FACTA Risk Based Pricing Disclosure Update

The Federal Reserve Board and the Federal Trade Commission have completed final rulemaking pertaining to Risk-Based Pricing Disclosures (FACTA section 311.) This Federal law requires that by January 1st, 2011, a Risk-Based Pricing Disclosure (RBPD) calculation be done and appropriate notices be provided to consumers subject to “materially less favorable terms than the most favorable terms.”  These new requirements apply to all mortgage brokers, correspondents and lenders and impact all consumers that have credit data and/or scores accessed for a risk-based pricing decision, regardless of loan approval status.

The new RBPD requirements vary from the current FACTA required Notice to Home Loan Applicant and Consumer Score Disclosure requirements in several important ways,

1)     Each risk based pricing disclosure must include the decisioning credit score and a comparative study showing how each consumer’s credit score relates to others using that specific scoring model.

2)     Whereas the existing FACTA notices allowed for combining of joint applicants, the Risk-Based Pricing Disclosures are required to be sent individually, under separate cover. These disclosures cannot be combined with any other non-FACTA documents and/or required disclosures.

3)     A unique disclosure is required in instances where a credit score is not available (form B5.)

Credit Technologies has automated these requirements through our FACTA Compliance Service (FCS.) This includes the existing FACTA disclosure requirements (Notice to Home Loan Applicant and Consumer Score Disclosures) and the new Risk Based Pricing Disclosure requirements (view a sample report.) FCS includes:

  • Calculating each consumer’s comparative score and national score average per scoring model utilizing the form B-3 exception method (example contained on page 195 of the final rulemaking)
  • Creating the required Risk-Based Pricing Disclosure, Score Disclosure and related required language
  • Creating the required Notice to Home Loan Applicant
  • Issuing the combined disclosures via First Class US Mail to each applicant individually
  • Providing a Certificate of Compliance to each end user for use in the event of audit or investigation
  • Maintaining historical records sufficient to satisfy compliance with any lender or agency inquiry or audit as it applies to the above FACTA disclosure requirements

Key Dates:

Starting in December, we will remove the cost of any current FACTA mailing service from the credit report cost and display it as a separate line item entitled “FACTA Notice”.  There is no change in cost; this is simply in preparation for the activation of the FCS service.

December 14th – You will receive an updated FACTA Compliance Certificate including the RBPD Certification.

December 17th – We will begin issuing the new Risk-Based Pricing Disclosures on behalf of our clients. The FCS fee will be included in the total cost displayed on the credit report and in the “FACTA Notice” line item on your invoice.  All disclosures will be in your company name and reflect your return address for tracking and for use as a Red Flag detection tool.

That’s it – No action on your part is required to maintain compliance with the new FACTA requirements. For additional information or to learn more about the benefits of becoming a Credit Technologies client, please call 800.445.4922.

Thomas Conwell

President and founder, Credit Technologies, Inc. Past President/Director National Consumer Reporting Association (NCRA.)