PUBLIC AFFAIRS PERSPECTIVE SPRING 2010

Public policy insight for your business



Attacks on risk-based pricing continue

From credit cards to credit scoring, challenges to risk-based pricing structures continue to be considered by Congress. In recent years, lawmakers have questioned the fairness of segmenting risk and have actively argued for the industry to curtail certain practices, especially in the issuance of credit cards. As Congress considers reform of the financial markets, attacks on risk-based pricing will only rise.

Attacks on the use of risk-based pricing are not new. Legislation has long been considered in Congress to limit interest rate increases and eliminate universal default. Even two years ago housing legislation was signed into law that required the Federal Housing Administration to suspend the practice of risk-based pricing for a year. But as result of a down economy and a renewed focus on consumer protection, the number of proposals has increased in Congress. During the debate on legislation creating new rules for credit cards, several amendments were offered that would dilute the use of risk-based pricing. Some included restrictions on what could be reported to a credit reporting agency. For example, the House of Representatives approved an amendment that prohibited adverse reports on deployed military members or disabled veterans during the first two years of their disability. Other pieces of legislation have garnered support in the House that would exclude from consumer reports any medical debt that has been in collection but fully paid or settled.

The current economic environment also may lead Congress to consider risk-based pricing as part of comprehensive financial regulatory reform.  A proposed Consumer Financial Protection Agency (CFPA) would have the authority to right new rules on a wide range of issues, including how credit scores are used and interpreted.  Similarly, l egislation has already been introduced that would grant the Federal Trade Commission (FTC) greater rule-making authority, which could create new regulatory burdens on how products are priced.

As legislation and regulation addressing the nation’s economic problems move forward, risk-based pricing is certain to gain the attention of policymakers at all levels of government.



 

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