Fair Credit Reporting
Risk-Based Pricing Regulations
Federal Reserve Board’s
Regulation V
Risk-Based Pricing
When creditors offer more favorable terms
to consumers with good credit histories
and less favorable terms to consumers
with poor credit histories.
Background
FACT Act of 2003 signed on 12-04-2003.
 Section 615(h) required risk-based pricing
notice.
 Proposed rules were issued 05-19-2008.
 Final rules were issued on 12-22-2009.
 Final rules are effective on 01-01-2011.

Purpose
Risk-based pricing notice is designed to
improve accuracy of consumer reports by
alerting consumers to existence of
negative information on their reports.
 Once alerted to the existence of negative
information, consumers can check their
reports for accuracy and correct any
inaccurate information.
 Notice is intended to complement existing
adverse action notice framework.

Implementation Issues
Banks are given a menu of approaches
that can be used to comply with the
statute’s legal requirements.
 Rules apply only to credit for personal,
family, or household purposes.
 Rules do not apply to consumer leases.
 Rules do not apply to guarantors, cosigner, sureties, or endorsers.

Overview
A person must provide a risk-based pricing notice to a
consumer…


when the person uses a consumer report in connection with
an application, and
based on that consumer report, 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
creditor.
*Notice is also required if APR is increased after origination
because of information contained in a credit report, unless
the creditor provides an adverse action notice.
Material Term

For credit that has an APR, the material
term is the APR.

For credit that does not have an APR, the
material term is the financial term…


that the creditor varies based on the consumer
report, and
that has the most significant financial impact
on consumers (such as an annual membership
fee or deposit).
Materially Less Favorable
The terms granted or extended to a
consumer differ from the terms granted or
extended to another consumer from or
though the same person such that the
cost of credit to the first consumer would
be significantly greater that the cost of
credit to the other consumer.
Options for Determining
Materially Less Favorable
 Case-by-Case
Review
 Credit Score Proxy Method
 Tiered Pricing Method
 Credit Card Issuer Option
Case-By-Case
The creditor may determine, on a case-bycase basis, whether a consumer has
received material terms that are
materially less favorable than terms other
consumers have received from or through
that creditor by comparing the material
terms offered to the consumer to the
material terms offered to other consumers
for a specific type of credit offered
Credit Score Proxy Method
Creditors that use credit scores to set
material terms of credit can determine a
cutoff score. This cutoff can be…


point at which 40% of consumers have higher
credit scores and 60% have lower credit
scores, or
if more than 40% have received credit at most
favorable terms, then the percentage point at
which consumers who historically have been
granted credit on material terms other than
the most favorable terms.
Tiered Pricing Method
A creditor that sets the material terms of
credit by assigning each consumer to one
of a discrete number of pricing tiers,
based on a consumer report, may provide
a risk-based pricing notice to each
consumer who is not assigned to the top
pricing tier or tiers.
Credit Card Issuer Option
Credit card issuer can provide a risk-based
pricing notice to a consumer if the
consumer applies for a credit card in
connection with a multiple-rate offer and,
based a consumer report, is granted credit
at an APR that is higher than the lowest
APR available under that offer.
Credit Score Disclosure Exceptions
Instead of issuing a risk-based pricing notice
to just those consumers offered credit on
“materially less favorable” terms, the
creditor can provide all consumers who
apply for credit with a notice consisting of
their credit score and certain additional
information.
Other Exceptions
Applications where consumer applies for
and receives specific material terms.
 Applications where consumer has been or
will be provided a notice of adverse action
under section 615(a) of FCRA in
connection with the transaction.
 Prescreened solicitations involving firm
offers of credit.

Timing of Notice



Closed-End Credit: At or after approval decision
is communicated but before consumer becomes
contractually obligated.
Open-End Credit: At or after approval decision is
communicated but before the 1st transaction.
Account Reviews:




If advance notice of APR change is required: At the time
the APR increase is communicated to the consumer
If no advance notice of APR is required: No later than 5
days after effective date of the change.
Automobile Transactions: Special Rules
Instant Credit Transactions: Special Rules
Who Provides the Notice?
The person to whom the loan is initially
payable must provide the risk-based
pricing notice (or satisfy an exception).
This is the case even if…


the loan is assigned to a third party, or
the person to whom the loan is initially payable
is not funding the loan.
Note: Although legal responsibility rests with party
to whom obligation is initially payable, parties
may determine by contract who will send notice.
Multiple Consumers

Risk-based pricing notice: If a transaction
involves two or more consumers…



At same address, a single notice addressed to
both consumers will suffice.
Not at same address, each consumer must
receive a notice.
Credit score disclosure notice: If a
transaction involves two or more
consumers, each consumer must be
provided an individualized notice.
Free Credit Report

A consumer who receives a risk-based
pricing notice has a right to a separate
free consumer report upon receipt of a
risk-based pricing notice.

