Facta 311 Ss '08 Fin

Supporting Statement for Information Collection
Proposed Fair Credit Reporting Risk-Based Pricing Rules
1. Necessity for Collecting and Retaining the Information
The Federal Trade Commission (“FTC” or “Commission”) requests approval
from the Office of Management and Budget (“OMB”) for the collections of information
contained in the attached joint proposed rulemaking, which implements section 311 of
the Fair and Accurate Credit Transactions Act of 2003 (“FACT Act”), Pub. L. No. 108159 (2003). The FACT Act amends the Fair Credit Reporting Act of 1970 (“FCRA”), 15
U.S.C. 1681 et seq., to require the FTC and the Board of Governors of the Federal
Reserve System (“Board”) to jointly prescribe rules to implement the risk-based pricing
provisions in section 311 of the FACT Act. The statute and the rule require creditors to
provide risk-based pricing notices to consumers when the creditor uses a consumer report
“to grant or extend credit to the consumer on material terms that are materially less
favorable than the most favorable terms available to a substantial proportion of
consumers from or through the creditor.” The statute requires that the rules address the
specifics of the risk-based pricing notice, including the form it should take, its content,
the time at which it should be provided to consumers, and the manner in which it should
be delivered. In addition, the FACT Act requires the Commission and the Board to
develop model notices and provide appropriate exceptions to the notice requirement.
2. Use of the Information
The consumer disclosures proposed in this rulemaking are to alert consumers to
the fact that, for example, they are offered a higher-cost loan based on their credit score.
Consumers then can use the information provided to consider the implications of riskbased pricing and decide whether to check their credit report for errors and inaccuracies.
3. Consideration of Using Improved Information Technology to Reduce Burden
Consistent with the aims of the Government Paperwork Elimination Act, Pub. L.
105-277, Title XVII, 112 Stat. 2681-749, 44 U.S.C. § 3504 note, the proposed rules allow
creditors to use applicable technologies to reduce compliance costs. The proposed rule is
drafted in a flexible, technology neutral manner.
4. Efforts to Identify Duplication/Availability of Similar Information
FTC staff has not identified any other federal or state statutes, rules, or policies
that would duplicate or conflict with the proposed rules. One possible conflict is
eliminated because the proposed rules allow mortgage creditors to modify their existing
609(g) notices 1 in a way that satisfies both the 609(g) requirements and the risk-based
pricing requirements of the FCRA.

1

Section 609(g) of the Fair Credit Reporting Act, 15 U.S.C. § 1681g, requires that creditors offering loans
secured by one to four units of residential real property shall provide consumer notices when they use a

5. Efforts to Minimize Burdens on Small Businesses
The proposed rules apply to any creditor that engages in risk-based pricing,
regardless of size. The proposed rules are drafted so that creditors have various options
for complying and can choose the option that makes the most sense within their
individual business model, which should aid small creditors with compliance.
Additionally, model notices are provided to reduce the burden on creditors in drafting an
appropriate notice.
6. Consequences of Conducting Collection Less Frequently
The FACT Act requires the agencies to issue rules that will require providing
consumers with notices regarding risk-based pricing. The Act provides limited authority
to create exceptions to the risk-based pricing notice requirement, which has been used
where appropriate.
Much of the burden associated with the proposed rules is attributable to the Act’s
requirement that creditors identify those consumers who should receive risk-based
pricing notices. Creditors likely will be able to reduce this burden, because once the
process is developed to determine which consumers should receive notices, it will only
occasionally need adjustment. 2 The burden of complying is also due to the Act’s
requirement that a creditor give risk-based pricing notices to those consumers who
receive a less favorable offer. Similarly, these notices would need to be revised only if
the standard notice information changes.
7. Circumstances Requiring Disclosure Inconsistent with Guidelines
The collection of information in the proposed rules is consistent with all
applicable guidelines contained in 5 C.F.R. § 1320.5(d)(2).
8. Consultation Outside the Agency
The FTC and the Board worked together to develop this proposed rule. In
addition, Commission and Board staff consulted with a variety of stakeholders, both
industry members and consumer groups, in the process of drafting it. In conjunction with
this instant clearance request, the Commission and the Board are seeking public comment
on the proposed rules as well as the burden analysis presented here.
9. Payments/Gifts to Respondents
Not applicable.
consumer credit score in connection with a loan. The notice must contain the consumer’s credit score and
certain statutorily mandated language that would help to place the score in context.
2
For example, under one of the methods for determining which applicants should receive risk-based
pricing notices, a creditor likely would reevaluate its applicant pool no more frequently than once every
two years to confirm that its risk-based pricing analysis remained valid.

2

10. & 11. Assurances of Confidentiality/ Matters of a Sensitive Nature
No assurance of confidentiality is necessary because the proposed Rule does not
require creditors to register or file any documents with the Commission or the Board.
12.

