Duties of Creditors Regarding Risk-Based Pricing Rule, 51795-51817 [2021-19908]
Download as PDF
<![CDATA[
Federal Register / Vol. 86, No. 178 / Friday, September 17, 2021 / Rules and Regulations
(l) Related Information
For more information about this AD,
contact Scott Stevenson, Aviation Safety
Engineer, ECO Branch, FAA, 1200 District
Avenue, Burlington, MA 01803; phone: (781)
238–7132; fax: (781) 238–7199; email:
Scott.M.Stevenson@faa.gov.
Division of Privacy and Identity
Protection, Bureau of Consumer
Protection, Federal Trade Commission,
600 Pennsylvania Avenue NW,
Washington, DC 20580.
SUPPLEMENTARY INFORMATION:
(m) Material Incorporated by Reference
(1) The Director of the Federal Register
approved the incorporation by reference
(IBR) of the service information listed in this
paragraph under 5 U.S.C. 552(a) and 1 CFR
part 51.
(2) You must use this service information
as applicable to do the actions required by
this AD, unless the AD specifies otherwise.
(i) GE CF34–8C Alert Service Bulletin (SB)
72–A0335 R02, dated February 25, 2020.
(ii) GE CF34–8E Alert SB 72–A0221 R02,
dated February 25, 2020.
(3) For GE service information identified in
this AD, contact General Electric Company,
GE Aviation, Room 285, 1 Neumann Way,
Cincinnati, OH 45215; phone: (513) 552–
3272; email: aviation.fleetsupport@ge.com.
(4) You may view this service information
at FAA, Airworthiness Products Section,
Operational Safety Branch, 1200 District
Avenue, Burlington, MA 01803. For
information on the availability of this
material at the FAA, call (781) 238–7759.
(5) You may view this service information
that is incorporated by reference at the
National Archives and Records
Administration (NARA). For information on
the availability of this material at NARA,
email: fr.inspection@nara.gov, or go to:
https://www.archives.gov/federal-register/cfr/
ibr-locations.html.
I. Background
Issued on August 26, 2021.
Lance T. Gant,
Director, Compliance & Airworthiness
Division, Aircraft Certification Service.
[FR Doc. 2021–20042 Filed 9–16–21; 8:45 am]
BILLING CODE 4910–13–P
FEDERAL TRADE COMMISSION
16 CFR Part 640 and 698
RIN 3084–AB63
Duties of Creditors Regarding RiskBased Pricing Rule
Federal Trade Commission.
Final rule.
AGENCY:
ACTION:
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),
SUMMARY:
VerDate Sep<11>2014
15:31 Sep 16, 2021
Jkt 253001
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 riskbased 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 riskbased 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 riskbased 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
B. Dodd-Frank Act
The Dodd-Frank Wall Street Reform
and Consumer Protection Act (‘‘DoddFrank Act’’) was signed into law in
2010.3 The Dodd-Frank Act
substantially changed the federal legal
1 75
FR 2723 (January 15, 2010).
FR 41602 (July 15, 2011).
3 Public Law 111–203 (2010).
2 76
PO 00000
Frm 00015
Fmt 4700
Sfmt 4700
51795
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 RiskBased 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
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 DoddFrank 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
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
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.
10 The comments are available at
www.regulations.gov/document/FTC-2020-00720001/comment. The Commission also received two
comments that addressed regulation of lenders and
motor vehicle dealers generally. Both comments
argued such regulation was needed.
E:\FR\FM\17SER1.SGM
17SER1
51796
Federal Register / Vol. 86, No. 178 / Friday, September 17, 2021 / Rules and Regulations
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 DoddFrank 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.
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
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 DoddFrank 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.
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
11 15
U.S.C. 1681s(e)(1); 12 U.S.C. 5519.
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).
13 12 U.S.C. 5519.
12 For
VerDate Sep<11>2014
15:31 Sep 16, 2021
Jkt 253001
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
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 lowerincome and minority consumers.17 East
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.
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.
PO 00000
Frm 00016
Fmt 4700
Sfmt 4700
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.
