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I apologize upfront for the length of the post. But I want to make sure that all the facts are known.
We engage in indirect lending with several local car dealerships. The dealer will pull credit at their shop and then put the application into a system in which several lenders can look at the application to see if they would like the loan. At this point, credit is run again (this time by the lender)and there are essentially two different credit reports. I’ve been told that the dealership is providing a Risk Based Pricing Notice for their credit pull.
When I was reviewing indirect loan files, I noticed that the risk based pricing notice provided by the dealer did not match the information from our “the lenders” credit report. Differences included credit score, score range, percentile ranking, etc.
If the lender approves the loan, the dealer is free to write the loan according to our conditions (i.e. term, rate, etc). Assuming that the loan is accepted and closed, the dealer is responsible for all the paperwork, but the note is automatically transferred at closing. This means that the borrower knows that their loan payments will be made at the Bank and not the dealership.
I know that Regulation V states that a Bank that subsequently purchases an indirect loan is not responsible for the notice. However, in this case I believe that the Bank is generally controlling the underwriting.
I also think there is an issue that if the dealer is providing the risk based pricing notice and it really doesn’t reflect how we underwrote the loan (i.e. the dealer’s credit report has a credit score of 720 while the credit report we use had a credit score of 695). I believe an examiner could easily raise UDAAP issues.
So I guess here are my questions:
1. Who is responsible for sending the risk based pricing notice under this practice?
2. Do we have an UDAAP concern if the disclosure provided does not truly reflect what the Bank used to price the loan?Your help is greatly appreciated.
Your question refers to the risk-based pricing (RBP)notice. That notice is required if any person both:
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 person.The RBP notice is not provided for every application; it is only provided for applicants that have been approved with an APR that is materially less favorable. The notice is required to be delivered 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 person required to provide the notice. That does not appear to be the timing used for the notices you describe.
I don’t believe you are actually using a RBP notice. One exception to providing a RPB notice is when the consumer receives a credit score (CS) notice. The CS notice is provided to the applicant as soon as reasonably practicable after the credit score has been obtained, but in any event at or before consummation.
I suspect that you and the auto dealer are using the exception that allows you to provide a CS notice in lieu of a RBP notice.
As long as the CS notice reflects the information from the report pulled by that entity there should be no UDAAP concern. Scores can differ from one credit bureau to another and from the same credit bureau from one day to another.
Since both the auto dealer and the bank pull credit reports with credit scores, both entities must provide the CS notice.
Let me know if I have misconstrued your question. There will be whole different set of issues, if that is the case.
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