By: Wendy Greenawalt
In my last blog, I discussed the Risk-Based Pricing Rule and provided an overview of the risk based pricing notice compliance option. In this blog, I will provide a re-cap of the compliance Risk-Based Pricing notice and talk about the Credit Score Disclosure exception compliance option in more detail.
When the Risk-Based Pricing Rule went into effect in January 2010, the Federal Reserve Board and Federal Trade Commission outlined two distinct compliance options available to lenders. The first option is a risk based pricing notice, which must be provided to a specific segment of consumers who “receive terms that are materially less favorable than the terms available to a substantial portion of consumers”. The notice also provides consumers with general information about credit reports, how lenders use them to make lending decisions and how to obtain a copy of their credit report.
The second compliance option is a credit score disclosure exception. This option requires lenders to provide a disclosure to all consumers associated with a new account and must be in a written format that can be retained by the consumer for reference. The credit score disclosure provides consumers with the credit score that was used in conjunction with the lending decision, the range of scores for the credit score used and a national score distribution that enables consumers to compare their score to the scores of other consumers. The disclosure also contains key factors that adversely affected the consumers’ credit score and information about how to obtain a copy of their credit report. Some lenders who want to streamline compliance or those who have a concerned with the messaging contained in the Risk-Based Pricing notice may prefer this option.
Either way, both compliance options should be carefully evaluated by lenders to ensure an effective compliance program is implemented. Model forms have been provided for both compliance options, which will assist lenders in complying, but implementing the new forms into existing processes and systems will require time, effort and cost for most lenders.