The notices provided under the credit
score disclosure exception are not riskbased pricing notices and do not give rise
to the right to receive a free credit report.
Definitions
Previously Defined Definitions

The following terms have the same definition in
Regulation V as they do in Regulation Z:





annual percentage rate
closed-end credit
open-end credit plan
consummation
The following terms are defined using FCRA’s
statutory definitions:





credit
creditor
credit card
credit card issuer
credit score
Material Terms – Open End Credit
(Except Credit Cards)
The APR that is the material term should
exclude…



any temporary initial rate that is lower than
the rate that will apply after the temporary
rate expires,
any penalty rate that will apply upon the
occurrence of one or more specific events
(such as a late payment or an extension of
credit that exceeds the credit limit), and
any fixed APR option for a home equity line of
credit.
Material Terms – Credit Card
The APR that is the material term should be…
 For credit cards with a purchase APR, the APR
that applies to purchases (“Purchase APR”).
 For credit cards with no purchase APR: the APR
that varies based on information in a consumer
report and that has the most significant financial
impact on consumers.
Note: Open-end rules regarding exclusion of
temporary initial rate and penalty rates are also
applicable to calculation of purchase APR.
Material Terms – Closed-End Credit
The APR that is the material term should be
the APR disclosed in Regulation Z
disclosures prior to consummation.
Note: This definition did not address temporary
initial rates or penalty rates because, for
purposes of the closed-end provisions of
Regulation Z, a penalty rate is not included in the
calculation of the APR and a temporary initial rate
is but one component of a single AOR for the
transaction.
Material Terms – Credit with no APR
The financial term that varies based on
information in a consumer report and that
has the most significant financial impact
on consumers, such as a deposit required
in connection with credit extended by a
telephone company or a utility or an
annual membership fee for a charge card.
Materially Less Favorable
The terms provided to a consumer differ from the
terms provided to another consumer from or
through the same person such that the cost of
credit to the first consumer would be significantly
greater than the cost of credit to the other
consumer. Factors relevant to determining the
significance of a difference in cost include…



the type of credit product,
the term of the credit extension, if any,
and the extent of the difference between the material
terms provided to the two consumers.
The Rules
Who Must Receive a RiskBased Pricing Notice
General Rule
A person must provide a risk-based pricing notice if
the person –
 uses a consumer report in connection with an
application for, or a grant, extension, or other
provision of, credit to that 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 that the most favorable
material terms available to a substantial
proportion of consumers from or through that
person.
Case-by-Case Method
Bank can directly compare the material terms
offered to each consumer and the material terms
offered to other consumers for a specific type of
product.
 “Specific type of product” means one or more
credit products with similar features that are
designed for similar purposes. Examples include
student loans, unsecured credit cards, secured
credit cards, new automobile loans, used
automobile loans, fixed-rate mortgage loans, and
variable rate mortgage loans.
Steps in a Case-by-Case Method
1.
2.
Identify the appropriate subset of current
or past consumers to compare to any
given consumer. (This subset would need
to be an adequate sample of consumers
who have applied for a specific type of
credit product.)
Compare the material terms. (But
creditor would need to disregard any
underwriting criteria that do not depend
upon consumer report information).
Alternatives to Case-by-Case Method
 Credit
Score Proxy Method
 Tiered Pricing Method
 Credit Card Issuer Option
Note: For purposes of consistency, a person
must use the same method to evaluate all
consumers who are granted, extended, or
otherwise provided a “specific type of
product” from or though that person.
Credit Score Proxy– General Rule
A creditor that uses credit scores to set
material terms of credit can…
1.
2.
determine the score that represents the point
at which approximately 40% of its consumers
have higher credit scores and approximately
60% of its consumers have lower credit
scores, and
provide a risk-based pricing notice to each
consumer with a credit score below that
cutoff score.
Credit Score Proxy – General Rule
Example
A person extended credit to 10,000
consumers. It determines that 40% of
those consumers (or 4,000 consumers)
had credit scores of 700 or higher. That
person would use 400 as its cutoff score.
If a consumer was approved for credit
with a score of 699 or lower, that
consumer would need to be provided a
risk-based pricing notice.
Credit Score Proxy – Alternative
Sampling Method
If a person finds that more than 40% of its
customers have received credit at the most
favorable terms, that person can…
1. determine the point at which some percentage
of its customers have historically been given
credit on material terms other than the most
favorable terms,
2. determine the score that represents that point,
and
3. provide a risk-based pricing notice to each
consumer with a credit score below that cutoff
score.
Credit Score Proxy - Alternative
Sampling Method Example
A credit card issuer takes a representative sample
of consumers to whom it provided credit* over
the preceding six months.
 Determines that 80% received credit at the
lowest available APR (most favorable term).
 Determines that those 80% of customers have a
score at or above 750.
 Sets 750 at its cutoff score.
 Provides risk-based pricing notice to consumers
with credit scores below 750.
*Correct universe is consumers to whom the person
has provided credit.”
Credit Score Proxy – Alternative
Sampling Method - Special Rules
A person is permitted, but not required, to
use the alternative approach when more
than 60% of its customers receive credit
at other than the most favorable terms.
BUT
A person may not use the alternative
approach when fewer than 40% of its
customers receive credit at the most
favorable terms.
Credit Score Proxy - Alternative
When No History Available