East Bay also urged the Commission
to amend the Rule to require that riskbased 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
18 Id.
at 8–9.
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.
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.
19 Id.
E:\FR\FM\17SER1.SGM
17SER1
Federal Register / Vol. 86, No. 178 / Friday, September 17, 2021 / Rules and Regulations
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.
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
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.
VerDate Sep<11>2014
15:31 Sep 16, 2021
Jkt 253001
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.
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’’).
26 5
U.S.C. 603–605.
FR 63462, 63465 (October 8, 2020).
27 85
PO 00000
Frm 00017
Fmt 4700
Sfmt 4700
51797
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:
■
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 riskbased 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).
E:\FR\FM\17SER1.SGM
17SER1
51798
§ 640.1
Federal Register / Vol. 86, No. 178 / Friday, September 17, 2021 / Rules and Regulations
Scope.
(a) Coverage—(1) In general. This part
applies to any motor vehicle dealer as
defined in § 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.
§ 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
VerDate Sep<11>2014
15:31 Sep 16, 2021
Jkt 253001
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).
PO 00000
Frm 00018
Fmt 4700
Sfmt 4700
§ 640.3 General requirements for riskbased 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
E:\FR\FM\17SER1.SGM
17SER1
Federal Register / Vol. 86, No. 178 / Friday, September 17, 2021 / Rules and Regulations
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
VerDate Sep<11>2014
15:31 Sep 16, 2021
Jkt 253001
consumers, the motor vehicle dealer
may continue to use a cutoff score
derived from market research, thirdparty 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
PO 00000
Frm 00019
Fmt 4700
Sfmt 4700
51799
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
E:\FR\FM\17SER1.SGM
17SER1
51800
Federal Register / Vol. 86, No. 178 / Friday, September 17, 2021 / Rules and Regulations
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 riskbased 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 directmail offer or a take-one application, or
VerDate Sep<11>2014
15:31 Sep 16, 2021
Jkt 253001
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 § 640.2(n)(1)(ii) that is
greater than the lowest annual
percentage rate referenced in
§ 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 § 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 § 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 § 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 § 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
PO 00000
Frm 00020
Fmt 4700
Sfmt 4700
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 § 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 riskbased pricing notice to the consumer.
§ 640.4 Content, form, and timing of riskbased pricing notices.
(a) Content of the notice—(1) In
general. The risk-based pricing notice
required by § 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
E:\FR\FM\17SER1.SGM
17SER1
Federal Register / Vol. 86, No. 178 / Friday, September 17, 2021 / Rules and Regulations
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 § 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
VerDate Sep<11>2014
15:31 Sep 16, 2021
Jkt 253001
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 § 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–
PO 00000
Frm 00021
Fmt 4700
Sfmt 4700
51801
1 or A–6 is deemed to comply with the
requirements of § 640.3(a) and (c).
Model forms of the risk-based pricing
notice required by § 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
§ 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 openend 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
§ 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
§ 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, § 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
E:\FR\FM\17SER1.SGM
17SER1
51802
Federal Register / Vol. 86, No. 178 / Friday, September 17, 2021 / Rules and Regulations
described in §§ 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,
§ 640.5(e)(3), or § 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 § 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
§ 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
VerDate Sep<11>2014
15:31 Sep 16, 2021
Jkt 253001
(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.
§ 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 § 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
PO 00000
Frm 00022
Fmt 4700
Sfmt 4700
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 § 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 § 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 riskbased 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 § 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
E:\FR\FM\17SER1.SGM
17SER1
Federal Register / Vol. 86, No. 178 / Friday, September 17, 2021 / Rules and Regulations
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
VerDate Sep<11>2014
15:31 Sep 16, 2021
Jkt 253001
(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.
