Fair Credit Reporting Risk-Based Pricing Regulations, 28966-29021 [E8-10640]

Agencies

• FEDERAL TRADE COMMISSION
• FEDERAL RESERVE SYSTEM

[Federal Register Volume 73, Number 97 (Monday, May 19, 2008)]
[Proposed Rules]
[Pages 28966-29021]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-10640]



[[Page 28965]]

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Part IV





Federal Reserve System





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12 CFR Part 222





Federal Trade Commission





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16 CFR Parts 640 and 698



Fair Credit Reporting Risk-Based Pricing Regulations; Proposed Rule

Federal Register / Vol. 73, No. 97 / Monday, May 19, 2008 / Proposed 
Rules

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FEDERAL RESERVE SYSTEM

12 CFR Part 222

[Regulation V; Docket No. R-1316]

FEDERAL TRADE COMMISSION

16 CFR Parts 640 and 698

RIN 3084-AA94


Fair Credit Reporting Risk-Based Pricing Regulations

AGENCIES: Board of Governors of the Federal Reserve System (Board) and 
Federal Trade Commission (Commission).

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Board and the Commission are publishing for comment 
proposed rules to implement the risk-based pricing provisions in 
section 311 of the Fair and Accurate Credit Transactions Act of 2003 
(FACT Act), which amends the Fair Credit Reporting Act (FCRA). The 
proposed rules generally require a creditor to provide a risk-based 
pricing notice to a consumer when the creditor uses a consumer report 
to grant or extend credit to the consumer on material terms that are 
materially less favorable than the most favorable terms available to a 
substantial proportion of consumers from or through that creditor. The 
proposed rules also provide for two alternative means by which 
creditors can determine when they are offering credit on material terms 
that are materially less favorable. The proposed rules also include 
certain exceptions to the general rule, including exceptions for 
creditors that provide a consumer with a disclosure of the consumer's 
credit score in conjunction with additional information that provides 
context for the credit score disclosure.

DATES: Comments must be received on or before August 18, 2008.

ADDRESSES: The Board and the Commission will jointly review all of the 
comments submitted. Therefore, you may comment to either the Board or 
the Commission and you need not send comments (or copies) to both 
agencies. Because paper mail in the Washington area and at the Board 
and the Commission is subject to delay, please submit your comments by 
electronic means whenever possible. Commenters are encouraged to use 
the title ``FACT Act Risk-Based Pricing Rule'' in addition to the 
docket or RIN number in their submission. Interested parties are 
invited to submit comments in accordance with the following 
instructions:
    Board: You may submit comments, identified by Docket No. R-1316, by 
any of the following methods:
     Agency Web Site: https://www.federalreserve.gov. Follow the 
instructions for submitting comments at
    https://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm.
     Federal eRulemaking Portal: https://www.regulations.gov. 
Follow the instructions for submitting comments.
     E-mail: regs.comments@federalreserve.gov. Include docket 
number in the subject line of the message.
     Fax: (202) 452-3819 or (202) 452-3102.
     Mail: Jennifer J. Johnson, Secretary, Board of Governors 
of the Federal Reserve System, 20th Street and Constitution Avenue, 
NW., Washington, DC 20551.
    All public comments are available from the Board's Web site at 
https://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm as 
submitted, unless modified for technical reasons. Accordingly, your 
comments will not be edited to remove any identifying or contact 
information. Public comments may also be viewed electronically or in 
paper in Room MP-500 of the Board's Martin Building (20th and C 
Streets, NW.) between 9 a.m. and 5 p.m. on weekdays.
    Commission: Comments should refer to ``FACT Act Risk-Based Pricing 
Rule, Project No. R411009,'' and may be submitted by any of the 
following methods. If, however, the comment contains any material for 
which confidential treatment is requested, it must be filed in paper 
form, and the first page of the document must be clearly labeled 
``Confidential.'' \1\
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    \1\ Commission Rule 4.2(d), 16 CFR 4.2(d). The comment must be 
accompanied by an explicit request for confidential treatment, 
including the factual and legal basis for the request, and must 
identify the specific portions of the comment to be withheld from 
the public record. The request will be granted or denied by the 
Commission's General Counsel, consistent with applicable law and the 
public interest. See Commission Rule 4.9(c), 16 CFR 4.9(c).
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     Web Site: Comments filed in electronic form should be 
submitted by clicking on the following Web link: https://
secure.commentworks.com/ftc-RiskBasedPricing and following the 
instructions on the Web-based form. To ensure that the Commission 
considers an electronic comment, you must file it on the Web-based form 
at https://secure.commentworks.com/ftc-RiskBasedPricing.
     Federal eRulemaking Portal: If this notice appears at 
https://www.regulations.gov, you may also file an electronic comment 
through that Web site. The Agencies will consider all comments that 
regulations.gov forwards to the Commission.
     Mail or Hand Delivery: A comment filed in paper form 
should include ``FACT Act Risk-Based Pricing Rule, Project No. 
R411009,'' both in the text and on the envelope and should be mailed or 
delivered, with two complete copies, to the following address: Federal 
Trade Commission/Office of the Secretary, Room H-135 (Annex M), 600 
Pennsylvania Avenue, NW., Washington, DC 20580. The Commission is 
requesting that any comment filed in paper form be sent by courier or 
overnight service, if possible.

Comments on any proposed filing, recordkeeping, or disclosure 
requirements that are subject to paperwork burden review under the 
Paperwork Reduction Act should additionally be submitted to: Office of 
Management and Budget, Attention: Desk Officer for the Federal Trade 
Commission. Comments should be submitted via facsimile to (202) 395-
6974 because U.S. Postal Mail is subject to lengthy delays due to 
heightened security precautions.
    The FTC Act and other laws the Commission administers permit the 
collection of public comments to consider and use in this proceeding as 
appropriate. All timely and responsive public comments, whether filed 
in paper or electronic form, will be considered by the Commission, and 
will be available to the public on the Commission's Web site, to the 
extent practicable, at https://www.ftc.gov/os/publiccomments.htm. As a 
matter of discretion, the Commission makes every effort to remove home 
contact information for individuals from the public comments it 
receives before placing those comments on the Commission's Web site. 
More information, including routine uses permitted by the Privacy Act, 
may be found in the Commission's privacy policy, at https://www.ftc.gov/
ftc/privacy.htm.

