Duties of Creditors Regarding Risk-Based Pricing Rule
| Published date | 17 September 2021 |
| Record Number | 2021-19908 |
| Section | Rules and Regulations |
| Court | Federal Trade Commission |
Federal Register, Volume 86 Issue 178 (Friday, September 17, 2021)
[Federal Register Volume 86, Number 178 (Friday, September 17, 2021)]
[Rules and Regulations]
[Pages 51795-51817]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-19908]
=======================================================================
-----------------------------------------------------------------------
FEDERAL TRADE COMMISSION
16 CFR Part 640 and 698
RIN 3084-AB63
Duties of Creditors Regarding Risk-Based Pricing Rule
AGENCY: Federal Trade Commission.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: The Federal Trade Commission (``FTC'' or ``Commission'') is
issuing a final rule (``Final Rule'') to amend its Duties of Creditors
Regarding Risk-Based Pricing Rule (``Risk-Based Pricing Rule'') and its
related model notice to correspond to changes made to the Fair Credit
Reporting Act (``FCRA'') by the Dodd-Frank Act and to clarify the model
notice.
DATES: Effective October 18, 2021.
FOR FURTHER INFORMATION CONTACT: David Lincicum (202-326-2773),
Division of Privacy and Identity Protection, Bureau of Consumer
Protection, Federal Trade Commission, 600 Pennsylvania Avenue NW,
Washington, DC 20580.
SUPPLEMENTARY INFORMATION:
I. Background
A. The Risk-Based Pricing Rule
The Fair and Accurate Credit Transactions Act of 2003 (``FACT
Act'') was signed into law on December 4, 2003. Public Law 108-159, 117
Stat. 1952. Section 311 of the FACT Act added section 615(h), 15 U.S.C.
1681m(h), to the FCRA to address risk-based pricing. Risk-based pricing
refers to the practice of setting or adjusting the price and other
terms of credit offered or extended to a particular consumer to reflect
the risk of nonpayment by that consumer. Information from a consumer
report is often used in evaluating the risk posed by the consumer.
Creditors that engage in risk-based pricing generally offer more
favorable terms to consumers with good credit histories and less
favorable terms to consumers with poor credit histories.
Under section 615(h) of the FCRA, a person generally must provide a
risk-based pricing notice to a consumer when the person uses a consumer
report in connection with an extension of credit and, based in whole or
in part on the consumer report, extends credit to the consumer on terms
materially less favorable than the most favorable terms available to a
substantial proportion of consumers. The risk-based pricing notice is
designed primarily to improve the accuracy of consumer reports by
alerting consumers to the existence of negative information in their
consumer reports so consumers can, if they choose, check their consumer
reports for accuracy and correct any inaccurate information. The
Federal Reserve Board and the Commission jointly published regulations
implementing these risk-based pricing provisions on January 15,
2010.\1\ The Rule was then amended in July 2011 to include a
requirement that, if a credit score is used in making the credit
decision, the creditor must disclose that score and certain information
relating to the credit score.\2\
---------------------------------------------------------------------------
\1\ 75 FR 2723 (January 15, 2010).
\2\ 76 FR 41602 (July 15, 2011).
---------------------------------------------------------------------------
B. Dodd-Frank Act
The Dodd-Frank Wall Street Reform and Consumer Protection Act
(``Dodd-Frank Act'') was signed into law in 2010.\3\ The Dodd-Frank Act
substantially changed the federal legal framework for financial
services providers. Among the changes, the Dodd-Frank Act transferred
to the Consumer Financial Protection Bureau (``CFPB'') the Commission's
rulemaking authority under portions of the FCRA.\4\ Accordingly, in
2012, the Commission rescinded several of its FCRA rules, which had
been replaced by rules issued by the CFPB.\5\ The FTC retained
rulemaking authority for other rules promulgated under the Acts to the
extent the rules apply to motor vehicle dealers described in section
1029(a) of the Dodd-Frank Act \6\ predominantly engaged in the sale and
servicing of motor vehicles, the leasing and servicing of motor
vehicles, or both.\7\ The retained rules include the Risk-Based Pricing
Rule, which now applies only to motor vehicle dealers that use consumer
reports or credit scores for risk-based pricing.\8\ Consumer report or
credit score users that are not motor vehicle dealers are covered by
the CFPB's rule.\9\
---------------------------------------------------------------------------
\3\ Public Law 111-203 (2010).
\4\ 15 U.S.C. 1681 et seq. The Dodd-Frank Act does not transfer
to the CFPB rulemaking authority for section 615(e) of the FCRA
(``Red Flag Guidelines and Regulations Required'') and section 628
of the FCRA (``Disposal of Records''). See 15 U.S.C. 1681s(e).
\5\ 77 FR 22200 (April 13, 2012); 12 U.S.C. 5519.
\6\ 15 U.S.C. 5519.
\7\ 77 FR 22200.
\8\ Id. The Rule also sets forth requirements for entities that
use credit scores. See, e.g., 16 CFR 640.3(b). For ease of
reference, in this supplementary information section users of
consumer reports includes users of credit scores.
\9\ 12 CFR 1022.70-75.
---------------------------------------------------------------------------
II. Regulatory Review of the Risk-Based Pricing Notice Rule
On October 8, 2020, the Commission solicited comments on the Risk-
Based Pricing Rule. The Commission sought information about the costs
and benefits of the Rule, and its regulatory and economic impact. In
addition, the Commission proposed amending part 640 to narrow the scope
of the Rule to motor vehicle dealers excluded from Consumer Financial
Protection Bureau jurisdiction as described in the Dodd-Frank Act and
remove examples that did not apply to motor vehicle dealers. The
Commission received one comment related to the Risk-Based Pricing
Rule.\10\
---------------------------------------------------------------------------
\10\ The comments are available at www.regulations.gov/document/FTC-2020-0072-0001/comment. The Commission also received two
comments that addressed regulation of lenders and motor vehicle
dealers generally. Both comments argued such regulation was needed.
---------------------------------------------------------------------------
III. Overview of Final Rule
A. Scope
The Commission promulgated the Risk-Based Pricing Rule at a time
when it had rulemaking authority for a
[[Page 51796]]
broader group of consumer report users. While the Dodd-Frank Act did
not change the Commission's enforcement authority for the Risk-Based
Pricing Rule, it did narrow the Commission's rulemaking authority with
respect to the Rule. It now covers only users of consumer reports that
are motor vehicle dealers.\11\ The amendments in the Dodd-Frank Act
necessitate technical revisions to the Risk-Based Pricing Rule to
ensure the regulation is consistent with the text of the amended FCRA.
Accordingly, the Final Rule amends the Risk-Based Pricing Rule to
properly reflect the Rule's scope.
---------------------------------------------------------------------------
\11\ 15 U.S.C. 1681s(e)(1); 12 U.S.C. 5519.
---------------------------------------------------------------------------
The Final Rule amends section 640.1(a) to narrow the description of
the scope of the Risk-Based Pricing Rule to motor vehicle dealers
excluded from Consumer Financial Protection Bureau jurisdiction as
described in 12 U.S.C. 5519. It does so by replacing the broad term
``person'' with ``motor vehicle dealer,'' as defined in amended section
640.2. The term ``motor vehicle dealer'' replaces ``person'' throughout
the Rule, whenever ``person'' is used to describe the entity covered by
the Rule. In provisions where ``person'' does not refer to a motor
vehicle dealer covered by the Rule, such as sections 640.4(c)(2) and
640.6(b)(2), the term ``person'' is retained.\12\
---------------------------------------------------------------------------
\12\ For consistency, the proposed amendments also change any
use of the term ``auto dealer'' to ``motor vehicle dealer.'' See,
e.g., 16 CFR 640.4(c)(2)(ii).
---------------------------------------------------------------------------
The Final Rule removes section 640.1(b), which describes the
process by which the Commission worked with the Federal Reserve Board
to initially issue the Risk-Based Pricing Rule and states the
Commission's and the Board's rules are substantively identical. The
Final Rule removes this section because the Dodd-Frank Act transferred
the Board's rulemaking authority for the Risk-Based Pricing Rule to the
CFPB.
The Final Rule amends section 640.2 to add a definition of ``motor
vehicle dealer'' that defines motor vehicle dealers as those entities
excluded from the CFPB's jurisdiction under the Dodd-Frank Act.\13\ The
amendment also updates the definition of ``open-end credit'' by
replacing the statutory reference to 15 U.S.C. 1602(i) with a citation
to 15 U.S.C. 1602(j). It also changes references to the Federal Reserve
Board's regulation to the CFPB's regulation.
---------------------------------------------------------------------------
\13\ 12 U.S.C. 5519.
---------------------------------------------------------------------------
In addition, the Final Rule updates references to the risk-based
pricing notices in sections 640.4(a)(1)(viii), 640.4(a)(2)(viii),
640.5(d)(1)(ii)(I), 640.5(e)(1)(ii)(L), and 640.5(f)(iii)(I) from the
Board's website to the CFPB's website to reflect the CFPB's authority
under the Dodd-Frank Act.
