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Using Credit Reports to Satisfy CIP Requirements

by Eric Salas

Question: I am looking into the USAPA for our mortgage company and I think the credit bureaus we are using would be sufficient for CIP, I would like to know if the credit report alone be sufficient or would we need other documentation the reports include OFAC checks, address checks, name, and S.S. verification? Also if the credit reports are sufficient should we keep it in separate file specifically for CIP?

Answer: Section 326 of the USA PATRIOT Act has three primary requirements to which mortgage companies, banks, brokerages, and other FIs must adhere:

  1. Establish risk-based procedures for verifying the identity of each customer to the extent reasonable and practicable. In layman's terms, this means that more rigorous verification procedures must be applied for accounts that have the potential for higher risk (e.g., Internet originations, etc.)

  2. All identifying information, descriptions of any documents used, descriptions of any non-documentary methods used and the results, and resolutions of any discrepancies must be retained by the institution for five years from account opening. The customer's identifying information must be retained for five years after the account is closed.

  3. Screen accounts against terrorist lists designated as required for Section 326. As of yet, no lists have been so identified.
Relying on credit reports for your CIP compliance will leave you with a few gaps:
  • Credit reports are indicators of bad credit, and not designed as tools to validate identity. They do not necessarily provide the appropriate warnings to alert staff in the event that someone has taken over an identity. In the event that you do decide to use credit reports, you will need to specify within your CIP exactly how your institution will look for identity inconsistencies using the reports and handle any exceptions.
  • Saving copies of the credit reports will satisfy the requirement to retain the identifying information. However, to comply with the requirement to store all discrepancies and the resolution mechanisms, your staff will need to manually note these data points on the credit reports. If you choose to go that route, this procedure also needs to be clearly outlined in your CIP.
  • Credit reports do not screen identities against any terrorist lists; as Section 326 specific lists are identified, credit reports will not be able to provide compliance.
Most importantly, the USA PATRIOT Act is intended to prevent terrorists and other criminals from gaining unauthorized access to negotiable instruments. Do you feel that you can truly use credit reports effectively to weed out a professional criminal or terrorist? There are affordable automated identity verification solutions, such as IDENTITY CHEK, that are in full compliance with the USA PATRIOT Act's Section 326, while leaving no room for doubt when it comes time for a periodic audit by regulators.

Early Warning Systems Boilerplate (formerly PPS) For over a decade, Early Warning Services, LLC (formerly Primary Payment Systems) has been an industry pioneer by facilitating cooperation and information sharing among financial services organizations as a best-practice means to help prevent fraud losses and safeguard the financial assets of those organizations and the consumers they serve. A suite of services delivers this intelligence to where it is needed most resulting in billions of dollars in loss avoidance each year. For more information, please visit www.early-warning.com.

First published on BankersOnline.com 10/6/03






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