When a person is new to credit business,
introduces new credit products, or just starts to
use risk-based pricing, it can determine a credit
score cutoff based on information from market
research of relevant third party sources for the
specific type of credit product.
When a person acquires a credit portfolio as a
result of a merger or acquisition, it can determine
the cutoff score based on information from the
party which acquired, with which it merged or
from which it acquired the portfolio.
Credit Score Proxy – Alternative
Recalculation of Cutoff Score
Sampling Method:

Person using the sampling approach must recalculate its
cutoff score at least every 2 years.
No History Available:


Person relying on third party information must
recalculate its cutoff score within 1 year based on its
own consumers’ information.
If a person does not provide credit to new consumers
during the 1-year period, it can continue to use third
party information until it obtains sufficient data (but no
longer than 2 years).
Credit Score Proxy – Alternative
Use of Multiple Credit Scores
If a person uses more than one credit score
to set the material terms of credit, must
determine the cutoff score using the same
method the person uses to evaluate
multiple scores when making a credit
decision.
Credit Score Proxy – Alternative
Multiple Credit Scores (Examples)
Example #1: If a person uses the average
of two scores when setting the material
terms of credit, then…

that person must use the average of its consumers’
scores when calculating the cutoff scores.
Example #2: If a person uses the lower of
two scores when setting the material
terms of credit, then…

that person must use the lower of its consumers’ scores
when calculating the cutoff score.
Credit Score Proxy – Alternative
Multiple Credit Scores (Safeharbor)
When a person that uses multiple credit
scores does not consistently use the same
method to evaluate multiple scores, the
person must calculate the cutoff score
using a reasonable means. This is defined
as…
 any one of the methods the person
regularly uses or
 (b) the average credit score of each
consumer to whom it provides credit.
Credit Score Proxy
Credit Score Not Available
A person using the credit score proxy
method (pursuant to the general rule or
the alternative rule) that provides credit to
a consumer with no credit score must …


assume the consumer receives credit on other
than the most favorable material terms, and
provide a risk-based pricing notice to the
consumer.
Alternatives to Case-by-Case Method
 Credit
Score Proxy Method
 Tiered Pricing Method
 Credit Card Issuer Option
Note: For purposes of consistency, a person
must use the same method to evaluate all
consumers who are granted, extended, or
otherwise provided a “specific type of
product” from or though that person.
Tiered Pricing Method
The tiered pricing method can be used by a
person that sets the material terms of
credit provided to a consumer by placing
the consumer within one of a discrete
number of pricing tiers based, in whole or
in part, on information in a consumer
report.
Tiered Pricing Method
Four or Fewer Pricing Tiers
A person must provide a risk-based pricing
notice to each consumer who does not
qualify for the top tier (i.e., the lowest
priced tier).
Example: A person uses a tiered pricing
structure with APRs of 8, 10, 12, and 14
percent. It would be required to provide a
risk-based pricing notice to each consumer
to whom it provides credit at 10, 12, and
14 percent.
Tiered Pricing Method
Five or More Pricing Tiers
A person must provide a risk-based pricing
notice to each consumer who does not
qualify for…


the top two tiers (i.e., the two lowest priced
tiers), AND
any other tier that together with the top two
tiers comprise no less than the top 30% but no
more than the top 40% of the total number of
tiers.
Tiered Pricing Method
Five or More Pricing Tiers (Example)
Question: A person has 9 pricing tiers.
Consumers in which tiers should receive a
pricing notice?
Answer: The bottom six tiers. Risk-based
pricing notices are never needed for the
top two tiers. And, in this case, the third
tier must be added to the top two tiers
create a top set of tiers that captures at
least 30% but no more than 40% of the
total number of tiers.
Alternatives to Case-by-Case Method
 Credit
Score Proxy Method
 Tiered Pricing Method
 Credit Card Issuer Option
Note: For purposes of consistency, a person
must use the same method to evaluate all
consumers who are granted, extended, or
otherwise provided a “specific type of
product” from or though that person.
Credit Card Issuers
Credit card issuers may…
select the
 select the
option, or
 select the
the tiered