B. Examples
The Rule contains examples that apply to entities no longer within
the scope of the Rule due to the Dodd-Frank Act. Retaining these
examples might lead to confusion about the actual scope of the Risk-
Based Pricing Rule. Accordingly, in addition to changing the term
``person'' to ``motor vehicle dealers'' in some examples as discussed
above, the Final Rule modifies some of the examples to provide clearer
guidance to financial institutions that are covered motor vehicle
dealers. For example, the Final Rule removes references to utility
companies and charge cards (section 640.2(n)(3)) and to student loans,
secured and unsecured credit cards, and fixed and variable rate
mortgages (section 640.3(b)(1)(5)). The Final Rule also replaces
references to ``credit card issuers'' with ``motor vehicle dealers''
(sections 640.4(d)(2); 640.5(a)(2); 640.5(c)(3)). These modifications
to the cited examples are not intended to modify the substantive
requirements of the Rule, as the examples simply illustrate the Rule's
application in a particular context.\14\
---------------------------------------------------------------------------
\14\ The Commission recognizes there are substantive provisions
of the Risk-Based Pricing Rule that typically would not apply to
motor vehicle dealers. For example, motor vehicle dealers rarely
issue credit cards, even though that term is defined broadly as
``any card, plate, coupon book or other credit device existing for
the purpose of obtaining money, property, labor, or services on
credit.'' The Commission has chosen, however, not to remove these
provisions from the Rule for two reasons. First, the current Rule is
substantively identical to the CFPB's risk-based pricing rule. The
Commission believes it is beneficial to maintain this conformity and
has opted to make no substantive changes to the rule. Second, to the
extent motor vehicle dealers do not engage in particular conduct,
e.g. issuing credit cards, then those requirements would simply not
apply.
---------------------------------------------------------------------------
C. Comment
The sole commenter on the Rule, the East Bay Community Law Center
(``East Bay''), stated the Rule is an important tool in ensuring a more
accurate credit reporting system. East Bay pointed to research that
indicates inaccuracies are common in consumer reports,\15\ and cited
statements from consumers about the negative impact such inaccuracies
can have on their lives.\16\ East Bay also presented evidence such
inaccuracies can have a greater impact on lower-income and minority
consumers.\17\ East Bay made two suggestions for additional amendments
to the Rule that it argued would help address these problems.\18\
First, East Bay suggested the Commission modify the Rule to
``disincentivize or prevent credit institutions from using risk-based
pricing when offering loans to individuals with poor credit'' by
requiring ``credit institutions [to] raise the credit cut off point,
thereby preventing consumers with poor credit from gaining access to
potentially predatory contracts.'' \19\ The Commission shares the
commenter's concern about predatory financial practices aimed at people
with lower income, and has brought numerous cases to challenge such
practices.\20\ Such enforcement is ever more important. However, the
Risk-Based Pricing Rule's primary purpose is to inform consumers when
they have received less favorable terms for credit based on their
consumer report or credit score.\21\ There is no evidence that, in
enacting Section 311 of the FACT Act, Congress intended to discourage
or prevent companies from extending credit to consumers with poor
(e.g., below a particular prescribed threshold) or no credit histories,
which would be the likely result of any regulation that prevented the
use of risk-based pricing for those consumers.\22\ Accordingly, the
Commission declines to adopt this suggestion.
---------------------------------------------------------------------------
\15\ See, e.g., Mistakes Do Happen: A Look at Errors in Consumer
Credit Reports, Nat'l Ass'n of State PIRGs, 4 (2004), available at
https://uspirg.org/sites/pirg/files/reports/Mistakes_Do_Happen_2004_USPIRG.pdf.
\16\ East Bay Law Center (Comment 3) at 2-3.
\17\ Id. at 6-7.
\18\ Id. at 8-9.
\19\ Id. at 8.
\20\ See, e.g., FTC v. Lead Express, Inc., Case No. 2:20-cv-
00840-JAD-NJK (D. Nev. May 22, 2020); FTC v. AMG Services, Inc.,
Case No. 212-cv-00536 (D. Nev. April 2, 2012); FTC v. First Alliance
Mortgage Company, Case No. SACV 00-964 (C.D. Cal. March 21, 2002).
\21\ See 15 U.S.C. 1681m(h)(1).
\22\ Moreover, as the Rule covers only users of consumer reports
who are motor vehicle dealers, such a credit cut-off would not apply
to the far larger group of entities covered by the CFPB's
corresponding rule.
---------------------------------------------------------------------------
East Bay also urged the Commission to amend the Rule to require
that risk-based pricing notices include ``detailed guidance [to
consumers] on what specific changes they should make to improve their
credit scores and qualify for a better loan.'' \23\ The Commission
agrees that information for consumers about improving their credit is
valuable, and provides guidance in its consumer education materials, as
does the CFPB.\24\ When the consumer's credit score is used in
determining pricing, the Rule already requires companies to identify
key factors that affected the consumer's
[[Page 51797]]
credit score. The Commission agrees with East Bay that it is important
to make it as easy as possible for consumers to find information to
help them improve their credit. The Commission therefore is changing
the link provided in the model notice from a general link to the FTC
website. In order to better direct consumers to appropriate educational
materials on the FTC website that relate specifically to this issue,
the Commission is amending its model notice to change the address of
the FTC website in the notice to ftc.gov/creditnotice.\25\ The
Commission has consulted with the CFPB concerning this change to the
Commission's model notice.
---------------------------------------------------------------------------
\23\ East Bay Community Law Center (Comment 3), at 9.
\24\ See, e.g., www.consumer.ftc.gov/articles/understanding-your-credit; www.consumerfinance.gov/learnmore.
\25\ The Commission recognizes the model notices for this Rule
contain versions of the notice unlikely to be used by motor vehicle
dealers, such as the version for credit secured by one to four units
of residential real property. The Commission is retaining these
models in order to remain consistent with the CFPB's models.
---------------------------------------------------------------------------
IV. Paperwork Reduction Act
The Risk-Based Pricing Rule contains information collection
requirements as defined by 5 CFR 1320.3(c), the definitional provision
within the Office of Management and Budget (``OMB'') regulations that
implement the Paperwork Reduction Act (``PRA''). 44 U.S.C. 3501 et seq.
OMB has approved the Rule's existing information collection
requirements through September 30, 2020 (OMB Control No. 3084-0145).
Under the existing clearance, the FTC has attributed to itself the
estimated burden regarding all motor vehicle dealers and then shares
equally the remaining estimated PRA burden with the CFPB for other
persons for which both agencies have enforcement authority regarding
the Risk-Based Pricing Rule.
The Final Rule amends 16 CFR part 640 and Appendix A to part 698.
The amendments do not modify or add to information collection
requirements previously approved by OMB. The amendments make no
substantive changes to the Rule, other than to clarify that the scope
of the Rule is limited to motor vehicle dealers. The Rule's OMB
clearance already reflects that scope. Although the Final Rule slightly
amends the model notice, motor vehicle dealers may continue to use
existing notices and still comply with the Final Rule. Therefore, the
Commission does not believe the amendments substantially or materially
modify any ``collections of information'' as defined by the PRA.
V. Regulatory Flexibility Act
The Regulatory Flexibility Act (``RFA''), as amended by the Small
Business Regulatory Enforcement Fairness Act of 1996, requires an
agency to either provide an Initial Regulatory Flexibility Analysis
(``IRFA'') with a proposed rule, or certify that the proposed rule will
not have a significant impact on a substantial number of small
entities.\26\ The Commission published an Initial Regulatory
Flexibility Analysis in order to inquire into the impact of the
Proposed Rule on small entities.\27\ The Commission received no
responsive comments.
---------------------------------------------------------------------------
\26\ 5 U.S.C. 603-605.
\27\ 85 FR 63462, 63465 (October 8, 2020).
---------------------------------------------------------------------------
The Commission does not believe this amendment has the threshold
impact on small entities. The amendment effectuates changes to the
Dodd-Frank Act and will not impose costs on small motor vehicle dealers
because the amendments are for clarification purposes and will not
result in any increased burden on any motor vehicle dealer. Although
the Final Rule adopts a slightly revised model notice, motor vehicle
dealers may continue to use any existing notices based on previous
models and still comply with the Final Rule. Thus, a small entity that
complies with current law need not take any different or additional
action under the Final Rule. Therefore, the Commission certifies
amending the Risk-Based Pricing Rule will not have a significant
economic impact on a substantial number of small businesses.
Although the Commission certifies under the RFA the Final Rule will
not have a significant impact on a substantial number of small
entities, and hereby provides notice of that certification to the Small
Business Administration, the Commission nonetheless has determined that
publishing a final regulatory flexibility analysis (``FRFA'') is
appropriate to ensure the impact of the rule is fully addressed.
Therefore, the Commission has prepared the following analysis:
A. Need for and Objectives of the Final Rule
To address the Dodd-Frank Act's changes to the Commission's
rulemaking authority, the amendments clarify that the Rule applies only
to motor vehicle dealers.
B. Significant Issues Raised in Public Comments in Response to the IRFA
The Commission did not receive any comments that addressed the
burden on small entities. In addition, the Commission did not receive
any comments filed by the Chief Counsel for Advocacy of the Small
Business Administration (``SBA'').
