RBP Rule '17 Supptg Stma fin

Supporting Statement for Information Collection
Final Amendments to Fair Credit Reporting Risk-Based Pricing Regulations,
16 CFR Part 640 and 12 CFR 1022.70 (OMB Control Number 3084-0145)
1 & 2. Necessity for and Use of the Information Collected
The disclosure provisions for which the Federal Trade Commission (“FTC” or
“Commission”) seeks renewed OMB clearance implement section 311 of the Fair and
Accurate Credit Transactions Act of 2003 (“FACT Act”), Pub. L. No. 108-159 (2003),
and Title X of the Dodd-Frank Wall Street Reform and Consumer Protection Act
(“Dodd-Frank Act”), Pub. L. 111-203, 124 Stat. 1376 (2010).
On July 21, 2010, President Obama signed into law the Dodd-Frank Wall Street
Reform and Consumer Protection Act (“Dodd-Frank Act”).1 The Dodd-Frank Act
substantially changed the federal legal framework for financial services providers.
Among the changes, the Dodd-Frank Act transferred to the Consumer Financial
Protection Bureau (“CFPB”) most of the FTC’s rulemaking authority for the risk-based
pricing provisions of the Fair Credit Reporting Act (“FCRA”),2 on July 21, 2011.3
The FTC retains rulemaking authority for the Fair Credit Reporting Risk-Based
Pricing Regulations (“RBP Rule”) solely for motor vehicle dealers described in section
1029(a) of the Dodd-Frank Act that are predominantly engaged in the sale and servicing
of motor vehicles, the leasing and servicing of motor vehicles, or both.4
In addition, the FTC retains its authority to enforce the risk-based pricing
provisions of the FCRA and the FTC and CFPB rules issued under those provisions.
Thus, the FTC and CFPB (“the Agencies”) have overlapping enforcement authority for
many entities subject to the CFPB rule (subpart H of the CFPB’s Regulation V) and the
FTC has sole enforcement authority for the motor vehicle dealers subject to the RBP Rule
(collectively, “Rules”).
Under §§ 640.3 - 640.4 of the FTC’s RBP Rule5 and §§ 1022.72 - 1022.73 of the
CFPB Rule,6 a creditor must provide a risk-based pricing notice to a consumer 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
1

Pub. L. 111-203, 124 Stat. 1376 (2010).

2

15 U.S.C. 1681 et seq.

3

Dodd-Frank Act, § 1061. This date was the “designated transfer date” established by the Treasury
Department under the Dodd-Frank Act. See Dep’t of the Treasury, Bureau of Consumer Financial
Protection; Designated Transfer Date, 75 FR 57252, 57253 (Sept. 20, 2010); see also Dodd-Frank Act,
§ 1062.
4

See Dodd-Frank Act, § 1029(a), (c).

5

16 CFR 640.3, - 640.4.

6

12 CFR 1022.72, -1022.73.

substantial proportion of consumers from or through that creditor. Additionally, these
provisions require disclosure of credit scores and information relating to credit scores in
risk-based pricing notices if a credit score of the consumer is used in setting the material
terms of credit.
3.

Consideration of Using Improved Information Technology to Reduce Burden

Consistent with the aims of the Government Paperwork Elimination Act, 44
U.S.C. § 3504 note, the Rules allow creditors to use applicable technologies to reduce
compliance costs. The Rules are flexible and technology-neutral.
4.

Efforts to Identify Duplication/Availability of Similar Information

Apart from the Dodd-Frank Act amendments to the FCRA that enable some
overlapping FCRA jurisdiction between the FTC and the CFPB, the FTC staff has not
identified any other federal or state statutes, rules, or policies that duplicate, overlap, or
conflict with the RBP Rule.
5.

Efforts to Minimize Burdens on Small Businesses

The Rules apply only to creditors that engage in risk-based pricing, regardless of
the creditor’s size. The Rules require those creditors to provide risk-based pricing
notices. Additionally, creditors using credit scores to make risk-based pricing decisions
must include a credit score and information pertaining to it in the risk-based pricing
notice. The Rules provide a model notice that businesses may use to comply with this
requirement. Alternatively, a business may comply with the regulations by providing a
credit score disclosure notice. By providing a range of options and model notices, the
Agencies have sought to help businesses of all sizes reduce the burden or inconvenience
of complying with the Rules.
6.

