PART 640—DUTIES OF CREDITORS REGARDING RISK-BASED PRICING Authority: Pub. L. 108-159, sec. 311; 15 U.S.C. 1681m(h); 12 U.S.C. 5519(d). Source: 86 FR 51797, Oct. 18, 2021, unless otherwise noted. § 640.1 Scope. (a) Coverage In general. (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. (b) Enforcement. § 640.2 Definitions. For purposes of this part, the following definitions apply: (a) Adverse action (b) Annual percentage rate (c) Closed-end credit (d) Consumer (e) Consummation (f) Consumer report (g) Consumer reporting agency (h) Credit (i) Creditor (j) Credit card (k) Credit card issuer (l) Credit score (m) Firm offer of credit (n) Material terms (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 (p) Motor vehicle dealer (q) Open-end credit plan (r) Person § 640.3 General requirements for risk-based pricing notices. (a) In general. (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. (1) Credit score proxy method In general. (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. (iii) Determining the cutoff score Sampling approach. (B) Secondary source approach in limited circumstances. (C) Recalculation of cutoff scores. (D) Use of two or more credit scores. e.g., (iv) Credit score not available. (v) Examples. (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 In general. (ii) Four or fewer pricing tiers. (iii) Five or more pricing tiers. (c) Application to credit card issuers In general. (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 § 640.2(n)(1)(ii) that is greater than the lowest annual percentage rate referenced in § 640.2(n)(1)(ii) available in connection with the application or solicitation. (2) No requirement to compare different offers. (i) The consumer applies for a credit card for which the card issuer provides a single annual percentage rate referenced in § 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 § 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 § 640.2(n)(1)(ii) is available under a different credit card offer issued by the card issuer. (3) Examples. (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 In general. (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 § 640.2(n)(1)(ii) in the case of a credit card). (2) Example. § 640.4 Content, form, and timing of risk-based pricing notices. (a) Content of the notice In general. (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 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. (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 In general. (i) Clear and conspicuous; and (ii) Provided to the consumer in oral, written, or electronic form. (2) Model forms. (c) Timing General. (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 § 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. (i) Provides a notice described in § 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, § 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 described in §§ 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, § 640.5(e)(3), or § 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 § 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. (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 In general. (2) Examples. (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. § 640.5 Exceptions. (a) Application for specific terms In general. (2) Example. (b) Adverse action notice. (c) Prescreened solicitations In general. (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. (3) Example. (d) Loans secured by residential real property credit score disclosure In general. (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 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. (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. (4) Multiple credit scores In general. (ii) Examples. (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. (e) Other extensions of credit—credit score disclosure In general. (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 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. (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. (4) Multiple credit scores In General. (ii) Examples. (5) Model form. (f) Credit score not available In general. (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. (3) Form of the notice. (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. (5) Model form. [75 FR 2769, Jan. 15, 2010, as amended at 84 FR 23473, May 22, 2019] § 640.6 Rules of Construction. For purposes of this part, the following rules of construction apply: (a) One notice per credit extension. (b) Multi-party transactions Initial creditor. (2) Purchasers or assignees. (3) Examples. (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 § 640.4(c). (c) Multiple consumers Risk-based pricing notices. (2) Credit score disclosure notices. (3) Examples. (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.