More on Risk-Based Pricing Notices; CARD Act Webcast

Written by Steve Van Beek

Welcome to Friday!  The week goes by pretty fast when the Fed is issuing final rules left and right.  

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Timing.  We had quite a few questions on the timeline for the Reg V and Reg B notices.  The model forms carry a compliance date of 30 days after the rules are published in the Federal Register.  

Does that mean you have extra time to comply?  Let's put it this way.  I wouldn't want to delay working on getting the credit score information included.  I'd want to make sure my forms were ready to go on July 21, 2011.  Why?  The Federal Reserve went out of its way to indicate its hands were tied by Section 1100F's July 21, 2011 effective date.

Then why the 30 days after the Federal Register for the listed compliance date?  This is due to the rulemaking process that federal agencies - including the Federal Reserve - must follow.  Those rules come from the Administrative Procedures Act and govern the "notice and comment" rulemaking procedures.  One of those rules requires agencies to give 30 days after they finalize a rule.  See 5 U.S.C. 553(d).  

So didn't the Federal Reserve hamstring financial institutions by getting the final rule out so late?  Yes.

What if we can't be ready by July 21, 2011?  Document your compliance efforts and the actions the CU has taken to get as close as possible to the July 21, 2011 date.    

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A thank you to comment letters.  Federal agencies don't always tweak rules when they are finalized.  Sometimes they do, and there is one change in the risk-based pricing final rule that - while optional - could alleviate potential headaches.  I'll just include the section as it describes it best - from Page 18:

"Contact information for the entity that provided the credit score.  An industry commenter asked that the Agencies add language to the model forms directing the consumer to the consumer reporting agency for more information about the credit score. The commenter believed that consumers may otherwise contact creditors with questions about their credit score, but that creditors are not in a position to answer those questions. 

    The Agencies are adding optional language to model forms H-6 and H-7 of the Board‘s rule and B-6 and B-7 of the Commission‘s rule directing the consumer to the entity (which may be a consumer reporting agency or, in the case of a proprietary score that meets the definition of a credit score, the creditor itself) that provided the credit score for any questions about the credit score, along with the entity‘s contact information. Creditors may use or not use the additional language without losing the safe harbor, since the language is optional. The final rules add new instruction 4. to Appendices H and B to make clear that this disclosure of the entity‘s contact information is optional."  

This little tweak allows the CU to put information about the credit reporting agency (CRA) into the credit score disclosure portion of the risk-based pricing notice.  This is useful as it means an issue with the credit score itself is more likely to be asked of the correct party (the CRA and not the CU).  Note:  This optional language is the final section of the H-6 and H-7 notices and is in brackets - which indicates it is optional.  

Attaching the Credit Score Info to Current RBPN.  The Fed did give some flexibility to credit unions in this area.  The full discussion is on Page 20 of the final rule.  While it doesn't change the information that needs to be disclosed, the Fed did allow credit unions to essentially attach the new credit score information to their existing risk-based pricing notices.  Thus, if you used the H-1 notice - you would then need to include the credit score information to this notice (the second part of the H-6 notice).  This allows the CU to obtain the safe harbor.  Here is from the Fed:

"Attaching the credit score information to the current model form.  One industry commenter asked the Agencies to clarify that a creditor may staple or append the credit score information using a supplemental document to a current model form on general risk-based pricing (H-1 and B-1) or an account review notice (H-2 and B-2).....................................................................................................................

.........Thus, the Agencies believe that a creditor will be deemed to have used H-6 or B-6 if it staples or appends to H-1 or B-1 the credit score information contained in the section "Your Credit Score and Understanding Your Credit Score" that is contained on the second page of H-6 and B-6.  Instruction 3. to Appendices H and B sets out the modifications that may be made to the model forms without losing the benefit of the safe harbor."

As I stated above, this does not change the information that needs to be given - but it does allow the CU the flexibility to work on getting the credit score information ready and attaching or stapling it to their existing risk-based pricing notice.  See Page 20.

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Also, I added a new link to yesterday afternoon's blog that contains the new regulatory text of the "Multiple Consumer" situation - which includes a useful example.

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Sarah and I will be doing a webcast on the recent clarifications to the Credit CARD Act.  If you are interested, the webcast is on Wednesday, August 10.  

Have a great weekend!     

Comments

[Dianna]

If we are able to construct our form into a one page document that includes all required information, will we still be covered by safe harbor?
Thank you for all your time putting together these simplified guidelines so quickly!

[Steve Van Beek]

Dianna,
I'm not sure how the CU would be able to get the disclosure down to one page. Appendix H to Reg V (Part 222) has the acceptable changes and modifications to the risk-based pricing notices. It also lists two unacceptable changes - including "ii. Eliminating empty lines and extra spaces between sentences within the same section."

You would have to review the allowed modifications in Appendix H in order to determine if your notice would retain the safe harbor.