Wednesday, March 2, 2011

FYI: FRB/FTC Issue Proposed Rule on Dodd-Frank Act Changes to Risk-Based Pricing, Adverse Action Notices

The Federal Reserve Board and Federal Trade Commission propose to:  (1) revise and add to the content requirements for risk-based pricing notices; and  (2) revise and add related risk-based pricing and adverse action notice model forms to reflect the new Dodd-Frank Act credit score disclosure requirements . 

The full text of the proposed risk-based pricing rule is available at:

The full text of the proposed adverse action notice rule is available at:

In January of last year, the FRB and the FTC published final rules to implement the risk-based pricing provisions in section 311 of the Fair and Accurate Credit Transactions Act of 2003 (FACT Act), which amends the Fair Credit Reporting Act (FCRA).

These existing final rules generally require a creditor to provide a risk-based pricing notice to a consumer when the creditor uses a consumer report to grant or extend credit to the consumer on material terms that are materially less favorable than the most favorable terms available to a substantial proportion of consumers from or through that creditor. The mandatory compliance date for these existing risk-based pricing rules was January 1, 2011.

As you may recall, the Dodd-Frank Act requires creditors to also and additionally disclose credit scores and related information to consumers in risk-based pricing and adverse action notices under the Fair Credit Reporting Act, if a credit score was used in setting the credit terms or taking adverse action.   The effective date of these amendments is July 21, 2011.

Section 1100F of the Dodd-Frank Act requires that a risk-based pricing notice include:  (1) a numerical credit score used in making the credit decision;  (2) the range of possible scores under the model used;  (3) the key factors that adversely affected the credit score of the consumer in the model used;  (4) the date on which the credit score was created; and  (5) the name of the person or entity that provided the credit score.

Accordingly, in order to prepare for the effective date of the Dodd-Frank Act amendments, the FRB and FTC propose to amend their respective risk-based pricing rules to require disclosure of credit scores and information relating to credit scores in risk-based pricing notices, if a credit score of the consumer is used in setting the material terms of credit.

In addition, the Federal Reserve Board proposes to amend the adverse action model notices under Regulation B (Equal Credit Opportunity Act), which combine the adverse action notice requirements for both Regulation B and the FCRA. The proposed amendments would revise the model notices to incorporate the new credit score disclosure requirements. 

The Board proposes to amend these model notices in Regulation B to include the disclosure of credit scores and information relating to credit scores if a credit score is used in taking adverse action. These proposed amendments reflect the new content requirements in section 615(a) of the FCRA that were added by section 1100F of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Public comments on the proposed rules are due 30 days after publication in the Federal Register, which is expected shortly.


Ralph T. Wutscher
Kahrl Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois  60602
Direct:  (312) 551-9320 
Fax:  (312) 284-4751
Mobile:  (312) 493-0874

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