Archive for November, 2011
« Older EntriesDoes the Use of Foreign Call Centers Violate Privacy and Consumer Protection Laws?
November 30th, 2011
in Expert Guest Blog Entries, Regulatory & Compliance |
Expert Article by Richik Sarkar
Many companies rely on foreign call centers to help with customer service or other business needs. Now, Plaintiffs in a federal lawsuit allege that the use of such centers violates customers’ privacy and puts personal and financial information at risk. On August 3, 2011, three residents of Washington D.C. sued Bank of America (“BoA”) over the alleged confidentiality and privacy risks caused by the transfer of their data to foreign call centers. On behalf of the class, the three plaintiffs allege that their financial data receives greater protection inside the United States than outside it.
Plaintiffs assert that BoA has created a “seamless” customer service experience in which U.S. customers do not know that their calls are being transferred overseas. BoA customers (according to Plaintiffs) are not told to dial international numbers or otherwise informed that they have called an international exchange. Instead, when BoA customers call U.S. customer service numbers those customers and their data are transferred, without their consent, to a foreign call center where U.S. legal and constitutional protections may not apply.
Plaintiffs also assert that BoA’s actions allow the U.S. government to circumvent confidentiality and privacy laws. In the U.S., the government’s ability to obtain citizens’ banking information is constrained by the Constitution’s Fourth Amendment and other laws. However, Plaintiffs allege that neither the Constitution nor the laws protect their data once that data leaves the country. Plaintiffs claim that once their data is overseas, the U.S. government can purchase, intercept, or otherwise acquire as much of that data as it wants. They also complain that foreign governments can and do gather that data as well, and share it with the U.S. government.
Plaintiffs rely on two statutes, one federal and one a specific ordinance of the District of Columbia. The federal law, the Right to Financial Privacy Act (“RFPA”), 12 U.S.C. §3401 et seq., prohibits financial institutions from sharing customer records with a “Government authority,” except as allowed by the RFPA. Plaintiffs argue that the transfer of customer data to overseas call centers violates the RFPA and they seek, in consequence, damages, attorneys’ fees, an injunction, and other relief, both for themselves and for a national class of BoA customers.
Plaintiffs also rely on the Consumer Protection Act of the District of Columbia (and the District’s common law), which they claim BoA breached by, among other things, representing that its customer services have a characteristic — the privacy protections afforded by U.S. law — which those services do not in fact have. In making this claim, Plaintiffs do not point to any specific statement by BoA, but argue that BoA’s integration of foreign call centers into its U.S. customer service organization “creates the illusion” that data transferred to those call centers is protected by U.S. law. Therefore, the Plaintiffs seek certification of an additional class that only comprises BoA’s D.C. customers, as well as damages, an injunction, and other relief for members of that class, based also on claims of negligence, negligent bailment, and unjust enrichment.
This suit may break new legal ground, since the Right to Financial Privacy Act has not typically been applied to foreign call centers. Thus, the federal court in the District of Columbia will have to decide whether the RFPA’s prohibition on giving customer records to a “Government authority” bars the transfer of that data to foreign locales where U.S. law (arguably) does not apply. The court will also have to decide whether an institution’s compliance with accounting protocols governing data transfer—such as the newly promulgated Statement on Standards for Attestation Engagements (“SSAE 16”) (formerly Statement on Auditing Standards 70)—is a defense to claims of improper data transfer. The resulting decision could be significant not only with regard to federal law, but also with respect to the laws of those states that have passed similar right-to-privacy laws.
The case will also involve issues of federal preemption, in that the court will have to decide whether District of Columbia law can affect international data transfers. Some commentators have argued that state and local law on this issue is preempted by the Constitution’s Foreign Commerce Clause and by other federal laws. Various states have passed laws restricting the transfer of financial data, and in one case the U.S. Court of Appeals for the Ninth Circuit narrowed (but did not strike down) such a law on federal preemption grounds. See American Bankers Association v. Lockyer, 541 F.3d 1214 (9th Cir. 2008). However, since the Lockyer decision, the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) has curtailed the scope of federal preemption of consumer finance laws, and the court hearing the suit against BoA may have to take Dodd-Frank into account.
