Amendments to the Fair Credit Reporting Act place greater responsibilities on banks to monitor the information they compile on consumers seeking credit, lending experts say.
The amendments and their implications were the subject of a financial services industry conference, Dealing with Credit Card Delinquency, in Chicago last week.
Speakers said the amend-ments-which were signed into law by President Clinton last year, but took effect at the end of September-are a mixture of new freedoms and greater restrictions. The legislation regulates the information banks and creditors may compile on borrowers and how that information may be shared.
Peggy L. Twohig, the Federal Trade Commission's assistant director for credit practices, said banks have new obligations with respect to the customer information they provide credit bureaus.
Among other things, banks cannot knowingly give credit bureaus inaccurate information on consumers, and they must correct and update information regularly. Additionally, banks must tell the credit bureaus when a customer disputes the bank's information.
The amendments also change the definition of "adverse action," or denial of credit, to encompass any transaction for which a consumer is denied. Ms. Twohig said an adverse action could include using information from a credit report to turn down a customer who wants to open a new bank account.
Under the new rules, consumers must be notified when an adverse action is taken. The notification must provide the name and number of the credit bureau which provided the credit report to the financial institution, and must inform the consumer of his right to dispute the information.
Clinton W. Walker, executive vice president and general counsel, First USA Bank Inc., Wilmington, Del., agreed. "Bank adverse action notices are being scrutinized more carefully," he said.
In another change, the amendments expand the ability of banks and their affiliates to share information from consumer credit applications.
Previously, banks and their affiliates could share "experience" information-information relating to customer transactions at the bank-but not application information.
If banks shared application information, they would be classified as a consumer reporting agency and be subject to all the restrictions imposed on such entities.
The new law means that banks and their affiliates may share experience information without restrictions and without notifying the consumer. The rules also allow banks and their affiliates to share non-experience information, provided the bank discloses this to the consumer.
"Affiliate sharing will open up a lot of avenues and opportunities for banks," Mr. Walker said. Companies may be able to use the information for cross-marketing and risk control, he said.
Despite a few looser rules about information-sharing, the amendments reflect mounting public fears about privacy, conference speakers said.
For instance, the new law requires banks to notify consumers that they can "opt out" of information-sharing before it takes place.
"There is increasing consumer concern about how information on them is being used," said Clarke D. Camper, an attorney in the Washington office of Morrison & Foerster.