Many of your dealership’s compliance responsibilities are designed to inform and protect consumers as they make financial decisions. That is definitely the case for the Federal Trade Commission’s Risk-Based Pricing Rule of the Fair Credit Reporting Act, which may apply to dealerships that use credit reports to help them make lending decisions.
When should you provide a Risk-Based Pricing Notice?
Under the Risk-Based Pricing Rule, a customer must be informed if they’re being offered worse credit terms than other consumers because of information in their credit report.
The threshold that determines when a consumer should receive a Risk-Based Pricing Notice is when they’re offered credit on less favorable terms than what a “substantial proportion” of other customers receive. In most cases, “less favorable terms” refers to customers being offered a higher annual percentage rate than other car buyers.
What are CSD Notices?
As an alternative to providing a Risk-Based Pricing Notice to these selected consumers, some dealerships choose to provide a credit score disclosure (CSD) exception notice to every credit applicant.
CSD Notices include an applicant’s credit score and other information such as the national distribution of credit scores among consumers under the credit scoring model used and various disclosures about credit scores in general.
Consumer reporting agencies will provide CSD Notices upon request. Your dealership should give them to each credit applicant after you get their credit score but before you complete the vehicle sale transaction.
How can I make the process easier at my dealership?
A compliance technology solution integrated with your F&I process can help your dealership provide the required notices to consumers at the appropriate time based on their credit reporting and terms.
As with any compliance issue, we recommend that you address questions you may have with your own qualified legal counsel.
To learn more about the Risk-Based Pricing Rule and other compliance topics, sign up to access the 2023 Dealertrack Compliance Guide.