Prescreened offer

Ooh. I can see a big argument coming for me with management on this. So, we cannot in essence do our own prescreening using credit bureau information in our records, even if we provide the opt-out notices? Can you provide me a citation for this as I'll need all the help I can get to win this one? Thanks.

Refer to the Gowan Letter .

Specifically:

"Second, the credit bureau must, pursuant to Section 607(a), require the creditor to "certify the purposes for which the information is sought, and certify that the information will be used for no other purpose." (emphasis added). Because Section 604(a) provides no authority for a creditor (or any party) to use a consumer report for marketing purposes, a creditor would violate its certification by using an existing report in such a manner."

Thanks. I'm still going to have a battle, but then, what's new. Are we walking a fine line in offering a credit card at the same time that we are making an auto loan, since technically, this offer is made while looking at the credit report for the auto loan? Also, I am still confused about "soft" credit reports that don't show as inquiries on the customers' credit reports. Do the same criteria for permissible use apply to this?

What do you mean by "soft" credit report? I can't imagine it would be any different.

I couldn't get a clear explanation of what "soft" meant. Our consumer loan department pulls these reports (about $2) as opposed to the reports pulled by the mortgage department. Clear as mud? I am just assuming that they are both subject to the same requirements of FCRA.

Why would the consumer loan department be pulling them. If you are talking about on closed-end credit customers - again, refer to the Gowan letter - most likely no permissible purpose. I know some banks that think they can update the credit scores on a reguler basis for all loan customers - that is just not true.

Sorry I wasn't clear that this was a separate question from using credit information from an old loan to send an offer of new credit. They are only pulling these when actually making consumer loans.

I am going to tag on to this thread....I am needing some guidance regarding some software that our company wants to take advantage of.

How this would work would be a customer would come in to open a checking account & via this software we would pull their credit report (as we always do with new checking account customers). What it would also do is allow us to have entered guidelines for our other products (HELOC's, credit cards, etc.). It would then run this report against our guidelines allowing our frontline staff to cross-sell additional products they would qualify for while the customer is in their office. The guidelines would consist of more than just the information in the credit report, it would also include things like debt to income ratios we would have to enter in, but would include the beacon.

Are we getting ourselves into any trouble with a procedure such as this? I am not sure where to start with this one....is it a prescreened offer? Risk based Pricing guidelines? Help??!!

Yes this would be a prescreened offer needing the proper prescreen disclosures, including opt-out. Also If you are prescreening for a non-credit product, you need to get the customers consent before the prescreening may occur.

You should also check your contract with your credit bureau provider. Most contracts state that you can pull and use the report for the stated purpose only. In other words, you may only be able to use the report you pull for the deposit account opening, and not also as a prescreen device for credit products. If you are unsure, I encourage you to check with your bureau rep, as the bureaus have been "testy" about this in the past.

Thanks guys! Actually, this software is coming directly from the credit reporting agency we use so that shouldn't be a problem. As far as the opt-out goes, can it be verbal? Since they are at our desk when this is being done, can it be as simple as us asking them if they would like to be pre-approved for a credit card?

This Q & A from Lucy G. seems to contradict what you are saying:

http://www.bankersonline.com/compliance/gurus_cmp120103e.html

Any thoughts?

"While you have the report, you may also review it to cross-sell."

This statement from the Q&A referenced directly conflicts with both the Gowen letter dated April 29, 1999 which states that using existing reports to market products is not permissable, also 604(f) of the FCRA states:
(f)Certain use or obtaining of information prohibited. A person shall not use or obtain a consumer report for any purpose unless
(1) the consumer report is obtained for a purpose for which the consumer report is authorized to be furnished under this section; and
(2) the purpose is certified in accordance with section 607 [§1681e] by a prospective user of the report through a general or specific certification."

What these sources say to me is that you cannot use a report for a non-permissable purpose, such as prescreening for a non-credit product. For deposit products, you must either have the business transaction initiated by the consumer, or get their permission. Prescreening is by definition, not initiated by the consumer, and prescreening using consumer reports is only allowed for credit and insurance products.