case-by-case method,
special credit card issuer
credit score proxy method or
pricing method.
Credit Card Issuer Option
A credit card issuer may provide a riskbased pricing notice when…
 a consumer applies for credit with more
than one possible purchase APR, and
 that consumer receives a credit card with
a purchase APR that is greater than the
lowest purchase APR available in
connection with the application or
solicitation pursuant to which credit is
extended.
Credit Card Issuer Option (Example)
Question: A credit card issuer sends a solicitation to a
consumer that discloses several possible purchase APRs
that may apply, such as 10%, 12%, or 14%, or a range of
purchase APRs from 10% to 14%. The consumer applies
for a credit card in response to the solicitation. The card
issuer provides a credit card to the consumer with a
purchase APR of 12% based on a consumer report. Must
the credit card issuer provide the applicant with a riskbased pricing notice?
Answer: Yes -- because the consumer received credit at a
purchase APR greater than the lowest purchase APR
available under that solicitation.
Credit Card Issuer Option (Example)
Question: Assume same facts as preceding
example, except that the consumer received a
credit card with a purchase APR of 10%. Also
assume that that consumer or other consumers
might qualify for a purchase APR of 8% under a
different credit card solicitation by the same
credit card issuer. Must the credit card issuer
provide the applicant with a risk-based pricing
notice?
Answer: No. The card issuer is not required to
provide a risk-based pricing notice simply
because a better purchase APR may have been
available under a different solicitation.
Overview
A person must provide a risk-based pricing notice to a
consumer…


when the person uses a consumer report in connection with
an application, and
based on that consumer report, 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
creditor.
*Notice is also required if APR is increased after origination
because of information contained in a credit report, unless
the creditor provides an adverse action notice.
Account Review
A person must provide a risk-based pricing
notice if that person…


uses a consumer report in connection with a
review of credit that has been extended to the
consumer, and
based on information in a consumer report,
increases the APR.
Account Review Example
Question: A credit card issuer periodically obtains
consumer reports for the purpose of reviewing
the terms of credit it has extended in connection
with credit cards. As a result of this review, the
credit card issuer increases the purchase APR
applicable to a consumer’s credit card based on
information in a consumer report. Must the
credit card issuer provide a notice?
Yes: The credit card issuer must provide a riskbased pricing notice to the consumer.
Account Review Exception
When an adverse action notice is provided
to the consumer in connection with an
account review that results in a rate
increase, the regulation’s exception for
adverse action notices would apply and
the creditor would not be required to
provide the consumer with a risk-based
pricing account review notice.
The Risk-Based
Pricing Notice
Content, Form, Delivery
Methods, and Timing
Content
A risk-based pricing notice (except an account
review notice) must contain…
 A statement that a consumer report (or credit
report) includes information about the
consumer’s credit history and the type of
information included in that history;
 A statement that the terms offered, such as the
APR, have been set based on information from a
consumer report;
 A statement that the terms offered may be
less favorable than the terms offered to
consumers with better credit histories;
Content (Continued)



A statement that the consumer is encouraged to
verify the accuracy of the information contained
in the consumer report and has the right to
dispute any inaccurate information in the report;
The identity of each consumer reporting agency
that furnished a consumer report used in the
credit decision;
A statement that federal law gives the consumer
the right to obtain a copy of a consumer report
from the consumer reporting agency or agencies
identified in the notice without charge for 60 days
after receipt of the notice
Content (Continued)


A statement informing the consumer how to
obtain a consumer report from the consumer
reporting agency or agencies identified in the
notice and providing contact information
(including a toll-free telephone number, where
applicable) specified by the consumer reporting
agency or agencies; and
A statement directing consumers to the web sites
of the Federal Reserve Board and Federal Trade
Commission to obtain more information about
consumer reports.
Content – Account Review Notice
A risk-based pricing notice provided as a result of
an account review must contain…
 A statement that a consumer report (or credit
report) includes information about the
consumer’s credit history and the type of
information included in that credit history;
 A statement that the person has conducted a
review of the account using information from a
consumer report;
 A statement that as a result of the review, the
annual percentage rate on the account has been
increased based on information from a consumer
report;
Content – Account Review Notice
(Continued)



A statement that the consumer is encouraged to
verify the accuracy of the information contained
in the consumer report and has the right to
dispute any inaccurate information in the report;
The identity of each consumer reporting agency
that furnished a consumer report used in the
account review;
A statement that federal law gives the consumer
the right to obtain a copy of a consumer report
from the consumer reporting agency or agencies
identified in the notice without charge for 60 days
after receipt of the notice;
Content – Account Review Notice
(Continued)


