Risk-Based Pricing deadline approaching
For companies that use credit reports or scores to make lending decisions, the compliance deadline for a new Risk-Based Pricing Rule is quickly approaching. Not only does the rule establish different methods to determine if a risk-based pricing notice is necessary, but it also provides a variety of options to structure a successful compliance program.
The Risk-Based Pricing Rule is the last in a series of rules required by the Fair and Accurate Credit Transactions Act of 2003. The new rule is motivated by a concern that consumers are not adequately informed of the effect of credit reports on the pricing of credit. As a result, the Federal Reserve Board and the Federal Trade Commission approved a new rule last year that takes effect Jan. 1, 2011. The rule requires a company to notify a consumer when, based on a credit report or score, the company grants credit on terms that are not the most favorable terms offered to a substantial proportion of consumers. As an alternative to providing risk-based pricing notices, the rule permits creditors to provide a free credit score and information about the score to all consumers who apply for credit. To take advantage of this exception, companies must provide a consumer with the current credit score used in setting the material terms of credit and the national distribution of that same score. The final rule is available here.
To determine the most appropriate compliance method, companies should begin to evaluate their underwriting processes to gain an understanding of the rule’s impact on both resources and technologies and prepare to respond to consumer questions about the credit information provided.
To find out how Experian can help you comply with the Risk-Based Pricing Rule, contact your local Experian sales representative or call 1 888 414 1120.