But how are examiners going to look at this? Will it cause fair lending issues?

On real estate secured loans, the exception notice would go to all customers (approved and denied) who today get the NTHLA. If you use the exception notice, it doesn't matter what your risk based pricing policies for a particular product are or who did or didn't get less favorable material terms. That's the beauty of the exception.

For indirect auto lending, the reqs address at 222.73(c)(2). Basically, it is OK if you contract with the dealer to provide the disclosure -- either a risk-based pricing notice or an exception notice -- based on the credit info the dealer obtains provided that you have reasonable procedures in place to verify a disclosure was provided. And since the requirement is that the disclosure be provided prior to consummation, I don't see any other way other way to do it other than to have the dealer do it.

Regarding the dealer differential, clearly those customers will get materially less favorable terms, but it may not be due to the customer's credit score. In which case, the customer theoretically wouldn't get a risk based pricing notice. The problem is the differential may be over and above some less favorable pricing the customer would have gotten anyway based on his or her credit score. So it will be very difficult to tell whether the customer should get a risk based pricing notice just based on the note rate. That's why I believe everybody should use the exception notice because it's too hard to tell which customers should get a risk based pricing notice.

Good luck.

ANYONE OUT THERE MAKING INDIRECT (Dealer)LOANS???

Thanks to both of you- this is good information.
We are so going to use the alternate credit notice rather than the risk based notice!!

I don't know if many of you do indirect lending but I worry about the consumer getting a notice on time and the loans the dealer closes on Saturday afternoon before we can provide the notice. At least with privacy notices, etc. they are the same for all customers and not personalized.
We really don't do many indirect deals anymore but I just want to cover all my bases.
Again, thanks for great the input.

I noticed that bulletins regarding the rule were issued by the Fed and FTC.

Our regulator is the FDIC. This may seem like a dumb question but should we wait for the FDIC bulletin?

No. Only the FRB and FTC were authorized by Congress to promulgate Risk-based Pricing regulations, so there will be no FDIC version. You should follow the FRB version, although both the FRB and FTC rules are virtually identical.

OK, Thanks.

Another question. Which model form is the alternate notice that can be given to all consumers?

They're called "exception notices" in the reg, not "alternate notices" and they're model forms H-3, H-4, and H-5 depending whether you have an RE-secured loan (H-3), a non-RE secured loan (H-4), or the customer has no credit score available (H-5). They're given to all applicants, but you have to use the right form depending on the situation.

Thanks.

I have been briefly taking a look at this rule. We do use teh credit score to set the rate on consumer loans. So we can either provide the risk-based notice or one of the exception notices to ALL applicants to apply? Is this correct?

It is my understanding that the credit bureaus may be offering to send (for a fee) exception notices to anyone that we order a credit report for. This seems like the most simple thing to do IF they offer this service. I went to training on this issue and the trainer indicated that he thought this would be the case.

akhcompliance: You can provide an exception notice to all such customers or you can provide the risk-based pricing notice to those customers that are supposed to receive them under the rules. You cannot provide the risk-based pricing notice to all customers. One of the advantages of using the exception notices is that you don't have to figure out which customers should get one.

We make indirect loans. Our plan is to have the dealers send us a copy of the notice with their packets before we fund the loan.

If we are going the "Credit Score Disclosure Exception" route, am I correct in my understanding that we will need to have 3 forms (1) H/B-3 for consumer loans secured by residential real property (combines exception notice + FACTA notice to home loan applicant) (2) H/B-4 for consumer loans not secured by real estate and (3) H/B-5 if no credit score is available?

Yes. See Way Out West's post above.

Heres what I have gathered: Anyone correct me if I am wrong!?

Risk Based Pricing Notice

1) H/B-3: Notice is given to all customers who apply for a loan secured by a one to four family residential property (include Notice to Home Loan Applicant)
2) H/B-4: Notice is given to all customer who apply for a loan not secured by residential property
3) H/B-5: Notice is given to all customers where a credit score is not available.

**If given an adverse action notice, customers DO NOT get a risk based pricing notice**

Timing:
Closed-End Credit: Before consummation of the transaction, but not before the decision to approve application
Open End Credit: Before first transaction is made under plan, no earlier than decision to approve application
For Account Reviews (where creditor makes periodic account reviews for existing consumer credit relationships): At the time of decision to increase APR based on a consumer reports is communicated to consumer or if no notice of APR increase, no later than 5 days after effective date of APR change.

Consumer is entitled to one notice per credit extension/transaction. Even if the consumer has previously received RBPN in connection with a grant, extension, or other provision of credit, another RBPN is required.

Multiple Consumers:
If consumers have the same address, a single notice addressed to both consumers.
If consumers do not have the same address, must provide notice to each consumer.
**If you use a credit report and get scores for 2 people (ex- husband and wife),have to send each their own notice in separate envelopes. One can’t see others score.

Great summary!

WOuld one of the Gurus (Tedd John, Andy..Etc) care to chime in on lindzy90's summary? It looks right to me, but would appreciate some assurance.

One pt of claraification, lindzy90 wrote:

"1) H/B-3: Notice is given to all customers who apply for a loan secured by a one to four family residential property (include Notice to Home Loan Applicant)"

Doesn't HB-3 get given to the consumer only and not with the Notice to Home Loan Applicants. Not given with the NTHLA?

Thanks

DDRegs: The H-3 form includes the Credit Score information as well as the Notice to Home Loan Applicants, so it's intended to kill three birds with one disclosure. See the last sentence in paragraph 4 of Appendix H.

The only other comment that I have is that the rules allow sending an H-1 notice to multiple consumers at the same address, but not the H-3, H-4 or H-5 exception forms. Under 222.75(c)(2) each person must get a separate exception form.

I hate to sound like I don't have a clue what's going on, but I DON"T HAVE A CLUE. When is this effective? Embrace the change, embrace the change

Jan 1, 2011

Please check my logic on this ...

The rules require us to provide a risk based pricing notice when we grant, extend, or otherwise provide credit. To me that would include renewals AND change in terms. Is that correct?

And with the exceptions, that would mean we would need to provide either the risk based notice or the credit score disclosure notice for a change in terms?

I ahve another question:

Can we choose to use tiered pricing method on one product, use credit score proxy on another product, and use the credit score disclosure option on another product?

I want to make sure I understand this corerctly. If we use the exception, we only have to provide the credit score disclosure (model form B-3, B-4, or B-5), and not a risk based pricing notice.