A statement informing the consumer how to
obtain a consumer report from the consumer
reporting agency or agencies identified in the
notice and providing contact information
(including a toll-free telephone number, where
applicable) specified by the consumer reporting
agency or agencies; and
A statement directing consumers to the web sites
of the Federal Reserve Board and Federal Trade
Commission to obtain more information about
consumer reports.
Form of the Notice
Risk-based pricing notice must be…


clear and conspicuous, and
provided to the consumer in oral, written, or
electronic form.
Model forms are not required – but do
provide a safe harbor for compliance.
Form – Identifying Information
Risk-based pricing notice is not required to
include the name of consumer, transaction
identification number, or date.
BUT
Model notice may be modified to include
name of consumer, transaction
identification number, date, or other
information that will assist in identifying
the transaction to which the form pertains.
Timing of Notice



Closed-End Credit: At or after approval decision
is communicated but before consumer becomes
contractually obligated.
Open-End Credit: At or after approval decision is
communicated but before the 1st transaction.
Account Reviews:




If advance notice of APR change is required: At the time
the APR increase is communicated to the consumer
If no advance notice of APR is required: No later than 5
days after effective date of the change.
Automobile Transactions: Special Rules
Instant Credit Transactions: Special Rules
Timing: Automobile Transactions
When a person to whom a credit obligation is
initially payable provides credit to a consumer for
the purpose of financing the purchase of an
automobile from an auto dealer or other party
that is not affiliated with the person, any
requirement to provide a risk-based pricing notice
is satisfied if the person…
 arranges to have the auto dealer or other party
provide the required notice to the consumer
within the required time frames, AND
 maintains reasonable policies and procedures to
verify that the auto dealer or other party provides
such notice to the consumer within the applicable
time periods.
Notice: Automobile Transactions
If the person arranges to have the auto
dealer or other party provide a notice
containing a credit score, the person’s
obligation is satisfied if the consumer
receives a notice containing a credit score
obtained by the dealer or other party,
even if a different credit score is obtained
and used by the person on whose behalf
the notice is provided.
Timing: Instant Credit Transactions
When credit under an open-end credit plan is
provided to a consumer for the purpose of
financing the contemporaneous purchase of
goods or services, any risk-based pricing notice
required to be provided may be provided at the
earlier of:


The time of the first mailing by the person to the
consumer after the decision is made to approve the
provision of open-end credit, such as in a mailing
containing the account agreement or a credit card; or
Within 30 days after the decision to approve the grant,
extension, or other provision of credit.
The Exceptions
Credit Score Disclosure Exceptions
Instead of issuing a risk-based pricing notice
to just those consumers offered credit on
“materially less favorable” terms, the
creditor can provide all consumers who
apply for credit with a notice consisting of
their credit score and certain additional
information.
Credit Score Disclosure Exception
The regulation provides 3 credit score
disclosure exceptions:



Loans Secured by Residential Property
Other Loans (not Secured by Residential
Property)
Credit Score Not Available
Note: These exceptions are not available in
account review scenarios.
Credit Score Disclosure Exception
Loans Secured by Residential Property
A person is not required to provide a risk-based pricing notice
in connection with a loan request to be secured by one- to
four-family residential property if the person provides to
each consumer a notice that contains the following—



The information required to be disclosed to the
consumer pursuant to section 609(g) of the FCRA;
A statement that a consumer report (or credit report) is a
record of the consumer’s credit history and includes
information about whether the consumer pays his or her
obligations on time and how much the consumer owes to
creditors;
A statement that a credit score is a number that takes into
account information in a consumer report and that a credit
score can change over time to reflect changes in the
consumer’s credit history;
Credit Score Disclosure Exception
Loans Secured by Res. Property (Cont)


A statement that the consumer’s credit score can
affect whether the consumer can obtain credit
and what the cost of that credit will be;
The distribution of credit scores presented in the
form of a bar graph containing a minimum of six
bars that illustrates the percentage of consumers
with credit scores within the range of scores
reflected in each bar or a clear and readily
understandable statement informing the
consumer how his or her credit score compares
to the scores of other consumers. Use of a graph
or statement obtained from the person providing
the credit score that meets the requirements of
this paragraph is deemed to comply with this
requirement;
Credit Score Disclosure Exception
Loans Secured by Res. Property (Cont)




A statement that the consumer is encouraged to
verify the accuracy of the information contained in the
consumer report and has the right to dispute any
inaccurate information in the report;
A statement that federal law gives the consumer the
right to obtain copies of his or her consumer reports
directly from the consumer reporting agencies,
including a free report from each of the nationwide
consumer reporting agencies once during any 12
month period;
Contact information for the centralized source from
which consumers may obtain their free annual
consumer reports;
A statement directing consumers to the web sites of
the Federal Reserve Board and Federal Trade
Commission to obtain more information about
consumer reports.
Credit Score Disclosure Exception
Loans Secured by Res. Property (Cont)
The credit score disclosure exception notice
must be:




