[Federal Register Volume 86, Number 178 (Friday, September 17, 2021)]
[Rules and Regulations]
[Pages 51795-51817]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-19908]


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FEDERAL TRADE COMMISSION

16 CFR Part 640 and 698

RIN 3084-AB63


Duties of Creditors Regarding Risk-Based Pricing Rule

AGENCY: Federal Trade Commission.

ACTION: Final rule.

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SUMMARY: The Federal Trade Commission (``FTC'' or ``Commission'') is 
issuing a final rule (``Final Rule'') to amend its Duties of Creditors 
Regarding Risk-Based Pricing Rule (``Risk-Based Pricing Rule'') and its 
related model notice to correspond to changes made to the Fair Credit 
Reporting Act (``FCRA'') by the Dodd-Frank Act and to clarify the model 
notice.

DATES: Effective October 18, 2021.

FOR FURTHER INFORMATION CONTACT: David Lincicum (202-326-2773), 
Division of Privacy and Identity Protection, Bureau of Consumer 
Protection, Federal Trade Commission, 600 Pennsylvania Avenue NW, 
Washington, DC 20580.

SUPPLEMENTARY INFORMATION:

I. Background

A. The Risk-Based Pricing Rule

    The Fair and Accurate Credit Transactions Act of 2003 (``FACT 
Act'') was signed into law on December 4, 2003. Public Law 108-159, 117 
Stat. 1952. Section 311 of the FACT Act added section 615(h), 15 U.S.C. 
1681m(h), to the FCRA to address risk-based pricing. Risk-based pricing 
refers to the practice of setting or adjusting the price and other 
terms of credit offered or extended to a particular consumer to reflect 
the risk of nonpayment by that consumer. Information from a consumer 
report is often used in evaluating the risk posed by the consumer. 
Creditors that engage in risk-based pricing generally offer more 
favorable terms to consumers with good credit histories and less 
favorable terms to consumers with poor credit histories.
    Under section 615(h) of the FCRA, a person generally must provide a 
risk-based pricing notice to a consumer when the person uses a consumer 
report in connection with an extension of credit and, based in whole or 
in part on the consumer report, extends credit to the consumer on terms 
materially less favorable than the most favorable terms available to a 
substantial proportion of consumers. The risk-based pricing notice is 
designed primarily to improve the accuracy of consumer reports by 
alerting consumers to the existence of negative information in their 
consumer reports so consumers can, if they choose, check their consumer 
reports for accuracy and correct any inaccurate information. The 
Federal Reserve Board and the Commission jointly published regulations 
implementing these risk-based pricing provisions on January 15, 
2010.\1\ The Rule was then amended in July 2011 to include a 
requirement that, if a credit score is used in making the credit 
decision, the creditor must disclose that score and certain information 
relating to the credit score.\2\
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    \1\ 75 FR 2723 (January 15, 2010).
    \2\ 76 FR 41602 (July 15, 2011).
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B. Dodd-Frank Act

    The Dodd-Frank Wall Street Reform and Consumer Protection Act 
(``Dodd-Frank Act'') was signed into law in 2010.\3\ The Dodd-Frank Act 
substantially changed the federal legal framework for financial 
services providers. Among the changes, the Dodd-Frank Act transferred 
to the Consumer Financial Protection Bureau (``CFPB'') the Commission's 
rulemaking authority under portions of the FCRA.\4\ Accordingly, in 
2012, the Commission rescinded several of its FCRA rules, which had 
been replaced by rules issued by the CFPB.\5\ The FTC retained 
rulemaking authority for other rules promulgated under the Acts to the 
extent the rules apply to motor vehicle dealers described in section 
1029(a) of the Dodd-Frank Act \6\ predominantly engaged in the sale and 
servicing of motor vehicles, the leasing and servicing of motor 
vehicles, or both.\7\ The retained rules include the Risk-Based Pricing 
Rule, which now applies only to motor vehicle dealers that use consumer 
reports or credit scores for risk-based pricing.\8\ Consumer report or 
credit score users that are not motor vehicle dealers are covered by 
the CFPB's rule.\9\
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    \3\ Public Law 111-203 (2010).
    \4\ 15 U.S.C. 1681 et seq. The Dodd-Frank Act does not transfer 
to the CFPB rulemaking authority for section 615(e) of the FCRA 
(``Red Flag Guidelines and Regulations Required'') and section 628 
of the FCRA (``Disposal of Records''). See 15 U.S.C. 1681s(e).
    \5\ 77 FR 22200 (April 13, 2012); 12 U.S.C. 5519.
    \6\ 15 U.S.C. 5519.
    \7\ 77 FR 22200.
    \8\ Id. The Rule also sets forth requirements for entities that 
use credit scores. See, e.g., 16 CFR 640.3(b). For ease of 
reference, in this supplementary information section users of 
consumer reports includes users of credit scores.
    \9\ 12 CFR 1022.70-75.
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II. Regulatory Review of the Risk-Based Pricing Notice Rule

    On October 8, 2020, the Commission solicited comments on the Risk-
Based Pricing Rule. The Commission sought information about the costs 
and benefits of the Rule, and its regulatory and economic impact. In 
addition, the Commission proposed amending part 640 to narrow the scope 
of the Rule to motor vehicle dealers excluded from Consumer Financial 
Protection Bureau jurisdiction as described in the Dodd-Frank Act and 
remove examples that did not apply to motor vehicle dealers. The 
Commission received one comment related to the Risk-Based Pricing 
Rule.\10\
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    \10\ The comments are available at www.regulations.gov/document/FTC-2020-0072-0001/comment. The Commission also received two 
comments that addressed regulation of lenders and motor vehicle 
dealers generally. Both comments argued such regulation was needed.
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III. Overview of Final Rule

A. Scope

    The Commission promulgated the Risk-Based Pricing Rule at a time 
when it had rulemaking authority for a

[[Page 51796]]

broader group of consumer report users. While the Dodd-Frank Act did 
not change the Commission's enforcement authority for the Risk-Based 
Pricing Rule, it did narrow the Commission's rulemaking authority with 
respect to the Rule. It now covers only users of consumer reports that 
are motor vehicle dealers.\11\ The amendments in the Dodd-Frank Act 
necessitate technical revisions to the Risk-Based Pricing Rule to 
ensure the regulation is consistent with the text of the amended FCRA. 
Accordingly, the Final Rule amends the Risk-Based Pricing Rule to 
properly reflect the Rule's scope.
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    \11\ 15 U.S.C. 1681s(e)(1); 12 U.S.C. 5519.
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    The Final Rule amends section 640.1(a) to narrow the description of 
the scope of the Risk-Based Pricing Rule to motor vehicle dealers 
excluded from Consumer Financial Protection Bureau jurisdiction as 
described in 12 U.S.C. 5519. It does so by replacing the broad term 
``person'' with ``motor vehicle dealer,'' as defined in amended section 
640.2. The term ``motor vehicle dealer'' replaces ``person'' throughout 
the Rule, whenever ``person'' is used to describe the entity covered by 
the Rule. In provisions where ``person'' does not refer to a motor 
vehicle dealer covered by the Rule, such as sections 640.4(c)(2) and 
640.6(b)(2), the term ``person'' is retained.\12\
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    \12\ For consistency, the proposed amendments also change any 
use of the term ``auto dealer'' to ``motor vehicle dealer.'' See, 
e.g., 16 CFR 640.4(c)(2)(ii).
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    The Final Rule removes section 640.1(b), which describes the 
process by which the Commission worked with the Federal Reserve Board 
to initially issue the Risk-Based Pricing Rule and states the 
Commission's and the Board's rules are substantively identical. The 
Final Rule removes this section because the Dodd-Frank Act transferred 
the Board's rulemaking authority for the Risk-Based Pricing Rule to the 
CFPB.
    The Final Rule amends section 640.2 to add a definition of ``motor 
vehicle dealer'' that defines motor vehicle dealers as those entities 
excluded from the CFPB's jurisdiction under the Dodd-Frank Act.\13\ The 
amendment also updates the definition of ``open-end credit'' by 
replacing the statutory reference to 15 U.S.C. 1602(i) with a citation 
to 15 U.S.C. 1602(j). It also changes references to the Federal Reserve 
Board's regulation to the CFPB's regulation.
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    \13\ 12 U.S.C. 5519.
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    In addition, the Final Rule updates references to the risk-based 
pricing notices in sections 640.4(a)(1)(viii), 640.4(a)(2)(viii), 
640.5(d)(1)(ii)(I), 640.5(e)(1)(ii)(L), and 640.5(f)(iii)(I) from the 
Board's website to the CFPB's website to reflect the CFPB's authority 
under the Dodd-Frank Act.

