Federal Reserve Board and the Federal Trade Commission Propose Changes to Risk-Based Pricing and Adverse Action Notices

Section 1100F of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Pub. L. No. 111-203, 124 Stat. 1376) amended sections 615(a) and (h) of the Fair Credit Reporting Act (FCRA) (15 U.S.C. §1681m). The provision was intended to create an obligation on those persons using credit scores to provide notice to consumers adversely affected by those scores in adverse action and risk-based pricing notices required by the FCRA. Section 1100F added a requirement that consumers are to be notified of the numerical scores and how those scores adversely impacted the credit decision. The amendment did not change existing FCRA obligations to provide consumers with the reasons why credit decisions were negatively impacted by information in consumer credit reports.

On March 1st, the Federal Reserve Board and the Federal Trade Commission (the Agencies) proposed regulations to implement the provisions of Section 1100F, including proposed changes to both Regulation V (Risk-Based Pricing) and Regulation B (Equal Credit Opportunity). The proposed changes, if promulgated, will require changes to risk-based pricing and adverse action notices to incorporate numerical credit scores as well as other mandated disclosures.

Risk-based pricing notices under FCRA

Existing Requirements. The Final Rule implementing the provisions of the Fair and Accurate Credit Transactions Act of 2003 (FACTA), which amended the FCRA, was published on Jan. 10, 2010 (75 Fed. Reg. 2724). Pursuant to existing provisions of the FCRA, a user of a consumer report generally must provide a risk-based pricing notice to a consumer when the user has used a consumer report and has provided credit on terms that are materially less favorable than the most favorable terms available to a substantial proportion of consumers. Specifically, the risk-based pricing notice must include the following information:

1. A statement that the user of the consumer report has set the credit terms offered based on information in the consumer report;

2. A statement that those terms may be less favorable than credit terms offered to consumers with better credit histories.