C. Estimate of Number of Small Entities to Which the Final Rule Will
Apply
The Commission anticipates many covered motor vehicle dealers may
qualify as small businesses according to the applicable SBA size
standards. As explained in the IRFA, however, determining a precise
estimate of the number of small entities is not readily feasible. No
commenters addressed this issue. Nonetheless, as discussed above, these
amendments will not add any additional burdens on any covered small
businesses.
D. Projected Reporting, Recordkeeping, and Other Compliance
Requirements, Including Classes of Covered Small Entities and
Professional Skills Needed To Comply
The amendments impose no new reporting, recordkeeping, or other
compliance requirements.
E. Description of Steps Taken To Minimize Significant Economic Impact,
if Any, on Small Entities, Including Alternatives
The Commission did not propose any specific small entity exemption
or other significant alternatives because the amendment will not
increase reporting requirements and will not impose any new
requirements or compliance costs.
VI. Other Matters
Pursuant to the Congressional Review Act (5 U.S.C. 801 et seq.),
the Office of Information and Regulatory Affairs designated this rule
as not a ``major rule,'' as defined by 5 U.S.C. 804(2).
Final Rule Language
List of Subjects in 16 CFR Part 640 and 698
Consumer protection, Credit, Trade practices.
For the reasons stated above, the Federal Trade Commission amends
parts 640 and 698 of title 16 of the Code of Federal Regulations as
follows:
0
1. Revise part 640 to read as follows:
PART 640--DUTIES OF CREDITORS REGARDING RISK-BASED PRICING
Sec.
640.1 Scope.
640.2 Definitions.
640.3 General requirements for risk-based pricing notices.
640.4 Content, form, and timing of risk-based pricing notices.
640.5 Exceptions.
640.6 Rules of Construction.
Authority: Pub. L. 108-159, sec. 311; 15 U.S.C. 1681m(h); 12
U.S.C. 5519(d).
[[Page 51798]]
Sec. 640.1 Scope.
(a) Coverage--(1) In general. This part applies to any motor
vehicle dealer as defined in Sec. 640.2 of this part that both--
(i) Uses a consumer report in connection with an application for,
or a grant, extension, or other provision of, credit to a consumer that
is primarily for personal, family, or household purposes; and
(ii) Based in whole or in part on the consumer report, grants,
extends, or otherwise provides credit to the consumer on material terms
that are materially less favorable than the most favorable material
terms available to a substantial proportion of consumers from or
through that motor vehicle dealer.
(2) Business credit excluded. This part does not apply to an
application for, or a grant, extension, or other provision of, credit
to a consumer or to any other applicant primarily for a business
purpose.
(b) Enforcement. The provisions of this part will be enforced in
accordance with the enforcement authority set forth in sections 621(a)
and (b) of the FCRA.
Sec. 640.2 Definitions.
For purposes of this part, the following definitions apply:
(a) Adverse action has the same meaning as in 15 U.S.C.
1681a(k)(1)(A).
(b) Annual percentage rate has the same meaning as in 12 CFR
1026.14(b) with respect to an open-end credit plan and as in 12 CFR
1026.22 with respect to closed-end credit.
(c) Closed-end credit has the same meaning as in 12 CFR
1026.2(a)(10).
(d) Consumer has the same meaning as in 15 U.S.C. 1681a(c).
(e) Consummation has the same meaning as in 12 CFR 1026.2(a)(13).
(f) Consumer report has the same meaning as in 15 U.S.C. 1681a(d).
(g) Consumer reporting agency has the same meaning as in 15 U.S.C.
1681a(f).
(h) Credit has the same meaning as in 15 U.S.C. 1681a(r)(5).
(i) Creditor has the same meaning as in 15 U.S.C. 1681a(r)(5).
(j) Credit card has the same meaning as in 15 U.S.C. 1681a(r)(2).
(k) Credit card issuer has the same meaning as in 15 U.S.C.
1681a(r)(1)(A).
(l) Credit score has the same meaning as in 15 U.S.C.
1681g(f)(2)(A).
(m) Firm offer of credit has the same meaning as in 15 U.S.C.
1681a(l).
(n) Material terms means--
(1)(i) Except as otherwise provided in paragraphs (n)(1)(ii) and
(n)(3) of this section, in the case of credit extended under an open-
end credit plan, the annual percentage rate required to be disclosed
under 12 CFR 226.6(a)(1)(ii) or 12 CFR 226.6(b)(2)(i), excluding any
temporary initial rate lower than the rate that will apply after the
temporary rate expires, any penalty rate that will apply upon the
occurrence of one or more specific events, such as a late payment or an
extension of credit that exceeds the credit limit, and any fixed annual
percentage rate option for a home equity line of credit;
(ii) In the case of a credit card (other than a credit card used to
access a home equity line of credit or a charge card), the annual
percentage rate required to be disclosed under 12 CFR 226.6(b)(2)(i)
that applies to purchases (``purchase annual percentage rate'') and no
other annual percentage rate, or in the case of a credit card that has
no purchase annual percentage rate, the annual percentage rate that
varies based on information in a consumer report and that has the most
significant financial impact on consumers;
(2) In the case of closed-end credit, the annual percentage rate
required to be disclosed under 12 CFR 226.17(c) and 226.18(e); and
(3) In the case of credit for which there is no annual percentage
rate, the financial term that varies based on information in a consumer
report and that has the most significant financial impact on consumers,
such as a deposit required in connection with an extension of credit.
(o) Materially less favorable means, when applied to material
terms, that the terms granted, extended, or otherwise provided to a
consumer differ from the terms granted, extended, or otherwise provided
to another consumer from or through the same motor vehicle dealer such
that the cost of credit to the first consumer would be significantly
greater than the cost of credit granted, extended, or otherwise
provided to the other consumer. For purposes of this definition,
factors relevant to determining the significance of a difference in
cost include the type of credit product, the term of the credit
extension, if any, and the extent of the difference between the
material terms granted, extended, or otherwise provided to the two
consumers.
(p) Motor vehicle dealer means any person excluded from Consumer
Financial Protection Bureau jurisdiction as described in 12 U.S.C.
5519.
(q) Open-end credit plan has the same meaning as in 15 U.S.C.
1602(j), as interpreted by the Board in Regulation Z and the Official
Staff Commentary to Regulation Z.
(r) Person has the same meaning as in 15 U.S.C. 1681a(b).
Sec. 640.3 General requirements for risk-based pricing notices.
(a) In general. Except as otherwise provided in this part, a motor
vehicle dealer must provide to a consumer a notice (``risk-based
pricing notice'') in the form and manner required by this part if the
motor vehicle dealer both--
(1) Uses a consumer report in connection with an application for,
or a grant, extension, or other provision of, credit to that consumer
primarily for personal, family, or household purposes; and
(2) Based in whole or in part on the consumer report, grants,
extends, or otherwise provides credit to that consumer on material
terms that are materially less favorable than the most favorable
material terms available to a substantial proportion of consumers from
or through that motor vehicle dealer.
(b) Determining which consumers must receive a notice. A motor
vehicle dealer may determine whether paragraph (a) of this section
applies by directly comparing the material terms offered to each
consumer and the material terms offered to other consumers for a
specific type of credit product. For purposes of this section, a
``specific type of credit product'' means one or more credit products
with similar features designed for similar purposes. Examples of a
specific type of credit product include new automobile loans and used
automobile loans. As an alternative to making this direct comparison, a
motor vehicle dealer may make the determination by using one of the
following methods:
(1) Credit score proxy method--(i) In general. A motor vehicle
dealer that sets the material terms of credit granted, extended, or
otherwise provided to a consumer, based in whole or in part on a credit
score, may comply with the requirements of paragraph (a) of this
section by--
(A) Determining the credit score (hereafter referred to as the
``cutoff score'') that represents the point at which approximately 40
percent of the consumers to whom it grants, extends, or provides credit
have higher credit scores and approximately 60 percent of the consumers
to whom it grants, extends, or provides credit have lower credit
scores; and
(B) Providing a risk-based pricing notice to each consumer to whom
it grants, extends, or provides credit whose credit score is lower than
the cutoff score.
(ii) Alternative to the 40/60 cutoff score determination. In the
case of credit that has been granted, extended, or provided on the most
favorable
[[Page 51799]]
material terms to more than 40 percent of consumers, a motor vehicle
dealer may, at its option, set its cutoff score at a point at which the
approximate percentage of consumers who historically have been granted,
extended, or provided credit on material terms other than the most
favorable terms would receive risk-based pricing notices under this
section.
(iii) Determining the cutoff score--(A) Sampling approach. A motor
vehicle dealer that currently uses risk-based pricing with respect to
the credit products it offers must calculate the cutoff score by
considering the credit scores of all or a representative sample of the
consumers to whom it has granted, extended, or provided credit for a
specific type of credit product.
(B) Secondary source approach in limited circumstances. A motor
vehicle dealer that is a new entrant into the credit business,
introduces new credit products, or starts to use risk-based pricing
with respect to the credit products it currently offers may initially
determine the cutoff score based on information derived from
appropriate market research or relevant third-party sources for a
specific type of credit product, such as research or data from
companies that develop credit scores. A motor vehicle dealer that
acquires a credit portfolio as a result of a merger or acquisition may
determine the cutoff score based on information from the party which it
acquired, with which it merged, or from which it acquired the
portfolio.
