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Question: We have heard that there are exceptions to providing a risk-based pricing notice. Could you provide some information about a few of these exceptions?
There are several exceptions to the risk-based pricing notice. Important exceptions concern notice regarding specific terms, adverse action, and prescreened solicitations.
A residential mortgage lender is not required to provide a risk-based pricing notice to the consumer if a consumer applies for specific material terms and is granted those terms, unless (1) the terms were specified by the lender using a consumer report after the consumer applied for or requested credit, and (2) after the person obtained the report. For purposes of the exception, “specific material terms” means a single material term, or set of material terms (i.e., such as an annual percentage rate of 10%, and not a range of alternatives, such as an annual percentage rate that may be 8%, 10%, or 12%, or between 8% and 12%). [75 FR 2724, codified in 2011 at 12 CFR § 222.74(a) – FRB; 16 CFR § 640.5(a) – FTC]
A lender is also not required to provide a risk-based pricing notice to the consumer if the lender provides an adverse action notice to the consumer pursuant to the Fair Credit Reporting Act requirements. [75 FR 2724, codified in 2011 at 12 CFR § 222.74(b) – FRB; 16 CFR § 640.5(b) – FTC]
With respect to prescreened solicitations, a lender is not required to provide a risk-based pricing notice to a consumer if the lender obtains a consumer report that is a prescreened list and uses the report for the purpose of making a firm offer of credit to the consumer. The exception applies to any firm offer of credit made by the lender to a consumer, even if the lender makes other firm offers of credit to other consumers on more favorable material terms. [75 FR 2724, codified in 2011 at 12 CFR § 222.74(c) – FRB; 16 CFR § 640.5(c) – FTC]
Jonathan Foxx is president and managing director of Lenders Compliance Group, Brokers Compliance Group, Servicers Compliance Group and Vendors Compliance Group, national companies devoted to providing regulatory compliance advice and counsel to the mortgage industry. He may be contacted by phone at (516) 442-3456, by e-mail at [email protected] or visit LendersComplianceGroup.com.