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Congress last week passed the most far-reaching reforms to the American consumer credit system in three decades, and home buyers, Realtors and lenders will be among the key beneficiaries.

Besides guaranteeing every consumer the right to request and obtain one free copy of his or her credit files from the national credit bureaus per year, the new legislation also mandates consumer access to credit scores. Under current law, by contrast, only a few states require the bureaus to provide free credit files once a year, and only California requires disclosure of credit scores.

The Fair and Accurate Credit Transactions Act of 2003, approved just before the Thanksgiving recess, sets up key procedures regarding credit reports and score disclosures:

  • The credit industry, with oversight by the Federal Trade Commission, must create a single centralized contact point or organization to handle consumer requests for free files expeditiously. The central source will have to provide a toll-free telephone line to receive consumer requests, and then quickly respond with copies of a consumer's credit reports from Equifax, Experian and Trans Union, the three national credit repositories.
  • Once a request for free credit files has been received, the central source or the bureaus will have to provide the reports within 15 days. When subsequent requests for correction of errors or outdated information are received from consumers, "reinvestigations" by the bureaus will need to be completed within 45 days.
  • Each free credit report will be accompanied by a summary of the consumer's federal credit rights, prepared by the FTC, plus a toll-free number for additional help or information.
  • When a consumer requests credit reports but no credit scores, the bureaus will be required to inform the consumer that one or more scores may be available in connection with the reports, though for a "reasonable" fee.
  • Whenever the number of recent "inquiries" -- credit report requests by creditors or other users of credit reports -- negatively affects a borrower's credit scores, the consumer will have to be informed by the credit bureaus involved.

    The legislation also contains major new consumer-protection rights, including mandatory disclosures whenever a creditor sends negative information to a credit bureau about a consumer's account. The disclosure will have to be made no later than 30 days after the negative information is sent by the creditor to the national bureaus. Consumers who disagree with the content of the negative report -- for example, they disagree that their payment was late or never sent -- can then dispute the reports.

    The bill also establishes important new "risk based pricing" safeguards designed to protect mortgage applicants who are evaluated by electronic underwiting systems, now in widespread use by lenders. Whenever a home loan applicant is quoted rates and terms by an electronic system that accesses their national credit files, and those terms are "materially less favorable" than what applicants with excellent credit receive, the loan applicant will have to be informed of the situation. The disclosure can be oral, at the time of application, or made electronically or in writing later.

    Borrowers who apply for a "specific" rate or term -- say six percent fixed-rate for 30 years and one point -- and are granted that rate, will not receive disclosures, even if problems in their credit files deny them the chance at an even lower rate or fees.

    These and other provisions of the new legislation should be excellent new tools for Realtors and their home buying customers. Not only will credit files and scores now be more readily accessible and less mysterious to loan applicants, but buyers will have opportunities to see and challenge erroneous credit file data that may hurt them at the mortgage application table.

    That, in turn, should help them qualify for the loan terms they need to purchase the house they want.

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