Final Regulations For “Risk-Based Pricing Notices”

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The FACT or the Fair and Accurate Credit Transactions Act was passed by the United States Congress on November 22, 2003 and signed into law by President George W. Bush on December 4, 2003. FACT is actually an amendment to the Fair Credit Reporting Act, or FCRA, and it is actually the provision that allows consumers to receive a free credit report from each of the three main credit-reporting bureaus, Equifax, Experian and TransUnion. With cooperation from the Federal Trade Commission, the website www.annualcreditreport.com was set up to further simplify access to the free reports. If you need a free report, visit annualcreditreport.com and you can get your report with no sales pitch for credit monitoring or other misleading information.

FACT also established a requirement for consumer credit protection rules to alert consumers of possible overcharges of interest rates or points caused by erroneous or outdated information contained on their credit reports. Now after a 6 year wait, the Federal Trade Commission and the Federal Reserve have finally published some regulations to support the imperative required by FACT as reported by the LA Times.

These rules require lenders to alert consumers of possible higher rates and down payments or any less than optimal terms based upon a ?risk-based pricing? system. Risk-based pricing is common for mortgages, credit cards, car loans and most financial products. It is based upon the credit scores of the applicant and the higher the credit score the lower the rates and fees, the lower the credit score the more costly the loan is all around.

Previously, the way most people found out about derogatory credit on their report was from a rejection letter from the lender. This happened even when the credit listings were outdated and inaccurate. Also, many times the loan was not rejected outright but rather the interest rates, points, down payments etc. were increased without the knowledge of the consumer. This practice was especially prevalent during the time of sub-prime mortgages.

Now the lenders must provide a ?risk-based pricing notice? to an applicant anytime that their credit scores indicated higher interest rates, higher down payments or any other types of adverse terms. This is to warn consumers about credit problems before they became legally obligated to a loan that is overpriced.

Even though this was part of FACT, the draft proposals to implement the mandate did not come out until May 2008 with the final regulations on December 22, 2009. The start date for all lenders to comply will not be until January 1, 2011.

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