WHAT'S NEW

Information on Risk-Based Pricing Notices to Consumers

The Federal Reserve Board and the Federal Trade Commission have approved final regulations that implement the risk-based pricing provisions of Section 311 of the Fair and Accurate Credit Transactions Act of 2003 (“FACT Act”), which amends the Fair Credit Reporting Act (“FCRA”). In general, the final rules require a creditor to provide a consumer with a risk-based pricing notice when, based in whole or in part on the consumer's credit report, the creditor grants, extends or otherwise provides credit to the consumer on material terms that are materially less favorable than the most favorable terms it grants to a substantial portion of its other consumers. Several methods are available for identifying customers that must receive the risk-based notices and some exceptions do apply. The final rules become effective January 1, 2011.

To whom does this new Risk-Based Pricing Rule apply?

The Risk-Based Pricing Rule applies to an entity that both:

• Uses a consumer report in connection with an application for, or a grant, extension or other provision of, credit to a consumer and

• Based in whole or in part on the consumer report, grants, extends or otherwise provides credit to that 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 entity.
“Credit” is defined as it is in the Fair Credit Reporting Act and means “the right granted by a creditor to a debtor to defer payment of debt or to incur debt and defer its payment.”
In layman’s terms, the rule applies to any company that uses a credit report or score in connection with a credit decision.

What is the lender's obligation?

The consumer must receive a notice when credit terms have been set based on a credit report or score and the terms may be less favorable than the terms provided to other consumers. The consumer must also be informed that they can obtain a free credit report and to review the information that led to the credit decision.

The notice must be delivered to consumers who may be paying more for credit based on a credit report but can be provided to everyone as part of your existing credit score disclosure process.

When does this new Risk-Based Pricing Rule become effective? Jan. 1, 2011

Exceptions to the Rule

Under certain circumstances an exception notice may be delivered to the consumer. This would be in place of the Risk-Based Pricing Notice. Exception notices do not require providing the notice to the consumer on material terms that are materially less favorable than the most favorable terms available to a substantial proportion of consumers. In fact, exception notices must be delivered to all consumers.

The Mortgage/HELOC Exception:

• Applies to credit secured by 1 to 4 units of residential real property.

• Lender is not required to provide Risk-Based Pricing Notice if lender provides to all consumers the Notice to Home Loan Applicant (including credit score), and the Exception Notice.

• Delivered at the same time as the Notice to Home Loan Applicant ("as soon as reasonably practicable"), but not later than the consummation of a closed-end loan or the first transaction under an open-end credit plan.

Other Exceptions

Application for Specific Terms
No notice required if consumer applies for specific terms and is granted those terms (unless terms were specified by the lender after reviewing a credit report).

Prescreened Solicitations
No notice is required if you use a credit report to make a "firm offer" of credit even where you make other firm offers of credit to other consumers on more favorable terms.

If you would like more information or if you are not a Birchwood customer and would like to know how to sign up for this service contact us by e-mail at sales@birchwood.cc or call us at 800-910-0015.