Consequences of Conducting Collection Less Frequently

The Dodd-Frank Act amends the risk-based pricing provisions of the FCRA by
requiring creditors to disclose in risk-based pricing notices a credit score used in making
a credit decision, along with certain additional information. Since creditors are already
required to provide risk-based pricing notices, the burden of updating notices to include
this additional information is minimal. The burden of complying is diminished further by
the Rules’ inclusion of model notices that creditors may use. The notices are inherently
transaction-specific; thus, reducing their frequency is inapposite.
7.

Circumstances Requiring Disclosure Inconsistent with Guidelines

The collection of information in the amended rules is consistent with all
applicable guidelines contained in 5 C.F.R. § 1320.5(d)(2).

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8.

Consultation Outside the Agency

The FTC most recently sought public comment on the PRA aspects of the Rule,
as required by 5 C.F.R. 1320.8(d). See 82 Fed. Reg. 12,452 (March 3, 2017). One
relevant comment was received in response to the FTC’s March 3, 2017 Federal Register
Notice.7 The commenter, the National Automobile Dealers Association (“NADA”),
suggested that many dealers face compliance costs beyond those that the FTC had
estimated for affected entities (“respondents”) to modify and distribute notices.
According to NADA, these compliance costs include:
(a) obtaining those reports, including (i) the direct costs from the CRA’s, (ii) the
personnel costs associated with obtaining the reports, and (b) the direct and
indirect costs of properly handling, storing, and disposing the notices.
Additionally, NADA contended that the FTC’s estimate of hours burden does not
contemplate the burden associated with “obtaining, and properly handling, storing, and
disposing of the information in the [credit] reports.”
The FTC believes that its burden estimates do not need to be increased. NADA’s
suggestion that compliance with the Rule compels its members to purchase consumer
credit scores is incorrect. Automobile dealers, and all other respondents, are covered by
the Rule only if they already use consumer reports and/or credit scores to set the terms of
credit they offer to consumers. Because respondents already are using consumer reports
and have access to the information necessary to provide the notices, the Rule does not
impose, directly or indirectly, the additional cost of purchasing consumer reports or credit
scores.
NADA’s comment focuses on automobile dealers that are engaged in three-party
financing transactions, in which a dealer agrees to extend financing to a consumer and
then assigns the loan to a third party, such as a bank or financing company. In this
scenario, automobile dealers will obtain certain personal information from consumers,
along with an authorization to obtain their consumer reports, and will shop the
information to several potential financing sources. These financing sources will pull
consumer reports in order to determine the “buy rate” at which the financing source
would agree to purchase the contract. The automobile dealer uses a consumer report in
setting the retail financing rate for the credit because it uses the “buy rate” offered by the
third-party financing source to set the rate offered to the consumer. In some instances,
the dealer may not have physically accessed the consumer report. Nevertheless, the FTC
has always maintained that the Rule covers these dealers since they are the original
creditor in a transaction that uses a consumer report in connection with an application for,
or a grant, extension, or other provision of, credit. The FTC’s interpretation of the Rule
was upheld by the D.C. District Court in Nat’l Auto Dealers Ass’n v. FTC, 854 F. Supp.
2d 65 (D.D.C. May 22, 2012).

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https://www.ftc.gov/policy/public-comments/initiative-702.
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This interpretation that dealers are “original” creditors under the Rule does not
impose the vast costs that NADA suggests. As the court in Nat’l Auto Dealers Ass’n
noted in its decision, “. . .given the preexisting channels between financing sources and
auto dealers (to convey, for example, credit applications and loan rates), the dealer could
get the credit information from the financing source as well…[the FTC’s interpretation]
does not mandate an impossibility nor does it obligate them to purchase a consumer
report.”8 Indeed, the dealer could require simply that the financing source pass on to the
dealer the credit score it obtained on the consumer. Although the Rule does allow dealers
to comply by providing all consumers with their credit scores, nothing in the Rule
mandates this course of action.
Moreover, automobile dealers already handle, maintain, store, and dispose of
sensitive personal information about consumers (e.g., credit applications, financing
contracts etc.). Thus, the FTC does not believe that the Rule imposes an additional
burden when it comes to the handling, storing, and disposing of consumer report
information.
The Commission is providing a second opportunity for public comment while
seeking OMB approval to extend the existing PRA clearance for the notice provisions of
the Rules.
9.