B. Examples

    The Rule contains examples that apply to entities no longer within 
the scope of the Rule due to the Dodd-Frank Act. Retaining these 
examples might lead to confusion about the actual scope of the Risk-
Based Pricing Rule. Accordingly, in addition to changing the term 
``person'' to ``motor vehicle dealers'' in some examples as discussed 
above, the Final Rule modifies some of the examples to provide clearer 
guidance to financial institutions that are covered motor vehicle 
dealers. For example, the Final Rule removes references to utility 
companies and charge cards (section 640.2(n)(3)) and to student loans, 
secured and unsecured credit cards, and fixed and variable rate 
mortgages (section 640.3(b)(1)(5)). The Final Rule also replaces 
references to ``credit card issuers'' with ``motor vehicle dealers'' 
(sections 640.4(d)(2); 640.5(a)(2); 640.5(c)(3)). These modifications 
to the cited examples are not intended to modify the substantive 
requirements of the Rule, as the examples simply illustrate the Rule's 
application in a particular context.\14\
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    \14\ The Commission recognizes there are substantive provisions 
of the Risk-Based Pricing Rule that typically would not apply to 
motor vehicle dealers. For example, motor vehicle dealers rarely 
issue credit cards, even though that term is defined broadly as 
``any card, plate, coupon book or other credit device existing for 
the purpose of obtaining money, property, labor, or services on 
credit.'' The Commission has chosen, however, not to remove these 
provisions from the Rule for two reasons. First, the current Rule is 
substantively identical to the CFPB's risk-based pricing rule. The 
Commission believes it is beneficial to maintain this conformity and 
has opted to make no substantive changes to the rule. Second, to the 
extent motor vehicle dealers do not engage in particular conduct, 
e.g. issuing credit cards, then those requirements would simply not 
apply.
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C. Comment

    The sole commenter on the Rule, the East Bay Community Law Center 
(``East Bay''), stated the Rule is an important tool in ensuring a more 
accurate credit reporting system. East Bay pointed to research that 
indicates inaccuracies are common in consumer reports,\15\ and cited 
statements from consumers about the negative impact such inaccuracies 
can have on their lives.\16\ East Bay also presented evidence such 
inaccuracies can have a greater impact on lower-income and minority 
consumers.\17\ East Bay made two suggestions for additional amendments 
to the Rule that it argued would help address these problems.\18\ 
First, East Bay suggested the Commission modify the Rule to 
``disincentivize or prevent credit institutions from using risk-based 
pricing when offering loans to individuals with poor credit'' by 
requiring ``credit institutions [to] raise the credit cut off point, 
thereby preventing consumers with poor credit from gaining access to 
potentially predatory contracts.'' \19\ The Commission shares the 
commenter's concern about predatory financial practices aimed at people 
with lower income, and has brought numerous cases to challenge such 
practices.\20\ Such enforcement is ever more important. However, the 
Risk-Based Pricing Rule's primary purpose is to inform consumers when 
they have received less favorable terms for credit based on their 
consumer report or credit score.\21\ There is no evidence that, in 
enacting Section 311 of the FACT Act, Congress intended to discourage 
or prevent companies from extending credit to consumers with poor 
(e.g., below a particular prescribed threshold) or no credit histories, 
which would be the likely result of any regulation that prevented the 
use of risk-based pricing for those consumers.\22\ Accordingly, the 
Commission declines to adopt this suggestion.
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    \15\ See, e.g., Mistakes Do Happen: A Look at Errors in Consumer 
Credit Reports, Nat'l Ass'n of State PIRGs, 4 (2004), available at 
https://uspirg.org/sites/pirg/files/reports/Mistakes_Do_Happen_2004_USPIRG.pdf.
    \16\ East Bay Law Center (Comment 3) at 2-3.
    \17\ Id. at 6-7.
    \18\ Id. at 8-9.
    \19\ Id. at 8.
    \20\ See, e.g., FTC v. Lead Express, Inc., Case No. 2:20-cv-
00840-JAD-NJK (D. Nev. May 22, 2020); FTC v. AMG Services, Inc., 
Case No. 212-cv-00536 (D. Nev. April 2, 2012); FTC v. First Alliance 
Mortgage Company, Case No. SACV 00-964 (C.D. Cal. March 21, 2002).
    \21\ See 15 U.S.C. 1681m(h)(1).
    \22\ Moreover, as the Rule covers only users of consumer reports 
who are motor vehicle dealers, such a credit cut-off would not apply 
to the far larger group of entities covered by the CFPB's 
corresponding rule.
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    East Bay also urged the Commission to amend the Rule to require 
that risk-based pricing notices include ``detailed guidance [to 
consumers] on what specific changes they should make to improve their 
credit scores and qualify for a better loan.'' \23\ The Commission 
agrees that information for consumers about improving their credit is 
valuable, and provides guidance in its consumer education materials, as 
does the CFPB.\24\ When the consumer's credit score is used in 
determining pricing, the Rule already requires companies to identify 
key factors that affected the consumer's

[[Page 51797]]

credit score. The Commission agrees with East Bay that it is important 
to make it as easy as possible for consumers to find information to 
help them improve their credit. The Commission therefore is changing 
the link provided in the model notice from a general link to the FTC 
website. In order to better direct consumers to appropriate educational 
materials on the FTC website that relate specifically to this issue, 
the Commission is amending its model notice to change the address of 
the FTC website in the notice to ftc.gov/creditnotice.\25\ The 
Commission has consulted with the CFPB concerning this change to the 
Commission's model notice.
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    \23\ East Bay Community Law Center (Comment 3), at 9.
    \24\ See, e.g., www.consumer.ftc.gov/articles/understanding-your-credit; www.consumerfinance.gov/learnmore.
    \25\ The Commission recognizes the model notices for this Rule 
contain versions of the notice unlikely to be used by motor vehicle 
dealers, such as the version for credit secured by one to four units 
of residential real property. The Commission is retaining these 
models in order to remain consistent with the CFPB's models.
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IV. Paperwork Reduction Act

    The Risk-Based Pricing Rule contains information collection 
requirements as defined by 5 CFR 1320.3(c), the definitional provision 
within the Office of Management and Budget (``OMB'') regulations that 
implement the Paperwork Reduction Act (``PRA''). 44 U.S.C. 3501 et seq. 
OMB has approved the Rule's existing information collection 
requirements through September 30, 2020 (OMB Control No. 3084-0145). 
Under the existing clearance, the FTC has attributed to itself the 
estimated burden regarding all motor vehicle dealers and then shares 
equally the remaining estimated PRA burden with the CFPB for other 
persons for which both agencies have enforcement authority regarding 
the Risk-Based Pricing Rule.
    The Final Rule amends 16 CFR part 640 and Appendix A to part 698. 
The amendments do not modify or add to information collection 
requirements previously approved by OMB. The amendments make no 
substantive changes to the Rule, other than to clarify that the scope 
of the Rule is limited to motor vehicle dealers. The Rule's OMB 
clearance already reflects that scope. Although the Final Rule slightly 
amends the model notice, motor vehicle dealers may continue to use 
existing notices and still comply with the Final Rule. Therefore, the 
Commission does not believe the amendments substantially or materially 
modify any ``collections of information'' as defined by the PRA.

V. Regulatory Flexibility Act

    The Regulatory Flexibility Act (``RFA''), as amended by the Small 
Business Regulatory Enforcement Fairness Act of 1996, requires an 
agency to either provide an Initial Regulatory Flexibility Analysis 
(``IRFA'') with a proposed rule, or certify that the proposed rule will 
not have a significant impact on a substantial number of small 
entities.\26\ The Commission published an Initial Regulatory 
Flexibility Analysis in order to inquire into the impact of the 
Proposed Rule on small entities.\27\ The Commission received no 
responsive comments.
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    \26\ 5 U.S.C. 603-605.
    \27\ 85 FR 63462, 63465 (October 8, 2020).
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    The Commission does not believe this amendment has the threshold 
impact on small entities. The amendment effectuates changes to the 
Dodd-Frank Act and will not impose costs on small motor vehicle dealers 
because the amendments are for clarification purposes and will not 
result in any increased burden on any motor vehicle dealer. Although 
the Final Rule adopts a slightly revised model notice, motor vehicle 
dealers may continue to use any existing notices based on previous 
models and still comply with the Final Rule. Thus, a small entity that 
complies with current law need not take any different or additional 
action under the Final Rule. Therefore, the Commission certifies 
amending the Risk-Based Pricing Rule will not have a significant 
economic impact on a substantial number of small businesses.
    Although the Commission certifies under the RFA the Final Rule will 
not have a significant impact on a substantial number of small 
entities, and hereby provides notice of that certification to the Small 
Business Administration, the Commission nonetheless has determined that 
publishing a final regulatory flexibility analysis (``FRFA'') is 
appropriate to ensure the impact of the rule is fully addressed. 
Therefore, the Commission has prepared the following analysis:

A. Need for and Objectives of the Final Rule

    To address the Dodd-Frank Act's changes to the Commission's 
rulemaking authority, the amendments clarify that the Rule applies only 
to motor vehicle dealers.

B. Significant Issues Raised in Public Comments in Response to the IRFA

    The Commission did not receive any comments that addressed the 
burden on small entities. In addition, the Commission did not receive 
any comments filed by the Chief Counsel for Advocacy of the Small 
Business Administration (``SBA'').

C. Estimate of Number of Small Entities to Which the Final Rule Will 
Apply

    The Commission anticipates many covered motor vehicle dealers may 
qualify as small businesses according to the applicable SBA size 
standards. As explained in the IRFA, however, determining a precise 
estimate of the number of small entities is not readily feasible. No 
commenters addressed this issue. Nonetheless, as discussed above, these 
amendments will not add any additional burdens on any covered small 
businesses.