FOR FURTHER INFORMATION CONTACT: 
    Board: David A. Stein, Managing Counsel, or Amy E. Burke, Senior 
Attorney, Division of Consumer and Community Affairs, (202) 452-3667 or 
(202) 452-2412; or Andrea K. Mitchell, Senior Attorney, Legal Division, 
(202) 452-2458, Board of Governors of the Federal Reserve System, 20th 
and C Streets, NW., Washington, DC 20551. For users of a 
Telecommunications Device for the Deaf (TDD) only, contact (202) 263-
4869.
    Commission: Kellie Cosgrove Riley, Senior Attorney, or Stacey 
Brandenburg,

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Attorney, Division of Privacy and Identity Protection, Bureau of 
Consumer Protection, (202) 326-2252, Federal Trade Commission, 600 
Pennsylvania Avenue, NW., Washington DC 20580.

SUPPLEMENTARY INFORMATION:

I. Background

    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. In general, the FACT Act amended the Fair Credit Reporting Act 
(FCRA) to enhance the ability of consumers to combat identity theft, 
increase the accuracy of consumer reports, and allow consumers to 
exercise greater control regarding the type and amount of solicitations 
they receive.
    Section 311 of the FACT Act added a new section 615(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 the new section 615(h) of the FCRA, a risk-based pricing 
notice must be provided to consumers in certain circumstances. 
Generally, a person must provide a risk-based pricing notice to a 
consumer when the person uses a consumer report in connection with an 
application, grant, extension, or other provision of credit and, based 
in whole or in part on the consumer report, grants, extends, or 
provides credit to the consumer on material terms that are materially 
less favorable than the most favorable terms available to a substantial 
proportion of consumers from or through that person.
    Section 311 is part of Title III of the FACT Act, which is entitled 
``Enhancing the Accuracy of Consumer Report Information.'' The risk-
based pricing notice requirement is designed primarily to improve the 
accuracy of consumer reports by alerting consumers to the existence of 
negative information on their consumer reports so that consumers can, 
if they choose, check their consumer reports for accuracy and correct 
any inaccurate information. \2\
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    \2\ See S. Rep. No. 108-166, at 20 (Oct. 17, 2003).
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    Section 615(h) requires the Board and the Commission (Agencies) 
jointly to issue rules implementing the risk-based pricing provisions. 
The statute requires the Agencies to address in the implementing rules 
the form, content, timing, and manner of delivery of any notices 
pursuant to section 615(h). The rules also must clarify the meaning of 
certain terms used in this section, including what are ``material'' 
credit terms and when credit terms are ``materially less favorable.'' 
Section 615(h) gives the Agencies the authority to provide exceptions 
to the notice requirement for classes of persons or transactions for 
which the Agencies determine that risk-based pricing notices would not 
significantly benefit consumers. Finally, the Agencies must provide a 
model notice that can be used to comply with section 615(h).

II. Developing the Proposed Rules

    In developing these proposed risk-based pricing rules, the Agencies 
sought to implement the statutory provisions in a manner that would be 
operationally feasible for the wide variety of entities that will be 
subject to the rules. At the outset of developing the proposed rules, 
the Agencies conducted outreach to various interested parties, 
including consumer groups, financial institutions, mortgage bankers, 
and consumer reporting agencies. The goals of this initial outreach 
were to get a broad sense of how risk-based pricing is used in 
practice, how information from consumer reports factors into risk-based 
pricing, and how interested parties believe the Agencies should 
implement these provisions.
    Based on this initial outreach, the Agencies determined that it may 
not be operationally feasible in many cases for creditors to compare 
the terms offered to each consumer with the terms offered to other 
consumers to whom the creditor has extended credit. After considering 
several approaches, the Agencies concluded that the most effective way 
to implement the statute was to develop certain tests that could serve 
as proxies for comparing the terms offered to different consumers. 
These tests could be used by creditors for which making direct 
comparisons among consumers would be difficult or infeasible.
    The Agencies then conducted additional, more in-depth outreach 
meetings with interested parties, including consumer groups, consumer 
reporting agencies, and a variety of different types of creditors, 
including large banks, small community banks, credit card issuers, 
mortgage bankers, auto finance companies, automobile dealers, private 
student loan creditors, manufactured housing lenders, and industry 
trade associations. This outreach provided the Agencies with valuable 
information about how risk-based pricing is conducted in various 
sectors of the consumer credit market. In addition, the Agencies sought 
feedback from outreach participants on a number of possible tests that 
could be used to implement the requirements of the statute. The 
Agencies' goal was to determine which tests would both identify those 
consumers who likely received materially less favorable terms than the 
terms obtained by other consumers and be operationally feasible for 
creditors to implement.
    The proposed rules reflect the Agencies' judgments as to the best 
approaches identified through these outreach efforts. As discussed more 
fully below, the Agencies recognize that no single test or approach is 
likely to be feasible for all of the various types of creditors to 
which the rules apply or for the many different credit products for 
which risk-based pricing is used. Therefore, the proposed rules provide 
a menu of approaches that creditors may use to comply with the 
statute's legal requirements. The next section provides a brief 
explanation of the proposed rules.

III. Summary of the Proposed Rules

Risk-Based Pricing Notice

    The proposed rules implement the risk-based pricing notice 
requirement of section 615(h). The proposed rules apply to any person 
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; and (ii) 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 terms available to a substantial proportion of consumers from 
or through that person. The proposed rules clarify that the risk-based 
pricing notice requirements apply only in connection with credit that 
is primarily for personal, household, or family purposes, but not in 
connection with business credit. For more information about the scope 
of the proposed rules, see the discussion of Sec. ----.70 in the 
Section-by-Section Analysis.

