By January 1, 2011, a dealer must have in place a program for compliance with the FTC’s Risk Based Pricing Rule. The Rule was adopted based on a provision in the 2003 FACT Act which requires delivery of a notice by a creditor that extends credit to a consumer based on a credit report “on material terms that are materially less favorable than the most favorable terms available to a substantial proportion” of the creditor’s other customers.
Both the law and the Rule are complex. Fortunately, the FTC has provided an alternate compliance method that allows a dealer to simply deliver a credit score notice with related disclosures to all consumers applying for credit. Dealers should use this alternate method to comply with the Rule.
Just like the Information Safeguards Rule and the Red Flags Rule, a dealer should adopt a program and should appoint a coordinator to oversee compliance with the Risk Based Pricing Rule. Here are the steps that we recommend.
- Appoint a coordinator who will be responsible for compliance. Usually this will be the coordinator for compliance with the information safeguards and red flags requirements.
- Make sure that the coordinator is well-versed in the requirements of compliance with the Risk Based Pricing Rule through use of the credit score notice.
- Make arrangements with a supplier of the notice, such as Team VADA Partner Reynolds Document Solutions. Consumer reporting agencies and loan aggregators, among others, have been marketing products that will allow the dealership to print the notice when accessing a consumer’s credit report. Using those established companies can give you the comfort of knowing that you are using a notice that complies with the Rule.
- The coordinator should train staff to deliver the credit score notice to every consumer who applies for credit. If there are joint applicants, each one should get a notice. If a consumer does not have a credit score for some reason, there is an alternate notice that discloses that.
- While the Rule does not require that customers sign the notice, we are recommending that the dealer make a copy, have the customer sign it, and maintain a copy in the deal or application file. A customer who signs it cannot deny receiving it.
- Follow up. Spot check deals or application files to be sure that the forms are being delivered. Your personnel may have some initial reluctance to comply since they may see this as just another form that must be presented to and possibly explained to a customer, with the possibility of slowing down the process. There may be some resistance, so spot checking to be sure that the notices are being delivered will be important.