The Dodd-Frank Wall Street Reform and Consumer Protection Act (CFPB) which was signed by President Obama on July 21, 2010, puts new rules into place for Adverse Action and Risk Based Pricing notifications.
So what does this mean in plain english? Under the risk based pricing rule, lenders will now be required to send a notice to any client who is receiving a loan with less than the best rates possible.
As of July 21, 2011 any consumer credit report pulled by a lender requires that the consumer receive:
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The exact credit score used to make an adverse decision (new mandate)
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The scoring model range used to make the decision i.e. 336-850 (new mandate)
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All main factors that adversely affected their credit score must be disclosed
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The Dodd-Frank legislation requires that the client receive 5 factor codes (when applicable). The 5th factor code is only included when inquiries have hindered a credit score (new mandate)
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The date on which the credit score was generated
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Credit repository name that provided the score i.e. Equifax, Experian, TransUnion
All lenders are affected by this rule and must comply by communicating the results to the client. Since risk based pricing can cost homebuyers thousands of dollars over the life of their loan, it's important to help clients understand the why behind this new rule.
If you're an agent and would like a sample copy of the disclosure form, just comment below. It's a great opportunity for you to educate your client on the potential pitfalls associated with this new rule.
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