Definitions

    The proposed rules define certain key terms. Specifically, the 
proposed rules define ``material terms'' as the annual percentage rate 
for credit that has an annual percentage rate,\3\ or, in the case

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of credit that does not have an annual percentage rate, as any monetary 
terms, such as the down payment amount or deposit, that the person 
varies based on the consumer report. For credit cards, which may have 
multiple annual percentage rates applicable to different features, 
``material terms'' is defined as the annual percentage rate applicable 
to purchases. In addition, the proposed rules define ``materially less 
favorable,'' as it applies to material terms, to mean that the terms 
granted or extended to a consumer differ from the terms granted or 
extended to another consumer from or through the same person such that 
the cost of credit to the first consumer would be significantly greater 
than the cost of credit to the other consumer. For more information 
about the definitions of these and other terms used in the proposed 
rules, see the discussion of Sec. ----.71 in the Section-by-Section 
Analysis.
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    \3\ Under Regulation Z, which implements the Truth in Lending 
Act, 15 U.S.C. 1601, et seq., the annual percentage rate is a 
measure of the cost of credit, expressed as a yearly or annualized 
rate. See 12 CFR 226.14, 226.22. Regulation Z requires creditors to 
disclose accurately the cost of credit, including the annual 
percentage rate. See 12 CFR 226.5a(b)(1), 226.5b(d)(6) and (12), and 
226.18(e).
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General Rule and Methods for Identifying Consumers Who Must Receive 
Notice

    The proposed rules generally restate the statutory requirement that 
a person must provide the consumer with a notice if that person both: 
(i) Uses a consumer report in connection with an application for, or a 
grant, extension, or other provision of, credit to that consumer; and 
(ii) 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 terms available 
to a substantial proportion of consumers from or through that person. 
The proposed rules apply to a person to whom the obligation is 
initially payable (also referred to as ``the original creditor'').
    A person subject to the rule may determine, on a case-by-case 
basis, whether a consumer has received material terms that are 
materially less favorable terms than other consumers have received from 
or through that person by comparing the material terms offered to the 
consumer to the material terms offered to other consumers in similar 
transactions. It may not be operationally feasible for many persons 
subject to the rule to make such direct comparisons between consumers, 
however.
    For those persons who prefer not to compare directly the material 
terms offered to their consumers, the proposed rules provide two 
alternative methods for determining which consumers must receive risk-
based pricing notices. Using either method, a person may determine when 
credit offered from or through that person is on material terms that 
are materially less favorable than the most favorable terms available 
to a substantial proportion of consumers from or through that person.
    The first method is the credit score proxy method. A credit score 
is a numerical representation of a consumer's credit risk based on 
information in the consumer's credit file. The proposed rules permit a 
creditor that uses credit scores to set the material terms of credit to 
determine a cutoff score, representing the point at which approximately 
60 percent of its consumers have lower credit scores, and provide a 
risk-based pricing notice to each consumer who has a credit score lower 
than the cutoff score. The proposed rules require periodic updating of 
the cutoff score.
    The second method is the tiered pricing method. The proposed rules 
permit a creditor that sets the material terms of credit by assigning 
each consumer to one of a discrete number of pricing tiers, based in 
whole or in part on a consumer report, to use this method to provide a 
risk-based pricing notice to each consumer who is not assigned to the 
top pricing tier or tiers. The number of tiers of consumers to whom the 
notice is required to be given depends upon the total number of tiers. 
For more information about the general rule and the methods for 
determining which consumers must receive notices, see the discussion of 
Sec.  ----.72 in the Section-by-Section Analysis.

Application of Rule to Credit Card Issuers

    The proposed rules set forth a special test to identify 
circumstances in which a credit card issuer must provide a notice to 
consumers. A credit card issuer is required to provide a risk-based 
pricing notice to a consumer if the consumer applies for a credit card 
in connection with a multiple-rate offer and, based in whole or in part 
on a consumer report, is granted credit at a purchase annual percentage 
rate that is higher than the lowest purchase annual percentage rate 
available under that offer. The proposed rules assume that a consumer 
who applies for credit in response to a multiple-rate offer is applying 
for the best rate available. For more information about the application 
of the rule to credit card issuers, see the discussion of Sec.  ----.72 
in the Section-by-Section Analysis.

Account Review

    Some creditors conduct periodic reviews of a consumer report in 
connection with credit that has been extended to a consumer. If the 
consumer's credit history has deteriorated, the creditor may, pursuant 
to applicable account terms, increase the annual percentage rate 
applicable to that consumer's account. The proposed rules require the 
creditor to provide a risk-based pricing notice to the consumer if the 
creditor increases the consumer's annual percentage rate in an account 
review based in whole or in part on a consumer report. For more 
information about the application of the general rule to account 
reviews, see the discussion of Sec.  ----.72 in the Section-by-Section 
Analysis.

Content of the Notice

    In addition to the minimum content prescribed by section 615(h)(5) 
of the FCRA, the proposed rules require the risk-based pricing notice 
to include a statement that the terms offered may be less favorable 
than the terms offered to consumers with better credit histories. The 
Agencies believe that including such a statement in the notice could 
encourage consumers to check their consumer reports for inaccuracies. 
The proposed rules also include special content requirements for the 
notice in the context of account reviews. For more information about 
the content of the risk-based pricing notices, see the discussion of 
Sec.  ----.73 in the Section-by-Section Analysis.

Timing of the Notice

    Section 615(h)(2) of the FCRA states that the risk-based pricing 
notice may be provided at the time of an application for, or a grant, 
extension, or other provision of, credit or at the time of 
communication of an approval of an application for, or grant, 
extension, or other provision of, credit. Section 615(h)(6)(B)(v) of 
the FCRA, however, gives the Agencies broad discretion to set the 
timing requirements for the notice by rule.
    The proposed rules generally require a risk-based pricing notice to 
be provided to the consumer after the terms of credit have been set, 
but before the consumer becomes contractually obligated on the credit 
transaction. In the case of closed-end credit, the notice must be 
provided to the consumer before consummation of the transaction, but 
not earlier than the time the approval decision is communicated to the 
consumer. In the case of open-end credit, the notice must be provided 
to the consumer before the first transaction

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is made under the plan, but not earlier than the time the approval 
decision is communicated to the consumer. For account reviews, the 
notice must be provided at the time that the decision to increase the 
annual percentage rate is communicated to the consumer 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, no later than five days after the effective date of 
the change in the annual percentage rate. For more information about 
the timing requirements, see the discussion of Sec.  ----.73 in the 
Section-by-Section Analysis.

