Zoot Releases Industry Brief on Risk-Based Pricing Regulations

Key compliance steps outlined for consumer lenders

September 8, 2010

Zoot, a leading provider of advanced instant credit decisioning and loan origination solutions, announced the release of a new industry brief, “Risk-Based Pricing Regulations: What Creditors Need to Know.” The document summarizes the steps necessary for complying with the new risk-based pricing regulations under section 615(h) of the federal Fair Credit Reporting Act (FCRA).

The new FCRA regulations, effective January 1, 2011, will impact actions that creditors must take when using consumer reports to either extend offers of credit to consumers or conduct account reviews of existing consumer portfolios. The new rules state that a risk-based pricing notice must be provided by the creditor when a consumer report is used in connection with providing credit on material terms that are materially less favorable than those available to the majority of other consumers, and when an existing customer’s annual percentage rate is increased after an account review because of a deteriorated credit report.

The new regulations also set forth a number of exceptions to the risk-based pricing notice requirement, including an exception where the creditor instead elects to provide credit score notices and disclosures to consumers in connection with credit applications. “Lenders are not going to want to create a negative customer experience by telling consumers that they did not receive the best offer available. Therefore, the alternative credit score disclosure may become quite popular as an alternative to the risk-based pricing notice,” said Ed Rice, general counsel for Zoot Enterprises. “The credit score disclosure alternative to the risk-based pricing notice would be given to all applicants, however, not just those who fall outside of the best pricing grid.” 

To comply with the risk-based pricing rules, creditors must be prepared to compile all of the appropriate data, such as credit score and the corresponding distribution information, and populate the required disclosure forms as necessary to send to their mailing company. They will also need to determine portfolio score cut-offs for sending risk-based pricing notices. Zoot is currently assisting its clients with incorporating these measures well in advance of the January 2011 compliance deadline. The company has introduced several capabilities to assist lenders including tools to generate the required bar charts, data reviews to set score boundaries and interfaces to letter fulfillment shops.

Zoot is committed to monitoring regulatory changes that impact its client base and assisting them as appropriate with executing a compliance strategy in a timely fashion. To learn more, sign up for status updates regarding this legislation and other emerging market news.

About Zoot
Bozeman, Mont.-based Zoot provides comprehensive credit decisioning, loan origination and credit risk management solutions to enable clients’ unique business objectives, leading to long-term relationships with top U.S. banks. Zoot’s rapid, high-volume processing environment has the capacity to process billions of transactions per year. Visit http://www.zootweb.com or call 406.556.7555 for more information.

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