This case against BoA should be closely watched by all companies with foreign call centers, especially in those jurisdictions that have protections similar to the D.C. Consumer Protection Act. Ohio’s Consumer Sales Practices Act (“CSPA”), for instance, contains language similar to the language from the D.C. Consumer Protection Act on which the BoA Plaintiffs rely. Although the CSPA does not generally apply to certain financial institutions, the breadth of its coverage, combined with the BoA Plaintiffs’ legal theory, could reach many businesses which use foreign call centers (for example, collection agencies and retail companies). The arguments and defenses raised, the court’s rulings on those arguments, and the ultimate disposition by the Court of Appeals for the D.C. Circuit (if the case reaches that point) will form highly relevant precedent for all companies that rely on overseas call centers to service their U.S. customers.
Tags: Call Centers, Consumer Protection, Privacy
No Comments »
WHAT’S THE MORAL OF THE STORY?
November 29th, 2011
in Anti-Corruption / FCPA, Expert Guest Blog Entries |
Expert Article by Wendy Addison
‘No matter how wonderful your corporate governance processes, if you can’t trust your people then you are at risk.’ Sir Derek Higgs
Profits ahead of principle?
Short term profit versus long term value?
What’s the relationship between ethics and regulation? Does compliance equal an ethical culture?
What does ‘right’ look like?
Does 21st century technology hinder or help ethical behavior?
At what point does cost become more expensive than principle?
How do I decide when there is a right vs. right scenario?
Armies of accountants, auditors and lawyers have been hired and deployed to build businesses which are indeed profitable and legal. But few in business, the public sector or even society in general ask or answer a most important question: ‘Is it right?’
Students studying for a professional accounting qualification spend their early adult years in intense study of financial accounting reporting standards, company and tax law, auditing regulations and corporate finance. After having run this academic gauntlet, they are required to spend three years serving a training contract, usually in the swish corporate environment of one of the big four accounting firms. During this time, there are two board exams with legendary infamy to conquer. While these individuals are well versed in the complexities of King, Cadbury and Sarbanes-Oxley, given their lofty positions of power and responsibility, one shudders at the gross lack of personal ethics and values instruction these CAs receive during their studies and training.
What’s to be done? Start by recognizing that twentieth-century rule-making procedures won’t stand up to twenty-first-century pressures. Every regulatory advance needs to be paralleled with concerted efforts to promote ethics in the marketplace. Research has revealed that there is a need to shift the emphasis from enforcing compliance to building cultures of integrity.
None of the governance mechanisms available to a company can make up for a nefarious corporate culture.
When employees own the culture of their workplace—when they feel responsible for “how things work around here”—they won’t permit wrongdoing. In fact, they’re likely to be more productive, turn over less frequently, and work hard for the common good of the enterprise. And when that happens, compliance is more likely to be viewed as protecting everybody rather than hindering accomplishments.
Corporations who engage in ethics training will relearn an ancient truth: Rules alone won’t create an ethical culture, but an ethical culture makes it easy and natural to obey the rules.
Let’s begin by gaining insight into our own individual Moral DNA – visit http://www.ethicability.org/ethicabilitytest.php to participate in the online survey.
Tags: Corporate Governance, Ethical Culture, Ethics, Moral
No Comments »
Wendy Addison
November 29th, 2011
in Anti-Corruption / FCPA, Expert Guest Blog Entries |
Biography
Wendy is a critical thinker and powerful speaker with fresh seasoned insights that entertain and inspire. She has shared speaker platforms with Professor Roger Steare of ehticability® and has delivered inspirations and thought provoking presentations to a varied cross section of people drawing on her rich tapestry of life experiences.
Wendy is a published author, development coach and motivational speaker who spent over 20 years as an accountant specializing in treasury management within listed companies both in South Africa and the UK. Her most recent publication, the research paper called Afro Ethics – Understanding Corruption in Africa has been widely supported and specifically encouraged by Vivian Robinson QC of the Serious Fraud Office (SFO).
Wendy’s deep vision and core sense of integrity was vividly demonstrated past the theoretical and by her act of reporting corruption in the LeisureNet Ltd saga in the year 2000, better known as the biggest corporate disaster in South African history. Standing up for the values that support her principles Wendy showed courage and a willingness to endure the danger of being exposed and the potential of losing both her livelihood and life by taking a moral stand against bribery and corruption.
