Credit score disclosures for utilities and telecommunications companies are now required by an amendment to the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act. Section 1100F of the Act amends section 615(h) of the Fair Credit Reporting Act (FCRA) which mandates creditors provide a “risk-based pricing” notice when consumers receives less-favorable terms of credit based on the consumer’s credit report.
Section 1100F went into effect July 21, 2011 after the Federal Reserve Board and the Federal Trade Commission voted to implement the new regulations. Creditors who issue “risk based pricing” notices must now also provide consumers with their credit scores. Businesses that fall under this purview will be significantly affected.
“Over a year after Congress passed the Dodd-Frank Bill we are still uncovering costly regulatory mandates that will increase the cost of doing business,” said Carl Gipson, director of small business and technology and telecommunications at the Washington Policy Center.
Difficult for Businesses
Deciding which utility and telecommunication companies might be affected by the rule can be tricky, said Mark Oesterle, a lawyer with the Reed Smith financial industry group. Oesterle’s firm is working through the statutes to determine which utilities will be affected.
“We are working with a number of clients to determine whether they are covered by the credit score disclosure provisions.” Oesterle said.
“It’s a big issue because some firms deal with tens or hundreds of thousands of customers across their geographic footprint, and that could mean compliance requirements in tens or hundreds of thousands of cases,” he said.
The FCRA is a user-based statute, meaning it wasn’t designed for a specific entity but for a specific conduct. It is a broad statute, making it difficult for businesses to determine whether their activities reflect the requirements and regulations in the FCRA statute.
What’s complicated for utility companies in determining whether their business activities require them to comply with the rule is that utilities do not always measure a customer’s credit worthiness by their credit report, Oesterle said. Utility companies sometimes develop their own scoring model based on whether a customer pays their electric bill on time, he added.
Because these different scoring models may not resemble the FCRA’s definition of a credit score, the law creates complexity in determining which utility companies are required to comply or not with the rule.
‘Broad Range of Conduct’
Oesterle warns the provision has general applicability, and utilities need to be aware of the activities they’re engaged in and whether those activities are covered by the terms of the law.
“The FCRA was drafted to cover a broad range of conduct. If a firm engages in such conduct, it won’t matter if it is a bank or a utility, it will have to meet the compliance requirements,” he said. “The key is determining whether a firm’s activities are covered by the statute.”
Gipson says the new regulations businesses will now have to follow as a result of the Dodd-Frank Act will have a negative economic impact.
“Our economy is struggling to recover, and rather than assessing how to cut costs for businesses we are simply piling on more regulations that take time and resources to implement,” Gipson said. “And in this case, requiring telecommunications companies to disclose their proprietary credit rating system, Congress is making it more expensive for people to use telecommunications services,” he added.
“So yes, a bill intended to clean up Wall Street could affect a much broader group of firms who are well beyond Wall Street,” Oesterle said. “Many of the statutes that were amended by Dodd-Frank, including the FCRA, have broad applications themselves. So firms have to look at Dodd-Frank and the various statutes it amends to make sure they are in compliance.” he said.
“If firms use consumer-related information to make account-related decisions and those decisions involve negative consequences for consumers, the firm will need to determine whether the Dodd-Frank Act requires them to provide credit score disclosures to the consumers involved in such transactions.” Oesterle said.
Alyssa Carducci ([email protected]) writes from Tampa, Florida.