CU Alternatives for FACTA Compliance Posted by AVCU on 12:05 PM

Effective 1/1/11, the Fair and Accurate Credit Transactions Act (FACTA) risk-based pricing regulations will require credit unions to provide a notice when, based on the member’s credit report, the credit union offers credit to the member on terms that are materially less favorable than those offered to a substantial proportion of other members. The regulations provide alternative methods for determining which consumers must receive risk-based pricing notices.

• Alternative # 1 - Consumer-to-consumer comparison: a credit union may use a direct consumer-to-consumer comparison which involves comparing each consumer to an adequate sample of consumers who are offered a specific type of credit, such as a car loan or student loan.
  
• Alternative # 2 - Credit score proxy method: credit unions that use credit scores to set material terms may comply with the risk-based notice requirements by: 1) determining the credit score that represents the point at which approximately 40 percent of its members have higher scores and approximately 60 percent of its members have lower scores; and 2) providing a risk-based pricing notice to members with a score below this cutoff.
  
• Alternative # 3 - Tiered pricing method: a credit union may place the member within one of a discrete number of pricing tiers based on a consumer report. The only factor a credit union using this method must consider is tiers with different APRs or, for credit with no annual percentage rate, other financial terms that the credit union varies based on consumer report information. A notice must be sent to those consumers who do not qualify for the top tier (lowest-priced) for a four or fewer tier system; or the top two tiers for a five or more tier system, as well as additional tiers that comprise between 30-40% of the total number of tiers.
  
• Alternative for credit cards - Credit card issuers may use one of the methods described above or a special method for credit cards that allows the card issuer to determine which consumers must receive a notice on an offer-by-offer basis. A credit union must send a risk-based pricing notice if: the member applies for a credit card in connection with an application in which more than one possible purchase APR may apply; and based on the consumer report, the card issuer provides the member with a credit card with a purchase APR that is not the lowest purchase APR available under that application or solicitation.