The Checkout

Do You Know Why You're Getting that Higher Rate?

Nancy Trejos

The Federal Reserve is at it again.

After going after credit card companies for deceptive practices, the agency has joined the Federal Trade Commission in proposing another seemingly pro-consumer set of rules.

The latest effort has to do with risk-based pricing. Most lenders determine the interest rate for a customer based on his or her credit report. If your credit score is low, lenders will think you pose a higher risk of not repaying the loan and give you a higher rate.

Together with the Federal Trade Commission, the Fed has proposed requiring lenders to notify borrowers taking out a mortgage, auto loan, credit card or any other loan when they are being offered higher interest rates or other inferior terms because of poor credit histories. "Many creditors offer more favorable terms to consumers with better credit histories," the two agencies acknowledged in a joint statement released last week.

Congress directed the agencies to take this action when it passed the Fair and Accurate Credit Transactions Act of 2003.

Under the proposed rules, "a risk-based pricing notice" would "generally" be provided to the consumer after the terms of the loan have been set but before the borrower enters a contract for the transaction, the agencies said.

Why generally? That's because the rules allow for some exceptions. The most significant one permits creditors who don't want to provide the risk-based pricing notice to give all their customers their credit scores and explanatory information instead. If a credit score is not available, the lender can provide "an alternative narrative notice," the agencies proposed.

Travis Plunkett, the legislative director of the Consumer Federation of America, called it a "giant exception."

"That's not particularly helpful," he said. "Our fear is this will become just another generic notice that people get when they apply for credit that is not individualized enough to tell them they've gotten a less than favorable offer."

"While these agencies are providing some useful information to consumers, they're not going as far as the law requires them to in telling consumers why they've been denied the most favorable offer of credit they can get," he added.

The agencies won't make a decision on the rules until the public has had 90 days to comment.

You can submit comments to or You can also email:, with the docket number (R-1316) included in the subject line. Fax (202) 452-3819 or (202) 452-3102. Or mail them to: Jennifer J. Johnson, Secretary, Board of Governors of the Federal Reserve
System, 20th Street and Constitution Avenue, N.W., Washington, D.C. 20551.

By Nancy Trejos |  May 14, 2008; 7:07 AM ET Nancy Trejos
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Please email us to report offensive comments.

Shouldn't you encourage the public to actually read the proposed rule before commenting?

The rule is available at the web sites listed as places to submit comments - which they are, but I can't for the life of me actually find the proposal at, so use and just type in the docket number.

Posted by: Lindemann | May 14, 2008 8:41 AM

"The agencies won't make a decision on the rules until the public has had 90 days to comment."

Oh, please. They've already made the decision. This is already a done deal, and like everything else the "public comment" portion of the process is a joke. Anything they can do to screw the little people, it's already been done by the time we hear about it.

Posted by: Wash DC | May 14, 2008 3:02 PM

I dunno how the Fed does things, but at the federal agencies I'm familiar with, a lot of changes are made in response to public comments.

Posted by: Lindemann | May 14, 2008 8:41 PM

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