A comparative analysis of the US and EU retail banking markets - Wsbi

Under an open-end credit, the creditor has to provide
the appropriate information before the account is
actually used. When the account is used, the creditor
has to provide further information on each billing
statement. Each type of statement has its own
mandatory list of disclosures. Regulation Z provides
for special rules which apply to home equity lines of
credit (i.e. prohibitions against closing accounts, or
changing account terms). Also, certain provisions
only apply to credit card transactions (i.e. restrictions
on the right to offset a cardholder’s indebtedness).
When the credit is a closed-end credit, the consumer
receives a complete disclosure of the costs associated
with the credit transaction.
Also, Regulation Z requires creditors to inform carefully
on the terms of the finance charge and annual
percentage rate. The finance charge includes all
charges, payable directly or indirectly by the person
to whom the credit is extended, and imposed directly
or indirectly by the creditor as an incident to the
extension of the credit 271 . This information has to be
disclosed more conspicuously than other required
disclosures. The disclosure in general has to be made
clearly, conspicuously, in writing and in a form that
the consumer may keep and read prior to the loan
closing. If the disclosures are incorporated into the
loan agreement they must be separated from all
other loan details; for example, they may be placed
in a boxed section (often referred to as the SFederal
Boxy) 272 or separated by bold print dividing lines.
While Regulation Z entails a comprehensive set of
provisions regarding information duties, there seems
to be in the regulation no duty to advice, meaning a
compulsory duty for lenders to take responsibilities
and recommend one or the other credit product to
the consumer.
6.2.1.1.3 Credit databases and credit bureaus
Consumer credit bureaus in the US are private
organisations that compile and sell reports on the
creditworthiness of consumers. Firms that lend to
consumers provide the underlying data to the bureaus.
To date in the US, there is at least one credit bureau
file for every borrower in the country.
Over 2 billion items of information are added to
these files every month, and over 2 million credit
reports are issued every day 273 . Nationwide consumer
reporting companies sell the information to creditors,
insurers, employers and other businesses that use it
to evaluate the applications for credit, insurance,
employment or renting a home.
It is very difficult to know how many credit bureaus
operate across the US. According to the Consumer
Data Industry Association (CDIA 274 ), each of the main
consumer credit reporting systems in the country
(Equifax, Experian, and TransUnion) maintains 200
million credit files, which are used by independent
credit reporting agencies across the US.
At the federal level, the Fair Credit Reporting Act
(FCRA) from 1971, amended several times, regulates
the activities of the credit bureaus.
According to this law, creditors must notify consumers
of the name and address of credit reporting agencies
(credit bureaus) whose reports were used as a basis
for adverse credit decisions. The FCRA further imposes
burdensome requirements to credit reporting
agencies, e.g. to notify recent recipients of reports
about the corrections made to such credit reports.
Upon request by the interested consumer, the act
requires consumer reporting agencies to provide the
credit score along with a mandatory disclosure
statement and information relating to the key factors
that adversely affect the credit score. Consumer
reporting agencies are allowed to charge consumers
a “fair and reasonable fee” to be determined by the
Federal Trade Commission.
In 1999, as part of the Graham-Leach-Bliley Act,
the US Congress passed a financial privacy law which
among others include the following obligations for
financial institutions: disclosure of privacy protection
policy to customers; provide customers the ability
to prevent a financial institution from sharing his or
her non-public information with non-affiliated third
parties (with some exceptions); prohibition to disclose
account numbers or access codes to non-affiliated
third parties for marketing purposes.
271 Section 106 of the Consumer Credit Protection Act.
272 Regulation Z, General Disclosure Requirements, Section 226.17.
273 The development and regulation of consumer credit reporting in America”. Robert M. Hunt, Federal Reserve Bank of Philadelphia. October 2002.
274 Which represents 500 American credit reporting agencies, mortgage reporting companies, collection services companies, check services companies, tenant
screening companies and employment reporting companies.
106