Clear and conspicuous;
Provided on or with the notice required by
section 609(g) of the FCRA;
Segregated from other information provided to
the consumer, except for the notice required
by section 609(g) of the FCRA; and
Provided to the consumer in writing and in a
form that the consumer may keep.
Credit Score Disclosure Exception
Loans Secured by Res. Property (Cont)
Timing: The credit score disclosure
exception notice must be provided to the
consumer at the time the disclosure
required by section 609(g) of FCRA is
provided, but in any event…
 at or before consummation in the case of
closed-end credit or
 before the first transaction is made under
an open-end credit plan.
Credit Score Disclosure Exception
Loans Secured by Res. Property (Cont)
Multiple Credit Scores: When a person obtains two
or more credit scores and…
 uses one of those credit scores in setting the
material terms of credit, the credit score
disclosure exception notice must include that
credit score.
 uses multiple credit scores in setting the material
terms of credit, the credit score disclosure
exception notice must include one of those credit
scores. The notice may include more than one
credit score, along with the additional information
for each credit score disclosed.
Credit Score Disclosure Exception
Loans Secured by Res. Property (Cont)
Example: A person that uses consumer
reports to set the material terms of
mortgage credit provided to consumers
regularly requests several credit scores
and uses the low score to determine the
material terms it will offer the consumer.
That person must disclose the low score in
the credit score disclosure exception
notice.
Credit Score Disclosure Exception
Loans Secured by Res. Property (Cont)
Example: A person that uses consumer
reports to set the material terms of
mortgage credit provided to consumers
regularly requests several credit scores,
each of which it uses in an underwriting
program to determine the material terms
it will offer to the consumer.
That person may choose one of these scores
to include in the credit score disclosure
exception notice.
Credit Score Disclosure Exception
Other Loans
A person is not required to provide a riskbased pricing notice in connection with a
loan request, other than a loan request to
be secured by one- to four-family
residential property, if the person provides
to each consumer a notice that contains
the following—

A statement that a consumer report (or credit report) is a
record of the consumer’s credit history and includes
information about whether the consumer pays his or her
obligations on time and how much the consumer owes to
creditors;
Credit Score Disclosure Exception
Other Loans (Continued)




A statement that a credit score is a number that takes into
account information in a consumer report and that a credit
score can change over time to reflect changes in the
consumer’s credit history;
A statement that the consumer’s credit score can affect
whether the consumer can obtain credit and what the cost
of that credit will be;
The current credit score of the consumer or the most
recent credit score of the consumer that was
previously calculated by the consumer reporting
agency for a purpose related to the extension of
credit;
The range of possible credit scores under the model
used to generate the credit score;
Credit Score Disclosure Exception
Other Loans (Continued)



The distribution of credit scores among consumers who are
scored under the same scoring model that is used to
generate the consumer’s credit score using the same scale
as that of the credit score that is provided to the consumer,
presented in the form of a bar graph containing a minimum
of six bars that illustrates the percentage of consumers with
credit scores within the range of scores reflected in each
bar, or by other clear and readily understandable graphical
means, or a clear and readily understandable statement
informing the consumer how his or her credit score
compares to the scores of other consumers. Use of a graph
or statement obtained from the person providing the credit
score that meets the requirements of this paragraph is
deemed to comply with this requirement;
The date on which the credit score was created;
The name of the consumer reporting agency or other
person that provided the credit score;
Credit Score Disclosure Exception
Other Loans (Continued)




A statement that the consumer is encouraged to
verify the accuracy of the information contained in the
consumer report and has the right to dispute any
inaccurate information in the report;
A statement that federal law gives the consumer the
right to obtain copies of his or her consumer reports
directly from the consumer reporting agencies,
including a free report from each of the nationwide
consumer reporting agencies once during any 12month period;
Contact information for the centralized source from
which consumers may obtain their free annual
consumer reports; and
A statement directing consumers to the web sites of
the FRB and FTC for more information about
consumer reports.
Credit Score Disclosure Exception
Other Loans (Continued)
The credit score disclosure exception notice
must be:
 Clear and conspicuous;
 Segregated from other information
provided to the consumer; and
 Provided to the consumer in writing and in
a form that the consumer may keep.
Credit Score Disclosure Exception
Other Loans (Continued)
Timing: The credit score disclosure
exception notice must be provided to the
consumer


as soon as reasonably practicable after the
credit score has been obtained,
but in any event at or before consummation in
the case of closed-end credit or before the first
transaction is made under an open-end credit
plan.
Credit Score Disclosure Exception
Other Loans (Continued)
Multiple Credit Scores: Same rules apply for
other loans as apply for loans secured by
one- to four-family residential property
(see prior slide).
Credit Score Disclosure Exception
Credit Score Not Available
A person that regularly relies on the credit
score disclosure exception notice is not
required to provide a risk-based pricing
notice to a consumer for whom a credit
score is not available if…


The person does not obtain a credit score from
another consumer reporting agency in connection
with or providing credit to the consumer; and
The person provides to the consumer a notice
that contains the following—
Credit Score Disclosure Exception
Credit Score Not Available





