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SNR Denton on Fair Credit Reporting Risk-Based Pricing Notice Final Rules

    Stephen Ornstein, Matthew Yoon, and John Holahan of SNR Denton

In December 2009, the Federal Reserve Board and the FTC jointly issued final rules to implement the provisions of section 311 of the Fair and Accurate Transactions Act of 2003 ("FACTA"). The Final Rules become effective January 1, 2011. The Federal Reserve Board's final rule is implemented in a new subpart H to Regulation V, at 12 C.F.R. pt. 222, and the Federal Trade Commission's final rule is implemented in new 16 C.F.R pt. 640. This commentary by Stephen Ornstein, Matthew Yoon, and John Holahan of SNR Denton discusses those rules.

"As written, the Final Rules provide for three different methodologies in determining which consumers receive the risk-based pricing notice: (i) the direct comparison method; (ii) the credit score proxy method; and (ii) the tiered pricing method," the authors explain. "Further, in addition to providing a risk-based pricing notice to consumers that receive material terms that are materially less favorable, the Final Rules require a risk-based pricing notice to be given in cases where a consumer report is used in a review of credit that has been extended to the consumer and based in whole or in part on the consumer report, the consumer's annual percentage rate is increased. Under the Final Rules, the risk-based pricing notice will generally be provided to the consumer after the terms of credit have been set, but before consummation of the transaction."

"The Final Rules also set forth five exceptions to the requirement to provide a risk-based pricing notice, which includes an exception for residential mortgage lenders. However, three of these exceptions, including the exception for residential mortgage lenders, require significant notices of their own," note Ornstein, Yoon, and Holahan. "The Final Rules also provide optional model forms for the risk-based pricing notices as well as for the three exception notices. Significantly, the Final Rules provide that a purchaser or assignee of a credit contract with a consumer is not subject to the foregoing requirements and is not required to provide the risk-based pricing notice or to satisfy the requirements for and provide an exception notice."

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Stephen F.J. Ornstein is a partner in the Washington, DC office of SNR Denton. Mr. Ornstein is a member of SNR Denton's Capital Markets Practice concentrating on banking and real estate law with an emphasis on federal regulation of real estate. He regularly counsels national mortgage companies, mortgage insurers, financial institutions and others in complying with mortgage and consumer lending regulations.

Matthew Yoon is an associate in the New York, NY office of SNR Denton. He practices in the areas of banking and real estate law with an emphasis on mortgage and consumer lending compliance issues.

John. P. Holahan is an associate in the Washington, DC office of SNR Denton. He represents federal and state-chartered banks, investment banks, consumer finance companies.