Estimated Hours Burden

As detailed below, Commission staff estimates that the average annual
information collection burden during the three-year period for which OMB clearance is
sought will be 14,630,000 hours (rounded). This figure is premised first on staff’s
estimate that the proposed rules will affect approximately 199,500 creditors subject to the
FTC’s jurisdiction. 3 Those subject to the FTC’s jurisdiction under the proposed rule are
creditors that engage in risk-based pricing and are subject to administrative enforcement
by the FTC pursuant to section 621 (a)(1) of the FCRA (15 U.S.C. 1681s(a)(1)).
Because creditors have long been complying with section 615 of the FCRA,
which requires specific disclosures for adverse action notices when a lender uses a credit
report to deny credit, implementing the proposed requirements will require the adaptation
of existing business processes, rather than the development of new ones. The proposed
rule also allows creditors to perform their risk-based pricing analysis according to the
method they find least burdensome and best-suited to their particular business model.
The proposed rule also provides a model risk-based pricing notice that entities can use,
thereby significantly limiting the time and effort needed to comply with the proposed
rule.
During the rules’ first year in effect, businesses likely will develop automated or
other processes to determine whether a consumer should receive a risk-based pricing
notice. Staff estimates that businesses will require, on average, forty (40) hours (1
business week) to reprogram and update their systems to incorporate the new notice
requirements, provide employee training, and modify model notices with respondent
information to comply with the proposed requirements. This one-time burden in the
aggregate would thus be approximately 7,980,000 hours (199,500 creditors x 40 hours)
rounded to the nearest thousand for the first year. In addition, staff estimates that
businesses would need five (5) hours per month, on a continuing basis, to modify and
distribute notices to consumers. The resulting cumulative annual burden to modify and
distribute notices would thus be approximately 11,970,000 hours (rounded to the nearest

3

This estimate derives in part from an analysis of the figures obtained from the North American Industry
Classification System (NAICS) Association’s database of U.S. businesses. See
http://www.naics.com/search.htm. Commission staff identified categories of entities under its jurisdiction
that also directly provide credit to consumers. Those categories include retail, vehicle dealers, consumer
lenders, and utilities. The estimate also includes state-chartered credit unions, which are subject to the
Commission’s jurisdiction. See 15 U.S.C. 1681s. For the latter category, Commission staff relied on
estimates from the National Credit Union Administration for the number of non-federal credit unions. See
http://www.ncua.gov/news/quick_facts/Facts2007.pdf. For purposed of estimating the burden,
Commission staff made the conservative assumption that all of the included entities engage in risk-based
pricing.

3

thousand). Cumulatively, then, average annual burden over the three-year PRA clearance
sought will be 14,630,000 hours [(7,980,000÷3) + 11,970,000].
Associated Labor Cost:
Commission staff derived labor costs by applying appropriate estimated hourly
cost figures to the burden hours described above. It is difficult to calculate with precision
the labor costs associated with the proposed rules, as they entail varying compensation
levels of clerical, management, and/or technical staff among companies of different sizes.
In calculating the cost figures, staff assumes that managerial and/or professional technical
personnel will develop procedures for conducting the risk-based pricing analyses, adapt
the written notices as necessary, and train staff, at an hourly rate of $38.93. 4 To
distribute and update the notices, staff assumes that personnel involved in sales and
similar responsibilities will update and distribute the notices at an hourly rate of $11.14. 5
Based on the above estimates and assumptions, the estimated average annual
labor cost for all categories of covered entities under the proposed rules is $237,000,000
(rounded to the nearest thousand) [((40 hours x $38.93) + (180 hours x $11.14)) x
199,500 ÷ 3].
13.

Estimated Capital and Non-Labor Costs

Commission staff believes that the proposed rules impose negligible capital or
other non-labor costs, as the affected entities are likely to have the necessary supplies
and/or equipment already (e.g., offices and computers) for the information collections
discussed above.
14.

Estimated Cost to the Federal Government

Commission staff estimates that a representative year’s cost to the FTC of
administering the requirements of the proposed rules during the 3-year clearance period
sought will be approximately $15,750. This represents one tenth of an attorney work
year, and includes employee benefits.
15.

Program Changes or Adjustments

Not applicable. These are newly proposed rules, not a change or an adjustment to
an existing program.
16.

Publishing Results of the Collection of Information
There are no plans to publish any information for statistical use.

4

This cost is derived from the median hourly wage for management occupations found in the 2006 National
Occupational Employment and Wage Estimates of the Bureau of Labor Statistics.
5
This cost is derived from the median hourly wage for sales and related occupations found in the 2006
National Occupational Employment and Wage Estimates of the Bureau of Labor Statistics.

4

17.

Display of Expiration Date for OMB Approval
Not applicable.

18.

Exceptions to the Certification for PRA Submissions
Not applicable.

5