QUESTION
Is it true that an Adverse Action Notice may be issued instead of the
Risk-based Pricing Notice?
ANSWER
For purposes of the Risk-based Pricing Notice requirement, “credit”
includes credit as defined by the Equal Credit Opportunity Act (ECOA). Business credit is excluded
from the requirements. Based on the broad definition of credit under the ECOA,
the risk-based pricing notice requirement applies to residential mortgage
loans. [12 CFR §§ 222.70(a)(2) and 222.71(h); 16 CFR §§
640.1(a)(2) and 640.2(h)]
Unless an exception applies, under the risk-based pricing rules the lender
must provide the consumer with a risk-based pricing notice containing specific
information in the form and manner required by the rules if the lender both:
- Uses a consumer report in connection with an application for, or a grant, extension, or other provision of, credit to the consumer that is primarily for personal, family, or household purposes; and
- Based in whole or in part on the consumer report, such lender grants, extends, or otherwise provides credit to that consumer on material terms that are materially less favorable than the most favorable material terms available to a substantial proportion of the consumers from or through that person. [12 CFR § 222.72(a); 16 CFR § 640.3(a)]
But note my qualifying phrase, “unless an exception applies.” There
are various exceptions, one of which happens to be the Adverse Action Notice. A lender is 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 FCRA
requirements. [12 CFR § 222.74(a); 16 CFR § 640.5(a)]
The
exception reflects a key aspect of the Risk-based Pricing Notice requirements,
that is, the notice is required only when credit is actually granted, extended or
otherwise provided.
Jonathan Foxx, Ph.D., MBA
Managing Director
