1. Does the Risk Based Pricing Rule apply to my dealership?
A. Yes, if your dealership pulls credit reports on consumers. The Risk Based Pricing Notice is required to be given by all entities that use credit reports to make a decision and the credit report is used to extend credit on terms that are ‘materially less favorable’ than the most favorable terms available to “ a substantial portion’ of consumers from that entity. Since interest rates you charge in a closed-end auto finance transaction vary based on a consumer’s credit rating your dealership is extending credit to many consumers at a higher rate than you can extend to the consumer with the best credit.
2. When does the Risk Based Pricing Rule become effective?
A. January 1, 2011.
3. What does my dealership need to do to comply with the rule?
A. We have made it easy and foolproof by using the NADA and NIADA recommend and the FTC approved Credit Score Disclosure Exception Notice. Our ProMax Unlimited and ProCredit Express platforms will allow you to print the Exception Notice using the Risk Based Pricing data that will be added to the credit report. You can then deliver the printed notice to the consumer and your compliance is fulfilled. The exception notice shows the consumer’s individual credit score and where that score stands with the rest of the population plus other information regarding credit scores.
4. When do I need to deliver the Exception Notice to the consumer?
A. As soon as practical after the credit report has been pulled, and before the consummation of the credit transaction. It must be presented to the consumer in writing in a form the consumer may keep. It must be clear, conspicuous and separated from any other information provided to the consumer. Appropriate use and distribution of the forms provides the dealership with safe harbor protection. The ProMax Online and ProCredit Express platforms will also provide compliance reports for dealership management and FTC audit review.
5. What if I pull all or some of my credit reports through Route One or DealerTrack?
A. No problem. We will make sure your credit bureau accounts we provide for use in these platforms include the Risk-Based Pricing data as required by law. These platforms are prepared to provide the Exception Notice for your distribution to the consumer.
6. What if the consumer does not have a credit score available with their credit report?
A. A “No Score Available Exception Notice” will be provided by most platforms for printing and presentation to the consumer. Since it will not include the consumer’s credit score it won’t show how they compare to the rest of the population. This notice will inform the consumer that a credit score was not available and will provide general information about credit reports and credit scores. This notice must also be delivered under the same requirements as the regular Credit Score Disclosure Exception Notice.
7. My dealership doesn’t extend the credit, the bank is making the loan, so do we still need to provide the notice?
A. Yes. The FTC provides the following specific example: “If the auto dealer is the person to whom the loan obligation is initially payable, such as where the auto dealer is the original creditor under a retail installment sales contract, the auto dealer must provide the risk-based pricing notice to the consumer… even if the auto dealer immediately assigns the loan to a bank or finance company. The bank or finance company, which is an assignee, has no duty to provide a risk-based pricing notice to the consumer.” 16 C.F.R. 640.6(b)(3).
8. Our dealership receives consumer credit applications via the Internet which include the consumer’s permission to pull a credit report, how can I comply with the Risk-Based Pricing Rule?
A. The best method would be to send them the notice by Email. Otherwise you can print the notice from the ProMax Unlimited or ProCredit Express platforms and send it to them by mail. The law requires that you deliver the notice in writing in a form the consumer can keep, and remember it must be delivered before a credit transaction is consummated.
9. What if I don’t comply?
A. Your dealership could face severe penalties of up to $3,500 per occurrence for a civil lawsuit or $16,000 per occurrence for enforcement from the FTC, plus injunctive relief. However the FCRA (Section 615(c), 15 USC§ 1681(c) provides that an entity can not be held liable for a violation of the Risk-Based Pricing Rule if it can show by a preponderance of the evidence that it maintained reasonable procedures to assure compliance with the rule (this is the Safe Harbor provision).
10. Will there be a cost to my dealership?
A. Yes. A dealership must purchase the extra data required for compliance with each credit report they pull.
11. What if I send the deal to the Bank and did not pull a credit report, do I still need to give the notice to the consumer?
A. No. The Risk Based Pricing Rule applies only if a credit report is pulled on a consumer. The FCRA states that the entity must provide a notice if it: 1) Uses a consumer report in connection with an application for, or a grant, extension, or other provision of, credit to that consumer that is primarily for personal, family, or household purposes; and, 2) Based on whole or in part on the consumer report, grants, extends, or otherwise provides credit to that consumer on terms that are materially less favorable than the most favorable material terms available to a substantial portion of consumers from or through that entity.
As stated in the third FAQ the Credit Score Disclosure Notice is the recommended solution, therefore all consumers on whom a dealership pulls a credit report must receive this notice
12. If I pull all 2 or 3 credit reports, do I have to give notices to the consumer for each credit report?
A. No. You are only required to provide one disclosure notice to the consumer, and you can pick the credit report you used to determine the consumer's eligibility for the loan provided to the consumer. Some dealers are opting to provide one notice for each report obtained. There is no penalty for over-complying with the regulation. The ProMax Unlimited and ProCredit Express platforms allow you to select from various options.
13. My dealership gives pre-screened offers of credit using trigger leads. Since my target consumer is based on a credit score do I need to give a notice to each consumer?
A. No. The Risk Based Pricing Rule does not apply to pre-screened offers of credit. A proper offer of credit meets all FCRA requirements for the pre-screened marketing products. However, once the dealership pulls a credit report on any consumer who received an offer of credit the Risk Based Pricing Rule applies.