Risk-Based Pricing

Shane Born 800-594-5562

ProCredit Express

Risk-Based Pricing Rule

    Starting January 1 st , 2011 Enforced by the FTC and FRB Consumer Protection Affects All Auto Dealers − − − − Franchises Independents BHPH No Exceptions

Risk-Based Pricing Rule

 Rule Overview − Dealers are required to provide a consumer with a Risk-Based Pricing Notice when they provide the consumer with Material Terms that are Materially Less Favorable (APR, Term, Etc…) than a Substantial Portion of its consumers − A 40/60 Standard has been set by the regulation for determining Substantial Portion − Methods for complying with 40/60 process are complex providing multiple requirements in the notice and exceptions to the notice − The rule also provides a Credit Score Disclosure Exception Notice Option

40/60 Standard in Condensed Terms

     6 out of 10 loans can be considered to have terms materially less favorable terms Complicated formulas determine if a loan is in the 40 or 60 percent 40/60 truly only makes sense for large banks and major credit card companies Consult legal council to determine which method of compliance works best for your organization The preferred method endorsed by most auto associations is the Credit Score Disclosure Exception Notice

Credit Score Disclosure Exception Notice

   Must be provided to

EVERY

consumer regardless of Material Terms Must clearly and conspicuously display the: − − − Consumer’s Credit Score Where they stand in comparison to the rest of the country Any derogatory credit information that negatively affects their credit This method of compliance has been recommended by NADA and NIADA

Credit Score Disclosure Exception Notice

    Provides “Safe Harbor” for any dealer who complies with it Safe Harbor means you can’t be sued if you use this method of compliance Includes a notice for consumers with no score Consult with your attorney to develop your compliance policy for this regulation

Credit Score Disclosure Exception Notice

    All CRAs are required to provide the data Each CRA’s report must have data pertinent to the Score used in the report Each CRA’s score will be different because it is based on the information in the report You can not use one CRA’s data to present to the consumer when you used another CRA’s data for the decision and maintain Safe Harbor

Fines and Penalties

  The FTC can use two methods of enforcement: − − $3,500 in civil penalties; or $16,000 in enforcement penalties States Enforcement − − $1,000 in civil penalties; and/or $2,500 for UDAP (only applies in some states) penalties

Fines and Penalties

Best Case VS Worst Case Scenarios With a Dealer pulling 200 CBs in one month

Best Case 200 $4,500 $900,000 CBs pulled penalties 200 Worst Case CBs pulled $16,500 penalties $3,900,000

Can you afford either of these fines?

Review of the Rule

   That was the brief overview We have spent many man hours investigating and reviewing this rule with all three CRAs A more extensive overview may be found on TransUnion’s, Equifax’s and Experian’s websites

The ProCredit Express Solution

     Based on the Credit Score Disclosure Exception Notice We developed a simple, elegant and functional notice We made it easy provide to the consumer We made it easy for you to review your compliance We made it easy for you to prove your compliance

The ProCredit Express Solution

  From the View button you can print or email the notice − Emails may only be sent if the consumer contacted you through the internet; or − If the consumer has given you written permission to send them email notices You can also just print the notice by clicking the print button

The ProCredit Express Solution

Customer with a credit score Customer without a credit score

The ProCredit Express Solution

 Stores proof of RBP notice delivery − Shows if it was printed, emailed or we mailed a letter for you  Notes can not be altered or deleted

The ProCredit Express Solution

From the Prospect Log you can view all of your compliance at a glance including Risk Based Pricing Disclosure Status

The ProCredit Express Solution

From a single screen your compliance officer can:  Access all the information    Run the needed reports Take the necessary action Ensure no one falls through the cracks

Timing and Delivery

  Must be provided as soon as reasonably possible to the consumer; and Prior to any purchase − Prior to any purchase does not mean only customers who purchase − − The Exception Notice must be given to everyone Skip one person and you may not meet the standard for “Safe Harbor”

Timing and Delivery

  Treat the notice like a service you provide to your clients − Concise, Clear and Easier to understand than a Credit Report Use it as a closing tool − − Provides immediate support of Material Terms to the consumer “Tom, 87% of the US adult population has better credit than you. By accepting and making the payments on this loan, you will improve your credit rating and make it easier for you to get more favorable terms in the future.”

How to avoid fines and penalties that could close your dealership

 Sign up for ProCredit Express  Pull your Credit Reports in ProCredit Express  Add our Compliance Package for additional protections Call Shane Born at 800-594-5562 or go to our website at www.procreditexpress.com

The foregoing summary of the Risk Based Pricing Rule is provided for informational purposes only and is not intended as legal advice. Dealerships should review the rule in its entirety and consult an attorney who is familiar with the law and their dealership operations for guidance on their full compliance obligations.