Obtaining Credit Reports: When do you need to get permission?
by Mary Beth Guard
Question: When banks rely upon ChexSystems or a similar service to do an OFAC check, this is considered obtaining a credit report; therefore, it falls under the Fair Credit Reporting Act. If a Bank opens a non-risk type product (i.e. Certificate of Deposit or similar product), I don't believe this falls under the "permissible purpose" to obtain a credit report; therefore, the Bank must obtain the customer's written authorization to obtain the ChexSystems report. Is this true? I used to be a consultant to community banks and found that all of them do not obtain a written authorization.
Answer: Under the amended language in the Fair Credit Reporting Act, a consumer
reporting agency may provide a consumer report "To a person which it has
reason to believe" "otherwise has a legitimate business need for the
information (i) in connection with a business transaction that is initiated by the
The big question, therefore is whether a financial institution whose
customer is doing something like purchasing a CD has a "legitimate
business need for the information" contained in a credit report. If the
institution can somehow successfully argue that it has a legitimate
business need for the information, it may obtain the report even without
the customer's express written authorization.
Here is a thought about how it might be legitimate. An institution might want to check the financial status of the prospective CD customer to avoid a situation where the customer is subject to garnishments and levies because of the administrative work
involved in responding to those types of legal processes.
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