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by Edmund D. Harllee
July 15, 2011, the Board of Governors of the Federal Reserve System (the
"Board") issued final rules with respect to its Regulation V (Fair Consumer
Reporting) to incorporate new content requirements for risk-based pricing
notices, as required by the Dodd-Frank Wall Street Reform and Consumer
Protection Act of 2010 (the "Act"). At the same time, the Federal Trade
Commission ("FTC") issued corresponding final rules with respect to its
risk-based pricing regulations (16 CFR Parts 640 and 698) for the same purpose.
Comments to the proposed rules, which were published on March 15, 2011, were to
have been received by April 14, 2011.
On December 4, 2003, the Fair and Accurate Credit Transactions Act ("FACT Act")
was signed into law. Section 311 of the FACT Act amended the Fair Credit
Reporting Act ("FCRA") to regulate risk-based pricing. Generally, "risk-based
pricing" is the practice of setting or adjusting the price and other terms of
credit offered or extended to a consumer to reflect the risk of nonpayment by
that consumer. Since consumers with more favorable credit histories tend to
receive more favorable credit terms, and since a consumer report is usually the
basis of a consumer's credit history, it was determined that consumers should
be made aware of the effect of a poor consumer report on their ability to
obtain favorable credit terms. Accordingly, the FCRA, as amended by the FACT
Act, requires that a risk-based pricing notice be provided to a consumer when a
consumer report is used in connection with an extension of credit, and, based
in whole or in part on the consumer report, the consumer receives credit on
terms that are materially less favorable than the most favorable terms
available to a substantial proportion of the creditor's consumer customers.
Generally, the FTC has supervisory authority over non-depository institution
creditors with respect to compliance with the FCRA, while the Board has such
authority over depository institutions.
Section 1100F of the Act added content requirements to the risk-based pricing
provisions of FCRA that require creditors to disclose the applicant's credit
score, along with certain information regarding credit scores, if a credit
score is used in making a credit decision resulting in risk-based pricing.
The final rule that was published in the Federal Register on July 15,
2011 incorporates the changes mandated by the Act to the provisions of the
FCRA, including new content requirements for suggested model forms of the
risk-based pricing notices.
If you have any questions about the information in this Alert, please
contact Ed Harllee at email@example.com.
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