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Thursday, March 17, 2016

Risk-Based Pricing Disclosure: Exceptions

QUESTION
We have heard that there are exceptions to providing a risk-based pricing notice. Could you provide some information about a few of these exceptions?

ANSWER
There are several exceptions to the risk-based pricing notice. Important exceptions concern notice regarding specific terms, adverse action, and prescreened solicitations.

A residential mortgage lender is not required to provide a risk-based pricing notice to the consumer if a consumer applies for specific material terms and is granted those terms, unless (1) the terms were specified by the lender using a consumer report after the consumer applied for or requested credit, and (2) after the person obtained the report. For purposes of the exception, “specific material terms” means a single material term, or set of material terms (i.e., such as an annual percentage rate of 10%, and not a range of alternatives, such as an annual percentage rate that may be 8%, 10%, or 12%, or between 8% and 12%). [75 FR 2724, codified in 2011 at 12 CFR § 222.74(a) – FRB; 16 CFR § 640.5(a) – FTC]

A lender is also not required to provide a risk-based pricing notice to the consumer if the lender provides an adverse action notice to the consumer pursuant to the Fair Credit Reporting Act requirements. [75 FR 2724, codified in 2011 at 12 CFR § 222.74(b) – FRB; 16 CFR § 640.5(b) – FTC]

With respect to prescreened solicitations, a lender is not required to provide a risk-based pricing notice to a consumer if the lender obtains a consumer report that is a prescreened list and uses the report for the purpose of making a firm offer of credit to the consumer. The exception applies to any firm offer of credit made by the lender to a consumer, even if the lender makes other firm offers of credit to other consumers on more favorable material terms. [75 FR 2724, codified in 2011 at 12 CFR § 222.74(c) – FRB; 16 CFR § 640.5(c) – FTC]

Jonathan Foxx
President & Managing Director
Lenders Compliance Group