FCRA and Alternate Credit Score Disclosures

Issue/Inquiry

What is the alternative to providing a Risk-Based Pricing Notice?

Response Summary

When a lender obtains a consumer report which plays a role in setting the material terms of the loan, it must either provide a Risk-Based Pricing Notice (“RBPN”) to any consumer who did not receive the lender’s most favorable pricing terms that are available to a substantial portion of consumers for the type of credit offered, or provide an alternate credit score notice to all consumers.

Response Detail

The Fair Credit Reporting Act (“FCRA”) requires a RBPN to be provided to any consumer who did not receive the lender’s most favorable pricing terms available to a substantial portion of consumers for the type of credit offered. This determination can be made on a case-by-case basis or by using the credit score proxy or tiered pricing methods.

Under Regulation V, which implements FCRA, a RBPN must be provided to the consumer if:

• The lender uses a consumer report in connection with an application for or extension of credit that is primarily for personal, family, or household purposes.
• Based in whole or in part on the consumer report, the lender grants, extends, or otherwise provides credit to that consumer on material terms that are materially less favorable than the most favorable material terms available to a substantial proportion of consumers from or through that person. 12 CFR §1022.72(a)

A lender also has the option of providing an alternate credit score notice instead of the RBPN, as long as it is provided to all consumers for whom consumer reports were obtained and played a role in setting the material terms.

For consumer loans secured by one-to-four family residential real property, a lender is not required to provide a RBPN if the lender provides a credit score disclosure (“Notice to Home Loan Applicant”) to all applicants for such loans that contain 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.
• 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 information required to be disclosed to the consumer pursuant to section 609(g) of the FCRA.
• 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 or a clear and readily understandable statement informing the consumer how his or her credit score compares to the scores of other consumers
• 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 website of the CFPB to obtain more information about consumer reports. 12 CFR §1022.74(d)

This disclosure must be provided no later than at closing for a closed-end credit, or before the first credit transaction for an open-end credit. A model form is found in subpart H of Regulation V as form H-3.

A lender is also not required to provide a RBPN if it provides a notice to all applicants for consumer loans which are unsecured or secured by collateral other than one-to-four family residential real property that states 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.
• 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.
• 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 or a clear and readily understandable statement informing the consumer how his or her credit score compares to the scores of other consumers.
• The date on which the credit score was created.
• The name of the consumer reporting agency or other person that provided the credit score.
• 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 Website of the Bureau to obtain more information about consumer reports. 12 CFR §1022.74(e)

This alternate credit score notice must be provided no later than at closing for a closed-end credit, or before the first credit transaction for an open-end credit. Model form H-4 in subpart H of Regulation V is for loans which are unsecured or secured by collateral other than one-to-four family dwellings, and form H-5 is for loans for which credit scores are not available.

If the lender does not intend to provide a RBPN when applicable, it must provide an alternate credit score disclosure to all consumer applicants.

 

 

This entry was posted on Monday, June 19th, 2017 at 1:34 pm.