Anthony LaFaziaCEO, Atlantic Training · CEO at Atlantic Training | EdTech & Safety Compliance Leader

FCRA Risk-Based Pricing: How to Calculate Who Receives Less Favorable Credit Terms

7 Jul 2026 · 3 min

Watch on YouTube

3:15

In this instructional segment, the presenter walks through Regulation 5 of the Fair Credit Reporting Act (FCRA) and explains three approved methods for identifying consumers who receive less favorable credit terms, triggering the required risk‑based pricing notice. The Direct Comparison Method compares a specific customer’s rate to the standard rate sheet for that product; a higher rate signals a less favorable deal. The Credit Score Proxy Method uses a statistical cutoff—typically the score below which the bottom 60% of borrowers fall—and requires the cutoff to be refreshed every two years. The Tiered Pricing Method relies on pricing tiers: with four or fewer tiers, anyone not in the top tier receives notice; with five or more tiers, only the top two tiers are exempt. The presenter also highlights the notice’s mandatory elements (credit bureau source, right to a free report) and notes the operational burden of tracking cut‑offs and tiers. An embedded advertisement for Atlantic Training’s HR platform follows the compliance discussion.

Chapters

So how do we figure out who's getting the less favorable deal? Regulation 5 gives us a few specific ways to calculate this. You've got to pick a lane. Method 1: The Direct Comparison Method. This is exactly what it sounds like. You compare the terms for this specific customer directly against the terms you offer to other customers for that specific product. If you have a standard rate sheet where 750+ scores get 5% and this customer is getting 7%, Boom. Direct comparison. They're getting worse terms. Send the notice. Crucial note: if you use this method, or the next two, you send the standard risk-based pricing notice. Now, this notice doesn't necessarily show their score, but it must list the credit bureau that you used and tell them they have a right to a free copy of their report to check for errors.
Is your employee training scattered across spreadsheets and emails? There's a better way to grow your team. Atlantic Training provides world-class HR and soft skills courses, all hosted inside our Wave management platform. From onboarding automation to tracking leadership development, Wave tracks it all. And you get the software for free when you choose your training plan. Click the link below to build your custom plan now.
Method 2: The credit score proxy method. In complex lending, direct comparison gets messy. That brings us to the proxy method. Here, you determine a cutoff score. You look at your data and find the point where about 40% of your customers have higher scores. That means, by definition, the other 60% have lower scores. Anyone with a score below that cutoff point, they get the notice. It's a statistical shortcut. You're assuming if they're in the bottom 60%, they're paying a higher price. Just remember to recalculate that cutoff score every 2 years. Method 3: The tiered pricing method. Many of us use pricing tiers. Tier A, B, C. If you have 4 or fewer tiers, you send the notice to everyone who didn't qualify for the very top tier. So if you're in Tier B, notice. Tier C, notice. If you have 5 or more tiers, you get a little slack. You generally send the notice to everyone except those in the top 2 tiers. Tracking cutoff scores and tiers, it can be a logistical headache, which is why the regulators They gave us an out.