If anyone disagrees, please provide your rational and references, I would love to find out this practice is ok, so I can turn the marketing department loose

You may of course prescreen for credit and insurance products, but you have to follow the prescreen rules under 603 (1), 604(c), 604(e), and 615(d). I believe I understand your confusion, do to the offers being made verbally to customers. Are the offers never given in writing? How would they know the fees and terms or sign up for the product if the offer is never in writing?

As explained in my previous post, this is going to be more of a cross-selling tool. When the credit report is retrieved for a customer requested deposit product, such as a checking account, we would like to be able to use that credit report to also tell the customer, based on criteria on the deposit account application and the credit report pulled, you are automatically pre-approved for our credit card with a $xxxx limit. This would all happen based on the customer initiated request for a deposit account & would all happen while they are in our office, therefore, nothing in writing until the customer signs for the card.

I noticed that you are in the "midwest". California Code 1785.20.1 is a close copy of the FCRA for this part we are discussing, but removes the word "written" from prescreened offers section. So in California, oral or written prescreen offers would need the prescreen disclosures. Bottom line, check your state law as well.

Drowning,

My personal thought is that you are o.k. IF you make a firm offer of credit. Carefully review your agreement with the credit reporting agency and I think you will see their requirement that you make a firm offer of credit if you use that product.

As far as the opt-out notice. I would refer to the most RECENT publication in the January 31, 2005 Federal Register (page 5032). Section 642.3 discusses when a Pre-creen opt-out notice is required and in this section, even before the paragraph (a), the statement reads that if we use a credit report to solicit a product the customer does not request, we ". . .shall, with each WRITTEN solicitation to the consumer about the transaction, provide the consumer . . ." (Emphasis added) and it goes on to discuss the short and long notices.

What I am not sure about and have been researching all day is whether we may use "old" reports to generate leads to another department within our bank. I haven't found any relevant discussion on that particular situation in FCRA, FACT Act or other references. If anyone has opinions on that situation, please chime in. The Gowen letter does not seem directly on point as it seems they contemplated pulling a "new" report under the review provision of the Act and I agree with Mr. Isaac's analysis of that situation and that we could not market off that report. I am totally confused about when we may "cross-sell" or "refer" business at account opening. That seems more convoluted, at least to me.

I agree with you. Under FCRA a person who gets a consumer report must have a permissible purpose to get the report and must agree to use it only in connection with the permissible purpose for which it was obtained. Section 607(a)of FCRA requires that consumer reporting agencies have procedures that "require that prospective users of the information identify themselves, certify the purposes for which the informaiton is sought, and certify that the information will be used for no other purpose."

From the Gowen Letter: "Because Section 604(a) provides no authority for a creditor (or any party) to use a consumer report for marketing purposes,(4) a creditor would violate its certification by using an existing report in such a manner."

Also 604(f):

"(f) Certain use or obtaining of information prohibited. A person shall not use or obtain a consumer report for any purpose unless
(1) the consumer report is obtained for a purpose for which the consumer report is authorized to be furnished under this section; and
(2) the purpose is certified in accordance with section 607 [§1681e] by a prospective user of the report through a general or specific certification."

You may always cross-sell and refer people to other products that you may offer them. Just cross-sell and have them fill out an applicaiton if they are interested. However, if you are going to use a consumer report as the basis for cross-selling or refering, it sounds like prescreening to me, in this case just follow the prescreening rules and obtain a prescreen list or system from a vendor that allows you to determine if people meet you prescreening requirements.

This was a post I found back from 2005, but I have the same questions and I don't believe it was truly answered above. If a customer applies for either a deposit account or a loan product where credit is pulled, are we then allowed to cross-sell other loan products (e.g. credit cards or overdraft lines of credit) and provide this to the customer to accept at the same time? Would this practice be a permissible purpose and would it be considered a pre-screen offer? Also, if the product that is being cross-selled is risk based priced, do we have to provide them with the risk based pricing notice/credit score disclosure (we use the allowed exception and combine the two disclosures) if they do not accept the cross-sell offer?