One of the permissible reasons to pull credit in the FCRA is to written authorization.

The part I am so concerned with is with the idea of "just pulling credit".

As Just Jay eluded, he would pull it if the customer inquires. I would say that is a violation of Reg. B and the FCRA. He will have a hard time explaining that to an examiner. Perhaps my position is best explained in a scenario....

1)
Applicant: How much could I qualify for? (inquiry)
Loan Officer: Let me pull credit to let you know
The customer is not applying but you have chosen to instead of asking the questions, pull a verification document. IMO this violates FCRA. To complete an application you need to obtain the information you regularly consider in making a credit decision. The Loan Officer should verbally ask the customer the the information you need, and could verify once the applicant has indicated that they are indeed an applicant and wish to apply. Then verification can begin and credit can be pulled.
2.)
Applicant: I want to apply for credit.
Loan Officer: Let me pull your credit report.
Not a violation. Your applicant has proclaimed application and is not simply inquiring.
3)
Applicant: What are your rates?
Loan Officer: Let me pull credit.
This is clearly a violation. The potential applicant wants to know rates and you want to pull credit. This is really the exact same as a prequalification. That is why I have the same stance I do.


Reg. B actually reads taht a completed App is: A completed application means an application in connection with which a creditor has received all the information that the creditor regularly obtains and considers.

This does not say verifies. If you were given the latitude to verify everything before a completed application was determined, there would be no point to shopping disclosures.

Applicants: I want to prequalify.
Loan Officer: Do you know your credit score?
Applicant: No, can you pull credit.

I think this is ok. The difference here is you have been given permission to pull credit to give the customer a better idea. Perhaps this is the part you are doing, but I know many lenders who just pull credit (like JJ seems to) instead of having a real reason.

Slow down here CompDat, and stop making assumptions on our criteria on when we pull credit and how we run our shop.

All I agreed with and confirmed is that I do not agree with the interp that you must have a signed application to pull a credit report, but demonstrated permissable purpose is sufficient.

As you tried to allude to above, a rate inquiry is not a permissable purpose in my shop. Your definition of inquiry seems to be pretty broad.

We do not randomly run around pulling credit reports and generally do not do so unless in conjunction with a signed application. If there is a credit report w/o a signed app, then there better be documented conversation showing why they did so, and what road they are going down.

I agree that is is generally a good practice to have a signed authoriazation. But I do not agree that it is required in every single circumstance per my interp of the law.

No where, did I ever state you need a signed application to pull credit. I said you can have an application, or written authorization. Those are two totally sperate permissible purposes under FCRA.

You suggested you pull it on a rate request.

What I said is the regulations allows you to establish your application procedures and what constitutes a complete application, within reasonable requirements.

Is this not basically saying the same as you quoted? The financial institution has set procedures as to what information they regularly obtain and consider in their credit decision.

A completed application means an application in connection with which a creditor has received all the information that the creditor regularly obtains and considers.

FCRA 604

(3) To a person which it has reason to believe--

(A) intends to use the information in connection with a credit transaction involving the consumer on whom the information is to be furnished and involving the extension of credit to, or review or collection of an account of, the consumer; or

An inquiry about credit involves information pertaining to the extension of a credit transaction to the consumer. Thus a permissible purpose.

And I am saying that I do not agree that you always need to have a 'written authorization' to have a permissable purpose.

And I never suggested that we pull credit on a simple rate request.

Dan, Reg. B was what I quoted. So it does state those exact words. You can have your procedures, but the information was not intended to be verified.



http://www.bankersonline.com/operations/ci-creditreport.html

What you quoted is described here:

You may obtain a consumer report if you intend to use it in connection with a credit transaction involving the consumer on whom the information is to be furnished. If Joe Blow applies for a loan, you can pull a credit report on him. The credit transaction must "involve" the person who is the subject of the credit report.

You may also obtain a credit report in connection with a review or collection of an account of the consumer. Perhaps Joe is late on some payments and you're concerned about whether his financial circumstances have changed. You can use his credit report for that determination. Or, if you are in the process of collecting on his delinquent obligation, you can procure a credit report to help you.

The Application process goes from the request. Verification is the last step before the 30 day notification. A credit report is part of that verification. Thus the application has already taken place. Also please note the commentary to Reg. B under the diligence requirement. The Credit Report comes AFTER (not yelling just adding emphasis) the application.

