Attorneys, Division of Credit Practices, Federal Trade Commission,

Washington, DC 20580, 202-326-3224.

SUPPLEMENTARY INFORMATION:

I. Background

A major revision of the Fair Credit Reporting Act (``FCRA'') was

included in the Omnibus Consolidated Appropriations Act for Fiscal Year

1997 (Pub. L. 104-208), signed by the President on September 30, 1996.

The revisions of the FCRA are set forth in a portion of the omnibus

bill (Title II, Subtitle D, Chapter 1), the ``Consumer Credit Reporting

Reform Act of 1996'' (CCRRA). The provisions discussed in this

publication become effective on September 30, 1997.

The amended FCRA requires each consumer reporting agency (``CRA,''

usually a credit bureau) to provide certain notices, and mandates that

the Federal Trade Commission (``Commission'' or ``FTC'') prescribe the

content of all three notices and the form of one notice.

The FCRA amendments require each CRA to provide as part of its file

disclosure to consumers a written summary of consumer rights

(``summary'' or ``consumer summary'') under the FCRA ((CCRRA Section

2408(d), FCRA Section 609(c)).1 Section 2408(d)(1) of the CCRRA

adds a new Section 609(c) to the FCRA that describes the required

summary of consumer rights and the FTC's mandate with respect to it.

The new section specifies certain items that must be in the summary,

requires the Commission to prescribe the form and content of the

disclosure, and states that the provision will not take effect until

the Commission has prescribed the summary.

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\1\ The CRA must also provide the consumer summary to any party

to whom it provides a consumer report for employment purposes (CCRRA

Section 2403(b), FCRA Section 604(o)(1)(B)), and the employer must

in turn provide the report and the summary to the consumer before

taking adverse action against him or her (FCRA Section 604(o)(3)).

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Each CRA must also provide a notice of responsibilities under the

FCRA to persons who buy consumer information from the CRA (``user

notice''), and a notice of responsibilities under the FCRA to persons

who regularly furnish consumer information to the CRA (``furnisher

notice'') (CCRRA Section 2407(b), FCRA Section 607(d)(1)). The amended

law states that the ``Commission shall prescribe the content of the

notices'' to be provided (FCRA Section 607(d)(2)).

For each of the three required disclosures, a CRA complies with the

law if it provides the applicable person with a notice that is

substantially similar to that prescribed by the Commission (FCRA

Sections 607(d)(2) and 609(c)(3)).

II. Opportunity for Public Comment

The Commission welcomes comments related in any way to the proposed

consumer summary, user notice, or furnisher notice. The Commission is

particularly interested in comments in the following areas.

A. Consumer Summary

1. Balancing brevity and completeness

The statute gives conflicting guidance as to whether the summary

should be brief or comprehensive. It is described as a ``summary of all

the rights the consumer has under'' the FCRA (Section 609(c)(1)(A))

that includes ``a brief description of * * * all rights of consumers''

provided by that law (Section 609(c)(2)(A)). Arguably, no document that

is actually a ``summary''--or that constitutes a ``brief description''

of FCRA consumer rights--could literally include ``all'' of them. The

proposal seeks to meet these various statutory goals by prescribing a

summary that is both reasonably comprehensive and user friendly for

consumers. Is the proposed notice too long in any way to be effective

as a summary, and if so, how should it be abbreviated? Conversely, are

there important consumer rights that are not included in the proposed

form or are discussed too briefly? Please identify any specific

sections of the proposed summary that are viewed as too lengthy or

incomplete.

2. Statutorily-required items

Section 609(c)(2) mandates that the summary include an explanation

of how the consumer may assert his or her rights, list all federal

agencies with administrative authority under the FCRA in a form that

will help consumers find the appropriate agency, and include specific

statements concerning (1) state laws and authorities that may assist

consumers, and (2) the fact that verifiable accurate information that

is not outdated under Section 605 need not be removed. Are the

statutorily-required items accurately and understandably presented? In

what way, if any, could they be improved? Specifically, the Commission

has drafted the table of federal agencies at the end of the summary to

comply literally with Section 609(c)(2)(C) by including all agencies

granted enforcement authority by Section 621(b)(1). Is what way, if

any, could this table be shortened or made more understandable?

3. Terminology

Because the summary is a document intended to inform consumers, the

proposal is written in non-technical language, to the extent it is

possible to do so and also include in sufficient detail the large

number of important consumer rights conferred by the FCRA. Are there

sections which can be improved by simplifying the presentation to make

it easier for consumers to understand? Are there sections where the

language does not accurately convey the substance of the provision? How

could such sections be improved?

