Free. From the Fed. Cool. 

How many times have you gotten a call from a confused customer who is trying to sort out the various notices that he has received in connection with a credit transaction at your dealership? Sometimes the notices are ones you have sent, assuming that you are complying with the Fair Credit Reporting Act, the Equal Credit Opportunity Act and the new Risk-Based Pricing Rules. Other times, they may be from the companies that buy your retail installment contracts.

Most dealers don’t really know the ins and outs of these laws well enough to know how to explain to customers what the notices are for and why they have been sent, much less answer the inevitable follow-up questions about how credit reports work.

Now dealers have a little help. The Federal Reserve Board has released a new publication to help consumers better understand new notices they may receive from financial institutions when credit reports or credit scores affect a decision to grant credit.

The publication, “What You Need To Know: New Rules about Credit Decisions and Notices,” describes the types of notices consumers may receive and provides links to sample notices. It also includes information about what consumers should do if they receive a notice, including instructions on how to dispute credit report errors. The notices are required by rules issued by the Federal Reserve Board and the Federal Trade Commission.

The new rules, effective January 1, 2011, generally require a creditor to provide a consumer with a notice when, based on the consumer's credit report, the creditor provides credit to the consumer on terms less favorable than those provided to other consumers. Consumers who receive this “risk-based pricing” notice will be able to obtain a free credit report to check the report's accuracy. As an alternative to providing risk-based pricing notices, creditors can choose to provide consumers who apply for credit with a free credit score and information about their score.

Here’s an example of the publication’s content:

What type of notice will I receive? Why?

Depending on the circumstances, when you apply for credit through a bank, credit union, or other lender, you may receive a notice with information about your credit report or credit score. The new rules introduce several types of notices:

Credit Score Notice. In some cases, shortly after you apply for credit, you will get a notice that states your credit score and information about how your credit score compares to other consumers' scores. A lender would provide this “credit score notice” to all credit applicants, whether you apply for a mortgage, auto loan, or another type of credit.  This notice would be provided regardless of the terms of credit offered to you.

If you do not have a credit score, the lender’s notice would identify the particular credit bureau that does not have a credit score available for you.
 
Risk-Based Pricing Notice. Not all lenders provide a credit score notice to all credit applicants. Instead, you may receive a “risk-based pricing notice” from your lender. You would only receive this type of notice if you are offered credit on terms that are less favorable than the terms offered to other consumers because of information in your credit report. For example, you may receive this type of notice if you have negative information in your credit report and you are offered a loan with an annual percentage rate (APR) that is higher than the APR offered to other consumers who apply for that loan.

Account Review Notice. If your APR on an existing credit account is increased based on a review of your credit report, you may receive an “account review notice.” For example, some credit card issuers conduct periodic reviews of customers' credit reports. If there has been a change in your report since you initially applied for the card, the issuer may increase your APR. Under these circumstances, you would receive this notice providing you with the credit report information that resulted in the APR increase.

Now we all know dealers aren’t technically lenders, but dealers are creditors on retail installment sale contracts, so the responses above apply to a dealer as if they were a lender.

Now if I’m a dealer, and I wanted to get my hands on some good, gold-plated compliance material to pass along to my customers and to those folks who aren’t my customers because they couldn’t get credit, I’d be giving out copies of this free publication (or at least the Web address where it can be found). You can find the publication by going to the Federal Reserve Board’s website, www.FederalReserve.gov, and then clicking on “Consumer Information,” then on “What You Need To Know: New Rules about Credit Decisions and Notices.”