PO 00000
Frm 00023
Fmt 4700
Sfmt 4700
51803
(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 § 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 § 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
E:\FR\FM\17SER1.SGM
17SER1
51804
Federal Register / Vol. 86, No. 178 / Friday, September 17, 2021 / Rules and Regulations
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 openend 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
VerDate Sep<11>2014
15:31 Sep 16, 2021
Jkt 253001
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
§ 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 § 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;
PO 00000
Frm 00024
Fmt 4700
Sfmt 4700
(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 12month 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
E:\FR\FM\17SER1.SGM
17SER1
Federal Register / Vol. 86, No. 178 / Friday, September 17, 2021 / Rules and Regulations
case of closed-end credit or when the
first transaction is made under an openend 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
§ 640.5(f). Use of the model form is
optional.
§ 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
§ 640.3(a) or (c), or one notice under
§ 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 § 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 riskbased pricing notice described in
§ 640.3(a) or (c), or satisfy the
requirements for and provide the notice
required under one of the exceptions in
§ 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 § 640.3(a) or
(c), or satisfy the requirements for and
provide the notice required under one of
the exceptions in § 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 riskbased 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.
VerDate Sep<11>2014
15:31 Sep 16, 2021
Jkt 253001
(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 § 640.4(c).
(c) Multiple consumers—(1) Riskbased 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 § 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 § 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
PO 00000
Frm 00025
Fmt 4700
Sfmt 4700
51805
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 riskbased 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
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.
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 § 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 § 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.
E:\FR\FM\17SER1.SGM
17SER1
51806
Federal Register / Vol. 86, No. 178 / Friday, September 17, 2021 / Rules and Regulations
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.
VerDate Sep<11>2014
15:31 Sep 16, 2021
Jkt 253001
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
PO 00000
Frm 00026
Fmt 4700
Sfmt 4700
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 riskbased 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 riskbased pricing notice with credit score
information.
BILLING CODE 6750–01–P
E:\FR\FM\17SER1.SGM
17SER1
Federal Register / Vol. 86, No. 178 / Friday, September 17, 2021 / Rules and Regulations
51807
A-1. Model form for risk-based pricing notice
[Name of Entity Providing the Notice]
Your Credit Report[s] and the Price You Pay for Credit
A credit report is a record of your credit history. It includes information about
whether you pay your bills on time and how much you owe to creditors.
We used information from your credit report[s] to set the terms of the credit
we are offering you, such as the [Annual Percentage Rate/down payment].
The terms offered to you may be less favorable than the terms offered to
consumers who have better credit histories.
You have the right to dispute any inaccurate information in your credit
report[s].
If you find mistakes on your credit report[s], contact [insert name of CRA(s)],
which [is/are] the [consumer reporting agency/consumer reporting agencies]
from which we obtained your credit report[s].
It is a good idea to check your credit report[s] to make sure the information [it
contains/they contain] is accurate.
Under federal law, you have the right to obtain a copy of your credit report[s]
without charge for 60 days after you receive this notice. To obtain your free
report[s], contact [insert name of CRA(s)]:
Call toll-free: 1-877-xxx-xxxx
By telephone:
By mail:
Mail your written request to:
[Insert address]
Visit [insert web site address]
On the web:
VerDate Sep<11>2014
15:31 Sep 16, 2021
Jkt 253001
PO 00000
Frm 00027
Fmt 4700
Sfmt 4725
E:\FR\FM\17SER1.SGM
17SER1
ER17SE21.001</GPH>
For more information about credit reports and your rights under federal law,
visit the Consumer Financial Protection Bureau's website at
www.consumerfinance.gov/learnmore, or the Federal Trade Commission's
website at www.ftc.gov/creditnotice.
51808
Federal Register / Vol. 86, No. 178 / Friday, September 17, 2021 / Rules and Regulations
A-2. Model form for account review risk-based pricing notice
[Name of Entity Providing the Notice]
Your Credit Report[s] and the Pricing of Your Account
A credit report is a record of your credit history. It includes information about
whether you pay your bills on time and how much you owe to creditors.
We have used information from your credit report[s] to review the terms of
your account with us.
Based on our review of your credit report[s], we have increased the annual
percentage rate on your account.
You have the right to dispute any inaccurate information in your credit
report[s].