4. Form issues

The Commission is required to ``prescribe the form and content of''

the consumer summary (Section 609(c)(3)) (emphasis added). The goal is

to create a notice that sets forth all statutorily required items in a

form that is readable, understandable, and attractive. The Commission

proposes to prescribe that the text be provided on paper no smaller

than 8\1/2\x11 inches in size, in type size no smaller than 12-point

type (8-point for the chart of federal agencies), in a document

separate from the consumer report. Generally, is there a format that

would better convey the same information to consumers? If so, what is

it and what costs would it entail? Is there a format that would convey

the same information to consumers in a less expensive manner? If so,

what is it and what cost saving would it achieve?

5. Numeric changes

The Commission realizes that some of the numbers in the notice may

change over time. For example, the permissible charges for file

disclosures or telephone numbers of agencies may change. Such changes

will be incorporated in any revisions to the summary the Commission may

prescribe from time to time. In addition, the Commission proposes that

all notices issued prior to such revisions that contain accurate and

updated information concerning numeric changes will be considered

``substantially similar'' to the prescribed notice as to those items.

Is there a better way to accommodate such changes?

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B. Furnisher Notice

1. Content of notice

The proposed notice summarizes the responsibilities imposed upon

furnishers of information to CRAs by Section 623 of the FCRA. Are all

statutory obligations of furnishers included? Is the presentation

accurate and understandable? In what way can it be improved? Is it

sufficient for the notice to refer furnishers to the complete text of

the FCRA at the Internet web site maintained by the Commission, or

would the notice be improved if it was expanded to add the complete

text of Section 623?

2. Scope of notice

The FCRA directs the Commission to prescribe a notice setting forth

the responsibilities of any party ``who regularly and in the ordinary

course of business furnishes (consumer) information to the agency'' and

requires each CRA to provide the notice to all such parties (CCRRA

Section 2407(b), FCRA Section 607(d)). Two of the listed duties apply

only to parties who furnish information to CRAs regularly, and thus by

inference, not to occasional information providers. Would some CRAs

send these notices to occasional as well as regular furnishers? If so,

would addition of a reference to the duties of occasional, as well as

regular, providers be helpful?

3. Terminology

The Commission's proposed notice summarizes the duties of

furnishers. This summary is written in non-technical language, but with

the expectation that regular providers of information to CRAs will be

relatively sophisticated and will be able to understand both the

language of the statute and the description of duties. Is the

description of duties accurate and understandable for this audience?

What improvements can be made?

C. User Notice

1. Number of Notices

The ``users'' of consumer reports fall into a number of categories,

and the duties imposed by the FCRA vary by user category. Accordingly,

CRAs could send out one notice to all users setting forth all of the

user requirements of the FCRA or they could send out notices that

contain only those responsibilities that pertain to the particular

user. The Commission is proposing a single notice, which first

specifies the general responsibilities that apply to all users of

consumer reports from a CRA (Part I). The proposed notice then lists

the responsibilities that are specific to certain categories of users:

users of consumer reports for employment purposes (Part II); users of

investigative consumer reports (Part III); users of medical information

(Part IV); users of ``prescreened'' lists (Part V); and users who are

resellers (Part VI). Should there be a single notice or multiple

notices? If multiple notices are appropriate, which types of users

should receive particularized notices? Can CRAs easily determine

through the certifications they receive from users which portions of

the proposed notice are applicable to which users?

2. Content of notice

The proposed notice discusses the principal portions of the FCRA

that impose specific obligations upon all those who receive consumer

reports and has included these in the six parts of the proposed notice.

Are there other statutory requirements that should be included? Should

additional information be included in the notice? Will the length of

the notice impose substantial burdens upon CRAs? Are there ways to

modify the notice to reduce this burden?

3. Terminology

The Commission expects that user notices will be sent to a wide

range of users and that these persons will have varying degrees of

legal sophistication. Are the duties set forth in the proposed notice

clear and understandable? Can they be improved upon?

D. Timing of Distribution of Notices

With respect to the consumer summary, Section 609(c) makes clear

that it must be provided every time a CRA makes a written file

disclosure under the section. With respect to the furnisher and user

notices, however, Section 607(d) provides no specific guidance. Is

there a need for advice from the Commission about the timing of the

distribution of furnisher and user notices to ensure that the documents

are distributed in such a way that they are meaningful and effective?

If so, when should the notices be distributed? Should the distribution

of the user notice vary based on the recipient's status (e.g., regular

and occasional users)?

E. Impact on Small Businesses

The Commission is seeking comments on the impact that its

prescription of these notices will have on small entities and for

suggestions as to any ways in which the Commission can both meet its

obligations under the FCRA and, if possible, lessen any burden imposed

on small businesses.

