No one is swiping shades across their living room floors to lip-sync Bob Seger, but violating the FTC’s risk-based pricing rules is still a risky thing to do. That’s the message of the Federal Trade Commission’s (FTC) $1.9 million settlement with telecommunications company Time Warner Cable, Inc., the first case brought under the risk-based pricing rules.
Risk-based pricing rules have been in place for nearly three years as part of the Fair Credit Reporting Act. If a company offers less favorable credit terms to certain consumers based on information in their credit reports, that’s risk-based pricing. Under the rule, companies must provide risk-based pricing notices to these persons. You’ll need to read the rules for the specifics, but the notice needs to tell people that the less favorable terms are based on information in their credit report, that they can get a free copy of the report, and that they have the right to dispute errors in it.
Why is the information in the Notice so important to consumers? As a study by the Federal Trade Commission shows, there are a troubling number of inaccuracies in people’s credit reports. It’s one thing to offer less than great terms to someone with less than great credit. But that would be wrong if consumers suffered financial losses because of inaccurate information—which often happens when credit decisions are made behind closed doors.
The purpose of the risk-based pricing rules is to clarify this practice so that people understand the basis on which companies offer less favorable terms. The notice gives them the tools they need to dispute information on their credit report that they believe is inaccurate.
So, what did the FTC say went wrong with Time Warner Cable? Because the company allowed people to defer payments for certain services, it amounted to a credit extension — which triggered protections under the Fair Credit Reporting Act. Time Warner Cable pulls people’s credit reports when they apply for cable, Internet or other services in some states. If the company likes what it sees, it usually doesn’t require customers to pay a deposit or first month’s bill. But if information on another customer’s credit report is brought to attention, a deposit or upfront payment for the first month’s service will be required.
Time Warner Cable is obligated to provide risk-based pricing notices to these persons effective January 11, 2011, the date the risk-based pricing rules became effective. But Time Warner Cable failed to meet its obligations under the rule for two years, according to the FTC complaint. The result: Thousands of people were simply told they had to pay a deposit or pay upfront for the first month to get service. They were not told that the decision was based on what was on their credit report – which may not be accurate. The FTC lawsuit alleges that Time Warner Cable violated risk-based pricing rules by failing to give people required notices.
In addition to a $1.9 million civil penalty, Time Warner Cable has agreed to comply with the law from now on. But the FTC doesn’t just take their word for it. The order imposes recordkeeping and reporting requirements so the FTC can keep an eye on how the company implements risk-based pricing rules in the future.
Looking for guidance to ensure you’re not at risk of a breach? This rule includes template forms to simplify compliance. Additionally, the FTC has published a new booklet, “Using Consumer Reports for Credit Decisions: What to Know About Adverse Conduct and Risk-Based Pricing Notices,” which contains specific recommendations regarding the rule’s requirements.