If you find mistakes on your credit report[s], contact [insert name of CRA(s)],
which [is/are] the [consumer reporting agency/consumer reporting agencies]
from which we obtained your credit report[s].
It is a good idea to check your credit report[s] to make sure the information [it
contains/they contain] is accurate.
Under federal law, you have the right to obtain a copy of your credit report[s]
without charge for 60 days after you receive this notice. To obtain your free
report[s], contact [insert name of CRA(s)]:
Call toll-free: 1-877-xxx-xxxx
By telephone:
By mail:
Mail your written request to:
[Insert address]
Visit [insert web site address]
On the web:
VerDate Sep<11>2014
15:31 Sep 16, 2021
Jkt 253001
PO 00000
Frm 00028
Fmt 4700
Sfmt 4725
E:\FR\FM\17SER1.SGM
17SER1
ER17SE21.002</GPH>
For more information about credit reports and your rights under federal law,
visit the Consumer Financial Protection Bureau's website at
www.consumerfinance.gov/learnmore, or the Federal Trade Commission's
website at www.ftc.gov/creditnotice.
Federal Register / Vol. 86, No. 178 / Friday, September 17, 2021 / Rules and Regulations
51809
A-3. Model form for credit score disclosure exception for loans secured by one to four units of residential real
property
[Name of Entity Providing the Notice]
Your Credit Score and the Price You Pay for Credit
Source: [Insert source]
Date: [Insert date score was created]
Your credit score is a number that reflects the information in your credit report.
Your credit report is a record of your credit history. It includes information about
whether you pay your bills on time and how much you owe to creditors.
Your credit score can change, depending on how your credit history changes.
Your credit score can affect whether you can get a loan and how much you will have
to pay for that loan.
Scores can range from a low of [Insert bottom number in range] to a high of [Insert
top number in range].
Generally, the higher your score, the more likely you are to be offered better credit
ro
30%
V)
a,
0
u
a,
""
(/)
20%
E~
3: ~
V)
15%
_!!,
wa
E:;::;
~
C
-
15%
10%
10%
ro
a.
0
u
0
*
Score Range
VerDate Sep<11>2014
15:31 Sep 16, 2021
Jkt 253001
PO 00000
Frm 00029
Fmt 4700
Sfmt 4725
E:\FR\FM\17SER1.SGM
17SER1
ER17SE21.003</GPH>
[or] [Your credit score ranks higher than [X] percent of U.S. consumers.]
51810
Federal Register / Vol. 86, No. 178 / Friday, September 17, 2021 / Rules and Regulations
[Insert first factor]
[Insert second factor]
[Insert third factor]
[Insert fourth factor]
[Insert fifth factor, if applicable]
You have a right to dispute any inaccurate informaiton in your credit report. If you
find mistakes on your credit report, contact the consumer reporting agency.
It is a good idea to check your credit report to make sure the information it
contains is accurate.
Under federal law, you have the right to obtain a free copy of your credit report
from each of the nationwide consumer reporting agencies once a year.
To order your free annual credit report Call toll-free: 1-877-322-8228
Visit www.annualcreditreport.com
Mail your completed Annual Credit Report Request Form
(which you can obtain from the Federal Trade Commission's
web site at
https://www.ftc.gov/bcp/conline/include/requestformfinal.pdf)
to:
Annual Credit Report Request Service
P.O. Box 105281
Atlanta, GA 30348-5281
VerDate Sep<11>2014
15:31 Sep 16, 2021
Jkt 253001
PO 00000
Frm 00030
Fmt 4700
Sfmt 4725
E:\FR\FM\17SER1.SGM
17SER1
ER17SE21.004</GPH>
For more information about credit reports and your rights under federal law, visit
the Consumer Financial Protection Bureau's website at
www.consumerfinance.gov/learnmore, or the Federal Trade Commission's website
at www.ftc.gov/creditnotice.
Federal Register / Vol. 86, No. 178 / Friday, September 17, 2021 / Rules and Regulations
51811
A-4. Model form for credit score disclosure exception for loans not secured by residential real property
[Name of Entity Providing the Notice]
Your Credit Score and the Price You Pay for Credit
[Insert credit score]
Source: [Insert source]
Date: [Insert date score was created]
Your credit score is a number that reflects the information in your credit report.