The FCRA itself requires three types of notices containing

specified types of information, and also specifies how one type (the

consumer notices) must be distributed. Accordingly, this discussion

does not cover the necessity for any of the notices or the distribution

requirements for the consumer notices.

The Commission is prescribing these notices at the direction of

Congress. The purpose of these notices is described in section I above.

There is no requirement that the notices used be exactly as prescribed

by the Commission. Rather, there is a presumption of compliance with

the FCRA if notices are used that are substantially similar to those

prescribed by the Commission. (FCRA Sections 607 and 609).

A search of proprietary data bases has revealed approximately 500

consumer reporting agencies that have sales of $5 million or less per

year--the threshold for ``small'' credit reporting businesses as

defined by the Small Business Administration. However, because the

consumer reporting industry is dominated by a number of large companies

who provide most of the information sold by smaller entities in the

industry, the Commission believes that most of these 500 companies

either are affiliated, or have contractual arrangements, with one of

the large consumer reporting agencies in the industry. These large

agencies, as well as industry trade associations, may make information

about the notice requirements and the Commission's prescribed forms

available to the smaller entities. The Commission's staff plans to make

information about complying with the new FCRA requirements available

through various means, including placing the prescribed forms on the

Commission's Internet home page.

The FCRA imposes no specific record keeping or reporting

requirements directly tied to the use of the notices prescribed by the

Commission. In addition, there are no federal rules or regulations that

conflict with or duplicate the notices prescribed by the Commission.

In these circumstances, the Commission does not believe that the

prescription of the notices will have a significant economic impact

upon small business. In fact, the Commission's ``prescription'' of

these notices may lessen the burden on small businesses, since these

entities can--but need not--adopt the Commission's forms and thereby

avoid the risk and expense of developing their notices independently.

To ensure that no significant economic impact is overlooked, however,

the Commission seeks comments on this issue. The Commission also seeks

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comments on possible alternatives to the language of the proposed

notices to accomplish the stated objectives within the statutory

framework. Specifically, what benefits and costs to consumers and

businesses would result from the proposed notices? Would the proposed

notices have a significant economic impact on a substantial number of

small business entities? If so, explain the nature of any such impact.

F. Firm Timetable for Comments

The FTC intends to move promptly in order to allow time for (1) the

staff to review and consider comments on the proposed summary and

notices, (2) the agency to prescribe them in final form, and (3) the

industry to prepare and use the final versions of the documents when

the amendments take effect on September 30, 1997. The public should

therefore anticipate no extension of the 30-day comment period.

III. Review under the Paperwork Reduction Act

The FTC has reviewed the three notices that the FCRA amendments

require it to prescribe--the Summary of FCRA Rights, the Notice of User

Obligations, and the Notice of Furnisher Obligations--for the purpose

of determining whether the agency will ``conduct or sponsor'' any

``collection(s) of information'' as these terms are defined in the OMB

regulation that implements the Paperwork Reduction Act (44 U.S.C.

Chapter 35) (``PRA''), 5 C.F.R. Part 1320.

A. Conduct or Sponsor

The purpose of the PRA is to minimize the Federal paperwork burden

that agencies impose on individuals, businesses, State and local

governments, and others by collecting unnecessary or duplicative

information. 44 U.S.C. Section 3501; 5 C.F.R. Sec. 1320. Thus, an

agency must seek and obtain clearance from OMB before it ``conducts or

sponsors'' a ``collection of information'' from ten or more persons

during a 12 month period. 44 U.S.C. Section 3507; 5 C.F.R. 1320.5.

The FCRA amendments require the credit reporting agencies to

provide relevant parties with a Notice of User Obligations and a Notice

of Furnisher Obligations that describe certain investigation,

disclosure, and recordkeeping requirements. The amendments further

require the FTC to prescribe the ``content'' of the notices. So doing

will not trigger the application of the PRA. The PRA is triggered when

an agency ``conduct[s) or sponsor[s)'' a collection of information. The

investigation, disclosure, and recordkeeping requirements described in

the User and Furnisher Notices are imposed by the statute and the

notices merely describe the requirements of the new FCRA. Further, the

requirements contained in the notices become effective on October 31,

1997, regardless of whether the FTC has provided the language for these

forms by that time.

The FCRA amendments also require the Commission to prescribe the

content and form of a new Summary of Consumer Rights that must be

provided to consumers. Because the amended FCRA further provides that:

``[n)o disclosures shall be required under this subsection [discussing

the Summary of Consumer Rights) until the date on which the Federal

Trade Commission prescribes the form and content of such disclosures *

* *,'' it could be argued that the Commission's actions in prescribing

the manner and content of the Summary of Consumer Rights may be

considered to ``require'' or ``cause'' the disclosures to occur.

