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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 became effective January 1, 2011.

Birchwood’s Risk-Based Pricing Disclosure product, called the FACTA Fulfillment Service (FFS), includes the following services:

  • Calculating each consumer’s comparative score and national score average per scoring model, utilizing the form B-3 exception method
  • Creating the required Risk-Based Pricing Disclosure, Score Disclosure and related required language
  • Creating the required Notice to Home Loan Applicant
  • Issuing the individual disclosures via First Class U.S. Mail to each applicant
  • Maintaining historical records sufficient to satisfy compliance with any lender or agency inquiry
  • Sending a notification to the LO and/or Administrator of any RETURNED MAIL including a copy of the returned envelope uploaded to file for documentation purposes on your side

All disclosures will be in your company name and reflect the return address for tracking and for use as a Red Flag detection tool.

Frequently Asked Questions:

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

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

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

Two: 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

Are there exceptions to the Risk-Based Pricing Notice requirements?

Yes. Some instances that do not require a Risk-Based Pricing Notice include the following cases.

When a lender is:

Making a pre-screened solicitation
Providing an adverse action notice.

When a consumer is: 

Applying for specific credit terms.
Applying for business credit. (All credit that is not for personal, family or household use is excluded from the rule.)

*Please refer to the rule for more information.

What lenders are excluded from complying with the Risk- Based Pricing Rule?

Any lender that does not use a credit report or score in connection with a credit decision is excluded from the ruling. In addition, the ruling does not apply to small-business lenders.

What are my options to comply with the new Risk-Based Pricing Rule?

Lenders will be required to provide affected consumers with the following:

A Risk-Based Pricing Notice
A Credit Score Disclosure Exception Notice

Are model forms available for the Risk- Based Pricing Notice and Credit Score Disclosure Exception Notice?

Yes, model forms are available in the final ruling issued by the Federal Reserve Board and the Federal Trade Commission.

Where can I obtain an official copy of the Risk-Based Pricing Rule?

The ruling can be accessed from the Website of the Board of Governors of the Federal Reserve Board. 

To learn more about our Credit Reporting, Verification Services, Compliance Services and Property & Valuation Services, call us any time between 8:30 AM and 8:00 PM ET. Our expert, FCRA-certified staff will be standing by to answer your questions and deliver immediate assistance and the best experience available in the industry.

Birchwood Credit Services: Because you deserve better.

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