(C) Recalculation of cutoff scores. A motor vehicle dealer using
the credit score proxy method must recalculate its cutoff score(s) no
less than every two years in the manner described in paragraph
(b)(1)(iii)(A) of this section. A motor vehicle dealer using the credit
score proxy method using market research, third-party data, or
information from a party which it acquired, with which it merged, or
from which it acquired the portfolio as permitted by paragraph
(b)(1)(iii)(B) of this section generally must calculate a cutoff
score(s) based on the scores of its own consumers in the manner
described in paragraph (b)(1)(iii)(A) of this section within one year
after it begins using a cutoff score derived from market research,
third-party data, or information from a party which it acquired, with
which it merged, or from which it acquired the portfolio. If such a
motor vehicle dealer does not grant, extend, or provide credit to new
consumers during that one-year period such that it lacks sufficient
data with which to recalculate a cutoff score based on the credit
scores of its own consumers, the motor vehicle dealer may continue to
use a cutoff score derived from market research, third-party data, or
information from a party which it acquired, with which it merged, or
from which it acquired the portfolio as provided in paragraph
(b)(1)(iii)(B) until it obtains sufficient data on which to base the
recalculation. However, the motor vehicle dealer must recalculate its
cutoff score(s) in the manner described in paragraph (b)(1)(iii)(A) of
this section within two years, if it has granted, extended, or provided
credit to some new consumers during that two-year period.
(D) Use of two or more credit scores. A motor vehicle dealer that
generally uses two or more credit scores in setting the material terms
of credit granted, extended, or provided to a consumer must determine
the cutoff score using the same method the motor vehicle dealer uses to
evaluate multiple scores when making credit decisions. These evaluation
methods may include, but are not limited to, selecting the low, median,
high, most recent, or average credit score of each consumer to whom it
grants, extends, or provides credit. If a motor vehicle dealer that
uses two or more credit scores does not consistently use the same
method for evaluating multiple credit scores (e.g., if the motor
vehicle dealer sometimes chooses the median score and other times
calculates the average score), the motor vehicle dealer must determine
the cutoff score using a reasonable means. In such cases, use of any
one of the methods that the motor vehicle dealer regularly uses or the
average credit score of each consumer to whom it grants, extends, or
provides credit is deemed to be a reasonable means of calculating the
cutoff score.
(iv) Credit score not available. For purposes of this section, a
motor vehicle dealer using the credit score proxy method who grants,
extends, or provides credit to a consumer for whom a credit score is
not available must assume that the consumer receives credit on material
terms that are materially less favorable than the most favorable credit
terms offered to a substantial proportion of consumers from or through
that motor vehicle dealer and must provide a risk-based pricing notice
to the consumer.
(v) Examples. (A) A motor vehicle dealer engages in risk-based
pricing and the annual percentage rates it offers to consumers are
based in whole or in part on a credit score. The motor vehicle dealer
takes a representative sample of the credit scores of consumers to whom
it extended loans within the preceding three months. The motor vehicle
dealer determines that approximately 40 percent of the sampled
consumers have a credit score at or above 720 (on a scale of 350 to
850) and approximately 60 percent of the sampled consumers have a
credit score below 720. Thus, the motor vehicle dealer selects 720 as
its cutoff score. A consumer applies to the motor vehicle dealer for a
loan. The motor vehicle dealer obtains a credit score for the consumer.
The consumer's credit score is 700. Since the consumer's 700 credit
score falls below the 720 cutoff score, the motor vehicle dealer must
provide a risk-based pricing notice to the consumer.
(B) A motor vehicle dealer engages in risk-based pricing, and the
annual percentage rates it offers to consumers are based in whole or in
part on a credit score. The motor vehicle dealer takes a representative
sample of the consumers to whom it extended loans over the preceding
six months. The motor vehicle dealer determines that approximately 80
percent of the sampled consumers received credit at its lowest annual
percentage rate, and 20 percent received credit at a higher annual
percentage rate. Approximately 80 percent of the sampled consumers have
a credit score at or above 750 (on a scale of 350 to 850), and 20
percent have a credit score below 750. Thus, the motor vehicle dealer
selects 750 as its cutoff score. A consumer applies to the motor
vehicle dealer for an automobile loan. The motor vehicle dealer obtains
a credit score for the consumer. The consumer's credit score is 740.
Since the consumer's 740 credit score falls below the 750 cutoff score,
the motor vehicle dealer must provide a risk-based pricing notice to
the consumer.
(C) A motor vehicle dealer engages in risk-based pricing, obtains
credit scores from one of the nationwide consumer reporting agencies,
and uses the credit score proxy method to determine which consumers
must receive a risk-based pricing notice. A consumer applies to the
motor vehicle dealer for credit to finance the purchase of an
automobile. A credit score about that consumer is not available from
the consumer reporting agency from which the lender obtains credit
scores. The motor vehicle dealer nevertheless grants, extends, or
provides credit to the consumer. The motor vehicle dealer must provide
a risk-based pricing notice to the consumer.
(2) Tiered pricing method--(i) In general. A motor vehicle dealer
that sets the material terms of credit granted, extended, or provided
to a consumer by placing the consumer within one of a discrete number
of pricing tiers for a specific type of credit product, based in
[[Page 51800]]
whole or in part on a consumer report, may comply with the requirements
of paragraph (a) of this section by providing a risk-based pricing
notice to each consumer who is not placed within the top pricing tier
or tiers, as described below.
(ii) Four or fewer pricing tiers. If a motor vehicle dealer using
the tiered pricing method has four or fewer pricing tiers, the motor
vehicle dealer complies with the requirements of paragraph (a) of this
section by providing a risk-based pricing notice to each consumer to
whom it grants, extends, or provides credit who does not qualify for
the top tier (that is, the lowest-priced tier). For example, a motor
vehicle dealer that uses a tiered pricing structure with annual
percentage rates of 8, 10, 12, and 14 percent would provide the risk-
based pricing notice to each consumer to whom it grants, extends, or
provides credit at annual percentage rates of 10, 12, and 14 percent.
(iii) Five or more pricing tiers. If a motor vehicle dealer using
the tiered pricing method has five or more pricing tiers, the motor
vehicle dealer complies with the requirements of paragraph (a) of this
section by providing a risk-based pricing notice to each consumer to
whom it grants, extends, or provides credit who does not qualify for
the top two tiers (that is, the two lowest-priced tiers) and any other
tier that, together with the top tiers, comprise no less than the top
30 percent but no more than the top 40 percent of the total number of
tiers. Each consumer placed within the remaining tiers must receive a
risk-based pricing notice. For example, if a motor vehicle dealer has
nine pricing tiers, the top three tiers (that is, the three lowest-
priced tiers) comprise no less than the top 30 percent but no more than
the top 40 percent of the tiers. Therefore, a motor vehicle dealer
using this method would provide a risk-based pricing notice to each
consumer to whom it grants, extends, or provides credit who is placed
within the bottom six tiers.
(c) Application to credit card issuers--(1) In general. A credit
card issuer subject to the requirements of paragraph (a) of this
section may use one of the methods set forth in paragraph (b) of this
section to identify consumers to whom it must provide a risk-based
pricing notice. Alternatively, a credit card issuer may satisfy its
obligations under paragraph (a) of this section by providing a risk-
based pricing notice to a consumer when--
(i) A consumer applies for a credit card either in connection with
an application program, such as a direct-mail offer or a take-one
application, or in response to a solicitation under 12 CFR 226.5a, and
more than a single possible purchase annual percentage rate may apply
under the program or solicitation; and
(ii) Based in whole or in part on a consumer report, the credit
card issuer provides a credit card to the consumer with an annual
percentage rate referenced in Sec. 640.2(n)(1)(ii) that is greater
than the lowest annual percentage rate referenced in Sec.
640.2(n)(1)(ii) available in connection with the application or
solicitation.
(2) No requirement to compare different offers. A credit card
issuer is not subject to the requirements of paragraph (a) of this
section and is not required to provide a risk-based pricing notice to a
consumer if--
(i) The consumer applies for a credit card for which the card
issuer provides a single annual percentage rate referenced in Sec.
640.2(n)(1)(ii), excluding a temporary initial rate lower than the rate
that will apply after the temporary rate expires and a penalty rate
that will apply upon the occurrence of one or more specific events,
such as a late payment or an extension of credit that exceeds the
credit limit; or
(ii) The credit card issuer offers the consumer the lowest annual
percentage rate referenced in Sec. 640.2(n)(1)(ii) available under the
credit card offer for which the consumer applied, even if a lower
annual percentage rate referenced in Sec. 640.2(n)(1)(ii) is available
under a different credit card offer issued by the card issuer.