Exceptions to the Risk-Based Pricing Notice Requirement

    The proposed rules contain a number of exceptions to the risk-based 
pricing notice requirement. First, the proposed rules implement the 
statutory exceptions that apply: (i) When a consumer applies for, and 
receives, specific material terms; and (ii) when a consumer is 
receiving an adverse action notice under section 615(a) of the FCRA in 
connection with the transaction.
    The Agencies also have used the exception authority set forth in 
section 615(h)(6)(iii) of the FCRA to propose additional exceptions for 
classes of persons or transactions regarding which the Agencies believe 
that the notice would not significantly benefit consumers. The Agencies 
are proposing exceptions for creditors that provide consumer applicants 
with certain information, including their credit score, in lieu of the 
risk-based pricing notice.\4\ For credit secured by one to four units 
of residential real property, an exception applies when a creditor 
provides the consumer with a notice containing the credit score 
disclosure required by section 609(g) of the FCRA along with certain 
additional information that provides context for the credit score 
disclosure, describes the creditor's use of credit scores to set the 
terms of credit, and explains how a consumer can obtain his or her free 
annual consumer reports. Another proposed exception applies to credit 
that is not secured by one to four units of residential real property, 
and is thus not subject to the credit score disclosure requirements of 
section 609(g). This exception is similar to the credit score 
disclosure exception for residential real property secured credit.
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    \4\ These exceptions are distinct from the credit score proxy 
method discussed above. The credit score proxy method is one way in 
which creditors can comply with the proposed rules' requirement to 
identify those consumers who should receive a risk-based pricing 
notice. The credit score disclosure exceptions, on the other hand, 
provide consumers with a credit score and related information in 
lieu of a risk-based pricing notice. A creditor, therefore, can 
comply with the proposed rules either by using the credit score 
proxy method (or one of the other enumerated methods) to determine 
for a given class of products which consumers should receive a risk-
based pricing notice, or by providing the credit score disclosure to 
its consumers for that class of products.
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    In some cases, a consumer's credit file may not contain sufficient 
information to permit a consumer reporting agency or other person to 
calculate a score for that individual. A creditor using either of the 
credit score disclosure exceptions described above is permitted to 
comply with the regulation by providing an alternate narrative notice 
that does not include a credit score to those consumers for whom a 
score is not available.
    Finally, the Agencies have proposed an exception for prescreened 
solicitations. Under this exception, a creditor will not be required to 
provide a risk-based pricing notice if that creditor obtains a consumer 
report that is a prescreened list and uses that consumer report to make 
a firm offer of credit to the consumers, regardless of how the material 
terms of that offer compare to the terms that the creditor includes in 
other firm offers of credit. For more information about the exceptions, 
see the discussion of Sec.  ----.74 in the Section-by-Section Analysis.

Free Consumer Report

    Section 615(h)(5)(C) of the FCRA states that the risk-based pricing 
notice must contain a statement informing the consumer that he or she 
may obtain a copy of a consumer report, without charge, from the 
consumer reporting agency identified in the notice. Some industry 
representatives have interpreted this section as a reference to the 
free annual consumer report described in section 612(a) of the FCRA.\5\ 
These industry representatives do not believe that section 615(h) of 
the FCRA gives rise to a right to a separate free consumer report. 
Consumer groups, on the other hand, interpret this section as giving a 
consumer a right to a separate free consumer report.\6\ The proposed 
rule is based on the Agencies' reading of section 615(h) as giving 
consumers a right to a separate free consumer report upon receipt of a 
risk-based pricing notice.
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    \5\ See letter from Mortgage Bankers Association to the Federal 
Trade Commission (Aug. 16, 2004), available at https://www.ftc.gov/
os/comments/FACTA-summaries/511461-0007.pdf and letter from American 
Bankers Association & America's Community Bankers et al., to Alan 
Greenspan and Deborah Platt Majoras (Sept. 9, 2004), available at 
https://www.mortgagebankers.org/files/ResourceCenter/FACTA/FACTARisk-
BasedPricingComments9-9-04.pdf.
    \6\ See letter from National Consumer Law Center and Consumers 
Union et al., to Alan Greenspan and Deborah Platt Majoras (Feb. 2, 
2005), available at https://www.consumerlaw.org/issues/credit_
reporting/ content/facta_riskbased.pdf.
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    Section 612(b) of the FCRA provides for free consumer reports to 
consumers who have received a notification pursuant to ``section 615'' 
of the FCRA. Section 615 of the FCRA includes both the adverse action 
notice requirement (section 615(a)), the risk-based pricing notice 
provision (section 615(h)), and certain other requirements. 
Accordingly, the Agencies read the reference to the free consumer 
report in section 612(b) to apply equally when notices are given under 
section 615(a) and section 615(h)(5)(C), i.e., to require in both those 
cases a free report that is separate from the free annual report.
    The notices provided under the credit score disclosure exceptions 
are not risk-based pricing notices, and therefore do not give rise to 
the right to a free consumer report. Instead, a consumer who receives a 
credit score disclosure notice that identifies a consumer reporting 
agency or other third party as the source of the credit score could 
request the free annual consumer report that is available from each of 
the three nationwide consumer reporting agencies. For more information 
about the credit score disclosure exceptions, see the discussion of 
Sec.  ----.74 in the Section-by-Section Analysis.

One Notice Per Credit Extension

    The proposed rules contain a rule of construction to clarify that, 
in general, only one risk-based pricing notice will need to be provided 
per credit extension, except in the case of a notice provided in 
connection with an account review. The person to whom the obligation is 
initially payable must provide the risk-based pricing notice, or 
satisfy one of the exceptions, even if the loan is assigned to a third 
party or if that person is not the funding source for the loan. 
Although legal responsibility for providing the notice rests with the 
person to whom the obligation is initially payable, the various parties 
involved in a credit extension could determine by contract which party 
will send the notice. Purchasers or assignees of credit contracts will 
not be subject to the risk-based pricing notice requirements. For more 
information about the rules of construction, see the discussion of 
Sec.  ----.75 in the Section-by-Section Analysis.

[[Page 28970]]

Model Forms

    Section 615(h)(6)(B)(iv) requires the Agencies to provide a model 
notice that may be used to comply with the risk-based pricing rules. 
For each of the risk-based pricing notices and alternative credit score 
disclosures, the Agencies have proposed model forms that are appended 
to the proposed rules as Appendices H-1 through H-5 of the Board's rule 
and Appendices B-1 through B-5 of the Commission's rule. For more 
information, see the discussion of the model forms in the Section-by-
Section Analysis.

