Free scores in financial reform act

- Posted by Tom Quinn, FICO® Score Product Manager

Almost buried in the massive Congressional bill on financial services regulatory reform is a provision by Senator Udall (D-CO) that gives millions of consumers new and free access to credit scores.  I think both lenders and consumers will benefit from this provision, after Congress completes the adoption of the larger reform bill, as expected, in mid-July.  

Most significant for me is the law’s assurance that consumers will receive the same credit risk scores that their lenders used when making decisions about their credit. Unlike non-FICO® scores now sold to consumers, these scores provided by lenders will have genuine, actionable value to consumers.

The provision adds a free credit score disclosure to two existing requirements under Section 615 of the Fair Credit Reporting Act. When lenders send an adverse action notice to a consumer they must now include the credit score used in their decision to deny credit. Also, when a credit score is used in a decision that results in the consumer receiving credit on terms less favorable than those offered to other consumers, lenders must include that score in any risk-based pricing notice they send to the consumer. 

In both cases, along with the credit score the lender must also provide:

• Score range of the credit scoring model
• All of the key factors (not to exceed four) that adversely affected the score
• Date when the score was calculated
• Name of the person or entity that provided the score

Consumers will receive this at a time when they are more likely to want it and use it. Those who do use it and change their credit habits perhaps will qualify for the desired credit next time around.

Lenders benefit when borrowers and prospects have good credit habits. Who doesn’t want more applicants to qualify for credit, and more borrowers to repay as agreed?  I think the provision will be a win-win for everyone.