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Joint plan would require risk-based notices
WASHINGTON (5/12/08)--The Federal Reserve Board and the Federal Trade Commission last week asked for comment on a joint plan to require disclosures when a consumer is receiving credit on less favorable terms than other consumers with better borrowing histories. The proposal would implement section 311 of the Fair and Accurate Credit Transactions (FACT) Act of 2003, which amended the Fair Credit Reporting Act. If adopted, the plan would continue to allow creditors to offer risk-based pricing of loans, offering less favorable terms to borrowers with such things as low credit scores. However, under the rule a risk-based pricing notice would generally be provided to the consumer after the terms of credit have been set, but before the consumer becomes contractually obligated on the credit transaction. The proposal provides a number of different approaches that creditors may use to identify the consumers to whom they must provide risk-based pricing notices. In addition, it includes certain exceptions to the notice requirement. The most significant of the exceptions permits creditors to provide all of their consumers with their credit scores and explanatory information rather than providing a risk-based pricing notice to those consumers who receive less favorable terms. There will be a 90-day period for public comment once the proposal is published in the Federal Register, likely to happen within the next few weeks. The joint proposal is one of the more controversial rules that has been issued under the FACT Act. Jeffrey Bloch, senior assistant general counsel of the Credit Union National Association, has noted concern with these FACT Act provisions and will be looking closely at the proposal to see to what extent they have been addressed “We have been concerned about how to decide who gets the required notices stating that they are going to get credit terms that are less favorable that what is being offered to others. We have also been concerned about how members will react towards their credit union if they receive such a notice,” Bloch said Friday.
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