Fair Credit Reporting Act Disclosures and Indirect Automobile Lending

Credit unions should either retain copies of provided Risk Based Pricing Notices in loan files or perform due diligence on automobile dealers to confirm they are providing the notices in a timely manner to the credit union’s indirect borrowers.

The Division of Credit Unions released Bulletin B-16-04 providing guidance for state-chartered credit unions on indirect lending compliance requirements – specifically the Risk Based Pricing Notice required by the Fair Credit Reporting Act.

The Division of Credit Unions (DCU) examiners will review loan file documentation to determine whether required notices are provided to consumers. Credit unions should either retain the notices in the loan files or perform due diligence on automobile dealers to confirm they are providing the notices in a timely manner. Examiners will also review whether credit unions have adequate procedures in place for compliance with the above provisions of the FCRA and Regulation V.

The Fair Credit Reporting Act (“FCRA”) requires that a Risk-Based Pricing Notice be provided when a consumer report is used in connection with providing credit on materially less favorable terms than the most favorable terms available to a substantial proportion of customers. The notice is required only for loans that are primarily for personal, household, or family purposes. The Dodd-Frank Act amended the FCRA to require creditors to disclose the credit score used in pricing any credit product and information related to that score.

Alternatively, a creditor may elect to provide a credit-score disclosure Exception Notice to all consumer applicants. The Exception Notice must disclose the distribution of credit scores among consumers who are measured under the same scoring model that is used to generate the consumer’s credit score, using the same scale as that of the credit score provided to the consumer.

This information must be presented as either:

1. A bar graph containing a minimum of six bars that illustrates the percentage of consumers with credit scores within the range of scores reflected in each bar; or
2. A clear and readily understandable statement informing the consumer how his or her credit score compares with the scores of other consumers.

For automobile lending, the Risk-Based Pricing Notice must be provided after credit approval is communicated to the consumer, but before consummation. If the creditor relies on the dealership to deliver the notice, the creditor must maintain reasonable policies and procedures to verify that the dealership or other party provides the Notice within the required time frame. If the creditor chooses to provide an exception notice in lieu of a risk-based pricing notice, the exception notice must be provided to the consumer as soon as reasonably practicable after requesting the consumer’s credit score but not later than consummation.

http://www.dfi.wa.gov/sites/default/files/credit-unions/bulletins/b-16-04.pdf