D. Projected Reporting, Recordkeeping, and Other Compliance 
Requirements, Including Classes of Covered Small Entities and 
Professional Skills Needed To Comply

    The amendments impose no new reporting, recordkeeping, or other 
compliance requirements.

E. Description of Steps Taken To Minimize Significant Economic Impact, 
if Any, on Small Entities, Including Alternatives

    The Commission did not propose any specific small entity exemption 
or other significant alternatives because the amendment will not 
increase reporting requirements and will not impose any new 
requirements or compliance costs.

VI. Other Matters

    Pursuant to the Congressional Review Act (5 U.S.C. 801 et seq.), 
the Office of Information and Regulatory Affairs designated this rule 
as not a ``major rule,'' as defined by 5 U.S.C. 804(2).

Final Rule Language

List of Subjects in 16 CFR Part 640 and 698

    Consumer protection, Credit, Trade practices.

    For the reasons stated above, the Federal Trade Commission amends 
parts 640 and 698 of title 16 of the Code of Federal Regulations as 
follows:

0
1. Revise part 640 to read as follows:

PART 640--DUTIES OF CREDITORS REGARDING RISK-BASED PRICING

Sec.
640.1 Scope.
640.2 Definitions.
640.3 General requirements for risk-based pricing notices.
640.4 Content, form, and timing of risk-based pricing notices.
640.5 Exceptions.
640.6 Rules of Construction.

    Authority: Pub. L. 108-159, sec. 311; 15 U.S.C. 1681m(h); 12 
U.S.C. 5519(d).

[[Page 51798]]

Sec.  640.1   Scope.

    (a) Coverage--(1) In general. This part applies to any motor 
vehicle dealer as defined in Sec.  640.2 of this part that both--
    (i) Uses a consumer report in connection with an application for, 
or a grant, extension, or other provision of, credit to a consumer that 
is primarily for personal, family, or household purposes; and
    (ii) Based in whole or in part on the consumer report, grants, 
extends, or otherwise provides credit to the consumer on material terms 
that are materially less favorable than the most favorable material 
terms available to a substantial proportion of consumers from or 
through that motor vehicle dealer.
    (2) Business credit excluded. This part does not apply to an 
application for, or a grant, extension, or other provision of, credit 
to a consumer or to any other applicant primarily for a business 
purpose.
    (b) Enforcement. The provisions of this part will be enforced in 
accordance with the enforcement authority set forth in sections 621(a) 
and (b) of the FCRA.


Sec.  640.2  Definitions.

    For purposes of this part, the following definitions apply:
    (a) Adverse action has the same meaning as in 15 U.S.C. 
1681a(k)(1)(A).
    (b) Annual percentage rate has the same meaning as in 12 CFR 
1026.14(b) with respect to an open-end credit plan and as in 12 CFR 
1026.22 with respect to closed-end credit.
    (c) Closed-end credit has the same meaning as in 12 CFR 
1026.2(a)(10).
    (d) Consumer has the same meaning as in 15 U.S.C. 1681a(c).
    (e) Consummation has the same meaning as in 12 CFR 1026.2(a)(13).
    (f) Consumer report has the same meaning as in 15 U.S.C. 1681a(d).
    (g) Consumer reporting agency has the same meaning as in 15 U.S.C. 
1681a(f).
    (h) Credit has the same meaning as in 15 U.S.C. 1681a(r)(5).
    (i) Creditor has the same meaning as in 15 U.S.C. 1681a(r)(5).
    (j) Credit card has the same meaning as in 15 U.S.C. 1681a(r)(2).
    (k) Credit card issuer has the same meaning as in 15 U.S.C. 
1681a(r)(1)(A).
    (l) Credit score has the same meaning as in 15 U.S.C. 
1681g(f)(2)(A).
    (m) Firm offer of credit has the same meaning as in 15 U.S.C. 
1681a(l).
    (n) Material terms means--
    (1)(i) Except as otherwise provided in paragraphs (n)(1)(ii) and 
(n)(3) of this section, in the case of credit extended under an open-
end credit plan, the annual percentage rate required to be disclosed 
under 12 CFR 226.6(a)(1)(ii) or 12 CFR 226.6(b)(2)(i), excluding any 
temporary initial rate lower than the rate that will apply after the 
temporary rate expires, any penalty rate that will apply upon the 
occurrence of one or more specific events, such as a late payment or an 
extension of credit that exceeds the credit limit, and any fixed annual 
percentage rate option for a home equity line of credit;
    (ii) In the case of a credit card (other than a credit card used to 
access a home equity line of credit or a charge card), the annual 
percentage rate required to be disclosed under 12 CFR 226.6(b)(2)(i) 
that applies to purchases (``purchase annual percentage rate'') and no 
other annual percentage rate, or in the case of a credit card that has 
no purchase annual percentage rate, the annual percentage rate that 
varies based on information in a consumer report and that has the most 
significant financial impact on consumers;
    (2) In the case of closed-end credit, the annual percentage rate 
required to be disclosed under 12 CFR 226.17(c) and 226.18(e); and
    (3) In the case of credit for which there is no annual percentage 
rate, the financial term that varies based on information in a consumer 
report and that has the most significant financial impact on consumers, 
such as a deposit required in connection with an extension of credit.
    (o) Materially less favorable means, when applied to material 
terms, that the terms granted, extended, or otherwise provided to a 
consumer differ from the terms granted, extended, or otherwise provided 
to another consumer from or through the same motor vehicle dealer such 
that the cost of credit to the first consumer would be significantly 
greater than the cost of credit granted, extended, or otherwise 
provided to the other consumer. For purposes of this definition, 
factors relevant to determining the significance of a difference in 
cost include the type of credit product, the term of the credit 
extension, if any, and the extent of the difference between the 
material terms granted, extended, or otherwise provided to the two 
consumers.
    (p) Motor vehicle dealer means any person excluded from Consumer 
Financial Protection Bureau jurisdiction as described in 12 U.S.C. 
5519.
    (q) Open-end credit plan has the same meaning as in 15 U.S.C. 
1602(j), as interpreted by the Board in Regulation Z and the Official 
Staff Commentary to Regulation Z.
    (r) Person has the same meaning as in 15 U.S.C. 1681a(b).


Sec.  640.3  General requirements for risk-based pricing notices.

    (a) In general. Except as otherwise provided in this part, a motor 
vehicle dealer must provide to a consumer a notice (``risk-based 
pricing notice'') in the form and manner required by this part if the 
motor vehicle dealer both--
    (1) Uses a consumer report in connection with an application for, 
or a grant, extension, or other provision of, credit to that consumer 
primarily for personal, family, or household purposes; and
    (2) Based in whole or in part on the consumer report, grants, 
extends, or otherwise provides credit to that consumer on material 
terms that are materially less favorable than the most favorable 
material terms available to a substantial proportion of consumers from 
or through that motor vehicle dealer.
    (b) Determining which consumers must receive a notice. A motor 
vehicle dealer may determine whether paragraph (a) of this section 
applies by directly comparing the material terms offered to each 
consumer and the material terms offered to other consumers for a 
specific type of credit product. For purposes of this section, a 
``specific type of credit product'' means one or more credit products 
with similar features designed for similar purposes. Examples of a 
specific type of credit product include new automobile loans and used 
automobile loans. As an alternative to making this direct comparison, a 
motor vehicle dealer may make the determination by using one of the 
following methods:
    (1) Credit score proxy method--(i) In general. A motor vehicle 
dealer that sets the material terms of credit granted, extended, or 
otherwise provided to a consumer, based in whole or in part on a credit 
score, may comply with the requirements of paragraph (a) of this 
section by--
    (A) Determining the credit score (hereafter referred to as the 
``cutoff score'') that represents the point at which approximately 40 
percent of the consumers to whom it grants, extends, or provides credit 
have higher credit scores and approximately 60 percent of the consumers 
to whom it grants, extends, or provides credit have lower credit 
scores; and
    (B) Providing a risk-based pricing notice to each consumer to whom 
it grants, extends, or provides credit whose credit score is lower than 
the cutoff score.
    (ii) Alternative to the 40/60 cutoff score determination. In the 
case of credit that has been granted, extended, or provided on the most 
favorable

