What is a Risk-Based Pricing Notice?
If you regularly work with credit, you’ve probably heard of a risk-based pricing notice (RBPN). To keep your dealership compliant and avoid penalties, it’s important you understand exactly what RBPNs are and how they impact your operations.
To educate consumers on why they receive certain credit scores – and how those scores impact their lending rates – the Federal Trade Commission requires companies that use credit scores to issue RBPNs to customers in certain situations. These notices are delivered when credit is extended on “material terms that are materially less favorable than the most favorable terms available to a substantial proportion of the consumers.”
How does this work in action? Say a lender relies on a credit report when making a lending decision, and decides to offer less-favorable-than-normal lending terms based on something they saw in a customer’s report. In these cases, the FTC requires the lender to issue a RBPN to the customer. The RBPN must provide the customer’s credit information and a breakdown of the factors that negatively impacted their credit score. The customer can review this report and, if warranted, correct the scores they have received.
You may be saying to yourself, “But dealers aren’t lenders, right?” Because of the critical role credit plays in the vehicle sales process, the FTC treats dealers the same was as lenders, regardless of who is lending the money.
Here at CDK, we work hard to help dealers manage tasks effectively and remain compliant, and keeping on top of RBPNs is part of that. We’ve built RBPN tools into our CDK Credit solutions suite, so you can notify customers of their credit status seamlessly from your central credit platform. We recommend that you run this report for every customer, and not just those who may have lower credit scores. That process can help keep you on the right side of regulations.