IV. Section-by-Section Analysis

Section ----.70 Scope

    Proposed Sec.  ----.70 sets forth the scope of the Agencies' rules. 
Proposed paragraph (a)(1) generally tracks the statutory language from 
section 615(h)(1) of the FCRA, except that it limits coverage of the 
proposed rules to credit to a consumer that is primarily for a 
consumer's personal, family, or household purposes.
    Proposed paragraph (a)(2) provides that the risk-based pricing 
rules do not apply to persons who use consumer reports in connection 
with an application for, grant, extension, or other provision of, 
credit for business purposes. Section 615(h) of the FCRA does not 
explicitly state that it applies only to a person using a consumer 
report in connection with consumer purpose credit. Section 615(h) does, 
however, require a person using a consumer report to compare the terms 
of credit offered in a particular transaction to the most favorable 
terms available to a substantial proportion of ``consumers'' and to 
provide a notice to the ``consumer'' if the person offers or extends 
credit on materially less favorable terms. In addition, several of the 
statutory exceptions reference the ``consumer'' or ``consumers,'' 
including those in section 615(h)(3)(A) (``the consumer applied for 
specific material terms * * *'') and section 615(h)(6)(B)(iii) (``* * * 
regarding which the agencies determine that notice would not 
significantly benefit consumers''). The statute's repeated use of the 
term ``consumer,'' which section 603(c) of the FCRA defines to mean 
``an individual,'' suggests that Congress intended for the risk-based 
pricing provisions to apply only to credit that is primarily for 
personal, family, or household purposes.
    Business-purpose loans generally are made to partnerships or 
corporations, as well as to individual consumers in the case of sole 
proprietorships. The Agencies understand that business borrowers 
generally are more sophisticated than individual consumers. For 
business loans made to partnerships or corporations, a creditor may 
obtain consumer reports on the principals of the business who may serve 
as guarantors for the loan.\7\ The credit is granted or extended to the 
business entity, however, based primarily on that entity's 
creditworthiness, and that entity is primarily responsible for the 
loan. Also, when a consumer report is used in connection with a small 
business loan, the report may factor into the underwriting process 
quite differently than a consumer report utilized in connection with a 
consumer purpose loan. It may not be operationally feasible to compare 
the terms of credit granted for different business purposes because 
some types of business ventures pose a greater degree of risk than 
other types of business ventures. In addition, the Agencies believe 
that a comparison of the terms of business purpose credit to the terms 
of consumer purpose credit would not be meaningful. For example, the 
underwriting process used to set the terms for a business loan made to 
purchase a fleet of vehicles may differ substantially from the 
underwriting process used to set the terms of a single auto loan made 
to an individual consumer. The Agencies solicit comment regarding 
whether there are any circumstances under which creditors should be 
required to provide risk-based pricing notices in connection with 
credit primarily for business purposes.
---------------------------------------------------------------------------

    \7\ See FTC Staff Opinion Letter from Joel Winston to Julie L. 
Williams, J. Virgil Mattingly, William F. Kroener, III, and Carolyn 
Buck (June 22, 2001) (available at https://www.ftc.gov/os/statutes/
fcra/tatelbaumw.shtm).
---------------------------------------------------------------------------

    Proposed paragraph (b) provides that compliance with either the 
Board's or the Commission's substantively identical risk-based pricing 
rules would be deemed to satisfy the requirements of the statute. Both 
the Board's and the Commission's rules would apply to the persons 
covered by paragraph (a). The Board proposes to codify its risk-based 
pricing rules at 12 CFR 222.70 et seq., and the Commission proposes to 
codify its risk-based pricing rules at 16 CFR 640. There is, however, 
no substantive difference between the two sets of rules.
    Proposed paragraph (c), consistent with the statutory language in 
section 615(h)(8), provides that the risk-based pricing rules will be 
enforced in accordance with sections 621(a) and (b) by the relevant 
federal agencies and officials identified in those sections, including 
state officials. The risk-based pricing provisions do not provide for a 
private right of action.

Section ----.71 Definitions

    Proposed Sec.  ----.71 contains definitions for the following 
terms: ``annual percentage rate'' (and the related terms ``closed-end 
credit'' and ``open-end credit plan''), ``credit,'' ``creditor,'' 
``credit card,'' ``credit card issuer,'' ``credit score,'' ``material 
terms'' (and the related term ``consummation''), and ``materially less 
favorable.''

Annual Percentage Rate

    Proposed paragraph (a) defines ``annual percentage rate'' by 
incorporating the definitions of ``annual percentage rate'' for open-
end credit plans and closed-end credit set forth in sections 226.14(b) 
and 226.22 of Regulation Z, respectively. (12 CFR 226.14(b), 12 CFR 
226.22). The concept of an annual percentage rate, as discussed later 
in this Section-by-Section analysis, is relevant to the Agencies' 
proposed definition of ``material terms.'' The Agencies believe that 
use of the Regulation Z definitions of annual percentage rate promotes 
consistency among the rules pertaining to consumer credit, including 
the rules that implement the FCRA and the Truth-in-Lending Act. 
Regulation Z prescribes two separate methods for calculating the annual 
percentage rate for credit, depending on whether that credit is open-
end or closed-end. To ensure that the correct calculation methods for 
the annual percentage rate are applied to the appropriate products, the 
proposal also incorporates the Truth-in-Lending Act's definition of 
``open-end credit plan,'' as interpreted by the Board,\8\ and the 
Regulation Z definition of ``closed-end credit.'' Paragraph (b) of the 
proposal defines ``closed-end credit'' to have the same meaning as in 
Regulation Z (12 CFR 226.2(a)(10)). Paragraph (k) of the proposal 
defines ``open-end credit plan'' to have the same meaning as set forth 
in the Truth-in-Lending Act, as implemented by the Board in Regulation 
Z and the Official Staff Commentary to Regulation Z (15 U.S.C. 1602(i), 
12 CFR 226.2(a)(20)).
---------------------------------------------------------------------------

    \8\ The Board defines the term ``open-end credit'' in Regulation 
Z, rather than ``open-end credit plan.'' 12 CFR 226.2(a)(20).
---------------------------------------------------------------------------

Credit, Creditor, Credit Card, Credit Card Issuer, and Credit Score

    Proposed paragraphs (d), (e), (f), (g), and (h) incorporate the 
FCRA's statutory definitions of ``credit,'' ``creditor,'' ``credit 
card,'' ``credit card issuer,'' and

[[Page 28971]]

``credit score.'' Each of these terms is used in the proposed rules.

