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