(3) Examples. (i) A credit card issuer sends a solicitation to the
consumer that discloses several possible purchase annual percentage
rates that may apply, such as 10, 12, or 14 percent, or a range of
purchase annual percentage rates from 10 to 14 percent. The consumer
applies for a credit card in response to the solicitation. The card
issuer provides a credit card to the consumer with a purchase annual
percentage rate of 12 percent based in whole or in part on a consumer
report. Unless an exception applies under Sec. 640.5, the card issuer
may satisfy its obligations under paragraph (a) of this section by
providing a risk-based pricing notice to the consumer because the
consumer received credit at a purchase annual percentage rate greater
than the lowest purchase annual percentage rate available under that
solicitation.
(ii) The same facts as in the example in paragraph (c)(3)(i) of
this section, except that the card issuer provides a credit card to the
consumer at a purchase annual percentage rate of 10 percent. The card
issuer is not required to provide a risk-based pricing notice to the
consumer even if, under a different credit card solicitation, that
consumer or other consumers might qualify for a purchase annual
percentage rate of 8 percent.
(d) Account review--(1) In general. Except as otherwise provided in
this part, a motor vehicle dealer is subject to the requirements of
paragraph (a) of this section and must provide a risk-based pricing
notice to a consumer in the form and manner required by this part if
the motor vehicle dealer--
(i) Uses a consumer report in connection with a review of credit
that has been extended to the consumer; and
(ii) Based in whole or in part on the consumer report, increases
the annual percentage rate (the annual percentage rate referenced in
Sec. 640.2(n)(1)(ii) in the case of a credit card).
(2) Example. A credit card issuer periodically obtains consumer
reports for the purpose of reviewing the terms of credit it has
extended to consumers in connection with credit cards. As a result of
this review, the credit card issuer increases the purchase annual
percentage rate applicable to a consumer's credit card based in whole
or in part on information in a consumer report. The credit card issuer
is subject to the requirements of paragraph (a) of this section and
must provide a risk-based pricing notice to the consumer.
Sec. 640.4 Content, form, and timing of risk-based pricing notices.
(a) Content of the notice--(1) In general. The risk-based pricing
notice required by Sec. 640.3(a) or (c) must include:
(i) A statement that a consumer report (or credit report) includes
information about the consumer's credit history and the type of
information included in that history;
(ii) A statement that the terms offered, such as the annual
percentage rate, have been set based on information from a consumer
report;
(iii) A statement that the terms offered may be less favorable than
the terms offered to consumers with better credit histories;
(iv) A statement that the consumer is encouraged to verify the
accuracy of the information contained in the consumer report and has
the right to dispute any inaccurate information in the report;
(v) The identity of each consumer reporting agency that furnished a
consumer report used in the credit decision;
(vi) A statement that federal law gives the consumer the right to
obtain a copy of a consumer report from the consumer reporting agency
or agencies identified
[[Page 51801]]
in the notice without charge for 60 days after receipt of the notice;
(vii) A statement informing the consumer how to obtain a consumer
report from the consumer reporting agency or agencies identified in the
notice and providing contact information (including a toll-free
telephone number, where applicable) specified by the consumer reporting
agency or agencies;
(viii) A statement directing consumers to the websites of the
Consumer Financial Protection Bureau and Federal Trade Commission to
obtain more information about consumer reports; and
(ix) If a credit score of the consumer to whom a motor vehicle
dealer grants, extends, or otherwise provides credit is used in setting
the material terms of credit:
(A) A statement that a credit score is a number that takes into
account information in a consumer report, that the consumer's credit
score was used to set the terms of credit offered, and that a credit
score can change over time to reflect changes in the consumer's credit
history;
(B) The credit score used by the motor vehicle dealer in making the
credit decision;
(C) The range of possible credit scores under the model used to
generate the credit score;
(D) All of the key factors that adversely affected the credit
score, which shall not exceed four key factors, except that if one of
the key factors is the number of enquiries made with respect to the
consumer report, the number of key factors shall not exceed five;
(E) The date on which the credit score was created; and
(F) The name of the consumer reporting agency or other person that
provided the credit score.
(2) Account review. The risk-based pricing notice required by Sec.
640.3(d) must include:
(i) A statement that a consumer report (or credit report) includes
information about the consumer's credit history and the type of
information included in that credit history;
(ii) A statement that the credit card issuer has conducted a review
of the account using information from a consumer report;
(iii) A statement that as a result of the review, the annual
percentage rate on the account has been increased based on information
from a consumer report;
(iv) A statement that the consumer is encouraged to verify the
accuracy of the information contained in the consumer report and has
the right to dispute any inaccurate information in the report;
(v) The identity of each consumer reporting agency that furnished a
consumer report used in the account review;
(vi) A statement that federal law gives the consumer the right to
obtain a copy of a consumer report from the consumer reporting agency
or agencies identified in the notice without charge for 60 days after
receipt of the notice;
(vii) A statement informing the consumer how to obtain a consumer
report from the consumer reporting agency or agencies identified in the
notice and providing contact information (including a toll-free
telephone number, where applicable) specified by the consumer reporting
agency or agencies;
(viii) A statement directing consumers to the websites of the
Consumer Financial Protection Bureau and Federal Trade Commission to
obtain more information about consumer reports; and
(ix) If a credit score of the consumer whose extension of credit is
under review is used in increasing the annual percentage rate:
(A) A statement that a credit score is a number that takes into
account information in a consumer report, that the consumer's credit
score was used to set the terms of credit offered, and that a credit
score can change over time to reflect changes in the consumer's credit
history;
(B) The credit score used by the credit card issuer in making the
credit decision;
(C) The range of possible credit scores under the model used to
generate the credit score;
(D) All of the key factors that adversely affected the credit
score, which shall not exceed four key factors, except that if one of
the key factors is the number of enquiries made with respect to the
consumer report, the number of key factors shall not exceed five;
(E) The date on which the credit score was created; and
(F) The name of the consumer reporting agency or other person that
provided the credit score.
(b) Form of the notice--(1) In general. The risk-based pricing
notice required by Sec. 640.3(a), (c), or (d) must be:
(i) Clear and conspicuous; and
(ii) Provided to the consumer in oral, written, or electronic form.
(2) Model forms. Model forms of the risk-based pricing notice
required by Sec. 640.3(a) and (c) are contained in appendices A-1 and
A-6 of 16 CFR part 698. Appropriate use of Model form A-1 or A-6 is
deemed to comply with the requirements of Sec. 640.3(a) and (c). Model
forms of the risk-based pricing notice required by Sec. 640.3(d) are
contained in appendices A-2 and A-7 of 16 CFR part 698. Appropriate use
of Model form A-2 or A-7 is deemed to comply with the requirements of
Sec. 640.3(d). Use of the model forms is optional.
(c) Timing--(1) General. Except as provided in paragraph (c)(3) of
this section, a risk-based pricing notice must be provided to the
consumer--
(i) In the case of a grant, extension, or other provision of
closed-end credit, before consummation of the transaction, but not
earlier than the time the decision to approve an application for, or a
grant, extension, or other provision of, credit, is communicated to the
consumer by the motor vehicle dealer required to provide the notice;
(ii) In the case of credit granted, extended, or provided under an
open-end credit plan, before the first transaction is made under the
plan, but not earlier than the time the decision to approve an
application for, or a grant, extension, or other provision of, credit
is communicated to the consumer by the motor vehicle dealer required to
provide the notice; or
(iii) In the case of a review of credit that has been extended to
the consumer, at the time the decision to increase the annual
percentage rate (annual percentage rate referenced in Sec.
640.2(n)(1)(ii) in the case of a credit card) based on a consumer
report is communicated to the consumer by the motor vehicle dealer
required to provide the notice, or if no notice of the increase in the
annual percentage rate is provided to the consumer prior to the
effective date of the change in the annual percentage rate (to the
extent permitted by law), no later than five days after the effective
date of the change in the annual percentage rate.
(2) Application to certain automobile lending transactions. When a
person to whom a credit obligation is initially payable grants,
extends, or provides credit to a consumer for the purpose of financing
the purchase of an automobile from a motor vehicle dealer or other
party not affiliated with the person, any requirement to provide a
risk-based pricing notice pursuant to this part is satisfied if the
person:
(i) Provides a notice described in Sec. 640.3(a), 640.5(e), or
640.5(f) to the consumer within the time periods set forth in paragraph
(c)(1)(i) of this section, Sec. 640.5(e)(3), or 640.5(f)(4), as
applicable; or
(ii) Arranges to have the motor vehicle dealer or other party
provide a notice
[[Page 51802]]
described in Sec. Sec. 640.3(a), 640.5(e), or 640.5(f) to the consumer
on its behalf within the time periods set forth in paragraph (c)(1)(i)
of this section, Sec. 640.5(e)(3), or Sec. 640.5(f)(4), as
applicable, and maintains reasonable policies and procedures to verify
the motor vehicle dealer or other party provides such notice to the
consumer within the applicable time periods. If the person arranges to
have the motor vehicle dealer or other party provide a notice described
in Sec. 640.5(e), the person's obligation is satisfied if the consumer
receives a notice containing a credit score obtained by the dealer or
other party, even if a different credit score is obtained and used by
the person on whose behalf the notice is provided.
