Risk-Based Pricing

1. Risk-Based Pricing By Bob Lettis President ProCredit Express

2. Risk-Based Pricing Rule • Starting January 1st, 2011 • Enforced by the FTC and FRB • Consumer Protection • Affects All Auto Dealers • Franchises • Independents • BHPH • No Exceptions

3. Risk-Based Pricing Rule • Rule Overview • Dealers are required to provide a consumer with a Risk-Based Pricing Notice when they provide the consumer with Material Terms that are Materially Less Favorable (APR, Term, Etc…) than a Substantial Portion of its consumers • A 40/60 Standard has been set by the regulation for determining Substantial Portion • Methods for complying with 40/60 process are complex providing multiple requirements in the notice and exceptions to the notice • The rule also provides a Credit Score Disclosure Exception Notice Option

4. 40/60 Standard in Condensed Terms • 6 out of 10 loans can be considered to have terms materially less favorable terms • Complicated formulas determine if a loan is in the 40 or 60 percent • 40/60 truly only makes sense for large banks and major credit card companies • Consult legal council to determine which method of compliance works best for your organization • The preferred method endorsed by most auto associations is the Credit Score Disclosure Exception Notice

5. Credit Score Disclosure Exception Notice • Must be provided to EVERY consumer regardless of Material Terms • Must clearly and conspicuously display the: • Consumer’s Credit Score • Where they stand in comparison to the rest of the country • Any derogatory credit information that negatively affects their credit • This method of compliance has been recommended by NADA and NIADA

6. Credit Score Disclosure Exception Notice • Provides “Safe Harbor” for any dealer who complies with it • Safe Harbor means you can’t be sued if you use this method of compliance • Includes a notice for consumers with no score • Consult with your attorney to develop your compliance policy for this regulation

7. Credit Score Disclosure Exception Notice • All CRAs are required to provide the data • Each CRA’s report must have data pertinent to the Score used in the report • Each CRA’s score will be different because it is based on the information in the report • You can not use one CRA’s data to present to the consumer when you used another CRA’s data for the decision and maintain Safe Harbor

8. Fines and Penalties • The FTC can use two methods of enforcement: • $3,500 in civil penalties; or • $16,000 in enforcement penalties • States Enforcement • $1,000 in civil penalties; and/or • $2,500 for UDAP (only applies in some states) penalties

9. Fines and Penalties Best Case VS Worst Case Scenarios With a Dealer pulling 200 CBs in one month Best Case 200 CBs pulled $4,500 penalties $900,000 Worst Case 200 CBs pulled $16,500 penalties $3,900,000 Can you afford either of these fines?

10. Review of the Rule • That was the brief overview • We have spent many man hours investigating and reviewing this rule with all three CRAs • A more extensive overview may be found on TransUnion’s, Equifax’s and Experian’s websites

11. The ProCredit Express Solution • Based on the Credit Score Disclosure Exception Notice • We developed a simple, elegant and functional notice • We made it easy provide to the consumer • We made it easy for you to review your compliance • We made it easy for you to prove your compliance

12. The ProCredit Express Solution • From the View button you can print or email the notice • Emails may only be sent if the consumer contacted you through the internet; or • If the consumer has given you written permission to send them email notices • You can also just print the notice by clicking the print button

13. The ProCredit Express Solution Customer with a credit score Customer without a credit score

14. The ProCredit Express Solution • Stores proof of RBP notice delivery • Shows if it was printed, emailed or we mailed a letter for you • Notes can not be altered or deleted

15. The ProCredit Express Solution From the Prospect Log you can view all of your compliance at a glance including Risk-Based Pricing Disclosure Status

16. The ProCredit Express Solution • From a single screen your compliance officer can: • Access all the information • Run the needed reports • Take the necessary action • Ensure no one falls through the cracks

17. Timing and Delivery • Must be provided as soon as reasonably possible to the consumer; and • Prior to any purchase • Prior to any purchase does not mean only customers who purchase • The Exception Notice must be given to everyone • Skip one person and you may not meet the standard for “Safe Harbor”

18. Timing and Delivery • Treat the notice like a service you provide to your clients • Concise, Clear and Easier to understand than a Credit Report • Use it as a closing tool • Provides immediate support of Material Terms to the consumer • “Tom, 87% of the US adult population has better credit than you. By accepting and making the payments on this loan, you will improve your credit rating and make it easier for you to get more favorable terms in the future.”

19. How to avoid fines and penalties that could close your dealership • Sign up for ProCredit Express • Pull your Credit Reports in ProCredit Express • Add our Compliance Package for additional protections Call Dave O’Brien at 563-344-7651 or go to our website at www.procreditexpress.com The foregoing summary of the Risk Based Pricing Rule is provided for informational purposes only and is not intended as legal advice.  Dealerships should review the rule in its entirety and consult an attorney who is familiar with the law and their dealership operations for guidance on their full compliance obligations.