QUESTION: The bank currently provides the risk-based pricing notice in accordance with model forms H-3 and H-4, under the FCRA and Regulation V, for loans secured and not secured by residential real estate, respectively. The bank does not employ a credit scoring model or a tiered system for pricing but is considering such an approach. Do these notices still satisfy the disclosure requirements in that case? Would those systems then require periodic testing under FCRA, or would that be more for purposes of fair lending?
ANSWER: If you choose to adopt a risk-based price tier system, then providing model forms H-3 and H-4 will meet the risk-based pricing notice requirements as long as H-3 is used when the consumer requests an extension of credit that will be secured by 1-4 units of residential property and H4 for credit that will not be secured by 1-4 units of residential property. For testing purposes, under the FCRA, the system itself would not require periodic testing but examiners do test on the sufficiency of notices being sent out when you do use a tier-based system:
VIII. Privacy — Fair Credit Reporting Act (fdic.gov), (pg. 6.29) – https://www.fdic.gov/resources/supervision-and-examinations/consumer-compliance-examination-manual/documents/8/viii-6-1.pdf
Regulation V, § 1022.74 – https://www.consumerfinance.gov/rules-policy/regulations/1022/74/#d
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