FCRA and Reg V: Disclosure of Credit Scores; Risk-based Pricing Notice

Question 1

What is the name of the alternative notice that can be disclosed instead of a Risk-based pricing notice?

Answer 1

The Notice to Home Loan Applicants can be provided to applicants for mortgage loans, along with some additional information.

Question 2

In addition to the credit score, what other information must a creditor provide to the consumer?

Answer 2

1. The range of possible scores (if applicable)
2. Up to 4 key factors (or, 5 if one of the factors is “number of inquiries”)
3. The date the credit score was created
4. The name of the person who provided the credit score or the file based on which the score was created
5. A statutory notice explaining credit scores

Question 3

What is the definition of “credit score”?

Answer 3

A numerical value or a categorization derived from a statistical tool or modeling system used by a person who makes or arranges a loan to predict the likelihood of certain credit behaviors, including default (and the numerical value or the categorization derived from such analysis may also be referred to as a “risk predictor” or “risk score”)

Question 4

How are “key factors” defined, as they relate to the creation of a credit score?

Answer 4

The term “key factors” means all relevant elements or reasons adversely affecting the credit score for the particular individual, LISTED IN THE ORDER OF THEIR IMPORTANCE based on their effect on the credit score.

Question 5

Who must provide a risk-based pricing notice and under what circumstance?

Answer 5

1. Anyone who uses a credit report in connection with an application for consumer-purpose credit,
   AND
2. Grants credit on terms that are materially less favorable than the most favorable terms offered to consumers by that person

Question 6

What does “materially less favorable” mean?

Answer 6

With respect to the same lender, the cost of credit granted to one consumer is significantly greater than the cost of credit to the other consumer (factors include type of credit, credit term, and the extent of the difference in material terms).

Question 7

What is the timing requirement to provide the NHLA?

Answer 7

The notice must be provided before consummation for closed-end credit and prior to the first transaction for open-end credit

Question 8

What is the timing requirement to provide a risk-based pricing notice for closed-end credit?

Answer 8

Before consummation but not prior to communication of loan approval

Question 9

What is the timing requirement to provide a risk-based pricing notice for open-end credit?

Answer 9

Before the first transaction is made but not earlier than the time the credit decision is communicated

Question 10

What is the timing requirement to provide a risk-based pricing notice for account review?

Answer 10

At the time of decision to raise the APR, or, for credit cards, within 5 days of changing the rate