Ousted as a whistleblower, Wendy became locked into a massively lopsided war of attrition. On one side the wrongdoers, still with the credibility and authority of their positions and with a wealth of resources behind them. On the other side Wendy, discredited in the public’s eyes, unemployed, unemployable (because of the notoriety of the case), running out of money, receiving death threats and having lost the support of friends and family.
Wendy’s story is a human story of courage and endurance, of hope and justice. It covers ambition, corporate greed and skulduggery, telling the truth and alienation from a society that misguidedly applauds coveted wealth. It’s about how life can mercurially shift one from glorified success to begging on London street corners without warning.
The players are many and varied; Corporate sociopaths, Nelson Mandela, Richard Branson, British and South African shareholders, solicitors, the Scorpions, an alcoholic judge and overstretched judicial services in South Africa. A toothless United Nations, a hopeful, urging Transparency International and a confused and secretive South African government underscore this story which shifts between the UK and South Africa. Wendy’s battle has been for what’s ‘right’. It’s an exposure of much of what is ‘wrong’ in the world. It’s about Truth or Dare or rather ‘Daring to tell the truth’.
In April 2011, eleven years after initially reporting corruption, four years after jail sentences were imposed and a further three years during which Wendy needed to reignite the case after it ‘disappeared from the radar’, the original sentences were upheld and the corrupt jailed.
Encouraging comments such as ‘Wendy, I applaud you for your sense of values and perseverance through what seems to have been a hellish encounter. Kudos for doing what is right – you are a fine example of what we should all aspire to be’ to ‘Wendy I commend you. Your story is a perfect example of why corporate integrity is vital’ are affirming. However even with the label of ‘modern day hero’, Wendy acknowledges that there are no winners when it comes to corruption. See and hear her interview here:
Expert Article
Contact Wendy Addison
Email: wendy.addison@ethicability.org
Tel: +44 7799 144 312
Website: www.ethicability.org
LinkedIn Profile: http://www.linkedin.com/pub/wendy-addison/0/9a8/bb8
Tags: Corporate Governance, Ethical Culture, Ethics
No Comments »
Biotech Patents
November 28th, 2011
in Intellectual Property |
The biotech industry faces massive, imminent, change with patent reform nearing passage, impending promulgation of biosimilar pathway regulations from the FDA, the continued evolution of case law from the Federal Circuit and an unusually active Supreme Court. Cases like Therasense, Centocor, McKesson, and Myriad are changing long-standing precedents in inequitable conduct, written description requirements, joint infringement, and the patentability of DNA sequences, and have the potential to signifi cantly alter the biotech patent landscape. Additionally, the FDA’s issuance of biosimilar regulation draws closer. Most signifi cantly, at press time, with both houses of Congress passing versions of patent reform and President Obama signaling he will sign it into law, the patent code is poised to undergo its most sweeping changes in nearly sixty years. The switch to a first-to-file regime, introduction of opposition proceedings, changes to the best mode disclosure requirement and more will challenge biotech patent practitioners like never before. In the most uncertain and anxious period for the biotech industry in a generation, our forum on Biotech Patents will help you develop strategies to confront and conquer these difficulties. Although the biotech world will grapple with shifting case law and the looming alterations in patent code and FDA rules, these changes nevertheless present tremendous opportunities for companies to strengthen patent rights and seize market share. Although this is a challenging period, it is one in which massive growth can be attained and our faculty of experienced counsel will help you chart the best course.
With this in mind, ACI’s 13th Advanced Forum on Biotech Patents brings together another top-notch faculty of expert biotech patent counsel who will share their experience and knowledge to provide you with strategies to navigate this period of intense uncertainty.
Do not miss this opportunity to hear our high quality faculty of senior biotech practitioners share their thoughts and advice on strategic patent fi ling and effective defense of intellectual property rights. Topics to be discussed include:
- Analyzing the potential ramifications of patent reform legislation and the promulgation of biosimilar regulations by the FDA
- Investigating the implications of recent court opinions on the written description requirement, inequitable conduct, joint infringement claims, subject matter patentability, and more
- Formulating strategies for international patent filing in the EU and developing countries
To accompany your overall experience, PTO examiners and industry leaders will guide you through changes to PTO practices in our in depth pre-conference Interactive Working Group Session: Integrating Changes at the PTO into Biotech Patent Practices.
In addition, our Master Class on Successful and Practical Strategies for Patenting Antibodies will utilize an expert faculty to assist you in protecting and promoting products that are central to the biotech industry.