(3) Timing requirements for contemporaneous purchase credit. When
credit under an open-end credit plan is granted, extended, or provided
to a consumer in person or by telephone for the purpose of financing
the contemporaneous purchase of goods or services, any risk-based
pricing notice required to be provided pursuant to this part (or the
disclosures permitted under Sec. 640.5(e) or (f)) may be provided at
the earlier of:
(i) The time of the first mailing by the motor vehicle dealer to
the consumer after the decision is made to approve the grant,
extension, or other provision of open-end credit, such as in a mailing
containing the account agreement or a credit card; or
(ii) Within 30 days after the decision to approve the grant,
extension, or other provision of credit.
(d) Multiple credit scores--(1) In general. When a motor vehicle
dealer obtains or creates two or more credit scores and uses one of
those credit scores in setting the material terms of credit, for
example, by using the low, middle, high, or most recent score, the
notices described in paragraphs (a)(1) and (2) of this section must
include that credit score and information relating to that credit score
required by paragraphs (a)(1)(ix) and (a)(2)(ix) of this section. When
a motor vehicle dealer obtains or creates two or more credit scores and
uses multiple credit scores in setting the material terms of credit by,
for example, computing the average of all the credit scores obtained or
created, the notices described in paragraphs (a)(1) and (2) of this
section must include one of those credit scores and information
relating to credit scores required by paragraphs (a)(1)(ix) and
(a)(2)(ix) of this section. The notice may, at the motor vehicle
dealer's option, include more than one credit score, along with the
additional information specified in paragraphs (a)(1)(ix) and
(a)(2)(ix) of this section for each credit score disclosed.
(2) Examples. (i) A motor vehicle dealer that uses consumer reports
to set the material terms of automobile loans granted, extended, or
provided to consumers regularly requests credit scores from several
consumer reporting agencies and uses the low score when determining the
material terms it will offer to the consumer. That motor vehicle dealer
must disclose the low score in the notices described in paragraphs
(a)(1) and (2) of this section.
(ii) A motor vehicle dealer that uses consumer reports to set the
material terms of automobile loans granted, extended, or provided to
consumers regularly requests credit scores from several consumer
reporting agencies, each of which it uses in an underwriting program in
order to determine the material terms it will offer to the consumer.
That motor vehicle dealer may choose one of these scores to include in
the notices described in paragraph (a)(1) and (2) of this section.
Sec. 640.5 Exceptions.
(a) Application for specific terms--(1) In general. A motor vehicle
dealer is not required to provide a risk-based pricing notice to the
consumer under Sec. 640.3(a) or (c) if the consumer applies for
specific material terms and is granted those terms, unless those terms
were specified by the motor vehicle dealer using a consumer report
after the consumer applied for or requested credit and after the motor
vehicle dealer obtained the consumer report. For purposes of this
section, ``specific material terms'' means a single material term, or
set of material terms, such as an annual percentage rate of 10 percent,
and not a range of alternatives, such as an annual percentage rate that
may be 8, 10, or 12 percent, or between 8 and 12 percent.
(2) Example. A consumer receives a firm offer of credit from a
motor vehicle dealer. The terms of the firm offer are based in whole or
in part on information from a consumer report the motor vehicle dealer
obtained under the FCRA's firm offer of credit provisions. The
solicitation offers the consumer a loan with an annual percentage rate
of 12 percent. The consumer applies for and receives a loan with an
annual percentage rate of 12 percent. Other customers of the motor
vehicle dealer have an annual percentage rate of 10 percent. The
exception applies because the consumer applied for specific material
terms and was granted those terms. Although the motor vehicle dealer
specified the annual percentage rate in the firm offer of credit based
in whole or in part on a consumer report, the motor vehicle dealer
specified that material term before, not after, the consumer applied
for or requested credit.
(b) Adverse action notice. A motor vehicle dealer is not required
to provide a risk-based pricing notice to the consumer under Sec.
640.3(a), (c), or (d) if the motor vehicle dealer provides an adverse
action notice to the consumer under section 615(a) of the FCRA.
(c) Prescreened solicitations--(1) In general. A motor vehicle
dealer is not required to provide a risk-based pricing notice to the
consumer under Sec. 640.3(a) or (c) if the motor vehicle dealer:
(i) Obtains a consumer report that is a prescreened list as
described in section 604(c)(2) of the FCRA; and
(ii) Uses the consumer report for the purpose of making a firm
offer of credit to the consumer.
(2) More favorable material terms. This exception applies to any
firm offer of credit offered by a motor vehicle dealer to a consumer,
even if the motor vehicle dealer makes other firm offers of credit to
other consumers on more favorable material terms.
(3) Example. A motor vehicle dealer obtains two prescreened lists
from a consumer reporting agency. One list includes consumers with high
credit scores. The other list includes consumers with low credit
scores. The motor vehicle dealer mails a firm offer of credit to the
high credit score consumers with an annual percentage rate of 10
percent. The motor vehicle dealer also mails a firm offer of credit to
the low credit score consumers with an annual percentage rate of 14
percent. The motor vehicle dealer is not required to provide a risk-
based pricing notice to the low credit score consumers who receive the
14 percent offer because use of a consumer report to make a firm offer
of credit does not trigger the risk-based pricing notice requirement.
(d) Loans secured by residential real property--credit score
disclosure--(1) In general. A motor vehicle dealer is not required to
provide a risk-based pricing notice to a consumer under Sec. 640.3(a)
or (c) if:
(i) The consumer requests from the motor vehicle dealer an
extension of credit that is or will be secured by one to four units of
residential real property; and
(ii) The motor vehicle dealer provides to each consumer described
in paragraph (d)(1)(i) of this section a notice that contains the
following--
(A) A statement that a consumer report (or credit report) is a
record of the consumer's credit history and includes information about
whether the
[[Page 51803]]
consumer pays his or her obligations on time and how much the consumer
owes to creditors;
(B) A statement that a credit score is a number that takes into
account information in a consumer report and that a credit score can
change over time to reflect changes in the consumer's credit history;
(C) A statement that the consumer's credit score can affect whether
the consumer can obtain credit and what the cost of that credit will
be;
(D) The information required to be disclosed to the consumer
pursuant to section 609(g) of the FCRA;
(E) The distribution of credit scores among consumers who are
scored under the same scoring model that is used to generate the
consumer's credit score using the same scale as that of the credit
score that is provided to the consumer, presented in the form of a bar
graph containing a minimum of six bars that illustrates the percentage
of consumers with credit scores within the range of scores reflected in
each bar or by other clear and readily understandable graphical means,
or a clear and readily understandable statement informing the consumer
how his or her credit score compares to the scores of other consumers.
Use of a graph or statement obtained from the person providing the
credit score that meets the requirements of this paragraph
(d)(1)(ii)(E) is deemed to comply with this requirement;
(F) A statement that the consumer is encouraged to verify the
accuracy of the information contained in the consumer report and has
the right to dispute any inaccurate information in the report;
(G) A statement that federal law gives the consumer the right to
obtain copies of his or her consumer reports directly from the consumer
reporting agencies, including a free report from each of the nationwide
consumer reporting agencies once during any 12-month period;
(H) Contact information for the centralized source from which
consumers may obtain their free annual consumer reports; and
(I) A statement directing consumers to the websites of the Board
and Federal Trade Commission to obtain more information about consumer
reports.
(2) Form of the notice. The notice described in paragraph
(d)(1)(ii) of this section must be:
(i) Clear and conspicuous;
(ii) Provided on or with the notice required by section 609(g) of
the FCRA;
(iii) Segregated from other information provided to the consumer,
except for the notice required by section 609(g) of the FCRA; and
(iv) Provided to the consumer in writing and in a form that the
consumer may keep.
(3) Timing. The notice described in paragraph (d)(1)(ii) of this
section must be provided to the consumer at the time the disclosure
required by section 609(g) of the FCRA is provided to the consumer, but
in any event at or before consummation in the case of closed-end credit
or before the first transaction is made under an open-end credit plan.
(4) Multiple credit scores--(i) In general. When a motor vehicle
dealer obtains two or more credit scores from consumer reporting
agencies and uses one of those credit scores in setting the material
terms of credit granted, extended, or otherwise provided to a consumer,
for example, by using the low, middle, high, or most recent score, the
notice described in paragraph (d)(1)(ii) of this section must include
that credit score and the other information required by that paragraph.
When a motor vehicle dealer obtains two or more credit scores from
consumer reporting agencies and uses multiple credit scores in setting
the material terms of credit granted, extended, or otherwise provided
to a consumer, for example, by computing the average of all the credit
scores obtained, the notice described in paragraph (d)(1)(ii) of this
section must include one of those credit scores and the other
information required by that paragraph. The notice may, at the motor
vehicle dealer's option, include more than one credit score, along with
the additional information specified in paragraph (d)(1)(ii) of this
section for each credit score disclosed.
(ii) Examples. (A) A motor vehicle dealer that uses consumer
reports to set the material terms of credit granted, extended, or
provided to consumers regularly requests credit scores from several
consumer reporting agencies and uses the low score when determining the
material terms it will offer to the consumer. That motor vehicle dealer
must disclose the low score in the notice described in paragraph
(d)(1)(ii) of this section.