Nevertheless, as discussed below, we have determined that none of these

notices constitute a ``collection of information.''

B. Collection of Information

Because the three notices to be prescribed by the Commission

contain information that must be distributed to third parties, these

documents involve public disclosures that would otherwise constitute

``collections of information'' under the PRA. However, OMB has

recognized that some disclosures do not entail the ``collection of

information'' and are thus outside the Act's paperwork control

provisions. Specifically relevant here is OMB's determination that a

disclosure requirement is not a ``collection of information'' when the

information to be disclosed is supplied by the government. 5 C.F.R.

1320.3(c)(2). In such a situation, a mandate to disclose does not

impose any requirement to collect the information to be disclosed.

The information in the proposed FCRA notices will be supplied by

the government. The proposed notices supply all the information that

subject firms will be required to disclose. The FCRA requires credit

reporting agencies to provide these (or substantially similar) notices.

FCRA Sections 607(d)(2) and 609(c)(3). The latitude provided by the

statute to use language other than the precise language prescribed by

the FTC does not undercut this concept because the consumer reporting

agencies can simply adopt these notices for distribution without any

change to the language. We have concluded therefore that these notices

do not fall within the definition of ``collection of information''

because they are ``[t)he public disclosure of information originally

supplied by the Federal government to the recipient for the purpose of

disclosure to the public * * *'' 5 C.F.R. Sec. 1320.3(c)(2). Thus, the

PRA does not apply.

List of Subjects in 16 CFR Part 601

Credit, Trade practices.

Pursuant to 15 U.S.C. 1681g and 1681s, the FTC hereby proposes to

add to Subchapter F of Chapter I of 16 CFR a new Part 601 to read as

follows:

PART 601--SUMMARY OF CONSUMER RIGHTS, NOTICE OF USER

RESPONSIBILITIES, AND NOTICE OF FURNISHER RESPONSIBILITIES UNDER

THE FAIR CREDIT REPORTING ACT

Sec.

601.1 Authority and purpose.

601.2 Legal effect.

Appendix A to Part 601--Prescribed Summary of Consumer Rights

Appendix B to Part 601--Prescribed Notice of Furnisher

Responsibilities

Appendix C to Part 601--Prescribed Notice of User Responsibilities

Authority: 15 U.S.C. 1681g and 1681s.

Sec. 601.1 Authority and purpose.

(a) Authority. This part is issued by the Commission pursuant to

the provisions of the Fair Credit Reporting Act (15 U.S.C. 1681 et

seq.), as most recently amended by the Consumer Credit Reporting Reform

Act of 1996 (Title II, Subtitle D, Chapter 1, of the Omnibus

Consolidated Appropriations Act for Fiscal Year 1997), Public Law 104-

208, 110 Stat. 3009-426 (Sept. 30, 1996).

(b) Purpose. The purpose of this part is to comply with sections

607(c) and 609(c) of the Fair Credit Reporting Act, as amended. Section

609(c)(3) directs the FTC to prescribe the form and content of a

summary of consumers' legal rights under the FCRA that the amended law

requires each consumer reporting agency to provide when disclosing the

information in its file to consumers, and section 609(c)(4) provides

that the summary need not be provided until the FTC has in fact

prescribed its form and content. Section 607(d)(2) directs the FTC to

prescribe the content of notices that consumer reporting agencies are

required to provide to parties that supply information to, or purchase

consumer reports from, the agency. These notices will set forth the

responsibilities under the FCRA of all persons who furnish information

to consumer reporting agencies or use information subject to the FCRA.

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Sec. 601.2 Legal effect.

The forms prescribed by the FTC do not constitute a trade

regulation rule. They carry out the directive in the statute that the

FTC prescribe the summary and notices. A consumer reporting agency that

provides notices substantially similar to those prescribed by the FTC

will be in compliance with Section 607(d) or 609(c) of the FCRA, as

applicable.

Appendix A to Part 601--Prescribed Summary of Consumer Rights

The prescribed form for this summary is as a separate document,

on paper no smaller than 8\1/2\x11 inches in size, with text no less

than 12-point type (8-point for the chart of federal agencies), in

bold or capital letters as indicated. The form in this appendix

prescribes both the content and the sequence of items in the

required summary. A consumer reporting agency that is not required

by law to have a toll-free number may omit the sentence inviting

consumers to call that number. A summary may accurately reflect

changes in numerical items that change over time (e.g., dollar

amounts, or phone numbers and addresses of federal agencies), and

remain in compliance.

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By direction of the Commission.

Donald S. Clark,

Secretary.

[FR Doc. 97-4987 Filed 2-27-97; 8:45 am]

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