Drafting Social Media Policies to Minimize Legal Risk of an NLRB Complaint
November 28th, 2011
in Advertising & Marketing, Employment & Benefits, Expert Guest Blog Entries, Litigation |
Expert Article by Kyle-Beth Hilfer
Note: This article originally appeared on Ms. Hilfer’s blog on October 12,2011. Visit her blog at http://www.kbhilferlaw.com/blog/
Last week, I discussed how the NLRB’s August, 2011 report on social media investigations has ushered in a new age of corporate social media policies. We find little solace in the recent administrative law judge ruling that Knauz BMW had fired properly an employee because some of his Facebook posts were not protected (others were). The same ruling also declared the employer’s policy overly broad and ordered the dealer to post a notice informing employees of their rights.
Employers struggle in social media to protect their confidential information, their reputations, and their intellectual property. The NLRB, on the other hand, is concerned with protecting the statutory rights of employees. As such, it has criticized social media policies that prohibit disrespectful language or negative comments, that forbid use of the employer’s intellectual property, or that protect employer’s confidentiality. Yet, these are mainstays of any employee handbook, so what can an employer do? First, stay in touch with NLRB developments. Case law is emerging rapidly. Second, here are some current tips for employers who are drafting their social media policies for the first time or reviewing their existing policies:
1. State the Policy’s Intent. The NLRB upheld a grocery chain’s policy that prohibited various employee activity in social media, but that clearly stated its purpose was to ensure clear and consistent communications with the media. Because the policy had narrow goals, the NLRB said this media policy could not be reasonably interpreted to restrict protected employee activity. The lesson here is to include a preamble stating what the policy hopes to accomplish for the employer. This introduction should also clarify that certain employee activities remain unrestricted and that the employer does not seek to chill the speech of employees discussing and seeking to improve their workplace pursuant to Section 7 of the NLRA.
2. Include Examples. I have consistently advised that social media policies include examples of the kinds of behavior that are disallowed. Using examples to flesh out guidelines becomes even more important in light of recent NLRB activity. Specific cast studies can help strengthen the employer’s defenses against a negative finding by the NLRB.
3. Be Careful with Oral Policies. When I speak at conferences, many employers tell me that they are concerned about putting their social media policies in writing. They feel this communication form is evolving too quickly, and by putting guidelines or policies in writing, they run the risk of falling behind. Others feel challenged to create a set of guidelines that works, so they instead rely on oral discussions with employees. I urge employers not to put their heads in the sand in this manner. Just as it became clear that a written sexual harassment policy was an important step in protecting an employer’s assets, so too, a written social media policy is crucial. This is particularly true given the fact patterns that show up in the NLRB’s summer report. The absence of a clearly written policy or set of guidelines makes it harder to defend against charges of an NLRA violation.
4. Train Your Supervisors. Your trainings should teach supervisors to spot “protected, concerted activity” that relates to the terms and conditions of employment. In short, the supervisors should see online discussions among employees or with supervisors as red flags requiring legal vetting before firing any employee. Note that discussions can be nonverbal; “liking” a comment constitutes a discussion. In addition, if an employee acts alone on Facebook or some other social media, but his goal is to organize or garner support for the benefit of all employees’, his activity may be protected. This is particularly true if he has previously raised the issue with management. It is crucial to delve into the facts of every situation before making a firing decision.
5. Clarify Employee Rights. Corporate social media policies should emphasize to employees, both orally and in writing, that employees are still free to exercise their Section 7 NLRA protected rights. Although last week, the NLRB postponed its new poster requirement until January 31, 2012 amidst legal challenge and public outcry, employers should be making plans now to post the requisite notice and to educate employees about what it means.
© Kyle-Beth Hilfer, P.C. 2011. Kyle-Beth Hilfer, Esq. specializes in advertising, marketing, promotions, intellectual property and new media law. For more information about her law practice, please visit www.kbhilferlaw.comBad Faith Litigation
November 27th, 2011
in Insurance & Reinsurance |
Bad Faith Litigation returns for its 22nd installment led by a multi-disciplinary, cross-country faculty from both sides of the issue, including seasoned in-house counsel, top law fi rms and renowned jurists.