Your credit report is a record of your credit history. It includes information about whether
you pay your bills on time and how much you owe to creditors.
Your credit score can change, depending on how your credit history changes.
Your credit score can affect whether you can get a loan and how much you will have to pay
for that loan.
Scores can range from a low of [Insert bottom number in range] to a high of [Insert top
number in range].
Generally, the higher your score, the more likely you are to be offered better credit terms.
30%
20%
15%
15%
10%
10%
Score Range
VerDate Sep<11>2014
15:31 Sep 16, 2021
Jkt 253001
PO 00000
Frm 00031
Fmt 4700
Sfmt 4725
E:\FR\FM\17SER1.SGM
17SER1
ER17SE21.005</GPH>
[or] [Your credit score ranks higher than [X] percent of U.S. consumers.]
51812
Federal Register / Vol. 86, No. 178 / Friday, September 17, 2021 / Rules and Regulations
You have a right to dispute any inaccurate informaiton in your credit report. If you find
mistakes on your credit report, contact the consumer reporting agency.
It is a good idea to check your credit report to make sure the information it contains is
Under federal law, you have the right to obtain a free copy of your credit report from
each of the nationwide consumer reporting agencies once a year.
To order your free annual credit report Call toll-free: 1-877-322-8228
Visit www.annualcreditreport.com
Mail your completed Annual Credit Report Request Form (which you
can obtain from the Federal Trade Commission's web site at
https://www.ftc.gov/bcp/conline/include/requestformfinal.pdf) to:
Annual Credit Report Request Service
P.O. Box 105281
Atlanta, GA 30348-5281
VerDate Sep<11>2014
15:31 Sep 16, 2021
Jkt 253001
PO 00000
Frm 00032
Fmt 4700
Sfmt 4725
E:\FR\FM\17SER1.SGM
17SER1
ER17SE21.006</GPH>
For more information about credit reports and your rights under federal law, visit the
Consumer Financial Protection Bureau's website at
www.consumerfinance.gov/learnmore, or the Federal Trade Commission's website at
www.ftc.gov/creditnotice.
Federal Register / Vol. 86, No. 178 / Friday, September 17, 2021 / Rules and Regulations
51813
A-5. Model form for credit score disclosure for loans where credit score is not available
[Name of Entity Providing the Notice]
Credit Scores and the Price You Pay for Credit
Your credit score is not available from [Insert name of CRA], which is a consumer reporting agency,
because they may not have enough information about your credit history to calculate a score.
Your credit score is a number that reflects the information in your credit report.
Your credit report is a record of your credit history. It includes information about whether you pay your
bills on time and how much you owe to creditors.
Your credit score can change, depending on how your credit history changes.
Credit scores are important because consumers who have higher credit scores generally will get more
favorable credit terms.
Not having a credit score can affect whether you can get a loan and how much you will have to pay for
that loan.
You have a right to dispute any inaccurate informaiton in your credit report. If you find mistakes on your
credit report, contact the consumer reporting agency.
It is a good idea to check your credit report to make sure the information it contains is accurate.
Under federal law, you have the right to obtain a free copy of your credit report from each of the
nationwide consumer reporting agencies once a year.
To order your free annual credit report Call toll-free: 1-877-322-8228
Visit www.annualcreditreport.com
Mail your completed Annual Credit Report Request Form (which you can obtain from
the Federal Trade Commission's web site at
https://www.ftc.gov/bcp/conline/include/requestformfinal.pdf) to:
Annual Credit Report Request Service
P.O. Box 105281
Atlanta, GA 30348-5281
VerDate Sep<11>2014
15:31 Sep 16, 2021
Jkt 253001
PO 00000
Frm 00033
Fmt 4700
Sfmt 4725
E:\FR\FM\17SER1.SGM
17SER1
ER17SE21.007</GPH>
For more information about credit reports and your rights under federal law, visit the Consumer Financial
Protection Bureau's website at www.consumerfinance.gov/learnmore, or the Federal Trade
Commission's website at www.ftc.gov/creditnotice.
