I just read an article on "another banking website" about Credit Denials and the FCRA disclosure requirement.

The author states that if a loan officer obtains a credit report in connection with an application for credit, the FCRA disclosure must be given.....regardless of whether or not there is derogatory information in the report and regardless of whether or not the officer even looks at the credit report.

The verbiage on the Adverse Action Notice states:
"Our credit decision is based in whole or in part on information obtained in a report from the consumer reporting agency(ies) listed below........"

My opinion is that....we're talking about adverse action...so if the Bank's "credit decision" (which is adverse) is based on the credit report, then the disclosure is required. If the credit decision is based on something else (i.e. nothing derogatory on the credit report), then no disclosure is necessary.

The FCRA notice is part of the Reg B adverse action form. I advise loan officers NOT to complete the FCRA portion if there is nothing derogatory on the consumer's credit report.

Am I correct, or not?

You have to be very careful about when you choose not to disclose the consumer report under FCRA. While the report itself may not have derogatory information, if the DEBTS reported affect the debt-to-income ratio, then the FCRA notice is still triggered.

Along with the FCRA Notice, we have the following paragraphs that can be checked if applicable:

- We obtained a credit report from the above named consumer reporting agency, but the report was not used in our decision.

- Our credit decision was based in whole or in part on information obtained from an outside source other than a consumer reporting agency. Under the Fair Credit Reporting Act, you have the right to make a written request, no later than 60 days after you receive this notice, for disclosure of the nature of this information.

This is one of my "soapbox" issues. I believe you are 100% correct. Here is some excerpts from our Advanced Lending manual pertaining to this topic:
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If adverse action is taken but the decision to deny the applicant is not on the basis of information in a consumer credit report, banks should not comply with these rules (do not report that a credit report was pulled). This has historically been a confusing issue because many regulators have wrongly stated that financial institutions are required to disclose the use of the consumer credit report whenever a credit report is obtained. Such a position is not supported by the FCRA, which states such disclosure is required only when such action is made on the basis, partially or wholly, of information from a consumer reporting agency.

The Equal Credit Opportunity Act (ECOA) requires disclosure of the principal reasons for denying or taking other adverse action on an application for an extension of credit. The Fair Credit Reporting Act (FCRA) requires a creditor to disclose when it has based its decision in whole or in part on information from a source other than the applicant or from its own files. Disclosing that a credit report was obtained and used to deny the application, as the FCRA requires, does not satisfy the ECOA requirement to disclose specific reasons. For example, if the applicant’s credit history reveals delinquent credit obligations and the application is denied for that reason, to satisfy Section 202.9(b)(2) [reasons for denial] the creditor must disclose that the application was denied because of the applicant’s delinquent credit obligations. To satisfy the FCRA requirement, the creditor must also disclose that a credit report was obtained and used to deny credit [Commentary to Section 202.9(b)(2) #9 - page 7253].

There must be a correlation between the FCRA box and reason for denial, such as:

• Excessive obligations in relation to income
• No credit file
• Limited credit experience
• Delinquent . . . with others
• Garnishment . . . collection action or judgment
• Bankruptcy
• Slow or past due in trade or loan payments
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If you pull a credit report but do not use it to deny the applicant, do NOT report the use of the credit report as you didn't use it adversely against the applicant. Bonnie said "While the report itself may not have derogatory information, if the DEBTS reported affect the debt-to-income ratio, then the FCRA notice is still triggered." This is NOT true if the borrower reported all of these debts on their application. If the credit report only verifies what the applicant already stated, I did not use the credit report against them.

Think about the big picture logic of the Fair Credit Reporting Act. It is to give applicants the right to correct false info on their credit report. If the info is already known by the applicant (reported on their application) and correct (they admitted it) then I have no reporting/disclosure requirement.

I believe I know where you read that. It was from an attorney. But half of every group graduated in the lower half of their class and we can disagree with whomever. I believe she is wrong and that blanketly stating it was a factor is wrong.

