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CFPB Mandates Credit Disclosure To Denied LendersCFPB Mandates Credit Disclosure To Denied Lenders

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A new federal regulation requires lenders to disclose consumers' credit scores when they're rejected from receiving a loan or credit card. On July 21, consumers who are denied a loan will have an extra layer of protection with a new regulation from the Consumer Financial Protection Bureau. Under the law, creditors who deny an auto loan or credit card must provide the consumer with a free credit report, the CFPB says.

In most cases, the lender is required to provide consumers with an adverse action notice that includes a numerical score - rather than the previous requirement of an annual report - and the four main reasons why they were denied, such as delinquent credit payments, Bloomberg notes.

The requirement is part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which went into effect in January. Before then, lenders were mandated to provide a credit score when consumers applied for a mortgage, the CFPB says.

Prior to January, consumers would typically buy reports from a credit agency, but the CFPB says the score in those reports wouldn’t be the same score lenders used to evaluate creditworthiness. The regulation also applies to risk-based lending, which is the process of determining a person's rates based on his or her credit scores, employment status and other factors.

Timely articles written by the Editors at DRC

New government regulations in place for consumers in need of debt relief for credit cards and other unsecured debts.