I never said you ALWAYS need written authorization. You can obtain written authorization or an application. If you are still getting the application confused with the piece of paper then I cannot help you. The application is the request.

Nothing I have said contradicts the definition of an application in Reg B's 202.2 and its Commentary.




I would continue to argue that although a pre-qualification request may not constitute an application under Reg B, Reg C, Reg Z and RESPA, it would be an "application" for the purposes of FCRA's permissible purpose.

Again, you cannot unilaterally impose the definition of an application in one Reg across all Regs. As previously mentioned you have to incorporate all the definitions in your procedures. And to the best of my knowledge section 603, or other sections of the FCRA does not define an application. Therefore how and when you can obtain a credit report would be part your internal procedures. If you want to establish in your application procedures that you cannot pull a credit report until you have either written authorization or an application for credit then that is your choice. But all the FCRA requires is a permissible purpose and I still contend a pre-qualification request would be a permissible purpose under the FCRA.


Now it is clear that you and I have differing opinions on the topic, and there is nothing wrong with that. One thing compliance offers is the opportunity to have discussions of differing opinions and in the compliance world that is a healthy thing.

For all of you that are following this you have to take the information presented by both parties and draw your own conclusions and if you are undecided then I am the first to advise you to discuss the topic with your exainers.

As my tag line says.........

Absolutely! Yes, there's a correlation between credit reports and applications, but as Dan pointed out, it's not 100%. Study the definition of application and Inquiry in §202.2(f). Be sure to read all of the commentary.

I agree you can, but with the inquirer's permission. FCRA says you pull it with an application. Reg. B makes it very clear that an inquiry is not an application if you treat the inquiry a particular way.

So, in the scenarios I have painted, where I have said there is a violation, the inquirer never requested for credit to be pulled, but the LO pulled credit anyway. It has to do with the way you respond to the customer. You are requied to obtain, not verify. This means that you can ask the inquirer questions.

The only reason I am making such an issue out of this, is I know mortgage companies pull credit AS A RULE, upon all inquiries. IMO this is a violation of FCRA.

I disagree (to an extent). Reg. B was written with the diligence requirement. Although you may not need disclosures, You (lender) needs to obtain all the information you consider. Which means, ask, not verify. Some lenders try to unilaterally pull credit on all inquiries. To me this is not a permissible purpose. What would happen if customers started to complain to the FTC that their credit was pulled without permission. There are a few cases where it happened. I will try to look them up and paste them in this thread, but it was not pretty. The lender lost.

An additional FYI. Each of the prequalification scenerios in the commentary to Reg. B only 1 describes a credit pull. Although not comparing apples to apples, the commentary states this situation is an application, not an inquiry. In none of the inquiry requests is credit pulled in the commentary.

FWIW I also think we are all in agreement, with the exception of pulling credit on an inquiry.

From the Gowen Letter:

Section 604(a)(3)(A) of the FCRA gives a creditor a permissible purpose to obtain a consumer report without the consumer's consent (emphasis mine) "in connection with a credit transaction involving the consumer on whom the information is to be furnished and involving the extension of credit to (emphasis mine), or review or collection of an account of the consumer."


I don't think one can effectively argue that a pre-qualification request or inquiry does not involve the extension credit to the consumer. After all that is what the consumer is asking about, an extension of credit to them.


Now with this, I am laying this discussion to the side.

Dan, that is my argument. It says that it involves an extension of credit. An inquiry is shopping rates, or asking how much could I get from your bank and what are rates. Not asking for an extension of credit. The asking for the extension of credit is the request (application) This is how I see it as reading.

It also says in connection with a credit transaction. An inquiry is just an inquiry, nothing more.

I want some other people who review this thread to take a couple of the things stated in here and draw your own conculsion. I found another piece of information that may be useful. Basically the FCRA does direct you to Reg. B (12 cfr 202 and the definition of application. See here:

(5) The terms “credit” and “creditor” have the same meanings as in section 702 of the Equal Credit Opportunity Act.

This comes from the definition section of FCRA section 602.

According to Reg. B: (j) Credit means the right granted by a creditor to an applicant to defer payment of a debt, incur debt and defer its payment, or purchase property or services and defer payment therefor.

This is where I get my interpretation.