(B) A motor vehicle dealer that uses consumer reports to set the
material terms of mortgage credit granted, extended, or provided to
consumers regularly requests credit scores from several consumer
reporting agencies, each of which it uses in an underwriting program in
order to determine the material terms it will offer to the consumer.
That motor vehicle dealer may choose one of these scores to include in
the notice described in paragraph (d)(1)(ii) of this section.
(5) Model form. A model form of the notice described in paragraph
(d)(1)(ii) of this section consolidated with the notice required by
section 609(g) of the FCRA is contained in 16 CFR part 698, appendix A.
Appropriate use of Model Form A-3 is deemed to comply with the
requirements of Sec. 640.5(d). Use of the model form is optional.
(e) Other extensions of credit--credit score disclosure--(1) In
general. A motor vehicle dealer is not required to provide a risk-based
pricing notice to a consumer under Sec. 640.3(a) or (c) if:
(i) The consumer requests from the motor vehicle dealer an
extension of credit other than credit that is or will be secured by one
to four units of residential real property; and
(ii) The motor vehicle dealer provides to each consumer described
in paragraph (e)(1)(i) of this section a notice that contains the
following--
(A) A statement that a consumer report (or credit report) is a
record of the consumer's credit history and includes information about
whether the consumer pays his or her obligations on time and how much
the consumer owes to creditors;
(B) A statement that a credit score is a number that takes into
account information in a consumer report and that a credit score can
change over time to reflect changes in the consumer's credit history;
(C) A statement that the consumer's credit score can affect whether
the consumer can obtain credit and what the cost of that credit will
be;
(D) The current credit score of the consumer or the most recent
credit score of the consumer that was previously calculated by the
consumer reporting agency for a purpose related to the extension of
credit;
(E) The range of possible credit scores under the model used to
generate the credit score;
(F) The distribution of credit scores among consumers who are
scored under the same scoring model that is used to generate the
consumer's credit score using the same scale as that of the credit
score that is provided to the consumer, presented in the form of a bar
graph containing a minimum of six bars that illustrates the percentage
of consumers with credit scores within the range of scores reflected in
each bar, or by other clear and readily understandable graphical means,
or a clear and readily understandable statement informing the consumer
how his or her credit score compares to the scores of other consumers.
Use of a graph or statement obtained from the person providing the
credit score that meets the requirements
[[Page 51804]]
of this paragraph (e)(1)(ii)(F) is deemed to comply with this
requirement;
(G) The date on which the credit score was created;
(H) The name of the consumer reporting agency or other person that
provided the credit score;
(I) A statement that the consumer is encouraged to verify the
accuracy of the information contained in the consumer report and has
the right to dispute any inaccurate information in the report;
(J) A statement that federal law gives the consumer the right to
obtain copies of his or her consumer reports directly from the consumer
reporting agencies, including a free report from each of the nationwide
consumer reporting agencies once during any 12-month period;
(K) Contact information for the centralized source from which
consumers may obtain their free annual consumer reports; and
(L) A statement directing consumers to the websites of the Federal
Reserve Board and Federal Trade Commission to obtain more information
about consumer reports.
(2) Form of the notice. The notice described in paragraph
(e)(1)(ii) of this section must be:
(i) Clear and conspicuous;
(ii) Segregated from other information provided to the consumer;
and
(iii) Provided to the consumer in writing and in a form that the
consumer may keep.
(3) Timing. The notice described in paragraph (e)(1)(ii) of this
section must be provided to the consumer as soon as reasonably
practicable after the credit score has been obtained, but in any event
at or before consummation in the case of closed-end credit or before
the first transaction is made under an open-end credit plan.
(4) Multiple credit scores--(i) In General. When a motor vehicle
dealer obtains two or more credit scores from consumer reporting
agencies and uses one of those credit scores in setting the material
terms of credit granted, extended, or otherwise provided to a consumer,
for example, by using the low, middle, high, or most recent score, the
notice described in paragraph (e)(1)(ii) of this section must include
that credit score and the other information required by that paragraph.
When a motor vehicle dealer obtains two or more credit scores from
consumer reporting agencies and uses multiple credit scores in setting
the material terms of credit granted, extended, or otherwise provided
to a consumer, for example, by computing the average of all the credit
scores obtained, the notice described in paragraph (e)(1)(ii) of this
section must include one of those credit scores and the other
information required by that paragraph. The notice may, at the motor
vehicle dealer's option, include more than one credit score, along with
the additional information specified in paragraph (e)(1)(ii) of this
section for each credit score disclosed.
(ii) Examples. The manner in which multiple credit scores are to be
disclosed under this section are substantially identical to the manner
set forth in the examples contained in paragraph (d)(4)(ii) of this
section.
(5) Model form. A model form of the notice described in paragraph
(e)(1)(ii) of this section is contained in 16 CFR part 698, appendix A.
Appropriate use of Model Form A-4 is deemed to comply with the
requirements of Sec. 640.5(e). Use of the model form is optional.
(f) Credit score not available--(1) In general. A motor vehicle
dealer is not required to provide a risk-based pricing notice to a
consumer under Sec. 640.3(a) or (c) if the motor vehicle dealer:
(i) Regularly obtains credit scores from a consumer reporting
agency and provides credit score disclosures to consumers in accordance
with paragraphs (d) or (e) of this section, but a credit score is not
available from the consumer reporting agency from which the motor
vehicle dealer regularly obtains credit scores for a consumer to whom
the motor vehicle dealer grants, extends, or provides credit;
(ii) Does not obtain a credit score from another consumer reporting
agency in connection with granting, extending, or providing credit to
the consumer; and
(iii) Provides to the consumer a notice that contains the
following--
(A) A statement that a consumer report (or credit report) includes
information about the consumer's credit history and the type of
information included in that history;
(B) A statement that a credit score is a number that takes into
account information in a consumer report and that a credit score can
change over time in response to changes in the consumer's credit
history;
(C) A statement that credit scores are important because consumers
with higher credit scores generally obtain more favorable credit terms;
(D) A statement that not having a credit score can affect whether
the consumer can obtain credit and what the cost of that credit will
be;
(E) A statement that a credit score about the consumer was not
available from a consumer reporting agency, which must be identified by
name, generally due to insufficient information regarding the
consumer's credit history;
(F) A statement that the consumer is encouraged to verify the
accuracy of the information contained in the consumer report and has
the right to dispute any inaccurate information in the consumer report;
(G) A statement that federal law gives the consumer the right to
obtain copies of his or her consumer reports directly from the consumer
reporting agencies, including a free consumer report from each of the
nationwide consumer reporting agencies once during any 12-month period;
(H) The contact information for the centralized source from which
consumers may obtain their free annual consumer reports; and
(I) A statement directing consumers to the websites of the Board
and Federal Trade Commission to obtain more information about consumer
reports.
(2) Example. A motor vehicle dealer that uses consumer reports to
set the material terms of credit granted, extended, or provided to
consumers regularly requests credit scores from a particular consumer
reporting agency and provides those credit scores and additional
information to consumers to satisfy the requirements of paragraph (e)
of this section. That consumer reporting agency provides to the motor
vehicle dealer a consumer report on a particular consumer that contains
one trade line, but does not provide the motor vehicle dealer with a
credit score on that consumer. If the motor vehicle dealer does not
obtain a credit score from another consumer reporting agency and, based
in whole or in part on information in a consumer report, grants,
extends, or provides credit to the consumer, the motor vehicle dealer
may provide the notice described in paragraph (f)(1)(iii) of this
section. If, however, the motor vehicle dealer obtains a credit score
from another consumer reporting agency, the motor vehicle dealer may
not rely upon the exception in paragraph (f) of this section, but may
satisfy the requirements of paragraph (e) of this section.
(3) Form of the notice. The notice described in paragraph
(f)(1)(iii) of this section must be:
(i) Clear and conspicuous;
(ii) Segregated from other information provided to the consumer;
and
(iii) Provided to the consumer in writing and in a form that the
consumer may keep.
(4) Timing. The notice described in paragraph (f)(1)(iii) of this
section must be provided to the consumer as soon as reasonably
practicable after the motor vehicle dealer has requested the credit
score, but in any event not later than consummation of a transaction in
the
[[Page 51805]]
case of closed-end credit or when the first transaction is made under
an open-end credit plan.
(5) Model form. A model form of the notice described in paragraph
(f)(1)(iii) of this section is contained in 16 CFR part 698, appendix
A. Appropriate use of Model Form A-5 is deemed to comply with the
requirements of Sec. 640.5(f). Use of the model form is optional.
Sec. 640.6 Rules of Construction.
For purposes of this part, the following rules of construction
apply:
(a) One notice per credit extension. A consumer is entitled to no
more than one risk-based pricing notice under Sec. 640.3(a) or (c), or
one notice under Sec. 640.5(d), (e), or (f), for each grant,
extension, or other provision of credit. Notwithstanding the foregoing,
even if a consumer has previously received a risk-based pricing notice
in connection with a grant, extension, or other provision of credit,
another risk-based pricing notice is required if the conditions set
forth in Sec. 640.3(d) have been met.
