Compliance Blog

The holiday shopping is underway, and my house is completely decked out in decorations. My home décor wouldn’t be complete without the most important elf, Snowflake, who is keeping a close eye on kiddos to report back to the big guy at the north pole that they are showing kindness, love and cooperation. Here is a picture of Snowflakes latest hiding spot which my daughter was wildly impressed with (thank you Pinterest).  

Let’s get back to more important things like the Fair Credit Reporting Act which is implemented by Regulation V. Recently, the Compliance Team has received quite a few questions on this regulation, specifically the Risk-Based Pricing Notice (RBPN). Today we will go over the requirements of the RBPN and a few of the exceptions. Appendix H to Part 1022 Contains Model Forms for Risk-Based Pricing and Credit Score Disclosure Exception Notices.

Under section 1022.72 of Regulation V, a credit union is required to provide the member with a RBPN any time it uses a credit report in connection with an application for credit and provides different rates based on the credit score of the applicant. However, section 1022.74 of Regulation V discusses the exceptions for when a RBPN is not required. Specifically, section 1022.74(d) and (e) both allow for a credit score notice to be provided in lieu of the RBPN when the member requests for an extension of credit which will be secured by one to four units of residential real property.

Additionally, section 1022.74(b) provides another exception to the RBPN stating:

“A person is not required to provide a risk-based pricing notice to the consumer under § 1022.72(a), (c), or (d) if the person provides an adverse action notice to the consumer under section 615(a) of the FCRA.”

Based on the above, if a member is denied credit, the adverse action notice can be provided in lieu of the RBPN. So, what happens if a member is denied credit, should they receive both the credit score notice and the adverse action notice?

The Federal Reserve helped clarify this in the preamble to the final rule stating:

"One commenter believed that the Agencies’ statement that a creditor must provide a credit score disclosure exception notice to ‘‘all’’ consumers was too broad, noting that some consumers may not be entitled to receive any type of notice under the rules. The Agencies agree that some consumers would not receive an exception notice... Creditors also do not need to provide an exception notice to a consumer if one of the other exceptions applies. For example, consumers who apply for and receive a specific rate or who receive an adverse action notice pursuant to the exceptions under §ll.74(a) and §ll.74(b), respectively, are not entitled to a notice." 75 Fed. Reg. 2724 (Emphasis added.)

Based on the above, a credit union is not required to provide the credit score notice to a denied applicant if it is providing an adverse action notice to the member. Please note that these exceptions do not apply when sending incomplete application notices or if a member withdraws their application. Lastly, there are other exceptions to the RBPN that were not discussed above. If there are any questions related to the RBPN or the exceptions, NAFCU members can contact the NAFCU compliance team at compliance@nafcu.org.

On that note, I hope everyone is enjoying their holiday traditions as much as I am!

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