Material Terms

    Proposed paragraph (i) contains three separate definitions of 
``material terms,'' depending on whether the credit is extended under 
an open-end credit plan for which there is an annual percentage rate, 
is closed-end credit for which there is an annual percentage rate, or 
is credit for which there is no annual percentage rate.
    Proposed paragraph (i)(1) defines ``material terms'' for credit 
extended under an open-end credit plan as the annual percentage rate 
required to be disclosed in the account-opening disclosures required by 
Regulation Z (12 CFR 226.6(a)(2)). The definition excludes both any 
temporary initial rate that is lower than the rate that would apply 
after the temporary rate expires and any penalty rate that would apply 
upon the occurrence of one or more specific events, such as a late 
payment or extension of credit that exceeds the credit limit. The 
annual percentage rate has historically been one of the most 
significant pricing terms for open-end credit, and it is probably the 
term that creditors most often adjust as a result of risk-based 
pricing.
    Credit cards, unlike other open-end credit products, have multiple 
annual percentage rates, including annual percentage rates for cash 
advances, balance transfers, and purchases. The Agencies believe that 
purchases are the most common type of open-end credit card transaction, 
and thus the annual percentage rate for purchases is the most commonly 
applied rate in credit card transactions. Moreover, it is one of the 
most common terms that consumers compare when shopping for credit 
cards. Therefore, for credit cards (other than those used to access a 
home equity line of credit), the proposal defines ``material terms'' as 
the annual percentage rate applicable to purchases (``purchase annual 
percentage rate''), and no other annual percentage rate.
    Similarly, proposed paragraph (i)(2) defines ``material terms'' for 
closed-end credit as the annual percentage rate required to be 
disclosed prior to consummation under the provisions of Regulation Z 
regarding closed-end credit (12 CFR 226.17(c) and 226.18(e)). This 
definition does not address temporary initial rates or penalty rates, 
because any such rates are not annual percentage rates for the purposes 
of the closed-end provisions of Regulation Z.
    The related term ``consummation'' is defined in proposed paragraph 
(c) to mean the time that a consumer becomes contractually obligated on 
a credit transaction. The proposed definition is identical to the 
definition of ``consummation'' in Regulation Z. 12 CFR 226.2(a)(13). 
Consummation is defined in the proposed rules for clarity and 
completeness.
    Most consumer credit products have an annual percentage rate, and 
it has historically been a significant factor, and often the most 
significant factor, in the pricing of credit. As discussed below, the 
Agencies have proposed a definition of ``material terms'' that 
generally focuses on a single term in order to ensure that there is a 
feasible way for creditors to identify those consumers who must receive 
risk-based pricing notices. The Agencies believe that focusing on the 
annual percentage rate is appropriate because the Agencies understand 
that when risk-based pricing occurs, it typically affects the annual 
percentage rate.
    The Agencies acknowledge that the pricing of credit products is 
complex and that the annual percentage rate is only one of the costs of 
consumer credit. In addition to the annual percentage rate(s) 
applicable to a given credit product, there may be other terms that 
affect the cost of credit, such as the amount of any down payment, 
prepayment penalties, or late fees. In addition, a single credit 
product may have a number of different rate structures, such as a 
credit card that has different annual percentage rates for purchases, 
cash advances, and balance transfers. The Agencies understand that the 
annual percentage rate is the primary term that varies as a result of 
risk-based pricing and that, for credit cards, the purchase annual 
percentage rate is the primary term that varies as a result of risk-
based pricing. Thus, the Agencies believe that, in most cases, defining 
``material terms'' with reference to the annual percentage rate will 
effectively target those consumers who are likely to have received 
credit on terms that are materially less favorable than the terms 
offered to other consumers. If creditor practices were to change in the 
future such that other terms of credit begin to vary as a result of 
risk-based pricing, the Agencies could revise the meaning of ``material 
terms.''
    To satisfy the risk-based pricing notice requirements, creditors 
must have some feasible means of comparing different credit granted to 
different consumers. The Agencies believe that it would not be 
operationally feasible for creditors to compare credit terms on the 
basis of multiple variables. For example, it is unclear how a creditor 
would compare one mortgage loan with a certain combination of annual 
percentage rate, down payment, and points and fees to another such loan 
where all three variables differ, even for the same product, such as a 
30-year fixed-rate loan. The Agencies welcome comment on whether there 
are other monetary or non-monetary terms that should be included in the 
definition of ``material terms,'' and how the comparison between terms 
granted to consumers could be conducted if multiple variables were 
taken into account.
    The Agencies solicit comment as to whether creditors vary temporary 
initial rates, penalty rates, balance transfer rates, or cash advance 
rates, on either closed-end or open-end credit, as a result of risk-
based pricing. If those rates do vary as a result of risk-based 
pricing, the Agencies request comment on whether those rates also 
should be treated as ``material terms,'' and whether it would be 
possible to apply to those rates the existing tests described in 
proposed Sec.  ----.72(b). If new tests would be required under such a 
broader definition of ``material terms,'' the Agencies solicit comment 
on what those tests might be.
    The Agencies understand that some home-secured closed-end and home-
secured open-end credit plans may charge prepayment penalties. The 
Agencies invite comment on whether creditors vary prepayment penalties 
based on information in consumer reports, and whether prepayment 
penalties should be treated as ``material terms.'' The Agencies also 
request comment on how the tests in proposed Sec.  ----.72(b) could be 
modified to account for risk-based pricing of prepayment penalties or 
whether entirely new tests would be required and, if so, what those new 
tests might be.
    Proposed paragraph (i)(3) defines ``material terms'' for credit 
with no annual percentage rate as any monetary terms that the person 
varies based on information in a consumer report, such as the down 
payment or deposit. This provision applies to creditors such as 
telephone companies or utilities that use consumer reports in extending 
credit (for example, in determining the amount of a deposit or 
prepayment requirement) but do not extend credit subject to annual 
percentage rates. This provision also applies to charge cards for which 
the annual membership fee varies based on information from a consumer 
report. The Agencies solicit comment as to whether the definition's 
reference to ``any monetary terms'' that the person varies based on 
information from a consumer report is sufficiently specific or too 
broad.

