Sorry for the anonymous post. This is a sensitive issue. We are preparing to automate our credit reporting process. In connection with this, management has decided to post all consumer loan customers' beacon scores on our mainframe system. This will be standard practice for all future loans. But management also wants to populate the mainframe field for all existing customers as well. So they've "stuck up a deal" with the consumer reporting agency to download current beacon scores for our existing customers. It is my understanding that obtaining the score will result in the appearance of an inquiry line item on the consumer's report......something to indicate that my bank has made an inquiry. It is also my understanding that a bank may make such an inquiry if the bank "intends to use the information in connection with a credit transaction involving the consumer on whom the information is to be furnished and involving the extension of credit to, or review or collection of an account of, the consumer..." [Section 604(a)(3)(A)]. My concern is that we are not obtaining the information for review. We're just populating a field in our mainframe system without having to go back to each consumer's original credit report to manually key-in each beacon score from the initial credit report. Is this allowed?

Your thoughts and comments are appreciated.

Since requesting and receiving the "credit score" would be deemed receiving a "consumer credit report" and it does not appear that you are going to satisfy any of the permissable purposes under 604, I would opine that you would be violating FCRA.

I guess you could say that you're reviewing ALL of your loans and need the current beacon scores in order to do it.......

Well....maybe that's a stretch.....never mind.

I read the sentence "But management also wants to populate the mainframe field for all existing customers as well." to include possibly all customers, not just loan customers. Even so, unless you were really going to review their accounts, it would be quite a stretch.

Are you retrieving scores for all borrowers? You may fall under 604(3)(A) which permits the furnishing of a report for use in review or collection of an account of the consumer.

Are the beacons going to be used for cross-sell or re-evaluation of a loan? If cross-sell, I think you may have an issue.

Unless you can meet one of the following, I will opine with the others that you have a potential problem.

1681b: Permissible Purposes of Consumer Reports (01/02/01)

(a) In general

Subject to subsection (c) of this section, any consumer reporting agency may furnish a consumer report under the following circumstances and no other :

(1) In response to the order of a court having jurisdiction to issue such an order, or a subpoena issued in connection with proceedings before a Federal grand jury.

(2) In accordance with the written instructions of the consumer to whom it relates.

(3) To a person which it has reason to believe --

(A) intends to use the information in connection with a credit transaction involving the consumer on whom the information is to be furnished and involving the extension of credit to, or review or collection of an account of, the consumer; or

(B) intends to use the information for employment purposes; or

(C) intends to use the information in connection with the underwriting of insurance involving the consumer; or

(D) intends to use the information in connection with a determination of the consumer's eligibility for a license or other benefit granted by a governmental instrumentality required by law to consider an applicant's financial responsibility or status; or

(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.

If the score was going to be used to help "benchmark" loans for further review activity, ie review all loans with scores less than "x", would that make this practice permissible?

I think that the following opinion letter from the FTC hits this right on the head and supports the fact that the original suggested action in this thread would not be deemed a permissible purpose.

Here's an excerpt:

Section 604(a)(3)(A) of the FCRA gives a creditor a permissible purpose to obtain a consumer report without the consumer's consent "in connection with a credit transaction involving the consumer on whom the information is to be furnished and involving the extension of credit to, or review or collection of an account of the consumer." Section 604(a)(3)(F)(ii), which relates to deposit or other non-credit accounts, similarly provides a permissible purpose "to review an account to determine whether the consumer continues to meet the terms of the account." When obtaining consumer reports for such purposes, creditors need not comply with prescreening disclosure requirements because these transactions are exempt under Section 603(m)(1) of the FCRA.(2)

Your questions raise the issue of whether a creditor in a closed end credit transaction may exploit consumer reports obtained for "review" purposes in order to market its products or services. In the circumstances you described, we believe the answer is "no.". First, "review" is not a purpose for which a closed-end creditor would ordinarily need to obtain consumer reports on its customers. In commenting on the proposed provision which became Section 604(a)(3)(F)(ii), the Senate Committee on Banking, Housing, and Urban Affairs stated:

Like creditors, banks and others may need to consult a consumer's report in order to determine whether the consumer's current account terms should be modified. For example, the institution may provide more favorable pricing terms after consulting the report. The permissible purpose created by this provision, however, is limited to an account review for the purpose of deciding whether to retain or modify current account terms. (emphasis added).(3)

The terms of a closed-end credit transaction are predetermined and generally may not be changed unilaterally by the creditor unless the contract expressly provides for such action (e.g., in the event of default). Therefore, the creditor is unlikely to have a reason to consider "whether to retain or modify current account terms" and, thus, would not have any routine need to procure consumer reports to "review" its accounts. Second, the credit bureau must, pursuant to Section 607(a), require the creditor to "certify the purposes for which the information is sought, and certify that the information will be used for no other purpose." (emphasis added). Because Section 604(a) provides no authority for a creditor (or any party) to use a consumer report for marketing purposes,(4) a creditor would violate its certification by using an existing report in such a manner.


For the whole opinion, see here:

Gowan Opinion Letter

The critical question is the use to which the information will or may be put. That establishes or fails to establish a permissible purpose. If management simply wants the information because it might come in handy someday somehow, you are probably outside of the permissible purpose lines.