Bad Faith is continuously an area of the law that generates a significant amount of costly litigation, as the courts continue to hand down crippling verdicts. Now is the time to start preparing how to recognize the signs of a bad faith set-up and properly investigating the claims as they are presented. As the hot bed states spearhead their way toward statutory bad faith laws, litigators must be well equipped in how to defend against, and bring, a bad faith claim.
An annual tradition, American Conference Institute is proud to bring you its22nd National Advanced Forum on Bad Faith Litigation. This conference has been fully revised and updated to account for new developments and designed to bring winning litigation strategies to even the most experienced bad faith litigators. Our expert faculty will provide effective tactics and insights from both the insurers and the policyholders. Featuring:
Insurers In-house roundtable: this specialized in-house panel will focus on 1) best practices in claims investigation and decisions; 2) settling bad faith claims before a suit is filed; 3) special issues in the life, health & disability arena; 4) dealing with your insured and much more
Viewpoints from the Policyholders Bar: with a session focused on the policyholders bar, as well as policyholder counsel point of view mixed into multiple sessions, don’t miss the chance to hear what key actions (or inactions) could lead your client into litigation.
Discussions with distinguished jurists: this session will provide attendees with highly sought after insight on effective theories and evidentiary issues, from those that have presided over bad faith suits.
Narrowly tailored panel sessions: our narrowly tailored, comprehensive panels will shed light on the most effective ways to manage discovery, recognize bad faith set-ups, properly investigate a claim, understand attorney-client privileges and work products protections, and establish successful pre-trial strategies.
Paragraph IV Disputes
November 25th, 2011
in Hatch-Waxman |
The must-attend event for litigators from brand name and generic companies to share insights into increasingly high-stakes and complicated Hatch-Waxman litigation
With hundreds of billions of dollars at stake as blockbuster drugs go off patent in 2014, Hatch-Waxman litigation will only intensify as branded companies fight to delay generic entry and extend patent life through all means possible, and as generic companies fight amongst themselves for fewer opportunities to attain the prized 180-day exclusivity period. Constantly evolving case law including Therasense, Caraco v. Novo-Nordisk, and Plavix and legislative developments including long-awaited patent reform create more questions and will spawn more litigation as well.
At American Conference Institute’s 2nd Annual West Coast edition of its acclaimed Paragraph IV Disputes conference, an experienced faculty of renowned litigators and judges will guide you through every stage of a Paragraph IV challenge to help you formulate the offensive moves and defensive plays for the next round in the no-holds barred fi ght for pharmaceutical product market share. Additionally, in the wake of major developments in pay-for-delay, learn what the Federal Trade Commissiondeems foul and fair in the settlement of Paragraph IV disputes in order to draft and structure a settlement that will receive FTC approval.
At this in-depth strategy session on the nuances of PIV litigation, our West Coast delegates will gain the tools to advance a novel claim or defense to protect patents and market share based on the expertise of trial leading patent counsel from generic and branded companies – and the judges – who have experienced the intricacies of Hatch Waxman litigation first hand. Featuring an up-to-the-minute analysis of the latest game-changing case law developments regarding inequitable conduct, inducement of infringement and the standard of invalidity, this conference will give our attendees the tools and litigation strategies to help both brand name and generic companies protect market share and ultimately profits.
Food-Borne Illness Litigation
November 24th, 2011
in Food and Beverage |
Food-borne illness continues to remain a serious health problem in the United States. With the FDA’s passage of theFood Safety Modernization Act, it is clear that food safety has been made a priority by the Government. Still, with many of the agents of food-borne illness largely un-identified, it seems that despite best efforts by the Government and the food industry, our food supply remains extremely vulnerable.
An immediate byproduct of food-borne illness and food contamination outbreaks, the litigation resulting from these incidents places extreme pressure on in-house litigation counsel, food safety executives and private defense counsel to ensure that your client or company does not become the next big headline.
In an environment such as this, you cannot afford to be caught unprepared.
Restructured to minimize time spent out of the office while still providing you with the high-level content you have come to expect from ACI’s annualFood-Borne Illness Litigation event, attendees of this conference will walk away with proven strategies for –
- Managing and settling high-profile food-borne illness claims
- Tackling the underlying science behind the claims
- Developing a crisis and recall management plan that will minimize corporate liability exposure
This year’s conference will also feature new sessions designed to provide you with insights directly from the CDC, FSIS, Oregon Public Health Division and the FDA on what Government expectations are for recall events, as well what precautions your company should be taking now to ensure that corporate officials are not left open to criminal liability exposure arising out of a food-borne illness event.
