Compliance Matters

Compliance Q&A: Risk-based Pricing Notice Requirements

Do the risk-based-pricing notice requirements apply to business purpose credit?

March 1, 2013

Q: Do the risk-based-pricing notice requirements apply to business purpose credit?

A: No. The Fair Credit Reporting Act requirements only apply to consumer credit (i.e., primarily for personal, family, or household purposes).
 
The risk-based-pricing regulations come into play when a credit union:
  1. Uses a consumer report in connection with a consumer credit application or extension; and
     
  2. Based at least in part on that report, grants or extends credit to a consumer on “material terms” (i.e., APR) that are “materially less favorable” (i.e., higher cost for credit) than the most favorable terms available to a substantial portion of the credit union’s members for the same type of credit.
NEXT: Is an adverse action notice required when the member fails to return all of the paperwork necessary to process the loan?


Q: Is an adverse action notice required when the member fails to return all of the paperwork necessary to process the loan?

A: Section 1002.9(c) Regulation B (Equal Credit Opportunity) provides two alternatives for handling incomplete applications.

Within 30 days after receiving an incomplete application, the credit union may notify the applicant of either: the action taken on the loan request (e.g., adverse action notice); or provide a notice of incompleteness specifying the information needed to process the application, designating a reasonable time period to respond with the missing information, and indicating that failure to respond will result in no further consideration being given to the application.

NEXT: Are credit unions required to provide prior notice to members before closing some of the credit union’s ATMs?



Q: Are credit unions required to provide prior notice to members before closing some of the credit union’s ATMs?

A: No. The commentary to Section 1005.8 of Regulation E (Electronic Fund Transfers) states the following changes don’t require prior notice: closing some of the institution’s ATMs; or cancelling an access device (e.g. ATM/debit card).

Reg E generally requires credit unions to provide notice at least 21 days before the effective date of a changed term if the change would result in:

  • Increased consumer fees;
  • Increased liability;
  • Fewer types of available electronic fund transfers (EFTs); or
  • Stricter limitations on the frequency or dollar amount of transfers.

The provision only applies to changes in terms that were required to be disclosed in the initial Reg E disclosure. But credit unions don’t have to give prior notice if an immediate change in terms is necessary to maintain or restore the security of an account or an EFT system.

No specific wording is required for a change-in-terms notice. The notice may appear on a periodic statement, or given by sending a copy of a revised disclosure statement, provided attention is directed to the change (e.g., in a cover letter referencing the changed term).

Visit CUNA’s compliance blog— “CompBlog”—at cuna.org. Email cucomply@cuna.com with questions or ideas, and keep the conversation going with your peers on COBWEB—CUNA’s compliance listserv.