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Risk-Based Pricing

December 22, 2010
The new Risk-Based Pricing Rule is the latest duty mandated by the Fair and Accurate Credit Transactions Act of 2003. Dealers must give the notice to all consumers who apply for and receive credit on less favorable terms, putting their credit score in perspective and explaining how it negatively impacts the rate they are receiving. Consumers must get the notice if they recieve credit on terms that are materially less favorable than the terms received by a subtantial proportion of other credit customers.

The RBP Notice must be provided by any business that (a) obtains a credit report or (b) extends a credit report. Dealers who obtain a credit report and are the initial creditor in three-party financing transactions are engaged in Risk-Based Pricing.

This is meant to "complement" the Fair Credit Reporting Act's adverse action notice requirement, which requires creditors who deny a consumer's credit application based in whole or part on information in a credit report to provide information about credit reports to those consumers.
   
Because of the difficulty in determining which customers fit into this ill-defined category, the agencies adopted an Exception Notice that dealers and other creditors may issue in lieu of the RBPN.
   
The criteria for using the Exception Notice and other elements of the Risk-Based Pricing Rule and associated model forms are in the 202-page final rule, posted on the FTC Web site at www.ftc.gov/os/2009/12/R411009riskbasedpricingfrn.pdf.
 

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