New Risk-Based Pricing Rules - Effective: January 1, 2011

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In this article, I discuss Risk-Based Pricing, which refers to the practice of using a consumer's credit report, reflecting his or her risk of nonpayment, in setting or adjusting the price and other terms of credit offered or extended to a particular consumer.

I consider the use of credit reports or scores in connection with a credit decision, notice requirements, and the disclosure requirements when a lender grants credit on material terms that are not the most favorable terms offered to a substantial proportion of consumers.

TOPICS

* What are Material Terms?

* Who provides the RBP Disclosures?

* Who receives the RBP Disclosures?

* When are the RBP Disclosures sent?

* What are the model forms?

* Are there exceptions?

WHO PROVIDES THE RBP DISCLOSURES?

Two-Prong Test

There is a two-prong test to determine the RBP compliance requirement, and both conditions must be met:

(1) determine that a consumer report is being used in connection with an application for, or a grant, extension, or other provision of, credit (for personal, household, and family - not business - purposes) to a consumer; and

(2) based in whole or in part on the consumer report, determine if credit is granted, extended, or otherwise provided to that consumer on "material terms" that are materially less favorable than the most favorable terms available to a substantial proportion of consumers from or through the credit grantor.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Jonathan Foxx, Lenders Compliance Group | Attorney Advertising

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