The Federal Trade Commission and the Federal Reserve Board recently announced proposed regulations that generally would require a creditor to provide a consumer with a risk-based pricing notice when, based in whole or in part on the consumer’s credit report, the creditor offers or provides credit to the consumer on material terms that are materially less favorable than the most favorable terms available to a substantial proportion of consumers from or through that creditor.
Risk-based pricing refers to the practice of using a consumer’s credit report in setting or adjusting the price and other credit terms offered to a particular consumer. Many creditors offer better terms to consumers with better credit histories. The proposed rules would apply, with certain exceptions, to all creditors that engage in risk-based pricing. Under these rules, a risk-based pricing notice would generally be provided to the consumer after the terms of credit have been set, but before the consumer becomes contractually obligated on the credit transaction.
The proposal provides a variety of approaches that creditors may use to identify the consumers to whom they must provide notices. In addition, the proposal includes certain exceptions to the notice requirement, the most significant of which permits creditors, in lieu of providing a risk-based pricing notice, to provide all of their consumers with their credit scores and explanatory information.
We suggest that residential mortgage lenders as a matter of course inform applicants that pricing and other loan terms may not be identical from lender to lender, and that consumers are free to shop around among lenders.