What BECU is Doing about Upcoming FACTA Changes

Tina Narron, BECU & CLC Regulatory Comment Committee Member
September 2, 2010 | COMMENTS

Many credit unions are currently analyzing the FACTA regulation changes effective January 1, 2011. The regulation will require all borrowers to receive a notice if the terms of the approved credit are materially less favorable than the most favorable terms available.

At BECU, we not only reviewed our options internally but we consulted with our business partners to understand available options and solutions through both platform providers and credit data providers.

Here is a summary of the options available:

Consumer to Consumer Comparison – all borrowers would be compared to each other in order to determine if they received the most favorable terms available.  This method would require a manual comparison to a pool of sample borrowers that would need to be updated no less than every two years. 

Credit Score Proxy Method – this method would require a credit score cutoff that represents a point where 40% of all approved applications have higher credit scores than the other 60%.  The borrowers in the 60% range would be required to receive the notice.  This method is not tied towards the tiers internal to the credit union, and the cutoff score would need to be recalculated every two years.  Borrowers who receive the best rate could still possibly receive the notice. 

Tiered Pricing Method – this method requires that 60% of the tiers would receive the notice (for five or more tiers,) or for all non “A” tier applications (for four or less tiers.)  This method is not based on volumes, but based on the number of tiers.  This method does not disclose the actual credit score to borrowers.

The BECU Lending and Compliance departments worked to together to decide on the Tiered Pricing Method for non Home Equity loans. Some of the benefits that swayed our decision were:

• No need to maintain an updated pool of borrowers, or cutoff credit score
• More adaptability if more (or less) tiers are created
• Less notices would be required
• No additional postage costs – notices will print with the Approval Letters

New Risk Based Pricing Notices would be generated for the tiers underlined below.

Sample Risk Based Pricing Notices:

• Download Sample 1 (.doc) - Consumer
• Download Sample 2 (.doc) - Auto

BECU has limited Repayment Terms and Max LTV guidelines for lower tier auto loans. We have a second notice sample that will be sent to the auto loan population. All other products will receive the alternate version, disclosing an APR increase only.

Home Equity FACTA Letters – BECU will continue to send the FACTA notices with FICO score to all Home Equity borrowers. BECU will modify the existing FACTA letters based on the regulation model. We have also created a separate FACTA letter to Home Equity applicants with no FICO score.

Sample Home Equity FACTA Notices:

• Download Sample 1 (.doc) - w/credit score
• Download Sample 2 (.doc) - w/out credit score

Vendor Responsibilities:

• Student Loans - Our Student Loan vendor will be responsible for choosing their own option to comply with the law. We will be requiring a copy of the notice in our completed loan files. This task is assigned to Credit Union Student Choice.
• Indirect Lending - Dealerships will be responsible for choosing their own option to comply with the law. We will be requiring a copy of the notice in our completed loan files. This task is assigned to CUDL & WA state dealerships.