51814
Federal Register / Vol. 86, No. 178 / Friday, September 17, 2021 / Rules and Regulations
A-6. Model form for risk-based pricing notice with credit score information
[Name of Entity Providing the Notice]
Your Credit Report[s] and the Price You Pay for Credit
A credit report is a record of your credit history. It includes information about
whether you pay your bills on time and how much you owe to creditors.
We used information from your credit report[s] to set the terms of the credit
we are offering you, such as the [Annual Percentage Rate/down payment].
The terms offered to you may be less favorable than the terms offered to
consumers who have better credit histories.
You have the right to dispute any inaccurate information in your credit
report[s].
If you find mistakes on your credit report[s], contact [insert name of CRA(s)],
which [is/are] the [consumer reporting agency/consumer reporting agencies]
from which we obtained your credit report[s].
It is a good idea to check your credit report[s] to make sure the information [it
contains/they contain] is accurate.
Under federal law, you have the right to obtain a copy of your credit report[s]
without charge for 60 days after you receive this notice. To obtain your free
report[s], contact [insert name of CRA(s)]:
Call toll-free: 1-877-xxx-xxxx
By telephone:
By mail:
Mail your written request to:
[Insert address]
Visit [insert web site address]
On the web:
VerDate Sep<11>2014
15:31 Sep 16, 2021
Jkt 253001
PO 00000
Frm 00034
Fmt 4700
Sfmt 4725
E:\FR\FM\17SER1.SGM
17SER1
ER17SE21.008</GPH>
For more information about credit reports and your rights under federal law,
visit the Consumer Financial Protection Bureau's website at
www.consumerfinance.gov/learnmore, or the Federal Trade Commission's
website at www.ftc.gov/creditnotice.
Federal Register / Vol. 86, No. 178 / Friday, September 17, 2021 / Rules and Regulations
51815
Your Credit Score and Understanding Your Credit Score
[Insert credit score]
Source: [Insert source]
Date: [Insert date score was created]
Your credit score is a number that reflects the information in your credit report. We used
your credit score to set the terms of the credit we are offering you.
Your credit score can change, depending on how your credit history changes.
Scores range from a low of [Insert bottom number in the range] to a high of [Insert top
number of the range].
[Insert
[Insert
[Insert
[Insert
[Insert
first factor]
second factor]
third factor]
fourth factor]
number of enquiries as a key factor, if applicable]
[If you have any questions regarding your credit score, you should contact [entity that
provided the credit score] at:
Address:
----------------------------
VerDate Sep<11>2014
15:31 Sep 16, 2021
Jkt 253001
PO 00000
Frm 00035
Fmt 4700
Sfmt 4725
E:\FR\FM\17SER1.SGM
17SER1
ER17SE21.009</GPH>
[Toll-free] Telephone number: _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __
51816
Federal Register / Vol. 86, No. 178 / Friday, September 17, 2021 / Rules and Regulations
A-7. Model form for account review risk-based pricing notice with credit score information
[Name of Entity Providing the Notice]
Your Credit Report[s] and the Pricing of Your Account
A credit report is a record of your credit history. It includes information about
whether you pay your bills on time and how much you owe to creditors.
We used information from your credit report[s] to review the terms of your
account with us.
Based on our review of your credit report[s], we have increased the annual
percentage rate on your account.
You have the right to dispute any inaccurate information in your credit
report[s].
If you find mistakes on your credit report[s], contact [insert name of CRA(s)],
which [is/are] [a consumer reporting agency/consumer reporting agencies]
from which we obtained your credit report[s].
It is a good idea to check your credit report[s] to make sure the information [it
contains/they contain] is accurate.
