BCFP Issues Interim Rule with New High Reading Level Model Disclosures for FCRA Security Freeze and ID Theft

On September 12, 2018, the Bureau of Consumer Financial Protection (BCFP or Bureau) issued its interim final rule addressing recent legislative changes to the Fair Credit Reporting Act (FCRA). The interim rule is in response to the Economic Growth, Regulatory Relief, and Consumer Protection Act (Act) passed by Congress in May 2013.

The Act creates several new requirements for consumer reporting agencies (CRA). CRAs must now provide national security freezes free of charge and send a notice of security freeze rights when sending the Summary of Consumer Rights or Summary of Consumer Identity Theft disclosures to the consumer. The Act also requires CRAs to extend initial fraud alerts to a minimum of one year, wan increase from the previously-required 90 day minimum.

The Bureau’s new interim rule provides two new model disclosures for the Summary of Consumer Rights and Summary of Consumer Identity Theft in order to comply with the new requirements. The new disclosures will amend Appendicies I and K of Regulation V. 

In a footnote to the interim rule, the Bureau mentions that the additional costs, if any, to implementing this new rule should be minimal since the new disclosures and currently-required disclosures are similar in length.

The interim rule becomes effective on September 21, 2018. The Bureau invites comments on the interim rule, but the comments must be received on or before the effective date.

insideARM Perspective

One issue that stands out with the model disclosures is the complexity of the language used. While the “least sophisticated consumer” standard applies to the Fair Debt Collection Practices Act (FDCPA) and not the FCRA, identity theft and fraud impact consumers of all reading abilities. When run through a reading index, the results show that these disclosures are at a relatively high reading level. For example, the Flesch-Kincaid and the Coleman-Liau Index rate the disclosure at a twelfth grade reading level. The Linear Write Formula rates the disclosure at a college reading level. It is interesting that the Bureau would issue disclosures at such a high reading level while at the same time, and when communicating with the same consumers, debt collectors must ensure that their letters can be understood at a sixth grade reading level.

With debt collection rules perpetually around the corner, could these model disclosures be a sign of what is to come? A two page double-sided FCRA-required disclosure may not add additional cost, especially with the ability to send such disclosures electronically. Hopefully, while contemplating debt collection rules, the Bureau keeps in mind that the FDCPA world is very different.

In the debt collection context, such a long disclosure would add fairly significant operational costs. Sending initial validation letters, which contain the bulk of the required disclosures, via electronic formats is still a new pursuit for the industry. Recently, the BCFP complicated this effort when it filed an amicus brief in the Lavallee v. Med 1 case arguing that the E-SIGN Act applies to FDCPA-required disclosures. Currently, most initial validation notices are sent as one double-sided page. Printing and mailing costs would practically double if debt collectors were required to send a two page double-sided letter to consumers. It is comforting to know that the Bureau conducted a cost analysis on the new FCRA disclosure, and this may be indicative that it will do the same for the debt collection rules.