[[Page 28972]]

Materially Less Favorable Material Terms

    Proposed paragraph (j) defines ``materially less favorable,'' as it 
applies to material terms, to mean that the terms granted or extended 
to a consumer differ from the terms granted or extended to another 
consumer from or through the same person such that the cost of credit 
to the first consumer would be significantly greater than the cost of 
credit granted or extended to the other consumer. This definition 
clarifies that a comparison between one set of material terms and 
another set of material terms is generally required to satisfy the 
general rule and to identify which consumers must receive the notice.
    The statute focuses on whether the material terms granted or 
extended to a consumer are ``materially less favorable than the most 
favorable terms available to a substantial proportion of consumers'' 
from or through a particular person. Therefore, for purposes of making 
this comparison, creditors must: (1) Select the ``most favorable 
terms'' available to a group of consumers that represents a substantial 
proportion of consumers to whom the creditor extends credit; and (2) 
compare the material terms granted or extended to the individual 
consumer to the most favorable material terms granted or extended to 
the comparison group. It would not be acceptable, for example, to 
compare a consumer's material terms to an arbitrarily selected 
benchmark, such as the creditor's median or average material terms or 
to the material terms generally available to the creditor's less 
creditworthy consumers. On the other hand, a creditor should not use in 
its comparison material terms that are available to only a tiny 
percentage of its most exceptionally creditworthy consumers, such as 
very high net worth individuals.
    The proposed rules do not define what constitutes ``a substantial 
proportion'' of consumers, even though that concept is integrally 
linked to the concept of ``materially less favorable'' terms under the 
statute. The Agencies have not identified a definition of ``a 
substantial proportion'' that could reflect the widely varying pricing 
practices of creditors generally. For example, one creditor may offer 
its most favorable material terms to ninety percent of its consumers 
and materially less favorable material terms to ten percent of its 
consumers. Another creditor may offer its most favorable material terms 
to ten percent of its consumers and materially less favorable material 
terms to ninety percent of its consumers. A third creditor may offer 
its most favorable material terms to one percent of its consumers, 
slightly less favorable material terms to twenty percent of its 
consumers, and materially less favorable material terms to its 
remaining consumers. For these reasons, the Agencies do not believe it 
is appropriate to define ``a substantial proportion.'' Nonetheless, the 
Agencies expect that creditors would consider ``a substantial 
proportion'' as constituting more than a de minimis percentage, but 
that may or may not represent a majority.
    Within these limitations, however, the proposed definition provides 
guidance regarding how to determine whether a particular set of terms 
is materially less favorable. Under the proposed definition, factors 
relevant to determining the significance of a difference in the cost of 
credit 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 or extended to the individual consumer and the 
material terms granted or extended to the comparison group. 
Consideration of these factors by different creditors may result in two 
creditors reaching opposite conclusions about the materiality of the 
same difference in annual percentage rates. For example, a credit card 
issuer considering these factors may conclude that a one-quarter 
percentage point difference in the annual percentage rate is not 
material, whereas a mortgage lender may conclude that a one-quarter 
percentage point difference in the annual percentage rate is material. 
In assessing the extent of the difference between two sets of material 
terms, a creditor should consider how much the consumer's cost of 
credit would increase as a result of receiving the less favorable 
material terms and whether that difference is likely to be important to 
a reasonable consumer.
    The Agencies solicit comment on the proposed definition of 
``materially less favorable.'' In particular, the Agencies seek comment 
on whether the proposed definition is helpful, and whether the 
interrelated terms ``most favorable terms'' and ``a substantial 
proportion of consumers'' also should be defined and, if so, how they 
should be defined.

Section ----.72 General Requirements for Risk-Based Pricing Notices 
General Rule

    Proposed Sec.  ----.72 establishes the basic rules implementing the 
risk-based pricing notice requirement of section 615(h). Paragraph (a) 
states the general requirement that a person must provide the consumer 
with a notice if that person both: (i) Uses a consumer report in 
connection with an application for, or a grant, extension, or other 
provision of, credit to that 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 
that consumer on material terms that are materially less favorable than 
the most favorable terms available to a substantial proportion of 
consumers from or through that person. This paragraph mirrors the 
language in proposed Sec.  ----.70(a) and generally tracks the 
statutory language.
    Although the statute would permit various interpretations of ``from 
or through that person,'' the Agencies interpret the phrase to refer to 
the person to whom the obligation is initially payable, i.e., the 
original creditor. Under this interpretation, the original creditor is 
responsible for determining whether consumers received materially less 
favorable material terms and providing risk-based pricing notices to 
consumers, whether or not that person is the source of funding for the 
loan. When the original creditor is the source of funding for the loan, 
the consumer obtains credit from the original creditor. This occurs, 
for example, where the consumer obtains credit directly from a bank or 
finance company. When the original creditor is not the source of 
funding for the loan, however, the consumer obtains credit through the 
original creditor. This occurs, for example, where the consumer enters 
into a credit contract with an auto dealer, but the dealer does not 
fund the loan. Instead, the dealer has an agreement with a bank or 
finance company to purchase the contract. The bank or finance company 
provides the funding for the loan. The dealer immediately assigns the 
credit contract to a bank or finance company upon consummation of the 
transaction. In that case, the consumer has obtained credit through the 
auto dealer, rather than from the auto dealer.
    The Agencies recognize that this interpretation excludes from the 
scope of the proposed rules brokers and other intermediaries who do not 
themselves grant, extend, or provide credit, but who, based in whole or 
in part on a consumer report, shop credit applications to creditors 
that offer less favorable rates than other creditors. Instead the 
proposed rules require an intermediary, such as a broker, to provide 
risk-based pricing notices to consumers only when the intermediary is 
the person to whom the obligation is initially payable. The Agencies 
believe this is the most appropriate

