Consumers have strong and legally protected rights when it comes to how retailers, service providers and lenders use credit scores when extending credit. If you think your rights as a consumer have been violated, you should contact experienced and driven debtor's rights attorneys like the ones at Guardian Litigation Group. Businesses that violate your rights can be sued for money damages and can be subject to law enforcement actions.
One right that consumers have is the right to be given notice if credit is being offered under a "risk-based pricing" scheme or structure.
What is Risk-Based Pricing?
Risk-based pricing occurs when credit is offered at different interest rates or on different terms to borrowers based on their individual credit reports. If risk-based pricing is being used, then federal law requires that the business or lender notify consumers if they are getting worse terms because of information in their credit report. See Fair Credit Reporting Act, § 615(h). As an example, automobile loans are commonly offered in this manner. Assume that you are attempting to buy a vehicle, but need financing. Almost without exception, the dealer will "pull" a credit report and, based on that report, offer potential financing for the purchase. Those with the "best" credit reports will receive better terms for the financing. "Better terms" can be defined in many different ways including a lower interest rate or a lower required down payment. As discussed below with respect to Alder Holdings, LLC, "better terms" can also include various fees -- like an activation fee -- that may be higher or lower depending on the customer's credit score. If any terms of the deal are different based on a customer's credit score, then that is risk-based pricing. And, if a business engages in the practice, the business is required to provide the customer with notice of the pricing structure.
Many other businesses use risk-based pricing including credit card companies, mortgage lenders, retailers who offer credit and any business -- like a home remodeller -- that provides installment payment plans.
Potential Punishments for Violations
Businesses that violate the notice requirement can be investigated and sued by various federal agencies like the Federal Trade Commission and the Consumer Financial Protection Bureau ("CFPB"), by state governments and, in some cases, can be sued directly by consumers that have had their rights violated. Under the Fair Credit Reporting Act (“FCRA”), statutory penalties can be awarded at more than $4,000 per violation.
In one recent case, it was reported that the CFPB and the State of Arkansas investigated a company called Alder Holdings, LLC ("Alder"). Alder is a company based in Utah and sells home-security and alarm systems across the country. The systems are typically sold with a credit installment plan with an "activation fee" built in to the pricing. However, without informing its customers, Alder used the home owners' credit reports to determine the activation fee -- customers who had lower credit scores were charged higher activation fees. This is a form of risk-based pricing and, because Alder did provide its customers with notice of this pricing structure, Alder was held to be in violation of the FCRA.
The investigation by the CFPB and the State of Arkansas resulted in a settlement whereby Alder agreed to pay a $600,000 civil penalty. See CFPB news release here. Alder also agreed to comply with the FCRA notice requirement in the future.
Contact an Experienced Debt Relief and Debtor Rights Attorney
If you think you have been subject to risk-based pricing without notice, contact the Debtor's Rights attorneys at Guardian Litigation Group. We can also help with other debt-relief legal services like bankruptcy and debt settlement. We have the tools and experience you need. Our Mission is to provide unparalleled legal services and support to financially distressed individuals. We can be reached via our contact page or by phone.