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Companies Ramping Up Risk-Based Pricing Solutions

December 14, 2010

As I hope you are aware, the Jan. 1, 2011, “go live” date of the new Risk-Based Pricing (RBP) Rule is quickly approaching. And if I was a betting man, which I’m not, I would not put my money down on this new rule going the way of the Red Flags Rule.

As I was told by my friend Manas Mohapatra at the Federal Trade Commission, the issues related to the most recent delay of the Red Flags Rule’s enforcement date (what are we on, five delays now?) don’t apply to the RBP Rule. At issue with the Red Flags Rule was how the rule defined a creditor. See, doctors and lawyers couldn’t understand why they’d be viewed as a creditor. Well, Mohapatra said recent legislation has fixed that problem, which is why he doesn’t foresee any further delays with that rule.

Now, with the RBP Rule, if you extend credit and vary the terms based on information contained in a consumer’s credit reports, then you are risk-based pricing and must comply with the rule. For dealers, if you use the information contained in the credit report to select the finance source that will finance your customer, then you are risk-based pricing, too.

See, the RBP rule requires creditors, to the extent they base an offer of credit on a consumer report, to give a specific notice to any applicant who is offered credit with “material terms that are materially less favorable than the most favorable material terms available to a substantial portion of your consumers.” Yeah, try saying that five times.

Now, rather than run through the methods you can employ to comply with that last sentence, I’d like to point you to a story penned by DealerTrack’s Randy Henrick. It appeared in the March issue and provides a nice rundown on the rule and the requirements it imposes on you.

For this blog, I want to focus on the exception to the rule, which was successfully secured by the National Automobile Dealers Association. Hey, give it up for the association. It has really done an excellent job over the last couple of years in making sure your voice is being heard in Washington, D.C.

Now, the reason I’m focusing on the exception is because many of the RBP solutions rolling out this month are based on the exception. The reason for that, if you didn’t read Michael Benoit’s column this month, is because compliance experts believe there is no possible way for dealers to comply with the RBP notice requirement.

To comply with the exception, all you need to do is hand your customers who apply for credit a “credit score disclosure notice.” It must contain, among other required language, a disclosure of the consumer’s actual credit score, as well as information about how his or her credit score stacks up against other consumers in the same scoring pool. For customers without a credit score, a separate notice is required, which, again, you can get more information on by checking out either Randy’s or Michael’s articles.

So, who has a solution? Well, here’s a short list:

CoreLogic Credco: The company is providing a credit score disclosure notice free of charge with each Credco credit report you order. We reported on this solution on Nov. 23. Click here to see what the company’s notice looks like.

DealerTrack: Over the last several months, DealerTrack has been staging Webinars to educate its dealer customers about the new rule. This week, the company is expected to roll out new functionality for its DealerTrack Performance Suite that will enable dealers to comply with the new rule. The enhancements will be available for free to all of DealerTrack's 17,000 dealer customers. For more information on the company’s solution, click here.

Reynolds and Reynolds: My sources there say the company is offering an exception notice with each credit bureau inquiry report. The notice dealers receive will contain all of the text (and contents) prescribed in the regulation.

Pictured is a sample of the notice Reynolds will issue with each credit bureau inquiry report.

RouteOne: The company also has been staging Webinars to educate its dealer customers. In fact, if you’d like to take advantage, click here to register for the next Webinar, which is scheduled for Dec. 16. As for its solution, RouteOne is offering a complimentary tool that will allow dealers to print a credit score disclosure notice for all customers requesting credit.

Again, this is a short list, as I’m sure more companies will be rolling out their solutions before the Jan. 1 effective date. Now, if you know of a company that’s offering a solution, feel free to post whatever information you have on the company and its solution in the comment section below.

Comments

  1. 1. Param Ramakrishnan [ December 14, 2010 @ 07:18PM ]

    Wolters Kluwer Financial Services will also be offering the required credit score disclosure notices based upon the exception rule to all dealers (auto, marine, rv, powersports) utilizing its AppOne platform. Dealers will have the ability to produce the credit score disclosure notices that have been created by Wolters Kluwer Bankers Systems team of compliance experts that have been based upon the FTC model forms. These forms will also be offered to banks and financial institutions as well in other verticals including direct lending, mortgage, home equity etc.

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