A unique opportunity to get highly-specialized information in a setting where you can network and benchmark with your peers, if you are involved at all with food-borne illness litigation, this is one event you don’t want to miss!
Who You Will Meet
Food manufacturers, distributors, suppliers, retailers, restaurants and servers legal counsel and compliance executives with the following titles:
• In-House Counsel/Litigation Counsel
• Claims/Insurance Counsel
• Quality Assurance
• Compliance
• Food Safety
• Regulatory Affairs
• Audit
• Risk Management/Claims
Private practice attorneys specializing in:
• Food-Borne Illness Litigation
• Food & Agribusiness Law
• Food Liability Law
• FDA Law
• Consumer Products Litigation
• Product Liability/ Mass & Class Actions
• Toxic torts/personal injury
• Franchising
Insurance claims counsel
OFAC Boot Camp
November 23rd, 2011
in Financial Services |
Ensure Your Sanctions Compliance Program is Fully Updated to Meet New and Evolving U.S. Restrictions against Iran, Libya, Syria, Cuba and Other Regimes.
U.S. and foreign entities must continuously re-assess their risk-based sanctions compliance and screening programs to ensure that they fully incorporate new and evolving U.S. sanctions against Iran, Libya, Syria, Cuba and others.
In the past year, OFAC has ramped up its use of subpoenas, and has continued to heavily scrutinize the activities of U.S. and foreign financial institutions and global companies. Cases against financial institutions in particular have yielded the most significant penalties in recent memory-costing Barclays Bank, Credit Suisse, and Lloyds TSB hundreds of millions of dollars!
OFAC has also increased its enforcement against insurers and reinsurers. To date, over half of the penalties in 2011 have been assessed against the insurance industry.
Back in New York by popular demand, American Conference Institute’s OFAC Boot Camp is a practical and intensive course on how to comply with U.S. economic sanctions laws and regulations, and implement an effective internal sanctions compliance program. A new, diverse speaker line-up of senior industry executives, government officials and outside counsel will provide you with a comprehensive set of tools for minimizing heightened enforcement risks.
New sessions for 2011:
- How new Iran sanctions requirements impact U.S. and non-U.S. entities: Operating within key CISADA and regulatory restrictions
- Complying with Libya sanctions: The extent of sanctioned entities, persons, activities and OFAC licenses
- The latest on U.S. sanctions against Syria: Current restrictions and anticipated changes
- Incorporating tightened EU sanctions into your global sanctions compliance program
- How to conduct effective sanctions due diligence for M & A, underwriting and financing transactions: Vetting foreign party and transactional risks
- Navigating the OFAC licensing process, timeline and criteria: Working with OFAC to facilitate and expedite approvals
Key topics also include:
- How to strengthen screening and re-screening processes in response to tightened U.S. and EU sanctions
- Defining and preventing “facilitation”
- Conducting an internal risk assessment: How to detect U.S. sanctions compliance weaknesses across your global operations
- The agencies’ approach to global investigations, enforcement and penalty calculations
- What to do if you suspect or uncover a U.S. sanctions violation: Internal investigations, voluntary disclosures and remedial measures
Dodd-Frank Act Increases Disclosure Requirements for Financial Institutions and Other Businesses Which Make Decisions Based on Credit Scores
November 23rd, 2011
in Expert Guest Blog Entries, Financial Services, Insurance & Reinsurance, Regulatory & Compliance |
Expert Article by Richik Sarkar
On July 15, 2011, the Federal Reserve Board (“the Board”) and the Federal Trade Commission (“FTC”) published final rules in the Federal Register implementing the credit score disclosure requirements contained in Section 1100F of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”). If a credit score is used to set material terms of credit or to take any type of adverse action, the Dodd-Frank Act requires disclosure of the credit score and related information to consumers in Fair Credit Reporting Act (“FCRA”) notices. One of the final rules amended certain model notices in the Equal Credit Opportunity Act’s (“ECOA”) Regulation B, combining the adverse action notice requirements for the ECOA and the FCRA to reflect the new credit score disclosure requirements. The other rule, issued jointly with the FTC, amended Regulation V (related to fair credit reporting) to revise the content requirements for risk-based pricing notices and to add related model forms that reflect the new credit score disclosure requirements. The rules were issued before general rulemaking authority under these statutes was transferred to the Consumer Financial Protection Bureau (“CFPB”), which began formal operations on July 21, 2011.
