FCRA and Credit Reports
Question: We pull a credit report from a local credit bureau if we expect to make a loan that we keep in portfolio. We use a national bureau for credit reports if we expect to sell the loan to a secondary market buyer. Usually the buyer requires the use of the national credit bureau. If we deny the loan, do we have to name both credit bureaus on the adverse action notice? Are there situations when we would name one but not the other?
Answer: The key question is not whether you obtained the credit report, but whether you used information in it to deny the application. It is the use of the information to deny that triggers the FCRA disclosure about the use of the credit report.
Suppose you pull the local report, find negative information, and then pull the national report to decide whether you can sell the loan if made. If the second report also contains negative information leading to denial, then you really used both reports to make your decision to deny.
As a second scenario, suppose you pulled the national report first, to evaluate the loan for sale, and that contained negative information so you then considered the application for your portfolio. To do so, you pulled a report from the local bureau. If the report resulted in making the loan, you would not have to send an adverse action notice because the application was approved. Note, however, that if this involved a counteroffer, you would have to provide adverse action if the counteroffer was not accepted.
If, in the second scenario, you denied the application, you should provide information on both credit reporters in your adverse action notice because both reports contributed to the denial. Negative information at one level led to the second phase of underwriting. If the applicant also failed the second phase, then arguably both reports contributed to the denial.
Copyright © 2004 Compliance Action. Originally appeared in Compliance Action, Vol. 9, No. 2, 3/04
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