But as Bonnie noted, it can be used for more that the obvious reason (now called an impaired credit report) if it influenced your debt ratio, number of inquiries, etc...

How old was the article you read? In the past our regulators told us that if we pulled a credit report in conjunction with a denied loan we need to include that information on the adverse action. When the same regulators were on site last fall they slapped our hands because now they don't want us mentioning the credit report on an adverse action unless it in some part led us to deny the loan. They admitted their philosophy had changed.

If the credit report didn't affect our decision, we still disclose that one was pulled. Why? Because people have amazingly short memories when they complain about the inquiries on their credit report. ("You didn't TELL me you pulled my credit report!")

The article is recent and the problem is not telling them you accessed the credit file, but the AAN says it was used in whole or in part in the credit decision. That is to prompt them to ask what was wrong with it and how they may correct it. There wasn't anything wrong and there is nothing to correct. This leads to confusion.

We can easily figure out who wrote the article. There is only one article that I know of on the subject on another web site written by a female attorney. I happen to know her and was thought your comment showed a lack of class. Was it necessary to be insulting to a colleague by making the "bottom half" comment.

OK, Time out. Anonymous, you obviously don't know Andy very well. He provides more to this forum than anyone else and most combined. We try to keep things humorous and sometimes that can be taken wrong. I know which article we are all talking about, most of us agree that she is wrong and Andy was trying to protect the confidentiality but have some fun. So, LIGHTEN UP! By the way, he is right. Half didn't graduate in the bottom of their class.

Bonnie said: If the credit report didn't affect our decision, we still disclose that one was pulled. Why? Because people have amazingly short memories when they complain about the inquiries on their credit report. ("You didn't TELL me you pulled my credit report!")

If I were an examiner of your bank Bonnie, I would cite you for over disclosing the use of credit reports. No where in the regulation does it state that I have to tell the customer that I pulled their credit report. I don't tell customers that I'm going to order an appraisal on them either (although Reg B may require that I give them a copy if it is a home loan).

If you pulled a credit report on me you would find it to be clean, no too much credit, but enough to establish a good credit history. If you decided to deny me because of collateral, not long enough on the job or in the area, then you should NOT tell me you used a credit report on me adversely. Read the notice you give to denied applicants. I would think that something was wrong with my credit history (which I try very hard to keep clean). I would request a free copy only to find out that nothing was wrong.

Now you have wasted my time. You have required the Credit Reporting Agency to give me a free copy (which they shouldn't have to do) and for what reason?

This is one of the most grossly misunderstood topics of compliance. Yet, it is so clear. Disclose if used adversely.

I heartily concur with David's remarks to Anonymous with regard to Andy's comment. I know for a fact that Andy was not trying to be disparaging about this attorney's character or intelligence. He was simply trying to make a point in a humorous way that every attorney (and not just limited to attorneys) can be wrong, even in a published article.

David, with regard to your comments to Bonnie about overdisclosure. First, Bonnie stated that they have added a box that they use when appropriate that says a credit report was obtained but was not used in denying the credit. That said, how can you cite her for a violation of overdisclosing? There is no statute or regulation to violate that says you can ONLY disclose the use of a credit report when it was used adversly. The statute simply says you MUST report the use when it was used adversely. If you were my examiner, we'd have to give serious debate to your decision to cite me for this violation.

David is correct, Andy meant no harm. Do you really think someone who contributes so much and identifies themself by name would make a disparaging remark?

It was all in good fun. Thank you, Andy, for all you contribute. We greatly appreciate your expertise!!!

I would be honored and grateful if Andy corrected a mistake I made because we all want to do things right.

Thanks Jim. I didn't read Bonnie's post clearly enough. Since she is simply stating "we pulled a report on you" I have no problem with this, except that it is not required. I thought she was saying they use the FCRA notice every time they pull a credit report. Sorry for the confusion and thanks for the clarification.

Good thing I read to the bottom of the thread before replying. Yes - the reason we put the box "We pulled a credit report but it was not a factor" was that some people ASSUMED (we're in California remember), that if you didn't notify them that you pulled a credit report, then you must not have pulled one. This just clarifies for people that an inquiry from us will show up on your credit report so don't act all surprised on us.

