The FRB and FTC have issued final risk-based pricing rules under section 311 of the FACT Act. The rules are effective on Jan.1, 2011.
http://www.federalreserve.gov/newsevents/press/bcreg/20091222b.htm

Question:

Today, we must provide borrowers with their credit scores- score disclosure notice under Section 212 of the FACT Act. Does this suffice, or will we have to supply something more if we elect to provide the scores?

Today's "Notice to Home Loan Applicants" (NTHLA) is sufficient until the Section 311 rules become effective in 2011. A quick review of the new rules showed a disclosure that appears to replace the NTHLA disclosure. I haven't studied the new rules yet.

I will put this on my "Regulations" that need to be reviewed list. It's a huge list!

When I come up with something, I will add to the post. Thanks.

Does anyone know if it's been published in the Federal Register yet?

Not that I have seen.

It would be my understanding that if we do not engage in risk based pricing we do not have to provide any disclosures to our loan customers other than the Notice to Home Loan Applicants.

Right?

No. Everyone will have to give the Risk Based Pricing disclosures. You'll divide up your loans into tiers. The bottom tiers get the disclosure. IOW, "we're making you this loan, but you didn't get the best rate." I like to call it the "modified loser" disclosure. If we were denying you, you'd be a loser. You're not a full loser, just a modified loser.

Note that the final rule includes exceptions for creditors that provide consumers who apply for credit with a notice consisting of their credit score and certain additional information, in lieu of the risk-based pricing notice.

I guess I don't get this, sorry. We have one rate each loan product, as an example for new car loans for 3 years and everyone gets that same rate if they qualify for the loan. The only difference would be the 1/4% discount for an auto debit from a checking account at our bank. We don't use the credit score to determine the rate, it is a mitigating factor in the credit decision process. That is how we handle all our consumer loans - we don't offer mortgage loans. So what tiers would we have?

If you only have one rate, then you aren't doing risk-based pricing, are you?

That's what I said before so I don't see how we would need to provide the disclsoure. But David said -- - - - -

My bad. I didn't read your post correctly. Now I see you said "we do not engage in risk based pricing" even though you put in italics. Sorry for confusing you.

That's ok, I'm easily confused these days. I am sure that we will need at minimum a policy that states that we do not engage in risk based pricing - CYA

The final rule was published in the Federal Register on Friday, January 15.

Questions. So this applies to all consumer lending or just residential real estate? If you do not pull credit reports it does not apply to your lending process?

Does anyone know if there is a sample form out there somewhere?

Model forms are included in the final ruling

http://www.federalreserve.gov/newsevents/press/bcreg/20091222b.htm

I see nothing that makes this real estate specific...is that correct? This time next year the Notice to Home Loan Applicant that we give on consumer residential real estate transactions will go away and be replaced by a disclosure that we give on ALL consumer transactions, regardless of real estate or not? Correct?

From what I read in the Federal Reserve publication: "The rules clarify that the risk-based pricing notice requirements apply only in connection with credit that is primarily for personal, household, or family purposes, but not in connection with business credit."

Ok, you have set interest rates for each of your loan products.

What happens when a loan officer makes a rate "exception"?

Since this notice is predicated on the APR, what happens when the term is shortened by the loan officer and the APR is increased over and above your bank's set rates?

Hmmmm

Just curious - we currently provide all applicants applying for consumer credit that will be dwelling secured with the Notice to Home Loan Applicants. We also provide any applicant who is applying for consumer credit and gets "less than the best terms" based on their credit report with a Risk Based Pricing Disclosure. The result is that some applicants are getting both, i.e., a HELOC customer who does not get the best available rate. I understand that the Notice to Home Loan Applicant is sufficient to meet the current requirements of section 311 so are we the only ones doing this? I don't want to be the outlier that gets criticized for over disclosure. Thanks for your feedback.

There are no "current requirements" of section 311 - they do not take effect until January 1, 2011. The Notice to Home Loan Applicants is required by section 212 of the FACT Act.

When the risk-based pricing rules go into effect there is a single form that may be used to satisfy both section 311 and 212 for loans secured by consumer 1-4 family RE.

Sorry, poorly stated in regards to the "current requirements" piece. At present you are not sending out any sort of a Risk Based Pricing Notice?

I don't work for a bank, I work at Wolters Kluwer, so we don't have to send them out. But we will be accomodating them in our products as the effective date gets closer.

Help me see the big picture for banks that do not use credit scores in connection with granting or extending credit.

For a bank that uses a consumer report, but not a credit score, in its credit evaluation process is permitted to rely on Credit Disclosure Score disclosure excpeption by purchasing and providing to the consumer a credit score. This part makes sense to me.

However,the other alternatives such as Tiered Pricing and Credit Score Proxy are also score driven. Therefore,leaving the option to purchase a credit score.

Would the only option for a bank not using a credit score be the Direct Comparison Method? What am i missing?

Thaks in advance.