Risk-Based Pricing Rule

Risk-based pricing refers to the practice of setting or adjusting the interest rate and other terms of credit provided to a particular consumer based on the consumer’s credit data and other factors used to measure risk.

The Risk-Based Pricing Rule was established by the Federal Reserve Board and the Federal Trade Commission (FTC) due to a concern that consumers are not adequately informed of the effect that credit report data has on the APR consumers are charged when obtaining new credit. As a result, the Board and the FTC published this new rule.

Effective Jan. 1, 2011, companies that use a credit report or score in connection with a credit decision must send notice to a consumer when, based on a credit report or score, the company grants credit on material terms that are not the most favorable terms offered to a substantial proportion of consumers. In most cases, the rule defines “material terms” as the loan’s Annual Percentage Rate.

Table and Graph data updated April 2012.

To determine the most appropriate compliance method, organizations 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. 

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. 

To find out how Experian can help you comply with the Risk-Based Pricing Rule, contact your local Experian sales representative, request more information by submitting the form below,  or call 1 888 414 1120.

Note: While Experian is happy to provide our observations related to the new Risk-Based Pricing Rule, please work with your own legal counsel to ensure that you comply with your obligations under the rule.