Alert May 20, 2008

FRB and FTC Propose Risk-Based Pricing Notice

Under a joint proposed rule issued by the FRB and the FTC implementing Section 311 of the Fair and Accurate Credit Transactions Act of 2003, a lender would be required to provide a consumer with a risk-based pricing notice when, based on the consumer’s credit report, the lender offers credit to the consumer on terms less favorable than the terms it offers to other consumers.  Rick-based pricing refers to the practice of using a consumer’s credit report, which reflects his or her risk of nonpayment in setting or adjusting the price and other terms of credit offered or extended to a particular consumer.  The proposal would apply, with certain exceptions, to all lenders that engage in risk-based pricing.  The proposal calls for a risk-based pricing notice to be provided, generally, to the consumer after the terms of credit have been set, but before the consumer becomes contractually obligated on the credit transaction.  The proposal provides a number of different approaches that lenders may use to identify the consumers to whom they must provide risk-based pricing notices.  In addition, the proposal includes certain exceptions to the notice requirement.  The most significant of the exceptions permits lenders, in lieu of providing a risk-based pricing notice to those consumers who receive less favorable terms, to provide all of their consumers with their credit scores and explanatory information.  Comments on the proposal must be received by August 18, 2008.