[[Page 51799]]

material terms to more than 40 percent of consumers, a motor vehicle 
dealer may, at its option, set its cutoff score at a point at which the 
approximate percentage of consumers who historically have been granted, 
extended, or provided credit on material terms other than the most 
favorable terms would receive risk-based pricing notices under this 
section.
    (iii) Determining the cutoff score--(A) Sampling approach. A motor 
vehicle dealer that currently uses risk-based pricing with respect to 
the credit products it offers must calculate the cutoff score by 
considering the credit scores of all or a representative sample of the 
consumers to whom it has granted, extended, or provided credit for a 
specific type of credit product.
    (B) Secondary source approach in limited circumstances. A motor 
vehicle dealer that is a new entrant into the credit business, 
introduces new credit products, or starts to use risk-based pricing 
with respect to the credit products it currently offers may initially 
determine the cutoff score based on information derived from 
appropriate market research or relevant third-party sources for a 
specific type of credit product, such as research or data from 
companies that develop credit scores. A motor vehicle dealer that 
acquires a credit portfolio as a result of a merger or acquisition may 
determine the cutoff score based on information from the party which it 
acquired, with which it merged, or from which it acquired the 
portfolio.
    (C) Recalculation of cutoff scores. A motor vehicle dealer using 
the credit score proxy method must recalculate its cutoff score(s) no 
less than every two years in the manner described in paragraph 
(b)(1)(iii)(A) of this section. A motor vehicle dealer using the credit 
score proxy method using market research, third-party data, or 
information from a party which it acquired, with which it merged, or 
from which it acquired the portfolio as permitted by paragraph 
(b)(1)(iii)(B) of this section generally must calculate a cutoff 
score(s) based on the scores of its own consumers in the manner 
described in paragraph (b)(1)(iii)(A) of this section within one year 
after it begins using a cutoff score derived from market research, 
third-party data, or information from a party which it acquired, with 
which it merged, or from which it acquired the portfolio. If such a 
motor vehicle dealer does not grant, extend, or provide credit to new 
consumers during that one-year period such that it lacks sufficient 
data with which to recalculate a cutoff score based on the credit 
scores of its own consumers, the motor vehicle dealer may continue to 
use a cutoff score derived from market research, third-party data, or 
information from a party which it acquired, with which it merged, or 
from which it acquired the portfolio as provided in paragraph 
(b)(1)(iii)(B) until it obtains sufficient data on which to base the 
recalculation. However, the motor vehicle dealer must recalculate its 
cutoff score(s) in the manner described in paragraph (b)(1)(iii)(A) of 
this section within two years, if it has granted, extended, or provided 
credit to some new consumers during that two-year period.
    (D) Use of two or more credit scores. A motor vehicle dealer that 
generally uses two or more credit scores in setting the material terms 
of credit granted, extended, or provided to a consumer must determine 
the cutoff score using the same method the motor vehicle dealer uses to 
evaluate multiple scores when making credit decisions. These evaluation 
methods may include, but are not limited to, selecting the low, median, 
high, most recent, or average credit score of each consumer to whom it 
grants, extends, or provides credit. If a motor vehicle dealer that 
uses two or more credit scores does not consistently use the same 
method for evaluating multiple credit scores (e.g., if the motor 
vehicle dealer sometimes chooses the median score and other times 
calculates the average score), the motor vehicle dealer must determine 
the cutoff score using a reasonable means. In such cases, use of any 
one of the methods that the motor vehicle dealer regularly uses or the 
average credit score of each consumer to whom it grants, extends, or 
provides credit is deemed to be a reasonable means of calculating the 
cutoff score.
    (iv) Credit score not available. For purposes of this section, a 
motor vehicle dealer using the credit score proxy method who grants, 
extends, or provides credit to a consumer for whom a credit score is 
not available must assume that the consumer receives credit on material 
terms that are materially less favorable than the most favorable credit 
terms offered to a substantial proportion of consumers from or through 
that motor vehicle dealer and must provide a risk-based pricing notice 
to the consumer.
    (v) Examples. (A) A motor vehicle dealer engages in risk-based 
pricing and the annual percentage rates it offers to consumers are 
based in whole or in part on a credit score. The motor vehicle dealer 
takes a representative sample of the credit scores of consumers to whom 
it extended loans within the preceding three months. The motor vehicle 
dealer determines that approximately 40 percent of the sampled 
consumers have a credit score at or above 720 (on a scale of 350 to 
850) and approximately 60 percent of the sampled consumers have a 
credit score below 720. Thus, the motor vehicle dealer selects 720 as 
its cutoff score. A consumer applies to the motor vehicle dealer for a 
loan. The motor vehicle dealer obtains a credit score for the consumer. 
The consumer's credit score is 700. Since the consumer's 700 credit 
score falls below the 720 cutoff score, the motor vehicle dealer must 
provide a risk-based pricing notice to the consumer.
    (B) A motor vehicle dealer engages in risk-based pricing, and the 
annual percentage rates it offers to consumers are based in whole or in 
part on a credit score. The motor vehicle dealer takes a representative 
sample of the consumers to whom it extended loans over the preceding 
six months. The motor vehicle dealer determines that approximately 80 
percent of the sampled consumers received credit at its lowest annual 
percentage rate, and 20 percent received credit at a higher annual 
percentage rate. Approximately 80 percent of the sampled consumers have 
a credit score at or above 750 (on a scale of 350 to 850), and 20 
percent have a credit score below 750. Thus, the motor vehicle dealer 
selects 750 as its cutoff score. A consumer applies to the motor 
vehicle dealer for an automobile loan. The motor vehicle dealer obtains 
a credit score for the consumer. The consumer's credit score is 740. 
Since the consumer's 740 credit score falls below the 750 cutoff score, 
the motor vehicle dealer must provide a risk-based pricing notice to 
the consumer.
    (C) A motor vehicle dealer engages in risk-based pricing, obtains 
credit scores from one of the nationwide consumer reporting agencies, 
and uses the credit score proxy method to determine which consumers 
must receive a risk-based pricing notice. A consumer applies to the 
motor vehicle dealer for credit to finance the purchase of an 
automobile. A credit score about that consumer is not available from 
the consumer reporting agency from which the lender obtains credit 
scores. The motor vehicle dealer nevertheless grants, extends, or 
provides credit to the consumer. The motor vehicle dealer must provide 
a risk-based pricing notice to the consumer.
    (2) Tiered pricing method--(i) In general. A motor vehicle dealer 
that sets the material terms of credit granted, extended, or provided 
to a consumer by placing the consumer within one of a discrete number 
of pricing tiers for a specific type of credit product, based in

[[Page 51800]]

whole or in part on a consumer report, may comply with the requirements 
of paragraph (a) of this section by providing a risk-based pricing 
notice to each consumer who is not placed within the top pricing tier 
or tiers, as described below.
    (ii) Four or fewer pricing tiers. If a motor vehicle dealer using 
the tiered pricing method has four or fewer pricing tiers, the motor 
vehicle dealer complies with the requirements of paragraph (a) of this 
section by providing a risk-based pricing notice to each consumer to 
whom it grants, extends, or provides credit who does not qualify for 
the top tier (that is, the lowest-priced tier). For example, a motor 
vehicle dealer that uses a tiered pricing structure with annual 
percentage rates of 8, 10, 12, and 14 percent would provide the risk-
based pricing notice to each consumer to whom it grants, extends, or 
provides credit at annual percentage rates of 10, 12, and 14 percent.
    (iii) Five or more pricing tiers. If a motor vehicle dealer using 
the tiered pricing method has five or more pricing tiers, the motor 
vehicle dealer complies with the requirements of paragraph (a) of this 
section by providing a risk-based pricing notice to each consumer to 
whom it grants, extends, or provides credit who does not qualify for 
the top two tiers (that is, the two lowest-priced tiers) and any other 
tier that, together with the top tiers, comprise no less than the top 
30 percent but no more than the top 40 percent of the total number of 
tiers. Each consumer placed within the remaining tiers must receive a 
risk-based pricing notice. For example, if a motor vehicle dealer has 
nine pricing tiers, the top three tiers (that is, the three lowest-
priced tiers) comprise no less than the top 30 percent but no more than 
the top 40 percent of the tiers. Therefore, a motor vehicle dealer 
using this method would provide a risk-based pricing notice to each 
consumer to whom it grants, extends, or provides credit who is placed 
within the bottom six tiers.
    (c) Application to credit card issuers--(1) In general. A credit 
card issuer subject to the requirements of paragraph (a) of this 
section may use one of the methods set forth in paragraph (b) of this 
section to identify consumers to whom it must provide a risk-based 
pricing notice. Alternatively, a credit card issuer may satisfy its 
obligations under paragraph (a) of this section by providing a risk-
based pricing notice to a consumer when--
    (i) A consumer applies for a credit card either in connection with 
an application program, such as a direct-mail offer or a take-one 
application, or in response to a solicitation under 12 CFR 226.5a, and 
more than a single possible purchase annual percentage rate may apply 
under the program or solicitation; and
    (ii) Based in whole or in part on a consumer report, the credit 
card issuer provides a credit card to the consumer with an annual 
percentage rate referenced in Sec.  640.2(n)(1)(ii) that is greater 
than the lowest annual percentage rate referenced in Sec.  
640.2(n)(1)(ii) available in connection with the application or 
solicitation.
    (2) No requirement to compare different offers. A credit card 
issuer is not subject to the requirements of paragraph (a) of this 
section and is not required to provide a risk-based pricing notice to a 
consumer if--
    (i) The consumer applies for a credit card for which the card 
issuer provides a single annual percentage rate referenced in Sec.  
640.2(n)(1)(ii), excluding a temporary initial rate lower than the rate 
that will apply after the temporary rate expires and a penalty rate 
that will apply upon the occurrence of one or more specific events, 
such as a late payment or an extension of credit that exceeds the 
credit limit; or
    (ii) The credit card issuer offers the consumer the lowest annual 
percentage rate referenced in Sec.  640.2(n)(1)(ii) available under the 
credit card offer for which the consumer applied, even if a lower 
annual percentage rate referenced in Sec.  640.2(n)(1)(ii) is available 
under a different credit card offer issued by the card issuer.
    (3) Examples. (i) A credit card issuer sends a solicitation to the 
consumer that discloses several possible purchase annual percentage 
rates that may apply, such as 10, 12, or 14 percent, or a range of 
purchase annual percentage rates from 10 to 14 percent. The consumer 
applies for a credit card in response to the solicitation. The card 
issuer provides a credit card to the consumer with a purchase annual 
percentage rate of 12 percent based in whole or in part on a consumer 
report. Unless an exception applies under Sec.  640.5, the card issuer 
may satisfy its obligations under paragraph (a) of this section by 
providing a risk-based pricing notice to the consumer because the 
consumer received credit at a purchase annual percentage rate greater 
than the lowest purchase annual percentage rate available under that 
solicitation.
    (ii) The same facts as in the example in paragraph (c)(3)(i) of 
this section, except that the card issuer provides a credit card to the 
consumer at a purchase annual percentage rate of 10 percent. The card 
issuer is not required to provide a risk-based pricing notice to the 
consumer even if, under a different credit card solicitation, that 
consumer or other consumers might qualify for a purchase annual 
percentage rate of 8 percent.
    (d) Account review--(1) In general. Except as otherwise provided in 
this part, a motor vehicle dealer is subject to the requirements of 
paragraph (a) of this section and must provide a risk-based pricing 
notice to a consumer in the form and manner required by this part if 
the motor vehicle dealer--
    (i) Uses a consumer report in connection with a review of credit 
that has been extended to the consumer; and
    (ii) Based in whole or in part on the consumer report, increases 
the annual percentage rate (the annual percentage rate referenced in 
Sec.  640.2(n)(1)(ii) in the case of a credit card).
    (2) Example. A credit card issuer periodically obtains consumer 
reports for the purpose of reviewing the terms of credit it has 
extended to consumers in connection with credit cards. As a result of 
this review, the credit card issuer increases the purchase annual 
percentage rate applicable to a consumer's credit card based in whole 
or in part on information in a consumer report. The credit card issuer 
is subject to the requirements of paragraph (a) of this section and 
must provide a risk-based pricing notice to the consumer.


