I agree, if you are prepared to call this an application under Reg. B.

IMO, a consumer wanting to get prequalified meets the criteria of an application, because the bank "intends to use the information in connection with a credit transaction", albeit, a credit transaction down the road when the applicant identifies a property. Banks are in the business of lending money, so why else would you jump through the hoops of 'prequalifying' someone unless you anticipated them coming back to you when it's time for the loan?

I continue to stand by my first assessment. A prequal is not an application for credit. IT does not rise to the level of a pre-approval whereby I get a commitment letter. Whether that commitment letter meets the content specifications for a 'pre-approval program' for HMDA is another matter.

When I was originating 1-2MM a month in loans, I did this all the time as a service to 1) the customer, hoping they would come to me if they decided to buy something and 2) as a service to the Realtor who might be working with a person hoping to find a home in their price range.

We never got anything but their stated income and their stated debts for a prequal.

IF you obtain credit, you have elevated it to an application for Reg B purposes. I do not believe, however, that you have a true legitimate business need under FCRA without the person authorizing it in writing.

Whether or not a simple prequal gives us that authority, however, I have not researched. Nor have I had a chance to read the FDIC publication and their POV on the FCRA (not Reg B, that's a given) end of things.

Let me be the devil's advocate here. Then why are you pulling credit? You have someone who you trying to categorize as not an applicant but an inquirer and you are pulling credit. Here is what the diligence requirement to Reg. B states.

6. Completed application—diligence requirement. The regulation defines a completed application in terms that give a creditor the latitude to establish its own information requirements. Nevertheless, the creditor must act with reasonable diligence to collect information needed to complete the application. For example, the creditor should request information from third parties, such as a credit report, promptly after receiving the application. If additional information is needed from the applicant, such as an address or a telephone number to verify employment, the creditor should contact the applicant promptly. (But see comment 9(a)(1)-3, which discusses the creditor's option to deny an application on the basis of incompleteness.)

If you pull a verification document, you are already engaging in practices that require the existence of an application. Furthermore, the basically says that of the six permissible purposes to pull credit, the only one you could use is effectively an application. So if you don't have an application for credit, how do you pull the credit report?

OK sorry Raitch I just read your last post and I see that you are stating it is an app under Reg. B. I misunderstood you. My apologies.

Red, I think you misunderstand my stance. I do not believe it is appropriate to pull credit on a prequal.

No problem. It's an interesting topic.

The FCRA does not define an application that I am aware of. Reg. B, Reg. C, and RESPA defines an application for their notification and reporting purposes. Those definitions do not carry over to the FCRA, or I'm not aware of any guidance where the FCRA refers to one of the mentioned Regs for the definition of an application.

A person completes an application (either full or modified depending on your process for pre-quals) to be pre-qualified for a potential credit transaction. IMHO this would constitute a permissible purpose for the FI to pull a credit report. I know of nothing in the FCRA or an opinion letter that contradicts that opinion.

The commentary to the FCRA under permissible purposes to pull credit does reference Reg. B's application. You and I have disagreed on this point in the past but I respect your opinion. Even if I don't agree with it.

Can you provide me a link to that reference? I just searched the following http://www.fdic.gov/regulations/laws/rules/6500-2700.html and I found no such reference using application or Regulation B as the search term.

PS. I searched the 40 Year document also and found no such reference in that document either.

Well I do not know how you did not find this, but it is within the document. Also keep in mind that this document, is still the active commentary, no matter when it was written. Even though it was last updated in 1990, which is 24 years ago.

This is a section on pulling credit on a non-applicant spouse. Although this section is not referring to the pieces we were earlier, the devil is in the details. They are still surmising that there is an "applicant". Then they reference Reg. B.

B. Lack of permissible purpose. If the creditor receives information clearly indicating that the applicant is not acting as the agent of the nonapplicant spouse, and that the applicant is relying only on separate property to repay the credit extended, and that the state law doctrine of necessaries does not apply to the transaction and that the applicant does not reside in a community property state, the creditor does not have a permissible purpose for obtaining a report on a nonapplicant spouse. A permissible purpose for making a consumer report on a nonapplicant spouse can never exist under the FCRA, where Regulation B, issued under the Equal Credit Opportunity Act (12 CFR 202), prohibits the creditor from requesting information on such spouse. There is no permissible purpose to obtain a consumer report on a nonapplicant former spouse or on a nonapplicant spouse who has legally separated or otherwise indicated an intent to legally disassociate with the marriage. (This does not preclude reporting a prior joint credit account of former spouses for which the spouse that is the subject of the report is still contractually liable. See discussion in section 607, items 3--D infra.)

That section is addressing the ability to pull a report on a non-applicant spouse.

It states there would never be a permissible purpose under the FCRA to obtain the report and then it makes a comparison to where Reg. B prohibits the creditor from obtaining any information on a non-applicant spouse.

I do not see where this section references the definition of an application to Reg. B's definition.

A pre-approval and pre-qual is a request for credit IMO. A pre-approval gives a firm offer of credit based on full underwriting. A pre-qual gives a conditional approval based on limited underwriting and the verification of information provided.

Now under Reg. B these are not applications for its reporting requirements unless adverse action is taken, but for FCRA permissible purposes I will stand by my opinion.

Because the section I posted is referencing the term applicant while quoting Reg. B. I don't think it is a stretch to assume they are using Reg. B's definition since the FCRA does not have one.

The way I see it, someone trying to justify pulling a credit report on an inquiry goes like this.

Do you sell mortgage loans?

Yes, I just pulled your credit report and let's discuss.

Sorry, in my opinion you cannot do that.



In my opinion it is based on information verbally provided to you as your requirements under the diligence requirement. At this point I think we are beating a dead horse.

But excellent discussion, even if we disagree.

Do you sell mortgage loans?

Yes, I just pulled your credit report and let's discuss.

That's not a reasonable comparison to a pre-qual request.

As you said this is a beating a dead horse and we are going to have to agree to disagree on this particular issue.

I don't know if you did this on purpose but you referred to it as a "request".



I always focus on this when I explain what an application is.

Either way, great discussion and thank you for your insight.

I don't know if you did this on purpose but you referred to it as a "request".

I often interchange "loan request" with "loan application". An application is a request for credit and vice versa.

Yes good discussion. As I just mentioned to someone else when the reg does not give a definitive definition or guidance it always leaves room for differing interpretations. I guess that's part of the "fun" dealing with compliance issues.