A statement that a consumer report includes information
about the consumer’s credit history and the type of
information included in that history;
A statement that a credit score is a number that takes into
account information in a consumer report and that a credit
score can change over time;
A statement that credit scores are important because
consumers with higher credit scores generally obtain more
favorable credit terms;
A statement that not having a credit score can affect
whether the consumer can obtain credit and what the cost
of that credit will be;
A statement that a credit score about the consumer was not
available from a consumer reporting agency, which must be
identified by name, generally due to insufficient information
regarding the consumer’s credit history;
Credit Score Disclosure Exception
Credit Score Not Available




A statement that the consumer is encouraged to
verify the accuracy of the information contained in the
consumer report and has the right to dispute any
inaccurate information in the consumer report;
A statement that federal law gives the consumer the
right to obtain copies of his or her consumer reports,
including a free consumer report from each of the
consumer reporting agencies once during any 12month period;
The contact information for the centralized source
from which consumers may obtain their free annual
consumer reports; and
A statement directing consumers to the web sites of
the Federal Reserve Board and Federal Trade
Commission to obtain more information about
consumer reports.
Credit Score Disclosure Exception
Credit Score Not Available
See prior slides regarding loans not secured
by residential real estate for information
regarding the format and timing of this
additional notice.
Other Exceptions
Applications where consumer applies for
and receives specific material terms.
 Applications where consumer has been or
will be provided a notice of adverse action
under section 615(a) of FCRA in
connection with the transaction.
 Prescreened solicitations involving firm
offers of credit.

Exceptions: Specific Material Terms

A person is not required to provide a risk-based pricing
notice to the consumer if the consumer applies for specific
material terms and is granted those terms.

This exception is not applicable if the specific material
terms were specified by the person using a consumer
report after the consumer applied for or requested credit
and after the person obtained the consumer report.

For purposes of this section, “specific material terms”
means a single material term, or set of material terms,
such as an APR of 10 percent, and not a range of
alternatives, such as an APR that may be 8, 10, or 12
percent, or between 8 and 12 percent.
Exceptions: Specific Material Terms
Example
A consumer receives a firm offer of credit from a credit card
issuer. The terms of the firm offer are based on information
from a consumer report that the credit card issuer obtained
under the firm offer of credit provisions. The solicitation
offers the consumer a credit card with a single purchase
APR of 12%. The consumer applies for and receives a credit
card with an APR of 12%. Other customers with the same
credit card have a purchase APR of 10%.
The exception applies because the consumer applied for
specific material terms and was granted those terms.
Although the credit card issuer specified the APR in the firm
offer of credit based on a consumer report, the credit card
issuer specified that material term before, not after, the
consumer applied for or requested credit.
Exception: Adverse Action
A person is not required to provide a riskbased pricing notice to a consumer if the
person provides an adverse action notice
to the consumer under section 615(a) of
the FCRA.
Exception: Prescreened Solicitations
A person is not required to provide a risk-based
pricing notice to a consumer if the person:
Obtains a consumer report that is a prescreened
list as described in FCRA; and
Uses the consumer report for the purpose of
making a firm offer of credit to the consumer.
Note: This exception applies to any firm offer of
credit by a person to a consumer, even if the
person makes other firm offers of credit to other
consumers on more favorable material terms.
Exception: Prescreened Solicitations
Examples
A credit card issuer obtains two prescreened lists from a
consumer reporting agency. One list includes consumers
with high credit scores. The other list includes consumers
with low credit scores. The issuer mails a firm offer of credit
to the high credit score consumers with a single purchase
APR of 10% and a firm offer of credit to the low credit score
consumers with a single purchase APR of 14%.
The credit card issuer is not required to provide a risk-based
pricing notice to the low credit score consumers who
receive the 14% offer because use of a consumer report to
make a firm offer of credit does not trigger the risk-based
pricing notice requirement.
Risk-Based Pricing Notices
Examination Procedures
1. Determine whether the financial institution uses
consumer report information in consumer credit
decisions.


If yes, determine whether the institution uses such
information to provide credit on terms that are
“materially less favorable” than the most favorable
material terms available to a substantial proportion of
its consumers. Relevant factors in determining the
significance of differences in the cost of credit include
the type of credit product, the term of the credit
extension, and the extent of the difference.
If “yes,” the financial institution is subject to the riskbased pricing regulations.
Risk-Based Pricing Notices
Examination Procedures (Continued)
2. Determine whether the financial
institution provides a risk-based pricing
notice to a consumer. If it does, proceed
to step #3. If the institution does not
provide a risk-based pricing notice,
proceed to step #5 to determine whether
an exception applies.
Risk-Based Pricing Notices
Examination Procedures (Continued)
3. Determine the method the financial institution
uses to identify consumers who must receive a
risk-based pricing notice and whether the
method complies with the regulation.
 For institutions that use the case-by-case
method, determine whether the institution
directly compares the material terms offered to
each consumer and the material terms offer to
the other consumers for a specific type of credit
product.
Risk-Based Pricing Notices
Examination Procedures (Continued)

