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CUNA Regulatory Comment Call

October 5, 2004

EXECUTIVE SUMMARY

• The Fair and Accurate Credit Transactions (FACT) Act was enacted this past December and permanently extends the federal preemptions for credit reporting under the Fair Credit Reporting Act (FCRA). It also enhances the ability of consumers to combat identity theft, increases accuracy of credit reports, and allows consumers to exercise greater control regarding the marketing solicitations they receive. The FACT Act also restricts the use and disclosure of medical information.
• The Federal Trade Commission (FTC) is requesting comments on a proposed rule to require entities that make prescreened offers for credit or insurance to provide enhanced disclosures regarding the consumer's right to decline, or "opt-out" of, receiving such offers in the future, instead of the current disclosures now being used to comply with the existing provisions of the FCRA. This rule implements the FACT Act provisions that direct the FTC to issue a rule to make these disclosures simple and easy to understand.
• Comments on the proposed rule are due by October 28, 2004. Please submit your comments to CUNA by October 19, 2004. Comments submitted directly to the FTC should refer to "FACTA Prescreen Rule, Project No. R411010."

Please feel free to fax your responses to CUNA at 202-638-7052; e-mail them to Associate General Counsel Mary Dunn at mdunn@cuna.coop and to Assistant General Counsel Jeff Bloch at jbloch@cuna.coop; or mail them to Mary and Jeff in c/o CUNA's Regulatory Advocacy Department, 601 Pennsylvania Avenue, NW, South Building, Suite 600, Washington, DC 20004-2601. You may also contact us at 800-356-9655, ext. 6732, if you would like a copy of the proposed rule, or you may access it on the Internet at the following address:
http://www.ftc.gov/os/2004/09/040927prescreenfrn.pdf

BACKGROUND

President Bush last December signed into law the FACT Act that permanently extends the federal preemptions for credit reporting under the FCRA. The new law also creates a number of important new consumer protections designed to help prevent identity theft and assist consumers who become victims of this rapidly growing crime. It also contains new restrictions on information sharing and creates a new federal commission that will coordinate financial education efforts at the national, state, and local levels.

The FACT Act will be implemented through a number of new rules that will be issued this year. Access below for a special issue of RegWatch that describes the significant provisions of the FACT Act:

http://www.cuna.org/reg_advocacy/member/regwatch/regwatch.html

Under the provisions of the FCRA that existed prior to the FACT Act, when an entity uses a consumer report to make an unsolicited, or "prescreened" offer of credit or insurance, that entity is required to include a clear and conspicuous statement that the consumer has a right to prohibit information contained in the credit file with a consumer reporting agency from being used in connection with prescreened offers, along with a toll-free telephone number that may be used to exercise the opt-out. The FACT Act adds additional requirements to these provisions by mandating that such disclosures be presented in a format, type size, and manner that is simple and easy to understand. The FACT Act requires the FTC to issue a rule that implements and provides additional information regarding these new provisions.

DESCRIPTION OF THE PROPOSED RULE

The proposed rule requires entities engaged in prescreened solicitations to provide "layered" notices to consumers consisting of an initial, prominent statement that provides the basic opt-out information, followed by a separate, longer explanation that provides additional details. The short notice must be a simple and easy to understand statement that the consumer has a right to opt-out of receiving prescreened solicitations, and it must include a toll-free telephone number the consumer may call to opt-out. The proposed rule will prohibit additional information in the short notice and will define "simple and easy to understand" as plain language designed to be understood by ordinary consumers. Factors that will be considered in this determination include using clear and concise sentences, active voice, avoiding legal and technical terminology, and avoiding multiple negatives.

The short notice must also direct the consumer to the location of the long notice and must be:

• Prominent, clear, and conspicuous.
• In a type size larger than the text of the page, but no smaller than 12-point type.
• On the front side of the first page of the "principal promotional document" in the solicitation, or on the first screen of an electronic solicitation.
• In a format and typeface that are distinct from other text on the page.

The long notice must also be a "simple and easy to understand statement," under the same definition that applies to the short notice, and must provide the information currently required under the FCRA for prescreened solicitations. This includes statements that:

• Information contained in the consumer's credit report was used.
• The consumer received the credit or insurance offer because he or she met certain criteria for creditworthiness or insurability.
• The offer may not be extended after the consumer responds to the offer if he or she does not meet the applicable criteria.
• The consumer has the right to prohibit credit report information from being used with credit or insurance transactions not initiated by the consumer.
• This right may be exercised by means established under the FCRA, such as a toll-free telephone number.

The long notice must also:

• Be clear and conspicuous.
• Appear in the solicitation.
• Be in a type size no smaller than the principal text on the page and no smaller than 8-point type.
• Begin with a heading in capital letters and underlined, identifying the notice as the "OPT-OUT NOTICE"
• Be in a typeface that is distinct from other typeface on the page.
• Be set apart from other text on the page.

The long notice must appear within the solicitation, and the short notice must direct the consumer to the long notice. However, the long notice does not necessarily have to be in the same document as the short notice. The long notice may also include additional information, as long as it does not detract, contradict, or undermine the purpose of the opt-out notice.

The FTC has also proposed model language that may be used to comply with the rule that is in both English and Spanish. The effective date of this rule will be sixty days after it becomes final.

• Is providing a layered notice the most effective means for communicating the consumer's opt-out rights? If not, what would be more effective?
  
  

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• Are the proposed format and manner of disclosure for the short and long notices adequate for enabling consumers to understand their opt-out rights?
  
  

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• Is the requirement that the short notice be on the first page of the "principal promotional document" sufficient to ensure that it is prominent and noticeable? Should "principal promotional document" be defined? If so, how should it be defined? Should it be sufficient that the short notice be placed on the page of the document that is designed to be seen first by the consumer?
  
  

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• Should additional information be allowed or required in the short notice to enhance simplicity and understandability? If so, what information should be allowed?
  
  

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• The proposed rule will allow additional information to be included in the long notice, as long as it does not detract from the purpose of the notice. Should the rule prohibit additional information from being included in the long notice, other than what is currently required under the FCRA?
  
  

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• Should the rule require the long notice to appear in the same document as the short notice?
  
  

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• Will the effective date of sixty days after the final rule is issued be adequate in order to comply with these new requirements and to exhaust existing inventories of solicitation forms?
  
  

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• Does the proposed rule adequately address prescreened offers that are made electronically?
  
  

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• Other comments?
  
  

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