BILL NUMBER:  S7804

 TITLE OF BILL :
An act to amend the general business law, in relation to the use of
credit risk scores


 PURPOSE :
This legislation generally prohibits home mortgage or auto lenders
from using a credit risk score that incorporates any of the following
as a negative factor: (1) comparison shopping for a home mortgage or
auto loan; (2) credit inquiries requested by a home mortgage or auto
lender in relation to a transaction that is not initiated by a
consumer, such as a pre-screened offer of credit; or (3) credit
inquiries requested by a consumer for his or her own credit
information.

 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 negative
factor in its credit scoring methodology: (1) credit inquiries not
initiated by the consumer; (2) credit inquiries requested by the
              

consumer 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
eleven 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
buffer 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-duplication 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
initiated 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 comparison 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 buffer period, all lender inquiries made within any
period of at least fourteen 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 industry 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 prescreened 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 :
2008: S.8471A - Rules

 FISCAL IMPACT ON THE STATE :
None.

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