We currently utilize tiered pricing at our FI, and have a total 6 pricing tiers. We also provide RBP notices based on the Tiered Pricing Method, which means we provide RBP notices to borrowers who are not in the top 2 (lowest priced) tiers. Our institution is exploring the option of providing a "rate discount" to borrowers who's credit score exceeds a certain number (800 for example). These borrowers would typically be in our highest tier, but if they have a score over 800 they will be given an additional discount on their interest rate.

Is there any way to justify this as a true "rate discount" or is this simply considered a new "tier"? As far as I know, FCRA does not define what a "tier" is, and I'm finding it hard to prove that this is truly a discount rather than the addition of a new tier.

Adding a new tier would have implications to the RBP notice provided, in that we would now have to provide RBP notices to more borrowers. The majority of our borrowers are currently in Tier 2, and do not receive a RBP notice, but the addition of a lower priced tier would require these borrowers to now receive one. Obviously our institution does not want to incur the added cost of providing more notices, so that is our dilemma.

Thanks!

400-499 = 9%
500-599 = 8.5%
600-699 = 8%
700-799 = 7.5%
800 Plus = 7%

Not quite sure how you would justify it being a rate discount.

Very few banks that I know deliver risk based pricing notices and just use the exception notice and send it to everyone. Sure beats have to address issue like this and then nobody screws up and forgets to deliver the notice when they should have.

Thank you Dan, I completely agree. I just have one follow up question if you don't mind. Our highest priced tier is actually underwritten and approved by a third party. We fund, book, and service the loan once all documentation has been signed, but the third party essentially insures us in case the borrower does not pay the loan. It's a way for us to offer loans to individuals we deem to be "too risky".

We essentially list that as one tier, even though the pricing may be different for borrowers that fall into that tier, dependent on the third party's pricing structure. My question is, for the purposes of RBP notices, should we be expanding the number of tiers we have if the third party has tiered pricing? Or should we continue to count that as one tier? Weird, I know....

Thanks for your help!

We do as Randy suggests and from the beginning we have issued the exception notice.

It sounds like your 3rd party underwriter is doing risk based pricing and I'm not up to date on what RBP requirements apply to 3rd parties without doing some research.

Reviving this - why would anyone send out a RBPN when the exception seems to give a blanket exception for (a) and (c)? I'm looking at a product that has five pricing tiers. You get the pricing tier on the rate sheet after we pull your credit. To me, that is risk based pricing, but the bank gives the credit score exception notice and has been examined and told that is fine. So, when would you give a RBPN?????

the bank gives the credit score exception notice . . . . So, when would you give a RBPN?????

If you utilize the exception notice option for your products - never.

Dan is correct - you give a risk based pricing notice to only those customers that you have approved and are not getting premium pricing or you give the exception notice to all applicants. You do not do both.

Who in their right mind would want to go through the trouble to identify just those customers not getting premium pricing for the delivery of a risk based pricing notice?

I'm sure a computer could do it these days. We've thought about just due to the annoyance of sending the exception notice to early w/d and denial customers.

Well, almost every credit bureau will mail these out for you at the time that you order your credit report for a mortgage loan for a small fee. Not sure why that is such an annoyance.