We just use credit score to determine if the customer is approved or not approved. If the customer is approved we give the same rate no matter the score. However, depending on their relationship to the bank and competition rates, rates may change. Must we give the exception notices to these customers or are we doing risk based pricing?

The definition for risk-based pricing in section 222.72(a) of the rule includes the requirement that to be risk-based pricing, it must be "based in whole or in part on the consumer report" that you use. Notice that this is not limited to credit score, but anything in the report.

As long as you can show that your rates are not dependent on anything in the report, it should not qualify as risk-based pricing under the definition.

So is everyone pulling new credit reports for each application and not relying on old credit reports? How about commercial loans - will you pull a new credit report for each commercial app or just consumer?

We will change our procedures to require current report on consumer loans and stick with our 6th month rule for commercial and agricultural.

This is only consumer and does not apply to credit extended for a business purpose.

I still have several questions. We have chosen not to use risk-based pricing notices. We will do the Exception Notices exclusively.

1. Do we have to give the SCN to EVERY consumer who applies for credit? I have been told that if you don't pull a credit report you don't have to give a CSN either.

2. If you have a credit report that is 6 months old, can you just re-use the CSN that printed with that report?

3. If there is a prior credit report in file but the loan officer says he doesn't look at it for an additional extension of credit to the borrower, would we have to provide a CSN just because we had a report in file or not because we didn't pull another report?

Dan - can you give a reference to where it states this? I just checked with general counsel of our banker's association and he was not aware of anything in the regulation that says you cannot rely on a previous report. In fact, he said that mortgage originators will rely on a report that is no more than 90 days old.

It is okay to provide the credit score exception notice at consummation for closed-end credit (not secured by residential real property)as per 222.74(e)(3), correct?

thanks,

We have chosen to provide the credit score exception disclosure. We use a consumer loan decisioning platform that automatically pulls the credit report when the application is processed. Therefore, we have to use the platform to produce the disclosure. Based on the guidance that the disclosure does not have to be provided if another exception applies(such as the adverse notice), the vendor has setup the platform so that the disclosure is only available for approved or countered applications.

This means that we cannot produce the disclosure until the application is decisioned. Based on several posts on this thread, this would not be considered "as soon as "reasonably practicable..." in many cases. My thought is that it would be "reasonably practicable" to wait until the decision is made to determine which exception applies. Your thoughts are appreciated.

We always rely on current credit reports. There is too much risk right now with fraud and what-not to rely on something old.

Is the section 222.74(e)(3)(mentioned below) from the BOL REG V pertaining to the risk based pricing rule discussed in this post? I ask because our exception notice is going to generate with the closing docs and -by the section I mentioned below- it appears to be okay. but it's not stated in the federal register.

Subpart H - Duties of Users Regarding Risk-Based Pricing (added eff. 1/1/2011)

(3) Timing. The notice described in paragraph (e)(1)(ii) of this section must be provided to the consumer as soon as reasonably practicable after the credit score has been obtained, but in any event at or before consummation in the case of closed-end credit or before the first transaction is made under an open-end credit plan.

We've been asked by investors to prove the borrowers have received the privacy notice as well as the current credit score disclosure. Our procedures will state for face to face applications the RBPD will be acknowledged. For Internet, phone and mail we will have written procedures about mailing and include this document on the document delivery acknowledgement we have the person mailing sign checking off what was sent, the date and if was emailed or mailed. You should document delivery of other disclosures as well, so in my opinion we just add another box.

Just thought I'd share what we are doing...

We will be using the exception notices. Are the exception notices required in the case of an account review? If yes, would it only apply if rate is raised?

Seems like there's been a bunch of unanswered questions in this thread, so let me take a shot at a couple:

1) Citation regarding "reusing" credit reports and lack of a permissible purpose. Look at Section 607(a) of the FCRA which states in part:

§ 607. Compliance procedures [15 U.S.C. § 1681e]
(a) Identity and purposes of credit users. Every consumer reporting agency shall maintain reasonable procedures designed to avoid violations of section 605 [§ 1681c] and to limit the furnishing of consumer reports to the purposes listed under section 604 [§ 1681b] of this title. These procedures shall require that prospective users of the information identify themselves, certify the purposes for which the information is sought, and certify that the information will be used for no other purpose...

Section 607 pertains to compliance procedures to be maintained by credit reporting agencies, so a lot of lenders overlook it, but what it's saying in English is that in order to obtain a credit credit, you the user have to certify that you have a permissible purpose AND that the credit report will be used for that purpose and no other. If you "reuse" a credit report to underwrite a later credit request, you're using it for a purpose other than the one you certified you would use it for the first time around. Obtaining a credit report in connection with a current credit application and any other credit application the customer might submit in the next 6 months is not a permissible purpose.

2) Providing exception notices at closing. The timing requirement for exception notices is the same for all the exception notices (H-3, H-4 & H-5) and it's correctly quoted above: "as soon as reasonbly practicable, but in any event at or before consummation..." I think "as soon as reasonably practicable" is the operative requirement. "At closing" would probably work for credit cards and overdraft lines of credit, but I would say you should have procedures in place to provide exception notices as soon in the process as you can and only provide them at closing as a last resort. The only way providing an exception notice at closing will fly is if your loans regularly close before a mailed disclosure could reach the customer.

3) Account review. I don't believe you can use an "exception" notice for account reviews; you have to use model form H-2 in all cases. Which is good news because form H-2 is easier to complete than the exception notices. And yes, you would only have to provide an H-2 notice if you actually increased the APR on the loan. (See 222.72(d)(1)(ii).)

Good luck to everyone and I hope everyone has their new risk based pricing notices off the ground.