Lenders who price and set the terms of their consumer loan products based in whole or in part on a consumer’s credit history report and who grant credit to that consumer on “material terms” that are “materially less favorable” than those offered to a “substantial portion” of other consumers must be compliant with the new risk-based pricing regulation by January 1, 2011. This will require the implementation of new policies and procedures for determining which consumers must receive risk-based pricing notices or credit score disclosure notices, whether under a case-by-case approach or under the two alternatives –“credit score proxy” and “tiered pricing” methods. General exceptions to the regulation abound, with particular application to credit card products and credit secured by one-to-four family real property. Lenders seeking safe harbor from regulatory enforcement may rely upon five model forms that satisfy the substantive disclosure requirements under the regulation. The regulation is not limited to new accounts; creditors that conduct periodic reviews of existing accounts and increase the APR based on credit scores also fall under the scope of the regulation. Institutions must carefully assess their current product offerings and risk-based pricing models to determine how to comply with the new regulations. Early implementation is not prohibited, and a phased approached to providing the notices and disclosures may help to ensure that processes and procedures are in place in time for the January 1, 2011 effective date. Failing to address these issues in a timely manner is, indeed, risky business.
By Tammy Campbell and Matthew Thompson
Senior Compliance Counsel
Harland Financial Solutions
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