This section of FACTA refers to risk-based credit pricing. In short, is this talking about the use of credit scoring or is it more involved? Has the required risk-based pricing notice been issued? Thanks.

Section 311 is much broader than just risk-based pricing. It applies toan application for, or a grant, extension, or other provision of, credit 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, based in whole or in part on a consumer report.

The model notice has not yet been published.

I don't believe it is issued and there is discussion that it will be event triggered. I haven't looked at this in awhile, but if you price based on the credit report (which could go beyond a scoring system) the disclosure would have to be made.

Is there a deadline in which the model form should be available?

There is no deadline under section 311 for the rulemaking to be finalized.

In the absence of proposed rulemaking so far, I'm trying to grasp how this section will affect our bank. We are a small community bank, and the pricing section of our loan policy is not what I would call highly structured or formalized. Our lenders are given rate ranges to follow for various types of credit, but it appears they can use their judgment as to exactly how to price a loan within a range, depending on various factors such as credit history, the customer's deposit balances, loan maturity, market competition, and so forth. Our current loan policy doesn't mention credit scores as such.

Is it possible that Section 311 might not even apply to us? Or is it likely that we will have to institute a more specific pricing policy to order to comply with all this?

In other words, will this apply only when a bank has a special product pricing program in effect? Or does it mean that all banks will be required to establish formal, strictly-defined pricing policies that specify how a consumer report affects the price of a loan? Or do we just have to wait for the regulations to tell us what all the ramifications are?

Does this section only apply to consumer loans and does not apply commercial loans?

IMHO, the way this section reads now, without any clarifying regulations, it does apply to commercial loans as well.

At the recent CBA Regulatory Compliance Conference, this is the advice were were given about the risk-based pricing notice (sec. 311):

Coverage - Coverage is triggered if a person (creditor) uses a consumer report in connection with an application for or extension of credit "on material terms that are materially less favorable than the most favorable terms available to a substantial proportion of consumers" from that creditor based in whole or in part on a consumer report. Example 1: Sue applies for a mortgage loan and is approved. However, because her credit score is less than what the lender requires for its best ("A" paper) borrowers, she qualifies only for a "B" paper loan which carries a higher rate of interest than the "A" paper. The statute is triggered. Example 2: Pete applies for financing on a new car. The lender generally offers financing terms for as long as 7 years but offers Pete only the 2-year plan because, according to his credit report, Pete is a chronic slow pay. The statue is triggered. [applies if the consumer is not getting the best deal; any deviation in pricing based on information in a consumer credit report triggers the notice; doesn't matter whether or not the consumer asked for the best rate; if bank offeres tiered pricing only applies if the tiered pricing is based on information in a consumer credit report].

Note that there is no requirement that the consumer has specifically asked for or even be aware of the better rate or terms for this provision to apply.

Exception: If the consumer applied for and received specific material terms, except where the creditor specified those terms after obtaining the consumer report. Example: While Pete is walking around the dealer's lot looking at shiny new cars, the dealer pulls Pete's credit score and sees the bad news. The dealer walks out to Pete and cheerfully informs him that he "qualifies" for the 2-year financing. Pete says that's great and accepts on the spot. Pete is covered by the statute (terms were given after the credit report was pulled).

Contents of Notice: (1) statement that the terms offered to the consumer are based on the consumer report; (2) identity of the credit bureau; (3) statement that the consumer may obtain a free copy of the consumer report, with the credit bureau's contact informatin and toll0free number.

Timing of Notice: The statute left this key issue up to the regulators. They are specifically instructed to consider when it would be better to require giving the notice after the terms have been offered. Don't really know what to do at this time - stay tuned. Recommendation - draft a notice; give it to all consumer applicants for consumer credit at the time of the application.

Effective Date: 12-1-2004. It is hoped that the implementing regulations will be issued by then, but the statute apparently is not dependent on the regulations being issued to become effective.

One last comment - If you strictly read FCRA Section 615(h) about the risk based pricing notice, the statute refers only to credit extended to a "consumer." Under the FCRA a consumer is defined as an "individual." Nothing in Section 615(h) limits its application to credit extended for "consumer purposes" or "personal, family or household purposes." So credit extensions to individuals even for business purposes (for example a sole proprietor) conceivably could be covered.

Hope this helps.

Oops! Forgot to log in - I am Poster: mary1 who wrote #268368 - 11/03/04.

Just for reference, the following is from the language of the statute:

"DUTIES OF USERS IN CERTAIN CREDIT TRANSACTIONS.—
‘‘(1) IN GENERAL.— Subject to rules prescribed as provided in paragraph (6), if any person uses a consumer report in connection with an application for, or a grant, extension, or other provision of, credit 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, based in whole or in part on a consumer report, the person shall provide an oral, written, or electronic notice to the consumer in the form and manner required by regulations prescribed in accordance with this subsection ."

Ted, thanks so much !