It has been in use for many years as lenders try to measure loan risk in terms of interest rates and other fees.
For example, lower credit scores equal higher interest rates and vice versa; typically, those who provide less verifiable income documentation due to self-employment benefits will qualify for a higher interest rate than someone who fully documents all reported income.
Pertaining to residential mortgages and their risk based pricing methods, the Property Type is sub-categorized as follows: SFRs are considered to have the highest dollar value per square foot and are thus the most favorably priced of the property types in the eyes of the lending institution.
The main criticism among mainstream consumers has been that risk-based pricing can make 'shopping' for the best interest rates much more difficult.
Consumer-rights advocates also believe that risk-based pricing in the extreme, especially in the form of predatory lending, hurts financially disadvantaged and vulnerable consumers by cutting them off from reasonably affordable capital and exposing them unwittingly to soaring interest rates and unsustainable financing schemes that erode equity and may lead to default.
The fairness of similar lending practices within the mortgage industry is being investigated by the United States Congress.