(b) Multi-party transactions--(1) Initial creditor. The motor
vehicle dealer to whom a credit obligation is initially payable must
provide the risk-based pricing notice described in Sec. 640.3(a) or
(c), or satisfy the requirements for and provide the notice required
under one of the exceptions in Sec. 640.5(d), (e), or (f), even if
that motor vehicle dealer immediately assigns the credit agreement to a
third party and is not the source of funding for the credit.
(2) Purchasers or assignees. A purchaser or assignee of a credit
contract with a consumer is not subject to the requirements of this
part and is not required to provide the risk-based pricing notice
described in Sec. 640.3(a) or (c), or satisfy the requirements for and
provide the notice required under one of the exceptions in Sec.
640.5(d), (e), or (f).
(3) Examples. (i) A consumer obtains credit to finance the purchase
of an automobile. If the motor vehicle dealer is the person to whom the
loan obligation is initially payable, such as where the motor vehicle
dealer is the original creditor under a retail installment sales
contract, the motor vehicle dealer must provide the risk-based pricing
notice to the consumer (or satisfy the requirements for and provide the
notice required under one of the exceptions noted above), even if the
motor vehicle dealer immediately assigns the loan to a bank or finance
company. The bank or finance company, which is an assignee, has no duty
to provide a risk-based pricing notice to the consumer.
(ii) A consumer obtains credit to finance the purchase of an
automobile. If a bank or finance company is the person to whom the loan
obligation is initially payable, the bank or finance company must
provide the risk-based pricing notice to the consumer (or satisfy the
requirements for and provide the notice required under one of the
exceptions noted above) based on the terms offered by that bank or
finance company only. The motor vehicle dealer has no duty to provide a
risk-based pricing notice to the consumer. However, the bank or finance
company may comply with this rule if the motor vehicle dealer has
agreed to provide notices to consumers before consummation pursuant to
an arrangement with the bank or finance company, as permitted under
Sec. 640.4(c).
(c) Multiple consumers--(1) Risk-based pricing notices. In a
transaction involving two or more consumers who are granted, extended,
or otherwise provided credit, a motor vehicle dealer must provide a
notice to each consumer to satisfy the requirements of Sec. 640.3(a)
or (c). Whether the consumers have the same address or not, the motor
vehicle dealer must provide a separate notice to each consumer if a
notice includes a credit score(s). Each separate notice that includes a
credit score(s) must contain only the credit score(s) of the consumer
to whom the notice is provided, and not the credit score(s) of the
other consumer. If the consumers have the same address, and the notice
does not include a credit score(s), a motor vehicle dealer may satisfy
the requirements by providing a single notice addressed to both
consumers.
(2) Credit score disclosure notices. In a transaction involving two
or more consumers who are granted, extended, or otherwise provided
credit, a motor vehicle dealer must provide a separate notice to each
consumer to satisfy the exceptions in Sec. 640.5(d), (e), or (f).
Whether the consumers have the same address or not, the motor vehicle
dealer must provide a separate notice to each consumer. Each separate
notice must contain only the credit score(s) of the consumer to whom
the notice is provided, and not the credit score(s) of the other
consumer.
(3) Examples. (i) Two consumers jointly apply for credit with a
creditor. The creditor obtains credit scores on both consumers. Based
in part on the credit scores, the creditor grants credit to the
consumers on material terms that are materially less favorable than the
most favorable terms available to other consumers from the creditor.
The creditor provides risk-based pricing notices to satisfy its
obligations under this subpart. The creditor must provide a separate
risk-based pricing notice to each consumer whether the consumers have
the same address or not. Each risk-based pricing notice must contain
only the credit score(s) of the consumer to whom the notice is
provided.
(ii) Two consumers jointly apply for credit with a creditor. The
two consumers reside at the same address. The creditor obtains credit
scores on each of the two consumer applicants. The creditor grants
credit to the consumers. The creditor provides credit score disclosure
notices to satisfy its obligations under this part. Even though the two
consumers reside at the same address, the creditor must provide a
separate credit score disclosure notice to each of the consumers. Each
notice must contain only the credit score of the consumer to whom the
notice is provided.
PART 698--MODEL FORMS AND DISCLOSURES
0
2. The authority citation for part 698 continues to read as follows:
Authority: 12 U.S.C. 5519; 15 U.S.C. 1681m(h); 15 U.S.C. 1681s-
3; Sec. 214(b), Pub. L. 108-159.
0
3. Revise appendix A to part 698 to read as follows:
Appendix A to Part 698--Model Forms for Risk-Based Pricing and Credit
Score Disclosure Exception Notices
1. This appendix contains four model forms for risk-based
pricing notices and three model forms for use in connection with the
credit score disclosure exceptions. Each of the model forms is
designated for use in a particular set of circumstances as indicated
by the title of that model form.
2. Model form A-1 is for use in complying with the general risk-
based pricing notice requirements in Sec. 640.3 if a credit score
is not used in setting the material terms of credit. Model form A-2
is for risk-based pricing notices given in connection with account
review if a credit score is not used in increasing the annual
percentage rate. Model form A-3 is for use in connection with the
credit score disclosure exception for loans secured by residential
real property. Model form A-4 is for use in connection with the
credit score disclosure exception for loans not secured by
residential real property. Model form A-5 is for use in connection
with the credit score disclosure exception when no credit score is
available for a consumer. Model form A-6 is for use in complying
with the general risk-based pricing notice requirements in Sec.
640.3 if a credit score is used in setting the material terms of
credit. Model form A-7 is for risk-based pricing notices given in
connection with account review if a credit score is used in
increasing the annual percentage rate. All forms contained in this
appendix are models; their use is optional.
[[Page 51806]]
3. A person may change the forms by rearranging the format or by
making technical modifications to the language of the forms, in each
case without modifying the substance of the disclosures. Any such
rearrangement or modification of the language of the model forms may
not be so extensive as to materially affect the substance, clarity,
comprehensibility, or meaningful sequence of the forms. Persons
making revisions with that effect will lose the benefit of the safe
harbor for appropriate use of the model forms in this appendix. A
person is not required to conduct consumer testing when rearranging
the format of the model forms.
a. Acceptable changes include, for example:
i. Corrections or updates to telephone numbers, mailing
addresses, or website addresses that may change over time.
ii. The addition of graphics or icons, such as the person's
corporate logo.
iii. Alteration of the shading or color contained in the model
forms.
iv. Use of a different form of graphical presentation to depict
the distribution of credit scores.
v. Substitution of the words ``credit'' and ``creditor'' or
``finance'' and ``finance company'' for the terms ``loan'' and
``lender.''
vi. Including pre-printed lists of the sources of consumer
reports or consumer reporting agencies in a ``check-the-box''
format.
vii. Including the name of the consumer, transaction
identification numbers, a date, and other information that will
assist in identifying the transaction to which the form pertains.
viii. Including the name of an agent, such as an motor vehicle
dealer or other party, when providing the ``Name of the Entity
Providing the Notice.''
b. Unacceptable changes include, for example:
i. Providing model forms on register receipts or interspersed
with other disclosures.
ii. Eliminating empty lines and extra spaces between sentences
within the same section.
4. Optional language in model forms A-6 and A-7 may be used to
direct the consumer to the entity (which may be a consumer reporting
agency or the creditor itself, for a proprietary score that meets
the definition of a credit score) that provided the credit score for
any questions about the credit score, along with the entity's
contact information. Creditors may use or not use the additional
language without losing the safe harbor, since the language is
optional.
A-1 Model form for risk-based pricing notice.
A-2 Model form for account review risk-based pricing notice.
A-3 Model form for credit score disclosure exception for loans
secured by one to four units of residential real property.
A-4 Model form for credit score disclosure exception for loans
not secured by residential real property.
A-5 Model form for credit score disclosure exception for loans
where credit score is not available.
A-6 Model form for risk-based pricing notice with credit score
information.
A-7 Model form for account review risk-based pricing notice with
credit score information.
BILLING CODE 6750-01-P
[[Page 51807]]
[GRAPHIC] [TIFF OMITTED] TR17SE21.001
[[Page 51808]]
[GRAPHIC] [TIFF OMITTED] TR17SE21.002
[[Page 51809]]
[GRAPHIC] [TIFF OMITTED] TR17SE21.003
[[Page 51810]]
[GRAPHIC] [TIFF OMITTED] TR17SE21.004
[[Page 51811]]
[GRAPHIC] [TIFF OMITTED] TR17SE21.005
[[Page 51812]]
[GRAPHIC] [TIFF OMITTED] TR17SE21.006
[[Page 51813]]
[GRAPHIC] [TIFF OMITTED] TR17SE21.007
[[Page 51814]]
[GRAPHIC] [TIFF OMITTED] TR17SE21.008
[[Page 51815]]
[GRAPHIC] [TIFF OMITTED] TR17SE21.009
[[Page 51816]]
[GRAPHIC] [TIFF OMITTED] TR17SE21.010
[[Page 51817]]
[GRAPHIC] [TIFF OMITTED] TR17SE21.011
By direction of the Commission.
April J. Tabor,
Secretary.
[FR Doc. 2021-19908 Filed 9-16-21; 8:45 am]
BILLING CODE 6750-01-C
