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Permalink Reply by Al Mosher on January 18, 2011 at 1:26pm

Section 311 of the FACT Act added a new section 615(h) to the Fair Credit Reporting Act to address risk-based pricing. Risk-based pricing refers to the practice of setting or adjusting the price and other terms of credit offered or extended to a particular consumer to reflect the risk of nonpayment by that consumer. Information from a consumer report is often used in evaluating the risk posed by the consumer. Creditors that engage in risk-based pricing generally offer more favorable terms to consumers with good credit histories and less favorable terms to consumers with poor credit histories.

 

The rule implementing that section, which goes into effect January 1, 2011, requires a creditor to provide notice to a consumer when the creditor uses a consumer report to grant or extend credit to the consumer on “material terms” that are “materially less favorable” than the most favorable terms available to a substantial proportion of consumers from or through that creditor. These rules apply to creditors that engage in “risk-based pricing” (i.e., the practice of setting or adjusting the price and other terms of credit offered or extended to a particular consumer to reflect the risk of nonpayment by that consumer). The notice requirement is designed to improve the accuracy of consumer reports by alerting consumers to the existence of negative information on their consumer reports so that they can check their reports and correct any inaccurate information.

The final rules define “material terms” as

(i) the annual percentage rate (APR),

(ii) any monetary terms (e.g., down payment amount or deposit) that may vary based on a consumer report for credit that does not have an APR or

(iii) the APR applicable to purchases for credit cards.

“Materially less favorable,” as it applies to material terms, means that the terms granted or extended to a consumer differ from the terms granted or extended to another consumer from or through the same person, such that the cost of credit to the first consumer would be significantly greater than the cost of credit to the other consumer.

The FACTA provides that the notice must, at a minimum,

(i) inform the consumer that the terms offered are set based on consumer report information,

(ii) identify the consumer reporting agency (CRA) furnishing the report,

(iii) inform the consumer that the consumer may obtain a copy of a consumer report from that CRA without charge and

(iv) include the contact information specified by that CRA for obtaining such consumer reports.

The rules also require that the notice include a statement that the terms offered may be less favorable than the terms offered to consumers with better credit histories.

There are several exceptions to the requirements for sending a Risk Based Pricing Notice. Many creditors are choosing to exercise one of these exceptions, believing it to be a simple way to meet the law’s requirements. This exception allows a creditor to not send Risk Based Pricing Notices if it provides a notice to a customer that discloses the customer’ credit score, when and where that score was obtained and how it compares to credit scores of the general population plus some other required information. The Federal Trade Commission has developed a model notice that meets those requirements as well as a version to use if the customer does not have a credit score. Copies of these forms can be viewed at the link below. Many DMS suppliers and some Credit Reporting Agencies will also supply this

form for you.

Find out more at the link below:

www.ftc.gov/os/2009/12/R411009riskbasedpricingfrn.pdf

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Permalink Reply by Dennis M. Sims on January 19, 2011 at 9:28am

Alan Mosher said:

Section 311 of the FACT Act added a new section 615(h) to the Fair Credit Reporting Act to address risk-based pricing. Risk-based pricing refers to the practice of setting or adjusting the price and other terms of credit offered or extended to a particular consumer to reflect the risk of nonpayment by that consumer. Information from a consumer report is often used in evaluating the risk posed by the consumer. Creditors that engage in risk-based pricing generally offer more favorable terms to consumers with good credit histories and less favorable terms to consumers with poor credit histories.

 

The rule implementing that section, which goes into effect January 1, 2011, requires a creditor to provide notice to a consumer when the creditor uses a consumer report to grant or extend credit to the consumer on “material terms” that are “materially less favorable” than the most favorable terms available to a substantial proportion of consumers from or through that creditor. These rules apply to creditors that engage in “risk-based pricing” (i.e., the practice of setting or adjusting the price and other terms of credit offered or extended to a particular consumer to reflect the risk of nonpayment by that consumer). The notice requirement is designed to improve the accuracy of consumer reports by alerting consumers to the existence of negative information on their consumer reports so that they can check their reports and correct any inaccurate information.

The final rules define “material terms” as

(i) the annual percentage rate (APR),

(ii) any monetary terms (e.g., down payment amount or deposit) that may vary based on a consumer report for credit that does not have an APR or

(iii) the APR applicable to purchases for credit cards.

“Materially less favorable,” as it applies to material terms, means that the terms granted or extended to a consumer differ from the terms granted or extended to another consumer from or through the same person, such that the cost of credit to the first consumer would be significantly greater than the cost of credit to the other consumer.

The FACTA provides that the notice must, at a minimum,

(i) inform the consumer that the terms offered are set based on consumer report information,

(ii) identify the consumer reporting agency (CRA) furnishing the report,

(iii) inform the consumer that the consumer may obtain a copy of a consumer report from that CRA without charge and

(iv) include the contact information specified by that CRA for obtaining such consumer reports.

The rules also require that the notice include a statement that the terms offered may be less favorable than the terms offered to consumers with better credit histories.

There are several exceptions to the requirements for sending a Risk Based Pricing Notice. Many creditors are choosing to exercise one of these exceptions, believing it to be a simple way to meet the law’s requirements. This exception allows a creditor to not send Risk Based Pricing Notices if it provides a notice to a customer that discloses the customer’ credit score, when and where that score was obtained and how it compares to credit scores of the general population plus some other required information. The Federal Trade Commission has developed a model notice that meets those requirements as well as a version to use if the customer does not have a credit score. Copies of these forms can be viewed at the link below. Many DMS suppliers and some Credit Reporting Agencies will also supply this

form for you.

Find out more at the link below:

www.ftc.gov/os/2009/12/R411009riskbasedpricingfrn.pdf

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Permalink Reply by Dennis M. Sims on January 19, 2011 at 9:30am

Thank you Alan.  I found some of this when I researched it, but there are some good pieces of information I did not find, especially the link you provided.

Much Appreciated!

 

Denny

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