On December 22, 2009, the Federal Reserve Board and the Federal Trade Commission announced final rules to implement the risk-based pricing provisions contained in Section 311 of the Fair and Accurate Credit Transactions Act of 2003 (“FACT Act”). Those rules will take effect on January 1, 2011 and can be accessed in their entirety here.
Generally, the new regulations provide that certain statutory notices must be provided anytime a creditor engages in risk-based pricing in connection with the extension of credit to a consumer. Risk-based pricing refers to the practice of setting or adjusting the price or other terms of credit offered or extended to a particular customer to reflect the risk of nonpayment by that customer. Under the new risk-based pricing regulations, a risk-based pricing notice must be provided by a creditor if the creditor (i) uses a consumer report in connection with an application for, or a grant, extension, or other provision of, credit to a consumer; and (ii) 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 person.
The new risk-based pricing regulations do establish a number of exceptions to a creditor’s obligation to provide a risk-based pricing notice to a consumer. The most important such exception is the Exception Notice Provision. Instead of following the risk-based pricing guidelines discussed above, a creditor may elect to provide an exception notice to all consumers that request credit. That notice must provide the consumer’s credit score, along with certain contextual information intended to allow the consumer to put the score in context. The exception notice must also provide the name of the credit reporting agency that provided the score, the date on which the credit score was created, and certain other statements intended to educate the consumer about credit reports, credit scores, and how the consumer may obtain the free annual credit report to which all consumers are entitled. The final rules provide optional model forms for the exception notice (page 200 of the above link).