Lenders May Have to Disclose More About Rates


Lenders would be required to tell consumers when they are being offered less favorable terms based on poorer credit scores under new rules proposed on Thursday by the Federal Reserve and the Federal Trade Commission.

The rules would require a "risk-based pricing" notice to consumers when they receive more expensive credit terms than those offered to individuals with better credit histories.

"Under these rules, a risk-based pricing notice would generally be provided to the consumer after terms of the credit have been set, but before the consumer becomes contractually obligated on the credit transaction," the Fed and the FTC said in a statement.

Credit card issuers would be required to provide risk-based pricing notices to any customers who receive a higher annual percentage rate than the lowest rate that the firm is granting its best-qualified customers, according to the proposal.

The rules contain some exceptions, including an option for lenders, in lieu of providing risk-based pricing notices, to provide credit scores to all of their customers along with explanatory information.

The rules propose several possible alternative methods to determine who should receive a risk-based pricing notice, including to those under a "cut-off" score.

For example, credit applicants with scores lower than 40 percent of a company's normal customer base would be sent risk-based pricing notices under this method.

The Fed and the FTC said they would collect public comments on the rule for 90 days.

The proposal came a day after the chairman of the U.S. Securities and Exchange Commission said the agency plans to require the top investment banks to publicly disclose their current liquidity and capital positions.

"The idea is to provide current information to the markets," Christopher Cox told reporters after speaking at a securities conference.

"One of the lessons learned from the Bear Stearns experience is that in a crisis of confidence there is a great need for information about capital and liquidity."

Cox also said Congress needs to pass legislation to give the SEC or "another regulator" the explicit statutory mandate to supervise investment banks.

The SEC currently is the primary regulator of the five biggest U.S. investment banks through a voluntary program.