The only online article that I could find on FCRA and credit denials says "the best practice is to make the FCRA disclosure on the denial anytime a report is ordered, whether or not it was actually a factor in the denial." Calling something a "best practice" is very different from saying that it is required.

I agree with your point, Ted. Shirley's initial posting did say that the author said you must disclose, and in fact she did not. However, I disagree with the notion that this is even "the best practice." David, Andy and others have put forward clear examples of why this would not necessarily be the best practice. I happen to agree with them and we will continue to only disclose this when, in fact, the credit bureau report was used adversely.

It just shows that we must take care who we make fun of in a public forum, without face-to-face where it is easy to read whether someone is joking, joking with the intent to insult, or just plain insulting someone. Only Andy knows what he meant and we will have to wait to hear from him. (Maybe he had one too many Hurricanes) But to make such a "cute" remark in a public forum about an unidentified, but easily identifiable person, can certainly be interpreted as disparaging.

I am one of the worst offenders--I do not know how many times I have sent out an email to employees only to be told later that they thought I was mad when I only meant to be instructive.

On the issue: Do you really think that every regulator is going to believe you when you say, "I know the credit report is in the file, but really, truly Mr. Regulator, I did not depend on it."

zaibatsu said:
On the issue: Do you really think that every regulator is going to believe you when you say, "I know the credit report is in the file, but really, truly Mr. Regulator, I did not depend on it."

Yes, I do. If the reason for denial is "value of collateral" and the credit report is clean, you should be able to explain this very easily. On the other hand, if there is derogatory info on the credit report, you can't tell me you didn't use it. Disclose the use of it and give reasons on the denial to support it. Please re-read my original post. I quoted the commentary to section 202.9(b)(2)#9 which explains this exactly.

Zaibatsu, here I have to agree with David. If the credit report contains no derogatory information, then I can certainly tell the examiner that I didn't use it as a factor (even a partial factor) in denying the credit. Under those circumstances, I would think the burden of proof would be on the examiner to prove I violated the statute, not on me to prove that I didn't.

Let me beat this dead horse--what if a loan officer has sufficient information to deny the application without having looked at the credit report? The loan officer has a slam dunk reason for denial and does not want to "waste" time reviewing the credit report. He does not know if there is derogatory info in the report or not. What do you recommend?

If you have sufficient info to deny before looking at the credit report, why did you order a credit report? Do you just automatically order them (a waste of money in this case)? If you have it, you had better review it and disclose the use, if it is used adversely.

Imagine someone applying that doesn't have adequate collateral. You automatically pull the credit report but don't review it. You deny them for "insufficient collateral" and don't mention the credit report. They reapply, this time with sufficient collateral. Are you now going to tell them that the credit history is bad? If so, I believe you are discouraging the applicant.

It has always been my motto that "if you have it and don't use it, you lose it." Meaning, if you didn't tell them something the first time (& you could have) you can't use it against them later.

Read the commentary to section 202.9(b)(2)#1. "A creditor must disclose the principal reasons for denying an application or taking other adverse action." If you have a credit report with derogatory info, you had better to disclose these reasons to comply with this section.

OK.....since I initially started this thread, I get to put in my two cents regarding "disparaging remarks" about a person, a group of people, a profession....whatever.

People, people!! Most of us are Compliance officers or at least have compliance related duties. How often do we experience disparaging remarks (serious ones and those made in order to poke fun)? The answer, for me, is ALL THE TIME. My response? To the remarks designed to poke fun, I laugh and then change the subject. To the serious remarks, I laugh and then change the subject. Then I get over it.

Regarding poking fun at the legal profession.....my father (rest his soul) was an attorney of the highest esteem (if there is such a thing.....just kidding, just kidding!!) Anyway, I never let an attorney joke get by me without passing it off on him. It's a hazard of the profession. He would laugh, but he didn't change the subject. He would tell one to me!