Sec.  640.4  Content, form, and timing of risk-based pricing notices.

    (a) Content of the notice--(1) In general. The risk-based pricing 
notice required by Sec.  640.3(a) or (c) must include:
    (i) A statement that a consumer report (or credit report) includes 
information about the consumer's credit history and the type of 
information included in that history;
    (ii) A statement that the terms offered, such as the annual 
percentage rate, have been set based on information from a consumer 
report;
    (iii) A statement that the terms offered may be less favorable than 
the terms offered to consumers with better credit histories;
    (iv) A statement that the consumer is encouraged to verify the 
accuracy of the information contained in the consumer report and has 
the right to dispute any inaccurate information in the report;
    (v) The identity of each consumer reporting agency that furnished a 
consumer report used in the credit decision;
    (vi) A statement that federal law gives the consumer the right to 
obtain a copy of a consumer report from the consumer reporting agency 
or agencies identified

[[Page 51801]]

in the notice without charge for 60 days after receipt of the notice;
    (vii) A statement informing the consumer how to obtain a consumer 
report from the consumer reporting agency or agencies identified in the 
notice and providing contact information (including a toll-free 
telephone number, where applicable) specified by the consumer reporting 
agency or agencies;
    (viii) A statement directing consumers to the websites of the 
Consumer Financial Protection Bureau and Federal Trade Commission to 
obtain more information about consumer reports; and
    (ix) If a credit score of the consumer to whom a motor vehicle 
dealer grants, extends, or otherwise provides credit is used in setting 
the material terms of credit:
    (A) A statement that a credit score is a number that takes into 
account information in a consumer report, that the consumer's credit 
score was used to set the terms of credit offered, and that a credit 
score can change over time to reflect changes in the consumer's credit 
history;
    (B) The credit score used by the motor vehicle dealer in making the 
credit decision;
    (C) The range of possible credit scores under the model used to 
generate the credit score;
    (D) All of the key factors that adversely affected the credit 
score, which shall not exceed four key factors, except that if one of 
the key factors is the number of enquiries made with respect to the 
consumer report, the number of key factors shall not exceed five;
    (E) The date on which the credit score was created; and
    (F) The name of the consumer reporting agency or other person that 
provided the credit score.
    (2) Account review. The risk-based pricing notice required by Sec.  
640.3(d) must include:
    (i) A statement that a consumer report (or credit report) includes 
information about the consumer's credit history and the type of 
information included in that credit history;
    (ii) A statement that the credit card issuer has conducted a review 
of the account using information from a consumer report;
    (iii) A statement that as a result of the review, the annual 
percentage rate on the account has been increased based on information 
from a consumer report;
    (iv) A statement that the consumer is encouraged to verify the 
accuracy of the information contained in the consumer report and has 
the right to dispute any inaccurate information in the report;
    (v) The identity of each consumer reporting agency that furnished a 
consumer report used in the account review;
    (vi) A statement that federal law gives the consumer the right to 
obtain a copy of a consumer report from the consumer reporting agency 
or agencies identified in the notice without charge for 60 days after 
receipt of the notice;
    (vii) A statement informing the consumer how to obtain a consumer 
report from the consumer reporting agency or agencies identified in the 
notice and providing contact information (including a toll-free 
telephone number, where applicable) specified by the consumer reporting 
agency or agencies;
    (viii) A statement directing consumers to the websites of the 
Consumer Financial Protection Bureau and Federal Trade Commission to 
obtain more information about consumer reports; and
    (ix) If a credit score of the consumer whose extension of credit is 
under review is used in increasing the annual percentage rate:
    (A) A statement that a credit score is a number that takes into 
account information in a consumer report, that the consumer's credit 
score was used to set the terms of credit offered, and that a credit 
score can change over time to reflect changes in the consumer's credit 
history;
    (B) The credit score used by the credit card issuer in making the 
credit decision;
    (C) The range of possible credit scores under the model used to 
generate the credit score;
    (D) All of the key factors that adversely affected the credit 
score, which shall not exceed four key factors, except that if one of 
the key factors is the number of enquiries made with respect to the 
consumer report, the number of key factors shall not exceed five;
    (E) The date on which the credit score was created; and
    (F) The name of the consumer reporting agency or other person that 
provided the credit score.
    (b) Form of the notice--(1) In general. The risk-based pricing 
notice required by Sec.  640.3(a), (c), or (d) must be:
    (i) Clear and conspicuous; and
    (ii) Provided to the consumer in oral, written, or electronic form.
    (2) Model forms. Model forms of the risk-based pricing notice 
required by Sec. 640.3(a) and (c) are contained in appendices A-1 and 
A-6 of 16 CFR part 698. Appropriate use of Model form A-1 or A-6 is 
deemed to comply with the requirements of Sec.  640.3(a) and (c). Model 
forms of the risk-based pricing notice required by Sec.  640.3(d) are 
contained in appendices A-2 and A-7 of 16 CFR part 698. Appropriate use 
of Model form A-2 or A-7 is deemed to comply with the requirements of 
Sec.  640.3(d). Use of the model forms is optional.
    (c) Timing--(1) General. Except as provided in paragraph (c)(3) of 
this section, a risk-based pricing notice must be provided to the 
consumer--
    (i) In the case of a grant, extension, or other provision of 
closed-end credit, before consummation of the transaction, but not 
earlier than the time the decision to approve an application for, or a 
grant, extension, or other provision of, credit, is communicated to the 
consumer by the motor vehicle dealer required to provide the notice;
    (ii) In the case of credit granted, extended, or provided under an 
open-end credit plan, before the first transaction is made under the 
plan, but not earlier than the time the decision to approve an 
application for, or a grant, extension, or other provision of, credit 
is communicated to the consumer by the motor vehicle dealer required to 
provide the notice; or
    (iii) In the case of a review of credit that has been extended to 
the consumer, at the time the decision to increase the annual 
percentage rate (annual percentage rate referenced in Sec.  
640.2(n)(1)(ii) in the case of a credit card) based on a consumer 
report is communicated to the consumer by the motor vehicle dealer 
required to provide the notice, or if no notice of the increase in the 
annual percentage rate is provided to the consumer prior to the 
effective date of the change in the annual percentage rate (to the 
extent permitted by law), no later than five days after the effective 
date of the change in the annual percentage rate.
    (2) Application to certain automobile lending transactions. When a 
person to whom a credit obligation is initially payable grants, 
extends, or provides credit to a consumer for the purpose of financing 
the purchase of an automobile from a motor vehicle dealer or other 
party not affiliated with the person, any requirement to provide a 
risk-based pricing notice pursuant to this part is satisfied if the 
person:
    (i) Provides a notice described in Sec.  640.3(a), 640.5(e), or 
640.5(f) to the consumer within the time periods set forth in paragraph 
(c)(1)(i) of this section, Sec.  640.5(e)(3), or 640.5(f)(4), as 
applicable; or
    (ii) Arranges to have the motor vehicle dealer or other party 
provide a notice

