Just make sure you understand the timing requirements.

When you say "give out to everyone", the standard form (H-1 or B-1, depending on what type of institution you work for) can be given out for any type of loan BUT it can only be given to those that receive materially less favorable terms (roughly the 60% with the least favorable rates).

The exception forms can routinely be given out to everyone BUT there is one exception form (H-3 or B-3) that goes to applicants for loans secured by residential real estate, a different exception form (H-4 or B-4) that is used for all other loans, and one exception for (H-5 or B-5) that is given to applicants where no credit score is provided by the consumer reporting agency.

"BUT it can only be given to those that receive materially less favorable terms (roughly the 60% with the least favorable rates)."

Where does it state that? You must give it to those consumer, but you can give it to all if you choose.

I believe form B-1 can be given to everyone but form B-2 is specified for those with materially less favorable terms.

I'm a bit confused; where are the B-# forms mentioned? I thought you had H-1 and H-2 (the RBPN given only to those who get materially less favorable terms)and H-3, H-4 and H-5 (one of which can be given to anyone on whom you pull credit scores, the alternative to the RBPN).

They are basically interchangable: (Model Form H-1 of the Federal Reserve Board's Regulations and Model Form B-1 of the Federal Trade Commission's Regulations). I believe the proposed rules referred to the "B" instead of the "H" also. Sorry if I created any of that confusion.

The B forms are the same as the H forms. You have to give the RBPN to those who get materially less favorable terms but I have not read anything that says you can't give it to everyone and be covered.

Here is the link to the RBP regulations as printed in the Federal Register: RBP regs

There were commenters to the proposed regs that had asked whether they could just provide the regular RBP notice to every one who applied. The response (on page 2730) was:

"Commenters also suggested that the Agencies allow the original creditor to provide a risk-based pricing notice to all consumers who apply for credit, including those who did not receive materially less favorable terms. However, the statute’s general rule does not suggest that a notice should be provided to every consumer who applies for credit. Moreover, the riskbased pricing notice requirement was designed to be a substitute for adverse action notices when a consumer received less favorable credit terms based on his or her consumer report, rather than being denied credit. The Agencies believe that providing a notice to all consumers who apply for credit would diminish the impact of notifying a subset of consumers that they received credit on less than the best terms based on information in a consumer report. Providing a notice to all consumers who apply for credit would also have the effect of allowing consumers to receive a free consumer report whenever they applied for credit. For the foregoing reasons, the Agencies conclude that a person that uses a consumer report to grant, extend, or otherwise provide credit on material terms that are materially less favorable than the most favorable terms available to a substantial proportion of consumers is required to provide a risk-based pricing notice only to those consumers who receive materially less favorable terms."

The B-1 or H-1 are the standard RBP forms. The B-2 and H-2 forms are the ones to be used for account review, when an APR is increased on an existing account based upon a consumer report.

Thanks Ted,

So, what does a bank that pulls credit reports without credit scores do if they may vary pricing based solely on perceived credit history on the report (let's leave any fair lending discussion alone for this discussion)? Give it to anyone that doesn't get a loan at PAR?

Wow I had not seen that. So I guess i have some work to do. Thanks!

If you don't get credit scores and don't use tiered pricing, then about all you can do is use a "direct comparison" under 222.72(b) to determine which ones are materially less favorable. The definition of "materially less favorable" says that rates are materially less favorable if the cost of credit is significantly greater.

Thanks Ted, that was where I was leaning after you enlightened me with the quote from the preamble.

Is anyone using exception notices even if they don't do risk-based pricing?

The last time I looked there was no definition for the term "significantly greater".

When using model form H-4, are we required to show both the graph distribution and the text Your credit score ranks higher thatn XX percent of US consumers?

If you look at the model form, you will notice an "or" between the two:

http://www.bankersonline.com/regs/222/222h-4.pdf

I should rephrase..can you include both?

I guess you could. Just one more thing to screw up though.

We are planning to use the exception notice in lieu of the risk-based pricing notice for our risk-base lending products. However, one consumer product utilizes the credit score to qualify the amount of credit limit given BUT does not affect the APR. I do not consider this risk-based pricing but I keep getting hung up on the "materially less favorable" portion of the definition.
The APR is defined as the "material terms" in the regulation and since the credit report does not impact the APR, should I proceed in not considering this product exempt from receiving the exception notice?

For those of us that do not use credit scores, here is what I am using to say that RBP does not apply. Please correct me if I am wrong!

We use consumer reports but we do not use the consumer report to determine our rates. We have a rate sheet with guidelines. Preferential rates are given for customers with substantial deposit balances, good history with our bank or if we are trying to match a competitors rate.

III. Summary of the Final Rules

Risk-Based Pricing Notice

The final rules implement the risk based pricing notice requirement of section 15(h). The final rules apply to any person that both:

(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 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. For more information
about the scope of the final rules, see the discussion of §ll.70 in the Section-by-Section Analysis.


Definitions

Material terms - the annual percentage rate for credit that has an annual percentage rate.

Materially Less Favorable - as it applies to material terms - the terms granted or extended to a consumer differ from the terms granted or extended to another consumer from or through the same person such that the cost of credit to the first consumer would be significantly greater than the cost of credit to the other consumer.


Key Questions

1) Do we use consumer reports?

2) Does the information on the credit report determine our “material terms”?

I've read all the threads and thought I had my answer, but got confused!!

For clarification.....we do not offer risk based pricing. Do we still need to provide the provide the exception notices (H-3 and H-4), or can we continue to provide the existing NTHLA disclosure for residential secured loans and not worry about the other loans?

Did you ever get an answer on this. I looked through the threads but didn't see one. Thanks

Clarification needed. If the the H-3 and H-4 forms are provided through a credit reporting agency or internally then that is all that is needed to comply with the regulation. Correct? Honestly Way Out West has me confused. H-3 and H-4 are the exception forms, if transunion provides them why would the bank have to generate them? It seems like this is just a way to provide the credit reporting industry an extra $2 per report.

We're going to use the exception notices, even though we don't "officially" do risk-based pricing. My reasoning is that there are some situations where we might change something on the loan (increase rate, decrease term, etc.) due to the findings on the credit report, even if it's not strictly the credit score. I would hate to make the argument to an examiner as to why I didn't provide a notice in that type of situation.