OK - here is another one of my many issues:

In house mortgage loan matures. In house lender asks mortgage broker (employed by bank) to see if customer qualifies for the secondary market. Broker runs credit and uses our appraisal and decides "no". Technically, borrower did not "apply" for this loan. In-house lender was just looking for options to get this loan off our books. However, information was reviewed and a credit decision was made.)

Is an AAN due the borrower?

Although I don't know the answer to that <I would think 'no' since they didn't apply> - my concern might be did they have a permissable purpose to run the credit. Again - since the customer didn't apply for anything I would say no.

Well - I thought of that too, but decided we did have a permissible purpose because the borrower is our customer and the broker is our employee, so it would be no different than pulling a credit report mid-stream on an existing customer. At least, that is how I interpreted it, but I could be wrong.

The AAN issue has me confused because, even though we require an application, the lender didn't get one. They are trying to "work this out" and for some reason the lenders believe the words "work out" mean "no rules apply".

For a closed-end loan you have no premissible purpose to pull a credit report mid stream of the contract for "review" purposes unless the account is in collection proceedings.

Good to know.

What do you think on the AAN issue?

Fixed

Ok - I read §604 and I am not seeing closed end credit and am preparing for the argument the review falls under (F)(ii).

§604(E) intends to use the information, as a potential investor or servicer, or current insurer, in connection with a valuation of, or an assessment of the credit or prepayment risks associated with, an existing credit obligation; or
(F) otherwise has a legitimate business need for the information
(i) in connection with a business transaction that is initiated by the consumer; or
(ii) to review an account to determine whether the consumer continues to meet the terms of the account.

Is there a commentary I am missing?

How are you reviewing to determine whether the consumer continues to meet the terms of the account. The loan is getting ready to mature. What terms am I missing?

Try doing a search in this forum on the Gowen Letter. I believe this issue is addressed in that opinion.

Bullseye - thanks! That is the proof I need! Also - we are ok for the other "pulls" I initially thought were a problem.

Dutchess - I was thinking of other occurences. My original question was a closed end, matured loan.

ANYONE got anything for me on the AAN? Is it moot since we shouldn't have pulled the report? Help!

Maybe I should start a new thread on this, but under the Gowen letter it says you can't procure a report on the principals of a corp. or the guarantors, but what if you require them under Reg B as a closely held corporation? Can you then?

Also, guarantors rarely apply so what are other banks doing to see if a guarantor is creditworthy if you can't pull a credit report?

I don't think you 'can't' pull them. I think you must have the guarantors permission to obtain the credit report.

I think there is an argument, well, I know there is out here on BOL land somewhere...by the time it was pretty much 'said' that you didn't need permission, I had already created a form and use it. I tend to agree with Skittles...they don't generally apply, so I think we're safer with the authorization.

Glad I could help! I was in your shoes not long ago & someone here directed me to the letter & it was a big help (as BOL always is!).

You need to look at the Tatelbaum II letter. If an officer is going to be personnally liable on the debt, you have a permissible purpose. If not, then you need written permission.

http://www.ftc.gov/os/statutes/fcra/tatelbaum2.shtm

Thanks! I wish I had seen that yesterday. Oh well!

Sorry to have to revive this again, but does this hold true for mid-stream credit pulls too? For example, if a loan is going south, can we pull an updated credit report on the principals of the business (assuming they signed individually) and the guarantors?

Bump!

If the account is in collection proceedings then you have a permissible purpose if the persons you are referring to are also obligated on the note as individuals. See 604(3)(A).

However, review you guaranty form. You may not be able to exercise the guaranty until all other collection efforts have failed.

Commercial loans are different. You may have contracted (as many of us do) to collect financial information on the commercial entity and the guarators every year. They are subject to an annual review by the commercial credit department as well as internal/external loan review. Collection of tax returns, personal financial statements, copies of statements from liquid accounts and, yes, a new credit bureau report are all in line. These are loans that can be called based on this information.

Closed end consumer installment loans (from the beginning of this thread) aren't treated in this manner. If there is no payment issue, I wouldn't see a legitimate reason to pull.

Not a guru though.....just my thougts.

Thanks Dan! Is collection proceedings defined anywhere? I interpret that as formal legal action. The bank has interpreted that as suspicion the borrower is not going to pay? Do you need to document your reasons for pulling the credit report in the file? Is this an area the examiners hammer on or am I making a mountain of a mole hill?

Dan types faster than I do!

Hey - thanks Cornfed! I didn't see your post before I posted my additional questions.