By: Staci Baker
Top five things to know about the Risk-Based Pricing Rule
As many of you are preparing for the new Risk-Based Pricing Rule to take effect on January 1, 2011, I want to give you an overview of the top five things you need to know to ensure your business is compliant.
1. Applicability: Any company that uses a credit report or score in connection with a credit decision will be required to comply with the Risk-Based Pricing Rule.
2. Obligation: A lender is obligated to send a notice to a consumer when they use a credit report or score in connection with a credit transaction. When the lender provides 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 lender (any consumer who does not receive the lender’s best rate) based on the credit report or score, the lender is required to take action.
3. Compliancy: Lenders will be required to provide applicable consumers with the following:
• A Risk-Based Pricing Notice, or
• A Credit Score Disclosure Exception Notice
• Model forms are available in the final ruling issued by the Federal Reserve Board and
Federal Trade Commission
4. Exceptions to the Rule: There are several exceptions to the Rule, including:
• When a lender is making a pre-screened offer or providing an adverse action notice, or
• When a consumer applies for specific credit terms or business credit (all credit that is
not for personal, family or household use is excluded from the rule.)
5. Exclusions to the Rule: Any lender who does not use a credit report or score in connection with a credit decision is excluded from the ruling. The ruling does not apply to small business lenders also.
These top five key components of the Rule should get you on the way to compliancy by the beginning of the year. A pre-recorded webinar is available to give you additional information on compliancy and requirements of the Risk-based Pricing Rule.
The Federal Reserve, http://www.federalreserve.gov/reportforms/formsreview/RegV_20100115_ffr.pdf
* “Material terms” in most cases of the Rule are defined as the APR of the loan