[[Page 51802]]

described in Sec. Sec.  640.3(a), 640.5(e), or 640.5(f) to the consumer 
on its behalf within the time periods set forth in paragraph (c)(1)(i) 
of this section, Sec.  640.5(e)(3), or Sec.  640.5(f)(4), as 
applicable, and maintains reasonable policies and procedures to verify 
the motor vehicle dealer or other party provides such notice to the 
consumer within the applicable time periods. If the person arranges to 
have the motor vehicle dealer or other party provide a notice described 
in Sec.  640.5(e), the person's obligation is satisfied if the consumer 
receives a notice containing a credit score obtained by the dealer or 
other party, even if a different credit score is obtained and used by 
the person on whose behalf the notice is provided.
    (3) Timing requirements for contemporaneous purchase credit. When 
credit under an open-end credit plan is granted, extended, or provided 
to a consumer in person or by telephone for the purpose of financing 
the contemporaneous purchase of goods or services, any risk-based 
pricing notice required to be provided pursuant to this part (or the 
disclosures permitted under Sec.  640.5(e) or (f)) may be provided at 
the earlier of:
    (i) The time of the first mailing by the motor vehicle dealer to 
the consumer after the decision is made to approve the grant, 
extension, or other provision of open-end credit, such as in a mailing 
containing the account agreement or a credit card; or
    (ii) Within 30 days after the decision to approve the grant, 
extension, or other provision of credit.
    (d) Multiple credit scores--(1) In general. When a motor vehicle 
dealer obtains or creates two or more credit scores and uses one of 
those credit scores in setting the material terms of credit, for 
example, by using the low, middle, high, or most recent score, the 
notices described in paragraphs (a)(1) and (2) of this section must 
include that credit score and information relating to that credit score 
required by paragraphs (a)(1)(ix) and (a)(2)(ix) of this section. When 
a motor vehicle dealer obtains or creates two or more credit scores and 
uses multiple credit scores in setting the material terms of credit by, 
for example, computing the average of all the credit scores obtained or 
created, the notices described in paragraphs (a)(1) and (2) of this 
section must include one of those credit scores and information 
relating to credit scores required by paragraphs (a)(1)(ix) and 
(a)(2)(ix) of this section. The notice may, at the motor vehicle 
dealer's option, include more than one credit score, along with the 
additional information specified in paragraphs (a)(1)(ix) and 
(a)(2)(ix) of this section for each credit score disclosed.
    (2) Examples. (i) A motor vehicle dealer that uses consumer reports 
to set the material terms of automobile loans granted, extended, or 
provided to consumers regularly requests credit scores from several 
consumer reporting agencies and uses the low score when determining the 
material terms it will offer to the consumer. That motor vehicle dealer 
must disclose the low score in the notices described in paragraphs 
(a)(1) and (2) of this section.
    (ii) A motor vehicle dealer that uses consumer reports to set the 
material terms of automobile loans granted, extended, or provided to 
consumers regularly requests credit scores from several consumer 
reporting agencies, each of which it uses in an underwriting program in 
order to determine the material terms it will offer to the consumer. 
That motor vehicle dealer may choose one of these scores to include in 
the notices described in paragraph (a)(1) and (2) of this section.


Sec.  640.5  Exceptions.

    (a) Application for specific terms--(1) In general. A motor vehicle 
dealer is not required to provide a risk-based pricing notice to the 
consumer under Sec.  640.3(a) or (c) if the consumer applies for 
specific material terms and is granted those terms, unless those terms 
were specified by the motor vehicle dealer using a consumer report 
after the consumer applied for or requested credit and after the motor 
vehicle dealer obtained the consumer report. For purposes of this 
section, ``specific material terms'' means a single material term, or 
set of material terms, such as an annual percentage rate of 10 percent, 
and not a range of alternatives, such as an annual percentage rate that 
may be 8, 10, or 12 percent, or between 8 and 12 percent.
    (2) Example. A consumer receives a firm offer of credit from a 
motor vehicle dealer. The terms of the firm offer are based in whole or 
in part on information from a consumer report the motor vehicle dealer 
obtained under the FCRA's firm offer of credit provisions. The 
solicitation offers the consumer a loan with an annual percentage rate 
of 12 percent. The consumer applies for and receives a loan with an 
annual percentage rate of 12 percent. Other customers of the motor 
vehicle dealer have an annual percentage rate of 10 percent. The 
exception applies because the consumer applied for specific material 
terms and was granted those terms. Although the motor vehicle dealer 
specified the annual percentage rate in the firm offer of credit based 
in whole or in part on a consumer report, the motor vehicle dealer 
specified that material term before, not after, the consumer applied 
for or requested credit.
    (b) Adverse action notice. A motor vehicle dealer is not required 
to provide a risk-based pricing notice to the consumer under Sec.  
640.3(a), (c), or (d) if the motor vehicle dealer provides an adverse 
action notice to the consumer under section 615(a) of the FCRA.
    (c) Prescreened solicitations--(1) In general. A motor vehicle 
dealer is not required to provide a risk-based pricing notice to the 
consumer under Sec.  640.3(a) or (c) if the motor vehicle dealer:
    (i) Obtains a consumer report that is a prescreened list as 
described in section 604(c)(2) of the FCRA; and
    (ii) Uses the consumer report for the purpose of making a firm 
offer of credit to the consumer.
    (2) More favorable material terms. This exception applies to any 
firm offer of credit offered by a motor vehicle dealer to a consumer, 
even if the motor vehicle dealer makes other firm offers of credit to 
other consumers on more favorable material terms.
    (3) Example. A motor vehicle dealer obtains two prescreened lists 
from a consumer reporting agency. One list includes consumers with high 
credit scores. The other list includes consumers with low credit 
scores. The motor vehicle dealer mails a firm offer of credit to the 
high credit score consumers with an annual percentage rate of 10 
percent. The motor vehicle dealer also mails a firm offer of credit to 
the low credit score consumers with an annual percentage rate of 14 
percent. The motor vehicle dealer is not required to provide a risk-
based pricing notice to the low credit score consumers who receive the 
14 percent offer because use of a consumer report to make a firm offer 
of credit does not trigger the risk-based pricing notice requirement.
    (d) Loans secured by residential real property--credit score 
disclosure--(1) In general. A motor vehicle dealer is not required to 
provide a risk-based pricing notice to a consumer under Sec.  640.3(a) 
or (c) if:
    (i) The consumer requests from the motor vehicle dealer an 
extension of credit that is or will be secured by one to four units of 
residential real property; and
    (ii) The motor vehicle dealer provides to each consumer described 
in paragraph (d)(1)(i) of this section a notice that contains the 
following--
    (A) A statement that a consumer report (or credit report) is a 
record of the consumer's credit history and includes information about 
whether the

[[Page 51803]]