While “adverse actions” include denials of credit and loans, as well as modifications resulting in less favorable credit or loan terms, they may also include business decisions related to non-credit or non-lending decisions (discussed further below). Prior to the Dodd-Frank Act, the FCRA required entities taking an adverse action based on a consumer report to provide an adverse action notice stating the name of the credit reporting agency that created the report and giving notice of the consumer’s right to request a free credit report and dispute the accuracy of the report’s content. The ECOA required creditors to provide consumers with the specific principal reason for the action taken or disclose that the applicant has the right to request the reason(s) for denial within sixty days of receipt of the bank’s notification, along with the name, address, and telephone number of the person who can provide the specific reason(s) for the adverse action. Because these rules worked together, Regulation B contained certain model forms that combined the adverse action notice requirements for the ECOA and the FCRA.
In addition to the prior mandated disclosures, under the Dodd-Frank Act, companies which use credit scores1 to set material terms of credit or take an adverse action must also disclose the following information to consumers:
• The numerical credit score used in taking the adverse action;
• The range of possible credit scores under the model used;
• The factors that adversely affected the credit score of the consumer, which should be ranked in the order of their importance and should not exceed four factors — unless the number of credit inquiries is a factor and is not already reflected in the top four, in which case, five factors must be disclosed (i.e., the top four, plus the “inquiries” factor);
• The date on which the credit score was created; • The name of the consumer reporting agency or other person providing the score; and
• A prescribed statement explaining credit scores.
The new rules and the model forms reflect these new content requirements, and entities may take advantage of certain safe harbor provisions by using the model forms. However, it should be noted that simply providing the credit score and the key factors adversely affecting the credit score does not satisfy the requirement to provide specific reasons for the adverse action under ECOA. While they may be related, the Board believes that disclosure of both the key factors and specific reasons are necessary because an adverse action may be based on reasons unrelated to the score, such as the consumer’s income, employment, or residency. It is also impermissible to wait until a consumer exercises his or her right to request specific reasons for the credit denial to provide the credit score used, if any, and additional information.
Recognizing that creditors may use a consumer report but not an actual credit score in taking adverse action, the Board allows that if no credit score is used in making the decision, then no credit score or related information needs to be included in the adverse action notice. Similarly, the Dodd-Frank Act does not require additional disclosures in the event an adverse action is taken because a consumer does not have a credit score.
The Dodd-Frank Act did not limit the disclosure requirements to adverse action decisions related to credit. Creditors, including banks, credit unions, and credit card issuers, are clearly affected by these changes, but, in addition, the commentary to the rules makes clear that FCRA adverse action notices also apply to non-credit and non-lending decisions. Thus, if rental, employment, or insurance applications, for instance, are denied or adversely affected as a result of a credit score, the enhanced disclosure requirements apply. Similarly, utilities or others entities which charge an increased deposit as a result of a credit score also should comply with the new requirements. Note that the CFPB’s jurisdiction with regard to the credit scores only applies to consumer financial products or services; so, the CFPB likely does not have jurisdiction or authority over those who arguably do not engage in consumer financial services (such as landlords, employers, or insurers), but they continue to be subject to FTC jurisdiction.
The new rules are effective 30 days after publication in the Federal Register. However, by its terms, Section 1100F of the Dodd-Frank Act was self- effectuating, and its requirements became legally effective on July 21, 2011. Thus, notices as of that date must contain the enhanced credit score disclosures.
The Dodd-Frank Act has made fundamental changes to certain aspects of the ways in which financial institutions and businesses can use credit scores, and has increased the amount and type of information which must be obtained from credit reporting agencies, potentially increasing direct and indirect costs. It is advisable for entities that use credit scores to make any sorts of decisions to engage counsel in a review of their procedures to ensure full compliance. Failure to comply may subject the entity to potential liability to consumers for actual damages, attorneys’ fees, and/or punitive damages.
1 A “credit score” is a proprietary score developed by creditors to predict the likelihood of certain credit behaviors, including default. Under certain circumstances, some proprietary scores, such as insurance scores or scores used to predict the likelihood of false identity, may be excluded from the definition of “credit score.”
Tags: Credit Score, Disclosure Requirements, Dodd-Frank Act
No Comments »
