On July 15, 2011, the Board of Governors of the Federal Reserve System (the “Board”) issued final rules with respect to its Regulation V (Fair Consumer Reporting) to incorporate new content requirements for risk-based pricing notices, as required by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Act”). At the same time, the Federal Trade Commission (“FTC”) issued corresponding final rules with respect to its risk-based pricing regulations (16 CFR Parts 640 and 698) for the same purpose. Comments to the proposed rules, which were published on March 15, 2011, were to have been received by April 14, 2011.
On December 4, 2003, the Fair and Accurate Credit Transactions Act (“FACT Act”) was signed into law. Section 311 of the FACT Act amended the Fair Credit Reporting Act (“FCRA”) to regulate risk-based pricing. Generally, “risk-based pricing” is the practice of setting or adjusting the price and other terms of credit offered or extended to a consumer to reflect the risk of nonpayment by that consumer. Since consumers with more favorable credit histories tend to receive more favorable credit terms, and since a consumer report is usually the basis of a consumer’s credit history, it was determined that consumers should be made aware of the effect of a poor consumer report on their ability to obtain favorable credit terms. Accordingly, the FCRA, as amended by the FACT Act, requires that a risk-based pricing notice be provided to a consumer when a consumer report is used in connection with an extension of credit, and, based in whole or in part on the consumer report, the consumer receives credit on terms that are materially less favorable than the most favorable terms available to a substantial proportion of the creditor’s consumer customers.
Generally, the FTC has supervisory authority over non-depository institution creditors with respect to compliance with the FCRA, while the Board has such authority over depository institutions.
Section 1100F of the Act added content requirements to the risk-based pricing provisions of FCRA that require creditors to disclose the applicant’s credit score, along with certain information regarding credit scores, if a credit score is used in making a credit decision resulting in risk-based pricing.
The final rule that was published in the Federal Register on July 15, 2011 incorporates the changes mandated by the Act to the provisions of the FCRA, including new content requirements for suggested model forms of the risk-based pricing notices.