Under federal law, you have the right to obtain a copy of your credit report[s]
without charge for 60 days after you receive this notice. To obtain your free
report[s], contact [insert name of CRA(s)]:
Call toll-free: 1-877-xxx-xxxx
By telephone:
By mail:
Mail your written request to:
[Insert address]
Visit [insert web site address]
On the web:
VerDate Sep<11>2014
15:31 Sep 16, 2021
Jkt 253001
PO 00000
Frm 00036
Fmt 4700
Sfmt 4725
E:\FR\FM\17SER1.SGM
17SER1
ER17SE21.010</GPH>
For more information about credit reports and your rights under federal law,
visit the Consumer Financial Protection Bureau's website at
www.consumerfinance.gov/learnmore, or the Federal Trade Commission's
website at www.ftc.gov/creditnotice.
Federal Register / Vol. 86, No. 178 / Friday, September 17, 2021 / Rules and Regulations
51817
Your Credit Score and Understanding Your Credit Score
[Insert credit score]
Source: [Insert source]
Date: [Insert date score was created]
Your credit score is a number that reflects the information in your credit report. We used
your credit score to set the terms of the credit we are offering you.
Your credit score can change, depending on how your credit history changes.
Scores range from a low of [Insert bottom number in the range] to a high of [Insert top
number of the range].
[Insert
[Insert
[Insert
[Insert
[Insert
first factor]
second factor]
third factor]
fourth factor]
number of enquiries as a key factor, if applicable]
[If you have any questions regarding your credit score, you should contact [entity that
provided the credit score] at:
Address: _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __
[Toll-free] Telephone number: _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __
FOR FURTHER INFORMATION CONTACT:
FEDERAL TRADE COMMISSION
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:
16 CFR Part 641
I. Background
RIN 3084–AB63
A. The Address Discrepancy Rule
[FR Doc. 2021–19908 Filed 9–16–21; 8:45 am]
BILLING CODE 6750–01–C
Duties of Users of Consumer Reports
Regarding Address Discrepancies
Federal Trade Commission.
Final rule.
AGENCY:
ACTION:
The Federal Trade
Commission (‘‘FTC’’ or ‘‘Commission’’)
is issuing a final rule (‘‘Final Rule’’) to
amend its Duties of Users of Consumer
Reports Regarding Address
Discrepancies Rule (‘‘Address
Discrepancy Rule’’) to correspond to
changes made to the Fair Credit
Reporting Act (‘‘FCRA’’) by the DoddFrank Act.
DATES: This rule is effective October 18,
2021.
SUMMARY:
VerDate Sep<11>2014
15:31 Sep 16, 2021
Jkt 253001
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. The FACT Act added section
605(h) to the Fair Credit Reporting Act
(‘‘FCRA’’), which requires a national
consumer reporting agency (‘‘CRA’’) that
receives a request for a consumer report
that contains an address substantially
different from the address on file for the
consumer to notify the requester of the
existence of the discrepancy.1 Section
605(h) also required federal banking
agencies, the National Credit Union
Administration and the Commission to
issue regulations providing guidance
regarding reasonable policies and
procedures that a user of a consumer
report should employ when the user
receives a notice of address
discrepancy.2 In 2007, the agencies
issued the Address Discrepancy Rule to
satisfy this requirement.3
The Address Discrepancy Rule
requires a user of consumer reports to
develop and implement reasonable
policies and procedures designed to
enable the user to form a reasonable
belief that a consumer report relates to
the consumer about whom it has
requested a consumer report, when the
user receives a notice of address
discrepancy.4 Users must also develop
and implement reasonable policies and
procedures for furnishing an address for
the consumer that the user has
reasonably confirmed as accurate to the
CRA from whom it received the notice
when the user (1) can confirm the
consumer report relates to the consumer
about whom the user requested the
2 15
U.S.C. 1681c(h)(2).
CFR part 641.
4 16 CFR 641.1(c).
3 16
1 Section
PO 00000
605 is codified at 15 U.S.C. 1681c.
Frm 00037
Fmt 4700
Sfmt 4700
E:\FR\FM\17SER1.SGM
17SER1
ER17SE21.011</GPH>
By direction of the Commission.
April J. Tabor,
Secretary.
]]>Agencies
[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