Well.....that was all designed to create some chuckles. My question has been answered. Thank you all for the enlightening discussion.

So, if I order it, deny the loan, but don't use it adversely, I don't report it?? OK, here is what Shirley originally said:

My opinion is that....we're talking about adverse action...so if the Bank's "credit decision" (which is adverse) is based on the credit report, then the disclosure is required. If the credit decision is based on something else (i.e. nothing derogatory on the credit report), then no disclosure is necessary.

Like you said--if there was nothing derogatory in the credit report, but it was denied for other reasons, why would Shirley order the credit report in the first place?

My opinion is that you will get eaten up whole by a plaintiff's attorney if you order a credit report and do not report it because you claim "you did not use it adversely." If you order a credit report are you so sure that a smart, crafty plaintiff's lawyer (and many of them are incredibly smart and crafty), will not find something negative in it that he will allege that you used (partially) to deny the loan? Even if you win the law suit, your bank has spent time and lots of money. Wouldn't disclosure keep you out of court in the first place? (There was a recent article in the American Banker about banks getting chewed up and spit out by juries. Who do you think a jury is going to believe.)

Do you trust your loan officers to scour the credit report and not miss anything derogatory? I am not talking about what is REQUIRED, I am talking about what is prudent to keep the bank out of the courthouse.

I think Bonnie has the right idea. It will keep her bank out of the doghouse, the outhouse, the poorhouse, and the courthouse. No use HANDING a plaintiff's attorney ammo, they have enough of their own. Regardless of what is required by law, sometimes we have to go beyond it to CYA.

Do you feel the same when the cutting remark is made supposedly out of your earshot, but you hear it?

Give Andy a break. After being at the NRCC since Saturday, I can tell you that he -- and the other folks who are attending one session after another, are thoroughly exhausted. I had to leave a day early and, even so, can barely type straight today. And it is not in his nature or personality to disparage others.
No one who is as helpful as Andy, or who devotes as many hours of his life to aiding others in the industry (look at the incredible tools he's put on his Web page!) is going to intentionally slam someone. He was just playing off the old joke often recited even by people in the legal profession: "You know what they call a lawyer who graduated at the bottom of his class? A lawyer."

Even the finest attorneys make statements that others occasionally disagree with. Rare is the issue that is absolutely black and white.

On the substantive issue, I think Bonnie's approach is a good one. It accomplishes the goal of letting the customer know the credit report was pulled without misleading the customer into believing the information contained in the credit report may have been responsible, in whole or in part, for the adverse action.

I also acknowledge, as another poster did, that the examiners haven't always viewed it this way. A few years ago, we argued with examiners in our area who were taking the position that an FCRA notice was required every time you pull a report. They did change their position, however, after reconsidering the issue.

In response to zaibatsu's last response. Z said:
Like you said--if there was nothing derogatory in the credit report, but it was denied for other reasons, why would Shirley order the credit report in the first place?

You have twisted the original question. Shirley ordered the credit report as part of the evaluation. She found that it didn't have any derogatory info, so she should not disclose the use of it per the FCRA. You ordered it, but never looked at it. Whole different story.

You say that I will get eaten up whole by a plaintiff's attorney if I order a credit report and do not report. Have you ever seen this happen? On what basis would they "eat you up." Please be realistic. I have never heard of a bank involved in a law suit by your claims.

Then you say Do you trust your loan officers to scour the credit report and not miss anything derogatory?" Yes, I do trust loan officers. If you don't trust them, how do you maintain a professional relationship with them. I am not a prosecutor. I try to defend loan officers and this way they know that I am on their side. With this mentality, I try to keep it simple and realistic. Too much over kill leads to no one ever taking you realistically.

Lastly, you say Regardless of what is required by law, sometimes we have to go beyond it to CYA. But over disclosing is a violation of law. Ask a consumer reporting agency, who has to give away a free copy every time you over disclose, what is the right (lawful) answer. Your CYA efforts actually violate the law. Doesn't seem quite right.