consumer pays his or her obligations on time and how much the consumer 
owes to creditors;
    (B) A statement that a credit score is a number that takes into 
account information in a consumer report and that a credit score can 
change over time to reflect changes in the consumer's credit history;
    (C) A statement that the consumer's credit score can affect whether 
the consumer can obtain credit and what the cost of that credit will 
be;
    (D) The information required to be disclosed to the consumer 
pursuant to section 609(g) of the FCRA;
    (E) The distribution of credit scores among consumers who are 
scored 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 that is provided to the consumer, presented in the form of 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 by other clear and readily understandable graphical means, 
or a clear and readily understandable statement informing the consumer 
how his or her credit score compares to the scores of other consumers. 
Use of a graph or statement obtained from the person providing the 
credit score that meets the requirements of this paragraph 
(d)(1)(ii)(E) is deemed to comply with this requirement;
    (F) A statement that the consumer is encouraged to verify the 
accuracy of the information contained in the consumer report and has 
the right to dispute any inaccurate information in the report;
    (G) A statement that federal law gives the consumer the right to 
obtain copies of his or her consumer reports directly from the consumer 
reporting agencies, including a free report from each of the nationwide 
consumer reporting agencies once during any 12-month period;
    (H) Contact information for the centralized source from which 
consumers may obtain their free annual consumer reports; and
    (I) A statement directing consumers to the websites of the Board 
and Federal Trade Commission to obtain more information about consumer 
reports.
    (2) Form of the notice. The notice described in paragraph 
(d)(1)(ii) of this section must be:
    (i) Clear and conspicuous;
    (ii) Provided on or with the notice required by section 609(g) of 
the FCRA;
    (iii) Segregated from other information provided to the consumer, 
except for the notice required by section 609(g) of the FCRA; and
    (iv) Provided to the consumer in writing and in a form that the 
consumer may keep.
    (3) Timing. The notice described in paragraph (d)(1)(ii) of this 
section must be provided to the consumer at the time the disclosure 
required by section 609(g) of the FCRA is provided to the consumer, but 
in any event at or before consummation in the case of closed-end credit 
or before the first transaction is made under an open-end credit plan.
    (4) Multiple credit scores--(i) In general. When a motor vehicle 
dealer obtains two or more credit scores from consumer reporting 
agencies and uses one of those credit scores in setting the material 
terms of credit granted, extended, or otherwise provided to a consumer, 
for example, by using the low, middle, high, or most recent score, the 
notice described in paragraph (d)(1)(ii) of this section must include 
that credit score and the other information required by that paragraph. 
When a motor vehicle dealer obtains two or more credit scores from 
consumer reporting agencies and uses multiple credit scores in setting 
the material terms of credit granted, extended, or otherwise provided 
to a consumer, for example, by computing the average of all the credit 
scores obtained, the notice described in paragraph (d)(1)(ii) of this 
section must include one of those credit scores and the other 
information required by that paragraph. The notice may, at the motor 
vehicle dealer's option, include more than one credit score, along with 
the additional information specified in paragraph (d)(1)(ii) of this 
section for each credit score disclosed.
    (ii) Examples. (A) A motor vehicle dealer that uses consumer 
reports to set the material terms of credit granted, extended, or 
provided to consumers regularly requests credit scores from several 
consumer reporting agencies and uses the low score when determining the 
material terms it will offer to the consumer. That motor vehicle dealer 
must disclose the low score in the notice described in paragraph 
(d)(1)(ii) of this section.
    (B) A motor vehicle dealer that uses consumer reports to set the 
material terms of mortgage credit granted, extended, or provided to 
consumers regularly requests credit scores from several consumer 
reporting agencies, each of which it uses in an underwriting program in 
order to determine the material terms it will offer to the consumer. 
That motor vehicle dealer may choose one of these scores to include in 
the notice described in paragraph (d)(1)(ii) of this section.
    (5) Model form. A model form of the notice described in paragraph 
(d)(1)(ii) of this section consolidated with the notice required by 
section 609(g) of the FCRA is contained in 16 CFR part 698, appendix A. 
Appropriate use of Model Form A-3 is deemed to comply with the 
requirements of Sec.  640.5(d). Use of the model form is optional.
    (e) Other extensions of credit--credit score disclosure--(1) In 
general. A motor vehicle dealer is not required to provide a risk-based 
pricing notice to a consumer under Sec.  640.3(a) or (c) if:
    (i) The consumer requests from the motor vehicle dealer an 
extension of credit other than credit that is or will be secured by one 
to four units of residential real property; and
    (ii) The motor vehicle dealer provides to each consumer described 
in paragraph (e)(1)(i) of this section a notice that contains the 
following--
    (A) A statement that a consumer report (or credit report) is a 
record of the consumer's credit history and includes information about 
whether the consumer pays his or her obligations on time and how much 
the consumer owes to creditors;
    (B) A statement that a credit score is a number that takes into 
account information in a consumer report and that a credit score can 
change over time to reflect changes in the consumer's credit history;
    (C) A statement that the consumer's credit score can affect whether 
the consumer can obtain credit and what the cost of that credit will 
be;
    (D) The current credit score of the consumer or the most recent 
credit score of the consumer that was previously calculated by the 
consumer reporting agency for a purpose related to the extension of 
credit;
    (E) The range of possible credit scores under the model used to 
generate the credit score;
    (F) The distribution of credit scores among consumers who are 
scored 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 that is provided to the consumer, presented in the form of 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 by other clear and readily understandable graphical means, 
or a clear and readily understandable statement informing the consumer 
how his or her credit score compares to the scores of other consumers. 
Use of a graph or statement obtained from the person providing the 
credit score that meets the requirements

[[Page 51804]]

of this paragraph (e)(1)(ii)(F) is deemed to comply with this 
requirement;
    (G) The date on which the credit score was created;
    (H) The name of the consumer reporting agency or other person that 
provided the credit score;
    (I) A statement that the consumer is encouraged to verify the 
accuracy of the information contained in the consumer report and has 
the right to dispute any inaccurate information in the report;
    (J) A statement that federal law gives the consumer the right to 
obtain copies of his or her consumer reports directly from the consumer 
reporting agencies, including a free report from each of the nationwide 
consumer reporting agencies once during any 12-month period;
    (K) Contact information for the centralized source from which 
consumers may obtain their free annual consumer reports; and
    (L) A statement directing consumers to the websites of the Federal 
Reserve Board and Federal Trade Commission to obtain more information 
about consumer reports.
    (2) Form of the notice. The notice described in paragraph 
(e)(1)(ii) of this section must be:
    (i) Clear and conspicuous;
    (ii) Segregated from other information provided to the consumer; 
and
    (iii) Provided to the consumer in writing and in a form that the 
consumer may keep.
    (3) Timing. The notice described in paragraph (e)(1)(ii) of this 
section must be provided to the consumer as soon as reasonably 
practicable after the credit score has been obtained, but in any event 
at or before consummation in the case of closed-end credit or before 
the first transaction is made under an open-end credit plan.
    (4) Multiple credit scores--(i) In General. When a motor vehicle 
dealer obtains two or more credit scores from consumer reporting 
agencies and uses one of those credit scores in setting the material 
terms of credit granted, extended, or otherwise provided to a consumer, 
for example, by using the low, middle, high, or most recent score, the 
notice described in paragraph (e)(1)(ii) of this section must include 
that credit score and the other information required by that paragraph. 
When a motor vehicle dealer obtains two or more credit scores from 
consumer reporting agencies and uses multiple credit scores in setting 
the material terms of credit granted, extended, or otherwise provided 
to a consumer, for example, by computing the average of all the credit 
scores obtained, the notice described in paragraph (e)(1)(ii) of this 
section must include one of those credit scores and the other 
information required by that paragraph. The notice may, at the motor 
vehicle dealer's option, include more than one credit score, along with 
the additional information specified in paragraph (e)(1)(ii) of this 
section for each credit score disclosed.
    (ii) Examples. The manner in which multiple credit scores are to be 
disclosed under this section are substantially identical to the manner 
set forth in the examples contained in paragraph (d)(4)(ii) of this 
section.
    (5) Model form. A model form of the notice described in paragraph 
(e)(1)(ii) of this section is contained in 16 CFR part 698, appendix A. 
Appropriate use of Model Form A-4 is deemed to comply with the 
requirements of Sec.  640.5(e). Use of the model form is optional.
    (f) Credit score not available--(1) In general. A motor vehicle 
dealer is not required to provide a risk-based pricing notice to a 
consumer under Sec.  640.3(a) or (c) if the motor vehicle dealer:
    (i) Regularly obtains credit scores from a consumer reporting 
agency and provides credit score disclosures to consumers in accordance 
with paragraphs (d) or (e) of this section, but a credit score is not 
available from the consumer reporting agency from which the motor 
vehicle dealer regularly obtains credit scores for a consumer to whom 
the motor vehicle dealer grants, extends, or provides credit;
    (ii) Does not obtain a credit score from another consumer reporting 
agency in connection with granting, extending, or providing credit to 
the consumer; and
    (iii) Provides to the consumer a notice that contains the 
following--
    (A) A statement that a consumer report (or credit report) includes 
information about the consumer's credit history and the type of 
information included in that history;
    (B) A statement that a credit score is a number that takes into 
account information in a consumer report and that a credit score can 
change over time in response to changes in the consumer's credit 
history;
    (C) A statement that credit scores are important because consumers 
with higher credit scores generally obtain more favorable credit terms;
    (D) A statement that not having a credit score can affect whether 
the consumer can obtain credit and what the cost of that credit will 
be;
    (E) A statement that a credit score about the consumer was not 
available from a consumer reporting agency, which must be identified by 
name, generally due to insufficient information regarding the 
consumer's credit history;
    (F) A statement that the consumer is encouraged to verify the 
accuracy of the information contained in the consumer report and has 
the right to dispute any inaccurate information in the consumer report;
    (G) A statement that federal law gives the consumer the right to 
obtain copies of his or her consumer reports directly from the consumer 
reporting agencies, including a free consumer report from each of the 
nationwide consumer reporting agencies once during any 12-month period;
    (H) The contact information for the centralized source from which 
consumers may obtain their free annual consumer reports; and
    (I) A statement directing consumers to the websites of the Board 
and Federal Trade Commission to obtain more information about consumer 
reports.
    (2) Example. A motor vehicle dealer that uses consumer reports to 
set the material terms of credit granted, extended, or provided to 
consumers regularly requests credit scores from a particular consumer 
reporting agency and provides those credit scores and additional 
information to consumers to satisfy the requirements of paragraph (e) 
of this section. That consumer reporting agency provides to the motor 
vehicle dealer a consumer report on a particular consumer that contains 
one trade line, but does not provide the motor vehicle dealer with a 
credit score on that consumer. If the motor vehicle dealer does not 
obtain a credit score from another consumer reporting agency and, based 
in whole or in part on information in a consumer report, grants, 
extends, or provides credit to the consumer, the motor vehicle dealer 
may provide the notice described in paragraph (f)(1)(iii) of this 
section. If, however, the motor vehicle dealer obtains a credit score 
from another consumer reporting agency, the motor vehicle dealer may 
not rely upon the exception in paragraph (f) of this section, but may 
satisfy the requirements of paragraph (e) of this section.
    (3) Form of the notice. The notice described in paragraph 
(f)(1)(iii) of this section must be:
    (i) Clear and conspicuous;
    (ii) Segregated from other information provided to the consumer; 
and
    (iii) Provided to the consumer in writing and in a form that the 
consumer may keep.
    (4) Timing. The notice described in paragraph (f)(1)(iii) of this 
section must be provided to the consumer as soon as reasonably 
practicable after the motor vehicle dealer has requested the credit 
score, but in any event not later than consummation of a transaction in 
the

[[Page 51805]]

case of closed-end credit or when the first transaction is made under 
an open-end credit plan.
    (5) Model form. A model form of the notice described in paragraph 
(f)(1)(iii) of this section is contained in 16 CFR part 698, appendix 
A. Appropriate use of Model Form A-5 is deemed to comply with the 
requirements of Sec.  640.5(f). Use of the model form is optional.


