Fed: Lenders Must Provide 'Risk-Based' Notices to Borrowers

Applying for a LoanLenders who offer less favorable terms to some based on their credit report will have to provide the borrowers with so-called “risk-based pricing” notices, according to new rules reported today by the Federal Reserve and the Federal Trade Commission.
The rules mean that now consumers with some negative information on their credit reports will be better informed and be able to track vital credit scoring factors.
And they will be able to do so more cheaply. Risk-based pricing notices enable consumers to obtain a free credit report.
The requirement will give consumers “the opportunity to correct any inaccurate information,” said the Federal Register Notice on the new rules.
The final rule “generally” requires creditors to provide a risk-based pricing notice to consumers if the creditor increases the consumer’s annual percentage rate in an account review that is based “in whole or in part on a consumer report,” the rule states.
Risk-based pricing is the methodology used by lenders to determine interest rates or fees based on the probability of the borrower defaulting on a loan.
In addition, the final rules state that a notice must be provided to the borrower if the creditor uses a credit report to extend credit for “personal, family, or household purposes.” Or when the creditor provides “materially less favorable” terms to some consumers, compared to the more favorable terms provided to a “substantial proportion of consumers.”
As an alternative to providing risk-based pricing notices, the final rules permit creditors to provide consumers who apply for credit with a free credit score and information about their score.
Under current law, consumers can get only one free credit report every 12 months from each credit bureau at http://www.annualcreditreport.com/.  But most consumers have to pay a fee to obtain their credit score.

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