Risk-Based Pricing
Shane Born
800-594-5562
ProCredit Express
Risk-Based Pricing Rule
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Starting January 1st, 2011
Enforced by the FTC and FRB
Consumer Protection
Affects All Auto Dealers
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Franchises
Independents
BHPH
No Exceptions
Risk-Based Pricing Rule
 Rule Overview
− Dealers are required to provide a consumer with a Risk-Based
Pricing Notice when they provide the consumer with Material
Terms that are Materially Less Favorable (APR, Term, Etc…)
than a Substantial Portion of its consumers
− A 40/60 Standard has been set by the regulation for determining
Substantial Portion
− Methods for complying with 40/60 process are complex providing
multiple requirements in the notice and exceptions to the notice
− The rule also provides a Credit Score Disclosure Exception
Notice Option
40/60 Standard in Condensed Terms
 6 out of 10 loans can be considered to have terms
materially less favorable terms
 Complicated formulas determine if a loan is in the 40 or
60 percent
 40/60 truly only makes sense for large banks and major
credit card companies
 Consult legal council to determine which method of
compliance works best for your organization
 The preferred method endorsed by most auto
associations is the Credit Score Disclosure Exception
Notice
Credit Score Disclosure Exception Notice
 Must be provided to EVERY consumer regardless of
Material Terms
 Must clearly and conspicuously display the:
− Consumer’s Credit Score
− Where they stand in comparison to the rest of the country
− Any derogatory credit information that negatively affects their
credit
 This method of compliance has been recommended by
NADA and NIADA
Credit Score Disclosure Exception Notice
 Provides “Safe Harbor” for any dealer who complies with
it
 Safe Harbor means you can’t be sued if you use this
method of compliance
 Includes a notice for consumers with no score
 Consult with your attorney to develop your compliance
policy for this regulation
Credit Score Disclosure Exception Notice
 All CRAs are required to provide the data
 Each CRA’s report must have data pertinent to the Score
used in the report
 Each CRA’s score will be different because it is based
on the information in the report
 You can not use one CRA’s data to present to the
consumer when you used another CRA’s data for the
decision and maintain Safe Harbor
Fines and Penalties
 The FTC can use two methods of enforcement:
− $3,500 in civil penalties; or
− $16,000 in enforcement penalties
 States Enforcement
− $1,000 in civil penalties; and/or
− $2,500 for UDAP (only applies in some states) penalties
Fines and Penalties
Best Case VS Worst Case Scenarios
With a Dealer pulling 200 CBs in one month
Best Case
200
$4,500
$900,000
CBs pulled
penalties
Worst Case
200
CBs pulled
$16,500 penalties
$3,900,000
Can you afford either of these fines?
Review of the Rule
 That was the brief overview
 We have spent many man hours investigating and
reviewing this rule with all three CRAs
 A more extensive overview may be found on
TransUnion’s, Equifax’s and Experian’s websites
The ProCredit Express Solution
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Based on the Credit Score Disclosure Exception Notice
We developed a simple, elegant and functional notice
We made it easy provide to the consumer
We made it easy for you to review your compliance
We made it easy for you to prove your compliance
The ProCredit Express Solution
 From the View button you
can print or email the
notice
− Emails may only be sent if
the consumer contacted
you through the internet;
or
− If the consumer has given
you written permission to
send them email notices
 You can also just print the
notice by clicking the print
button
The ProCredit Express Solution
Customer with a credit score
Customer without a credit score
The ProCredit Express Solution
 Stores proof of RBP notice delivery
− Shows if it was printed, emailed or we mailed a letter for you
 Notes can not be altered or deleted
The ProCredit Express Solution
From the
Prospect Log you
can view all of
your compliance
at a glance
including RiskBased Pricing
Disclosure Status
The ProCredit Express Solution
From a single screen your compliance officer can:
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Access all the information
Run the needed reports
Take the necessary action
Ensure no one falls through the cracks
Timing and Delivery
 Must be provided as soon as reasonably possible to the
consumer; and
 Prior to any purchase
− Prior to any purchase does not mean only customers who
purchase
− The Exception Notice must be given to everyone
− Skip one person and you may not meet the standard for “Safe
Harbor”
Timing and Delivery
 Treat the notice like a service you provide to your clients
− Concise, Clear and Easier to understand than a Credit Report
 Use it as a closing tool
− Provides immediate support of Material Terms to the consumer
− “Tom, 87% of the US adult population has better credit than you.
By accepting and making the payments on this loan, you will
improve your credit rating and make it easier for you to get more
favorable terms in the future.”
How to avoid fines and penalties that could
close your dealership
 Sign up for ProCredit Express
 Pull your Credit Reports in ProCredit Express
 Add our Compliance Package for additional protections
Call Shane Born at 800-594-5562 or go to our
website at www.procreditexpress.com
The foregoing summary of the Risk Based Pricing Rule is provided for informational purposes only and is not intended as
legal advice. Dealerships should review the rule in its entirety and consult an attorney who is familiar with the law and their
dealership operations for guidance on their full compliance obligations.