Ironically, we cover this topic in the October edition of our monthly newsletter that was issued today:
https://store.bankerscompliance.com/#/product/06b8ce65-f151-42e7-b03d-f09a67d7e94d?keyword=Permissible Purpose to Pull Credit Reports
With continued regulatory focus and civil liability involving joint intent; spousal signatures; fair lending; and unfair, deceptive and abusive acts and practices (UDAAP), it’s no wonder bankers are a little gun-shy about pulling consumer reports without written consent!
When can you pull a consumer report? When do you need written authorization? Do you need to notify an applicant that a consumer report will be pulled? What if not all applicants are present at application? These are all common questions that come up so let’s take a closer look and ease your concerns.
When can you pull a consumer report?
The Fair Credit Reporting Act (FCRA) states you must have a “permissible purpose†to pull a consumer report. Permissible purpose means a legitimate business need for the information in connection with a business transaction that is initiated by the consumer; or to review an account to determine whether the consumer continues to meet the terms of the account. [ ].
When do you need written authorization?
Now the million-dollar question – when do you need written authorization? You must have written authorization to request a consumer report for “employment purposesâ€, but that's another story for another time. Aside from that, the FCRA does not require permission, let alone written permission, prior to obtaining a consumer report. Keep in mind, however, your loan policy may require you to do so and you wouldn't want to violate that. Just know this isn't a FCRA requirement. Specifically, the FCRA states “...does not require that the user provide any kind of advanced notification to consumers before a consumer report is obtained.†[FCRA Commentary to §615(c) #2]
What if not all applicants are present at the time of application?
You also won’t find anything in the regulation that says someone must be present before you pull his or her credit report. Again, this may be your bank’s policy and that’s fine, but there’s nothing prohibiting you from pulling a credit report on an applicant that is not present at the time of application. It is an industry standard that one applicant can represent another (such as a husband and wife). Whether you will pull a credit report on a non-present applicant is really a risk decision for your bank to make. Do you believe the risk of pulling a consumer report on a non-present applicant is greater than the risk of requiring every applicant to be present? If so, you might also want to consider applications received through the internet, email, phone and mail. How do you know both parties agreed to apply in those situations?
Let’s go one step further. Can you pull a credit report on a non-applicant spouse?
Appendix to Part 600 Commentary on the Fair Credit Reporting Act
A. Permissible purpose. A creditor may request any information concerning an applicant’s spouse if that spouse will be permitted to use the account or will be contractually liable upon the account, or the applicant is relying on the spouse’s income as a basis for repayment of the credit requested. A creditor may request any information concerning an applicant’s spouse if (1) the state law doctrine of necessaries applies to the transaction, or (2) the applicant resides in a com- munity property state, or (3) the property upon which the applicant is relying as a basis for repayment of the credit requested is located in such a state, or (4) the applicant is acting as the agent of the non- applicant spouse.
With all that said, although there is no requirement to get the consumer’s permission or signature for a bank to pull a consumer report (with the exception of a report for employment purposes), the bank could expose itself to civil liability if the consumer contends that the bank did not have a legitimate business need initiated by the consumer. Therefore, we suggest, as a “best practiceâ€, that you have a signed application, signature card, or other documentation (especially in the case of a non-applicant spouse) to justify your legitimate business need for obtaining the consumer report. Obviously, written permission would not be practical with regard to pulling a consumer report to monitor an account. In that case; however, you have a relationship so it’s easier to demonstrate your “needâ€.