Implementing the Risk-Based Pricing
Rules of the FACT Act
As of January 1, 2011, all lenders were required to be in compliance with the Federal Reserve Board and the Federal Trade Commission's regulations that put into effect the risk-based pricing provisions of Section 311 of the Fair and Accurate Credit Transactions Act of 2003 ("FACT Act"), which amended 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.
How Can Avantus Help?
Avantus can generate and deliver the required exception notice with each credit report at no additional cost. The notice includes the required score used to set the material terms disclosure and corresponding national score distribution.
Avantus Mailing Service
For a nominal fee Avantus will mail, on your behalf, the risk-based pricing notice directly to the applicant(s) within one business day of when the credit report is requested. This is currently a successful process utilized for mailing the Notice to Home Loan Applicant (NHLA) rather than burdening in-house resources to mail the notices. This ensures that all applicants receive the proper notice in a clear and conspicuous manner and that the notice is segregated from any other material provided to the consumer; keeping your institution in compliance with the regulation.
Frequently Asked Questions
To whom does this risk-based pricing rule apply?
The rule applies to lenders who use credit report information to set credit terms. The rule does not apply to users of credit reports that are not lenders such as mortgage brokers, landlords or insurance providers.
According to the rule, the consumer must be notified when credit terms have been set based on their credit report, and that their terms may be less favorable than the terms provided to consumers with better credit histories. The consumer must also be informed that they can obtain a free credit report, to review the information that led to the credit decision.
The notice must be targeted to consumers who may be paying more for credit based on a credit report, but can be delivered to everyone as part of your existing credit score disclosure process.When is the deadline for compliance?
The deadline for compliance with the new risk-based pricing rule was January 1, 2011.
More Exception Notice Details
The Mortgage/HELOC exception in the Risk Based Pricing Rule is what allows you as a lender to send, or have Avantus send, a risk based pricing exception notice to all consumers rather than having to determine specific disadvantaged consumers.
The Mortgage/HELOC Exception:
- Applies to credit secured by 1 to 4 units of residential real property
- Lender is not required to provide Risk-Based Pricing Notice if lender provides to all consumers the Notice to Home Loan Applicant (including credit score), and the Exception Notice
- Delivered at the same time as the Notice to Home Loan Applicant ("as soon as reasonably practicable"), but not later than the consummation of a closed-end loan or the first transaction under an open-end credit plan.
Application for Specific Terms
No notice required if consumer applies for specific terms and is granted those terms (unless terms were specified by the lender after reviewing a credit report).
No notice required if you use a credit report to make a "firm offer" of credit, even where you make other firm offers of credit to other consumers on more favorable terms.
Adverse Action Notice
No notice required if you provide an "adverse action" notice to the consumer.
If you would like more information, or if you are not an Avantus customer and would like to know how to sign up for this service simply let us know by e-mail or call us at 800.243.0120.