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Let’s be Frank! Actually, Let’s Be Dodd-Frank. Can You Hear Me Now?

Financial institutions need to worry about Dodd-Frank (the Dodd-Frank Wall Street Reform and Consumer Protection Act). After all, “Wall Street,” “Reform” and “Consumer Protection” don’t exactly conjure up images of phone, gas and electric lines being inspected and regulated by auditors wearing suits and carrying briefcases.

If you have been a loyal Legal Bytes reader, you probably know the next line:

Well guess what?

A section of the Dodd-Frank Act amended a section of the Fair Credit Reporting Act (the “FCRA”). The amendment, which becomes effective today, July 21, 2011, requires that anyone who issues a risk-based pricing notice to a consumer (a notice required when a credit report and credit score are used in connection with the extension of credit to a consumer) must now include the applicant’s credit score directly in or with the notice. So when a company sends you a notice under the FCRA in order to comply with the requirements of the Equal Credit Opportunity Act (“ECOA”), it needs to tell consumers it has used a credit report, “a record of your credit history” and “information about whether you pay your bills on time and how much you owe creditors.”

Public utilities, telecommunications companies and many others use credit scoring models, and even though these may not be based on your general credit history, the FTC is now taking the position that these companies are subject to the provisions of Dodd-Frank, and credit scores must be disclosed to the consumer.

Hey, don’t take my word for it. Read the entire Rimon Client Alert [PDF] authored by our experts: Roberta G. Torian in Philadelphia, Robert M. Jaworski in Princeton and Mark F. Oesterle in Washington, D.C. Then you will see how really complicated it is and can call them for help.

Of course, you can always contact me or the Rimon attorney with whom you regularly work, if you have any questions or require legal counsel or assistance.

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Who Pays For the Data Security Breach?

Have you received one of those “data security breach” letters? Quick, call the credit bureau and bank. Change the checking, credit card and license numbers. Most financial institutions have absorbed the cost of reissuing payment cards or providing new checks, even when these financial institutions had nothing to do with the security breach. When B.J.’s Wholesale Club disclosed that a theft of credit card information had occurred, two financial institutions sued to recover the costs that resulted from that breach. The institutions claimed B.J.’s breached its legal obligation to maintain the security of the financial institution and should be liable for the damages. Those claims were initially rejected, but have now been revived by the U.S. Court of Appeals for the Third Circuit, which has issued a decision holding these financial institutions were intended third-party beneficiaries of the contract among the retailer, its merchant bank, and the payment card industry, to keep customer data safe. If the retailer breached data protection rules imposed by the payment card industry and the financial institutions were third-party beneficiaries of that  agreement, then any damage and loss could be recovered based on contract law claims. Stay tuned.