Following a public comment period, the Federal Trade Commission and the Federal Reserve Board have announced final changes to the Risk-Based Pricing Rule to require creditors to disclose credit score information to consumers when a credit score is used in setting or adjusting credit terms.
Risk-based pricing refers to the practice of setting or adjusting the price and other terms of credit provided to a particular consumer based on the consumer’s creditworthiness. Since January 1, 2011, the Rule has required creditors to provide consumers with a “risk-based pricing” notice when, based on the consumer’s credit report, the creditor provides credit to the consumer on less-favorable terms than it provides to other consumers. Consumers who receive the risk-based pricing notice can obtain a free credit report to check their report’s accuracy. As an alternative to providing a risk-based pricing notice, the Rule allows creditors to provide all credit applicants with a free credit score and information about their score.
The amendments to the Rule reflect the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act, which requires creditors to disclose a credit score in risk-based pricing notices, if one was used in making the credit decision, along with certain other additional information. The Dodd-Frank requirements go into effect on July 21, 2011.
The amendments to the Rule add content to risk-based pricing notices, provide new model notices, and specify certain technical requirements regarding credit score disclosures. In addition, the final Rule includes language that clarifies the circumstances under which a creditor using a proprietary credit score – a credit score developed for that creditor’s own use – must disclose that score to the consumer. The amendments are effective 30 days after publication in the Federal Register, but companies can use the model forms to comply with the Dodd-Frank requirements before that date.
The Commission vote authorizing the issuance of the final Rule was 5-0.
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