[[Page 28973]]

interpretation of the statute, given its language and purpose.
    With respect to the statutory language, section 615(h) applies to 
the ``material terms'' granted, extended, or provided to the consumer 
based on a consumer report. An intermediary's decision regarding where 
to shop a consumer's credit application generally occurs before the 
material terms are set. Thus, at the time the application is shopped to 
various creditors, it is too early in the process to perform the direct 
comparison of material terms required by the statute, even if a 
consumer report influenced the intermediary's decision regarding where 
to shop the consumer's credit application.
    The Agencies also believe that their interpretation of the statute 
with respect to intermediaries is consistent with its purposes. For the 
reasons described below, requiring intermediaries to provide notices 
based on the creditors to which they shop a consumer's credit 
application would not provide a significant benefit to consumers; would 
likely be confusing to consumers; and would be operationally difficult, 
burdensome, and costly.
    First, a rule requiring intermediaries to provide notices when they 
shop applications to certain creditors would frequently result in the 
consumer receiving multiple risk-based pricing notices in connection 
with a single extension of credit. Under such a rule, consumers who 
work through intermediaries would in many cases receive two notices: 
The first from the intermediary when it shops the application, and the 
second from the creditor itself if the creditor grants credit to the 
consumer on materially less favorable material terms than it grants to 
a substantial proportion of its other consumers. In some cases, the 
intermediary is also the original creditor and could be required to 
provide two notices to the consumer. This scenario could arise, for 
example, in the context of an automobile loan. Under a rule requiring a 
shopping-triggered notice, if a dealer shops the consumer's application 
to finance companies that offer materially less favorable material 
terms than do other sources of financing, the dealer would be required 
to provide a notice to the consumer. In addition, an auto dealer that 
is the original creditor on the loan must provide a notice to a 
consumer who receives materially less favorable material terms than 
those received by a substantial proportion of the dealer's other 
consumers.
    The Agencies generally do not believe that a consumer would benefit 
from receiving more than one risk-based pricing notice in connection 
with a single extension of credit. The purpose of the statute is to 
notify consumers that information in their consumer reports caused them 
to receive materially less favorable material terms, and to encourage 
those consumers to check their consumer reports for possible errors. 
The Agencies do not believe that providing a consumer with a second 
notice in connection with the same extension of credit is necessary or 
beneficial to educate or motivate the consumer to obtain a copy of his 
or her credit report. For that reason, the rules of construction in 
proposed Sec.  ----.75, discussed below, codify the principle that 
generally one notice for each extension of credit is sufficient.
    Second, requiring multiple notices in connection with a single 
extension of credit would introduce significant compliance burdens and 
costs. As an operational matter, it would be difficult to establish by 
regulation appropriate criteria for determining when shopping a 
consumer's credit application to certain lenders would trigger the 
requirement to provide a risk-based pricing notice. There is no single, 
uniform method for distinguishing a prime lender from a subprime 
lender, for example, and some lenders may make both prime and subprime 
loans. In addition, requiring multiple notices in connection with a 
single extension of credit could impose significant costs on the credit 
reporting system (which costs would be passed on to consumers) in view 
of the Agencies' reading of the statute as providing consumers with a 
right to request a free consumer report upon receipt of each risk-based 
pricing notice.
    The Agencies recognize that, under the proposed rules, some 
consumers who use an intermediary will not receive a risk-based pricing 
notice, even though their consumer reports, in whole or in part, 
influenced the intermediary's decision to shop their credit 
applications only to creditors that generally offer less favorable 
material terms than other creditors. This would occur if the creditor 
to whom the application was shopped granted its most favorable material 
terms to the consumer. Under the statute, however, the same issue 
exists when a consumer applies directly to subprime lenders because the 
statute does not require a creditor to compare the material terms it 
offers to consumers to the material terms offered by other creditors. 
The Agencies solicit comment on whether intermediaries who are not 
original creditors, such as brokers, should be required to provide 
risk-based pricing notices to consumers based upon the intermediaries' 
decisions regarding the shopping of consumer credit applications to 
certain creditors and, if so, how such a requirement could be 
structured.

Direct Comparisons and Materially Less Favorable Material Terms

    Creditors may follow the general rule in determining, on a case-by-
case basis, whether a consumer has received materially less favorable 
terms than the terms a substantial proportion of consumers have 
received from or through that creditor. The general rule is flexible 
and permits the creditor to determine, consistent with its particular 
circumstances, when material terms are ``materially less favorable than 
the most favorable terms available to a substantial proportion'' of its 
consumers.
    When a creditor undertakes direct, consumer-to-consumer 
comparisons, such comparisons necessarily must account for the unique 
aspects of that creditor's business. For example, many creditors make 
pricing decisions based on a number of variables that are not based on 
information in a consumer report (e.g., debt-to-income ratio or type of 
collateral) in addition to variables that are based on information in a 
consumer report. The role each of these variables plays in the pricing 
decision may vary from creditor to creditor and product to product. 
Similarly, creditors must compare the transaction at issue with past 
transactions of a similar type, and must control for changes in 
interest rates and other market conditions over time. A particular 
method of comparison that is sensible and feasible for one creditor may 
not be sensible and feasible for another creditor. No precise 
regulatory benchmark could account for such creditor-specific and 
product-specific variations.
    Although the proposed rules do not impose a quantitative standard 
or specific methodology for determining whether a consumer is receiving 
materially less favorable terms, the determination should be made in a 
reasonable manner. The Agencies expect that creditors would provide 
risk-based pricing notices to some, but fewer than all, of the 
consumers to whom they extend credit. Under the general rule, the 
creditor would first need to identify the appropriate subset of its 
current or past consumers to compare to any given consumer. Each 
consumer would need to be compared to an adequate sample of consumers 
who have engaged in similar transactions, such as those who have 
applied for or received the particular credit product for which the 
consumer has applied. The terms offered to a

[[Page 28974]]

consumer in a 30-year fixed-rate purchase money mortgage, for example, 
cannot be compared to the terms offered to consumers who obtain auto 
loans, credit cards, student loans, or adjustable-rate mortgages. The 
creditor also would need to tailor its comparison to disregard any 
underwriting criteria that do not depend upon consumer report 
information. Such a comparison also would have to account for changes 
in the creditor's customer base, product offerings, or underwriting 
criteria over time. Similarly, adjustments would have to be made if the 
terms offered to consumers in the past are not presently offered to 
consumers.
    The Agencies recognize that, even with the flexibility provided in 
the proposed rules, it may not be feasible or practical for many 
creditors to make the direct comparisons required by the general rule. 
Many creditors are likely to encounter operational difficulties in 
determining whether a consumer report played a role in a particular 
pricing decision that was based on multiple variables, and in 
identifying an appropriate benchmark with which to compare a given 
consumer's material terms. Small creditors in particular may have 
difficulty identifying a sufficient number of comparable benchmark 
credit transactions, since those creditors may make relatively few 
loans of any given type.
    For these reasons, proposed paragraph (b) sets forth two other 
methods, the ``credit score proxy method'' and the ``tiered pricing 
method,'' that creditors can use to identify which consumers must 
receive notices for a given class of products. These two methods 
provide alternatives to the direct consumer-to-consumer comparison 
described in section 615(h) of the FCRA. Consumers identifie