Sec.  640.6  Rules of Construction.

    For purposes of this part, the following rules of construction 
apply:
    (a) One notice per credit extension. A consumer is entitled to no 
more than one risk-based pricing notice under Sec.  640.3(a) or (c), or 
one notice under Sec.  640.5(d), (e), or (f), for each grant, 
extension, or other provision of credit. Notwithstanding the foregoing, 
even if a consumer has previously received a risk-based pricing notice 
in connection with a grant, extension, or other provision of credit, 
another risk-based pricing notice is required if the conditions set 
forth in Sec.  640.3(d) have been met.
    (b) Multi-party transactions--(1) Initial creditor. The motor 
vehicle dealer to whom a credit obligation is initially payable must 
provide the risk-based pricing notice described in Sec.  640.3(a) or 
(c), or satisfy the requirements for and provide the notice required 
under one of the exceptions in Sec.  640.5(d), (e), or (f), even if 
that motor vehicle dealer immediately assigns the credit agreement to a 
third party and is not the source of funding for the credit.
    (2) Purchasers or assignees. A purchaser or assignee of a credit 
contract with a consumer is not subject to the requirements of this 
part and is not required to provide the risk-based pricing notice 
described in Sec.  640.3(a) or (c), or satisfy the requirements for and 
provide the notice required under one of the exceptions in Sec.  
640.5(d), (e), or (f).
    (3) Examples. (i) A consumer obtains credit to finance the purchase 
of an automobile. If the motor vehicle dealer is the person to whom the 
loan obligation is initially payable, such as where the motor vehicle 
dealer is the original creditor under a retail installment sales 
contract, the motor vehicle dealer must provide the risk-based pricing 
notice to the consumer (or satisfy the requirements for and provide the 
notice required under one of the exceptions noted above), even if the 
motor vehicle dealer immediately assigns the loan to a bank or finance 
company. The bank or finance company, which is an assignee, has no duty 
to provide a risk-based pricing notice to the consumer.
    (ii) A consumer obtains credit to finance the purchase of an 
automobile. If a bank or finance company is the person to whom the loan 
obligation is initially payable, the bank or finance company must 
provide the risk-based pricing notice to the consumer (or satisfy the 
requirements for and provide the notice required under one of the 
exceptions noted above) based on the terms offered by that bank or 
finance company only. The motor vehicle dealer has no duty to provide a 
risk-based pricing notice to the consumer. However, the bank or finance 
company may comply with this rule if the motor vehicle dealer has 
agreed to provide notices to consumers before consummation pursuant to 
an arrangement with the bank or finance company, as permitted under 
Sec.  640.4(c).
    (c) Multiple consumers--(1) Risk-based pricing notices. In a 
transaction involving two or more consumers who are granted, extended, 
or otherwise provided credit, a motor vehicle dealer must provide a 
notice to each consumer to satisfy the requirements of Sec.  640.3(a) 
or (c). Whether the consumers have the same address or not, the motor 
vehicle dealer must provide a separate notice to each consumer if a 
notice includes a credit score(s). Each separate notice that includes a 
credit score(s) must contain only the credit score(s) of the consumer 
to whom the notice is provided, and not the credit score(s) of the 
other consumer. If the consumers have the same address, and the notice 
does not include a credit score(s), a motor vehicle dealer may satisfy 
the requirements by providing a single notice addressed to both 
consumers.
    (2) Credit score disclosure notices. In a transaction involving two 
or more consumers who are granted, extended, or otherwise provided 
credit, a motor vehicle dealer must provide a separate notice to each 
consumer to satisfy the exceptions in Sec.  640.5(d), (e), or (f). 
Whether the consumers have the same address or not, the motor vehicle 
dealer must provide a separate notice to each consumer. Each separate 
notice must contain only the credit score(s) of the consumer to whom 
the notice is provided, and not the credit score(s) of the other 
consumer.
    (3) Examples. (i) Two consumers jointly apply for credit with a 
creditor. The creditor obtains credit scores on both consumers. Based 
in part on the credit scores, the creditor grants credit to the 
consumers on material terms that are materially less favorable than the 
most favorable terms available to other consumers from the creditor. 
The creditor provides risk-based pricing notices to satisfy its 
obligations under this subpart. The creditor must provide a separate 
risk-based pricing notice to each consumer whether the consumers have 
the same address or not. Each risk-based pricing notice must contain 
only the credit score(s) of the consumer to whom the notice is 
provided.
    (ii) Two consumers jointly apply for credit with a creditor. The 
two consumers reside at the same address. The creditor obtains credit 
scores on each of the two consumer applicants. The creditor grants 
credit to the consumers. The creditor provides credit score disclosure 
notices to satisfy its obligations under this part. Even though the two 
consumers reside at the same address, the creditor must provide a 
separate credit score disclosure notice to each of the consumers. Each 
notice must contain only the credit score of the consumer to whom the 
notice is provided.

PART 698--MODEL FORMS AND DISCLOSURES

0
2. The authority citation for part 698 continues to read as follows:

    Authority: 12 U.S.C. 5519; 15 U.S.C. 1681m(h); 15 U.S.C. 1681s-
3; Sec. 214(b), Pub. L. 108-159.


0
3. Revise appendix A to part 698 to read as follows:

Appendix A to Part 698--Model Forms for Risk-Based Pricing and Credit 
Score Disclosure Exception Notices

    1. This appendix contains four model forms for risk-based 
pricing notices and three model forms for use in connection with the 
credit score disclosure exceptions. Each of the model forms is 
designated for use in a particular set of circumstances as indicated 
by the title of that model form.
    2. Model form A-1 is for use in complying with the general risk-
based pricing notice requirements in Sec.  640.3 if a credit score 
is not used in setting the material terms of credit. Model form A-2 
is for risk-based pricing notices given in connection with account 
review if a credit score is not used in increasing the annual 
percentage rate. Model form A-3 is for use in connection with the 
credit score disclosure exception for loans secured by residential 
real property. Model form A-4 is for use in connection with the 
credit score disclosure exception for loans not secured by 
residential real property. Model form A-5 is for use in connection 
with the credit score disclosure exception when no credit score is 
available for a consumer. Model form A-6 is for use in complying 
with the general risk-based pricing notice requirements in Sec.  
640.3 if a credit score is used in setting the material terms of 
credit. Model form A-7 is for risk-based pricing notices given in 
connection with account review if a credit score is used in 
increasing the annual percentage rate. All forms contained in this 
appendix are models; their use is optional.

[[Page 51806]]

    3. A person may change the forms by rearranging the format or by 
making technical modifications to the language of the forms, in each 
case without modifying the substance of the disclosures. Any such 
rearrangement or modification of the language of the model forms may 
not be so extensive as to materially affect the substance, clarity, 
comprehensibility, or meaningful sequence of the forms. Persons 
making revisions with that effect will lose the benefit of the safe 
harbor for appropriate use of the model forms in this appendix. A 
person is not required to conduct consumer testing when rearranging 
the format of the model forms.
    a. Acceptable changes include, for example:
    i. Corrections or updates to telephone numbers, mailing 
addresses, or website addresses that may change over time.
    ii. The addition of graphics or icons, such as the person's 
corporate logo.
    iii. Alteration of the shading or color contained in the model 
forms.
    iv. Use of a different form of graphical presentation to depict 
the distribution of credit scores.
    v. Substitution of the words ``credit'' and ``creditor'' or 
``finance'' and ``finance company'' for the terms ``loan'' and 
``lender.''
    vi. Including pre-printed lists of the sources of consumer 
reports or consumer reporting agencies in a ``check-the-box'' 
format.
    vii. Including the name of the consumer, transaction 
identification numbers, a date, and other information that will 
assist in identifying the transaction to which the form pertains.
    viii. Including the name of an agent, such as an motor vehicle 
dealer or other party, when providing the ``Name of the Entity 
Providing the Notice.''
    b. Unacceptable changes include, for example:
    i. Providing model forms on register receipts or interspersed 
with other disclosures.
    ii. Eliminating empty lines and extra spaces between sentences 
within the same section.
    4. Optional language in model forms A-6 and A-7 may be used to 
direct the consumer to the entity (which may be a consumer reporting 
agency or the creditor itself, for a proprietary score that meets 
the definition of a credit score) 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.
    A-1 Model form for risk-based pricing notice.
    A-2 Model form for account review risk-based pricing notice.
    A-3 Model form for credit score disclosure exception for loans 
secured by one to four units of residential real property.
    A-4 Model form for credit score disclosure exception for loans 
not secured by residential real property.
    A-5 Model form for credit score disclosure exception for loans 
where credit score is not available.
    A-6 Model form for risk-based pricing notice with credit score 
information.
    A-7 Model form for account review risk-based pricing notice with 
credit score information.
BILLING CODE 6750-01-P

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    By direction of the Commission.
April J. Tabor,
Secretary.
[FR Doc. 2021-19908 Filed 9-16-21; 8:45 am]
BILLING CODE 6750-01-C