Payments/Gifts to Respondents
Not applicable.

10. & 11.

Assurances of Confidentiality/ Matters of a Sensitive Nature

No assurance of confidentiality is necessary because the Rules do not require
creditors to register or file any documents with the Agencies.
12.

Estimated Hours Burden

The FTC’s currently cleared burden totals, post-adjustment for the effects of the
Dodd-Frank Act, are 9,652,500 hours based on an estimated population of 160,875
entities apportioned to FTC enforcement and/or rulemaking authority.
Using the currently cleared estimates (post-adjustment for the effects of the
Dodd-Frank Act) for the number of applicable motor vehicle dealers and their assumed
recurring disclosure burdens, in addition to the estimated number of and burden for other
entities over which the FTC shares enforcement burden with the CFPB, the FTC proposes
the following updated estimates:

8

Nat’l Auto Dealers Ass’n v. FTC, 864 F. Supp. 2d 65, n.17 (D.D.C. May 22, 2012).

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A.

Estimated number of respondents: 160,2509

B.

Burden Hours: 9,615,000

Yearly recurring burden of 60 hours per respondent10 to modify and distribute
notices x 160,250 respondents = 9,615,000 hours, cumulatively.
C.

Labor Costs: $174,127,650

Labor costs are derived by applying appropriate estimated hourly cost figures to
the burden hours described above. The FTC assumes that respondents will use
correspondence clerks, at a mean hourly wage of $18.11, 11 to modify and distribute
notices to consumers, for a cumulative labor cost total of $174,127,650.
D.

Capital/Non-Labor Costs: $0

The FTC believes that the FTC and CFPB 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.

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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 Credit Union National Association for the number of non-federal credit unions. See
https://www.ncua.gov/Legal/Documents/Reports/annual-report-2015.pdf . For purposes of estimating the
burden, Commission staff conservatively assumed that all of the included entities engage in risk-based
pricing. The resulting tally of entities numbered 199,500. From this amount, the FTC deducted an
estimated portion attributable to motor vehicle dealers in order to calculate a net amount in which to split
evenly with the CFPB for the remaining number of respondents for purposes of estimating the FTC’s
overall share of PRA burden. The FTC estimates there are approximately 121,000 motor vehicle dealers,
determined as follows: 86,442 car dealers per NAICS data (49,905 new car dealers, 36,537 used car
dealers) + [3,191 Recreational Vehicle Dealers; 7,185 boat dealers; 24,157 motorcycle, ATV/All Other
Motor Vehicle Dealers] = 120,975. See https://www.naics.com/six-digit-naics/?code=4445. Excluding the
estimated number of motor vehicle dealers, 121,000, from the estimated overall number of affected entities,
199,500, leaves 78,500 as the number of respondents for the agencies’ 50:50 apportionment: 78,500, i.e.,
39,250 each. Thus, for the FTC, the estimated number of respondents for its calculations is 160,250
(121,000 + 39,250).
10

Assumption: 5 hours per month per respondent.

11

https://www.bls.gov/news.release/ocwage.htm: Bureau of Labor Statistics, Economic News Release,
March 31, 2017, Table 1, “National employment and wage data from the Occupational Employment
Statistics survey by occupation, May 2016.” This is an update of the labor information used in the FTC’s
March 3, 2017 Federal Register Notice. The newer table shows $18.11 as the mean hourly wage for
correspondence clerks, an increase from $17.47 previously used.

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13.

Estimated Capital and Non-Labor Costs

The FTC believes that the 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 or enforcing the requirements of the above-noted Rules during the 3-year
clearance period sought will be approximately $17,809. This represents one-tenth of an
attorney work year (tied, conservatively, to the 2017 annual pay of a General Schedule
Grade 15, Step 10, senior federal employee, with locality pay adjustment) and includes
employee benefits.
15.

Program Changes or Adjustments

There are no program changes. A slight reduction in estimated burden hours from
the existing clearance (9,652,500) to the current estimate (9,615,000) is a direct result of
the current, slightly reduced estimated number of affected respondents (160,875 to
160,250).
16.

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

17.

Display of Expiration Date for OMB Approval
Not applicable.

18.

Exceptions to the Certification for PRA Submissions
Not applicable.

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