Question:

Our NCUA examiner is stating that in an indirect loan transaction, the credit union is responsible for providing the Risk Based Pricing Notice (RBPN). I was under the impression that the dealer had to provide this notice. Do you know who is responsible?

Answer:

Let’s look at the requirement from Regulation V:

12 CFR § 1022.72(a): In general. Except as otherwise provided in this subpart, a person must provide to a consumer a notice (“risk-based pricing notice”) in the form and manner required by this subpart if the person both:

(1) Uses a consumer report in connection with an application for, or a grant, extension, or other provision of, credit to that consumer that is primarily for personal, family, or household purposes; and

(2) Based in whole or in part on the consumer report, grants, extends, or otherwise provides credit to that 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.

Who is responsible for providing the RBPN depends on who is “using” the credit report in connection with a credit application, and who is setting the terms.

Because I’m a big compliance nerd and because it’s the NCUA asking, I’m going to quote from the preamble to this regulation when it was issued in 2011 (see page 41606):

The specific financing situation raised in the comment involves an automobile financing transaction where an automobile dealer is the original creditor. In this three-party financing transaction, a consumer visits the automobile dealer and applies for financing by completing a loan application with the dealer. The dealer submits the loan application to one or more unrelated finance sources, which finance source(s) then conducts underwriting on the consumer’s credit application. Based in whole or in part on the consumer report, the finance source(s) provides the dealer with an approval of the consumer’s application and the wholesale buy rate at which the finance source(s) will purchase the resulting credit contract from the dealer. The dealer then selects the finance source to which it intends to assign the contract and determines which credit terms, including a retail finance rate (‘‘APR’’), it will offer the consumer. The commenter asserts that because the original creditor (the automobile dealer) does not directly obtain the consumer report and/or credit score from a consumer reporting agency, and instead relies upon the buy rates from the underlying financing sources, the original creditor does not ‘‘use’’ the consumer report and is outside the scope of the risk-based pricing rules. The Commission disagrees. The automobile dealer must provide the consumer with a risk-based pricing notice.

The original creditor has ‘‘used’’ a consumer report in connection with an application for credit because the original creditor initiated the request that caused the financing source to obtain the consumer report and used the resulting information from the financing source to set the rate offered to consumers. 

There’s more, but you get the idea. You will need to take a look at how your indirect lending program works, but the preamble to the regulation provides a good argument that in many instances, the dealer will be responsible for providing the notice.