For institutions that use the credit score proxy method:





determine whether the institution calculates the cutoff score
by considering the credit scores of all, or a representative
sample, of consumers who have received credit for a specific
type of credit product;
determine whether the institution recalculates the cutoff
score no less than every two years;
for new entrants into the credit business, for new products
subject to risk-based pricing, or for acquired credit portfolios,
determine whether the institution recalculates the cutoff
scores within time periods specified in the regulation;
for institutions using more than one credit score to set
material terms, determine whether the institution establishes
a cutoff score according to the methods specified in the
regulation; and
if no credit score is available for a consumer, determine
whether the institution provides the consumer a risk-based
pricing notice.
Risk-Based Pricing Notices
Examination Procedures (Continued)

For institutions that use the tiered pricing
method:


when four or fewer pricing tiers are used, determine if
the institution sends risk-based pricing notices to
consumers who do not qualify for the top, best-priced
tier; or
when five or more pricing tiers are used, determine if
the institution provides risk-based pricing notices to
consumers who do not qualify for the two top, bestpriced tiers and any other tier that, combined with the
top two tiers, equal no less than the top 30 percent
and no more than the top 40 percent of the total
number of tiers.
Risk-Based Pricing Notices
Examination Procedures (Continued)

For credit card issuers:

Determine whether the issuer uses the credit score
proxy or the tiered pricing method.

If the issuer does not use the credit score proxy or
tiered pricing method, determine whether the card
issuer uses the required methods to identify
consumers to whom it must provide a risk-based
pricing notice.

Determine whether the card issuer provides a riskbased pricing notice to each consumer that is provided
a credit card with a purchase APR greater than the
lowest purchase APR available under the program or
solicitation.
Risk-Based Pricing Notices
Examination Procedures (Continued)
4. Determine whether the risk based
pricing notice contains all of the
required information.
Proceed to step #10.
Risk-Based Pricing Notices
Examination Procedures (Continued)
5.
If the institution does not provide a
risk-based pricing notice, determine
if one of the exception applies:
 specific terms of credit;
 notice of adverse action;
 firm offer of credit in a
prescreened solicitation;
 credit score disclosure exception
notice.
Risk-Based Pricing Notices
Examination Procedures (Continued)
6. For institutions that choose to provide a
credit score disclosure to consumers that
request a loan that is or will be secured
by residential real property, determine
whether the Section 222.74(d) notice
generally is provided to each consumer
that requests such an extension of credit
and that each notice contains all of the
required information.
Risk-Based Pricing Notices
Examination Procedures (Continued)
7. For institutions that chooses to provide a
credit score disclosure to consumers that
request a loan that is not or will not be
secured by residential real property,
determine whether the Section 222.74(e)
notice generally is provided to each
consumer that requests such an
extension of credit and that each notice
contains all of the required information.
Risk-Based Pricing Notices
Examination Procedures (Continued)
8. For institutions that otherwise provide
credit score disclosures to consumers
that request loans, determine whether
the Section 222.74(f) notice is provided
to the applicable consumers in situations
where no credit score is available for the
consumer, as required by 222.74(f).
Determine whether each notice contains
all of the required information.
Risk-Based Pricing Notices
Examination Procedures (Continued)
9.
For institutions that provide credit score
exception notices and that obtain
multiple credit scores in setting material
terms of credit, determine whether the
score(s) is disclosed in a manner
consistent with the regulation.
Risk-Based Pricing Notices
Examination Procedures (Continued)
10. Regardless of whether the institution
provides risk-based pricing notices or
credit score exception notices, if the
institution increases the consumer’s APR
as the result of a review of a consumer’s
account, determine whether the financial
institution provided the consumer with an
account review risk-based pricing notice
if an adverse action notice was not
already provided.
Risk-Based Pricing Notices
Examination Procedures (Continued)
11. Determine whether the account review riskbased pricing notice contains all of the required
information.
12. For all notices, determine whether the notices
are clear and conspicuous and comply with the
specific format requirements for the notices.
13. For all notices, determine whether the notices
are provided within the required timeframes.
Risk-Based Pricing Notices
Examination Procedures (Continued)
14. For all notices, determine whether the financial
institution follows the rules of construction
pertaining to the number of notices provided to
the consumer(s).
15. For all notices, determine whether the financial
institution uses the model forms in Appendix H
of the regulation. If yes, determine that it does
not modify the model form so extensively as to
affect the substance, clarity, comprehensibility,
or meaningful sequence of the forms (Appendix
H).