Provides that a consumer reporting agency may not consider that a person requested a rate quote when determining that person's credit score

Summary of provisions

Section one amends section 380-j of the general business law by adding a new subdivision (h). The new subdivision (h) provides that in connection with providing a home mortgage or auto loan to a consumer, no user of a consumer report in this state shall use a credit risk score created by a credit reporting agency or a credit score provider if such credit risk score uses any of the following as a nega- tive factor in its credit scoring methodology: (1) credit inquiries not initiated by the consumer; (2) credit inquiries requested by the consum- er for his or her own credit information; or (3) user inquiries in connection with a home mortgage or auto loan initiated by a consumer and made during a "buffer period" or made during the eleven month period immediately preceding the buffer period, unless all user inquiries made within any "de-duplication period" are counted as a single inquiry. The term "user" is defined to include lender.

A "buffer period" is defined as the period of thirty days prior to each scoring date. A "de-duplication period" is defined as all user inquiries made within any period of at least fourteen days during the eleven month period immediately preceding the buffer period.

Each user inquiry made within any de-duplication period during the elev- en month period immediately preceding the buffer period will be counted as a single inquiry, as follows:

(1) the first de-duplication period starts on the date of the first inquiry of the home mortgage or auto lending industry prior to the buff- er period and (2) additional de-duplication periods, if any, start with the first inquiry of the home mortgage or auto lending industry prior to the end of the previous de-duplication period, if any. Home mortgage inquiries and auto loan inquiries may be counted together in the same de-duplication period or periods or separately in different de-duplica- tion period or periods, one series for the home mortgage industry and another series for the auto lending industry.

Justification

Currently, when a consumer shops for the most competitive home mortgage or auto loan terms available, their credit risk score may be adversely impacted when they comparison shop. By initiating a discussion of loan terms with a competing lender, a consumer has initi- ated a loan transaction. If that discussion results in a user inquiry (a

request for a credit report by that lender), this inquiry may adversely impact that consumer's credit score for a number of reasons, depending on the scoring model being used. One of those reasons is the possibility that the transaction initiated by the consumer will result in the consumer borrowing additional money.

The consumer is rarely notified by a lender that such an inquiry may lower their credit score. If a consumer otherwise becomes aware of the possible adverse impact on his or her credit score, they are deterred from further comparison shopping. This may result in a consumer settling for a loan with more onerous terms than otherwise might be obtained. Consumers should not face the possibility of being penalized for compar- ison shopping and should be able to obtain the most competitive loan terms available in the market through comparison shopping.

However, this legislation recognizes that there are lending industry standards that factor comparison shopping into a credit risk score. Accordingly, this legislation incorporates a lending industry standard by mandating the use of buffer periods and de-duplication periods. Since there is no predictive value in a loan transaction initiated by a consumer within thirty days of a scoring date (or the date of a request for a credit report by a lender), all lender inquiries made during this "buffer period" should have no effect on a credit risk score. Since there is some predictive value in a loan transaction initiated by a consumer during the eleven month period immediately preceding each buff- er period, all lender inquiries made within any period of at least four- teen days during the eleven month period (each of these periods is a "de-duplication period") will be counted as one inquiry. This balance reflects the need of consumers to obtain loans on the most favorable terms possible through comparison shopping while incorporating an indus- try standard that reflects the predictive value of comparison shopping.

This legislation also provides that in connection with providing a home mortgage or auto loan to a consumer, no lender can use a credit risk score if the credit risk score uses, as a negative factor in its credit scoring methodology, (1) credit inquiries not initiated by the consumer (such as a pre-screened offer of credit) or (2) credit inquiries requested by the consumer for his or her own credit information. These are the same restrictions that insurers are subject to under New York law. A consumer's credit risk score should not be adversely impacted in the event a lender makes a credit inquiry because it chose, for example, to make a pre-screened offer of credit to a consumer. In addition, a consumer's credit risk score should not be adversely impacted in the event he or she requests a copy of his or her own credit report for informational purposes.

Legislative history

2009: A03538 (Bradley) - Real Property Taxation 2008: A11086A (Bradley) - Rules 2007: A1416 (Bradley) - Codes

Fiscal implications

ON THE STATE: None.

Effective date

This act will take effect on the one hundred twentieth day after it shall have become a law.