My bank wants to be able to run credit reports when discussing our mortgage products with prospective applicants / doing prequalifications (as defined by Reg B). We wouldn't have anything in writing from the customer authorizing it (because most inquiries are handled by phone), and management feels that they do not have to worry about having written authorization because they believe this constitutes a legitimate business purpose.

How does everyone else handle such situations? (By the way, from an ECOA perspective, I am being assured that when a Loan Officer reviews one of these credit reports they only encourage the applicant to apply and would never discourage them).

You do not need written authorization, but you do need a legitimate business need. If the applicant is truly prequalifying, you have a need. The loan officer should document the discussion and retain. I'm sure they are discussing the pulling of the credit report in the process of getting the person's SSN.

If the LO won't proceed because of the credit report info, they do trigger a denial (of course, you knew that, but do your LO's).