I have an opinion from an examiner that you should always mark the FCRA block when you pull credit not just when you use information from this report to make a decision. SO if you base your decision on collateral value you would still mark box. Has anyone else run across this?

[This message has been edited by JudyO (edited 10-17-2001).]

Judy, I have heard this same opinion from examiners on several occasions. I believe the premise is if you review the report you do so to determine is there are any factors that would contribute to your decision. If so and the denial is based on those facts, its a clear issue.

If the report was otherwise ok, you still used it as part of your decision making, so therefore you should disclose this to the customer. It has been a relatively easy opinion to implement. Anytime you pull a credit(consumer) report, disclose that fact.

Judy, Which Regulator?

FDIC

I am not sure which box you are inquiring about on the adverse action notice--there are two where you need to comply under the FCRA. If adverse action occurs due to information in a consumer report, the box for the credit reporting agency data that includes the name, address, and telephone number of the credit bureau should always be marked. This should ONLY be marked if denying based on information in the credit report though. What you may be referring to is the other FCRA box that states our credit decision was based on information from an affiliate or from an outside source other than a consumer reporting agency. This should be marked for denials based on such things as appraisal, landlord verification, false information, etc. I don't necessarily agree that it needs to be marked in every instance. Section 615(b) of the FCRA goes into more detail the circumstances when that box needs to be marked.

The box I was referring to is the one that states" Our Credit decision was based in whole or in part". This is where I disagree if the decision is based on values and such.

Judy, FDIC examiners have expressed the same opinion to me over the past 10-12 years. The way they have explained it to me is in line with what prosperity said in his/her response with one further caveat. They indicated that even though you denied the credit based on a reason not found within a credit report, if there was one derogatory piece of information found in the report, it might have sublimely influenced your credit decision. Based on their interpretation of the rules and regulations, when a credit report is pulled we always disclose that fact.

The opinions expressed are not necessarily those of my employer.

NO, NO, NO!!! This is one of my soapbox issues and one that we have talked about on BOL before. I was an FDIC examiner and I agree that we use to tell people "if you pull a credit report you should disclose the use of it" but this is not accurate and this was highlighted in the 1996 amendments to the FCRA. Since then, the FDIC does not endorse the reporting that "we pulled a credit report on you" but rather "we pulled a credit report on you and it provided adverse information which led to our decision to deny you." I have had officials from the FDIC (Regional Office and Washington) ask me to give the names of the examiners that are still saying this incorrectly.

Second, if you tell someone that you used a credit report against them, they can obtain a free copy of their report. The Credit Reporting Agencies do not want to give out free copies when they don't have to.

Read the notice that you give the customer:
"Our decision was based in whole or in part on information obtained in a report from the consumer reporting agency listed below. However, the reporting agency did not make the decision and is unable to supply you with specific reasons for why we have denied your request. You have a right under the Fair Credit Reporting Act to know this information contained in your file at the consumer-reporting agency. Under the Fair Credit Reporting Act, you have the right to obtain a free copy of this report if you submit a written request to the agency named below no later than 60 days after you receive this notice. Under the Fair Credit Reporting Act you also have the right to dispute with the consumer reporting agency the accuracy or completeness of any information in this report."
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If you pull my credit report, you would find nothing adverse (at least, I hope). If you were denying me because of lack of collateral, you should NOT report that you used my credit report. First, becuase I should not be entitled to a free copy - there is nothing for me to dispute. Second, I take great pride in having a clean credit history. Should would be incorrectly alarming me that I have adverse info on my credit report. When in fact I don't. This is very logical. Prosperity posted "It has been a relatively easy opinion to implement. Anytime you pull a credit(consumer) report, disclose that fact." Since when do we take the easy road? Compliance is about being accurate not about being easy.

I have copied and pasted a few portions of our manual on this topic below. I also have bolded a few words to add emphasis.

Section 615(a) of the FCRA states The Fair Credit Reporting Act (FCRA) requires notification of the use of a consumer credit report when adverse action is taken in whole or in part on an existing or new application for a loan, deposit account or other products or services. If any condition is imposed, without which the application (credit, deposit, etc.) would not be extended, and it is imposed because of information in the consumer report, there is a “denial” which would require disclosure.
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If adverse action is taken but the decision to deny the applicant is not on the basis of information in a consumer credit report, banks should not comply with these rules (do not report that a credit report was pulled). This has historically been a confusing issue because many regulators have wrongly stated that financial institutions are required to disclose the use of the consumer credit report whenever a credit report is obtained. Such a position is not supported by the FCRA, which states such disclosure is required only when such action is made on the basis, partially or wholly, of information from a consumer reporting agency.

The Commentary to Section 202.9(b)(2) #9 states:
The Equal Credit Opportunity Act (ECOA) requires disclosure of the principal reasons for denying or taking other adverse action on an application for an extension of credit. The Fair Credit Reporting Act (FCRA) requires a creditor to disclose when it has based its decision in whole or in part on information from a source other than the applicant or from its own files. Disclosing that a credit report was obtained and used to deny the application, as the FCRA requires, does not satisfy the ECOA requirement to disclose specific reasons. For example, if the applicant’s credit history reveals delinquent credit obligations and the application is denied for that reason, to satisfy Section 202.9(b)(2) [reasons for denial] the creditor must disclose that the application was denied because of the applicant’s delinquent credit obligations. To satisfy the FCRA requirement, the creditor must also disclose that a credit report was obtained and used to deny credit.

There must be a correlation between the FCR box and reason for denial, such as:

·Excessive obligations in relation to income
·No credit file
·Limited credit experience
·Delinquent . . . with others
·Garnishment . . . collection action or judgment
·Bankruptcy
·Slow or past due in trade or loan payments
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Sorry for the length of this post, but it takes a lot to explain, because it isn't easy.

Dave's post is so accurate that the length is immaterial. An examiner from any agency would be looking for a nit to pick if they cite you because you have a credit report, but the adverse decision was based on something else. As far as I know, "subliminal seduction" is not a basis for a violation in this area.

Judy: Tell your examiner that if he/she wants you to complete the FCRA section on every credit denial, he/she should run for Congress and change the law to read that way. Because, in its current form -- as Dave points out -- such an interpretation is flat-out wrong.

Let me clear the record. I agreee with all posts, especially David's. It's obvious that many of us who have been around since before the 1996 amendments received the same examiner opinion, not limited to FDIC.

By easy, I meant it caused and still does cause less headaches from a compliance administration point of view to have a straigtforward procedures - use, then disclose.

You can bet I'm going to review the 1996 amendments, log the statment in my little memory bank and refer to it the next time this is raised by an examiner.

David, I do appreciate the detail you provide in your posts.

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Thanks to every one who posted. We knew we were on the right track but as we all know sometimes that doesn't count.

David said it all! This issue has been a soap-box of mine for years also. Someone, sometime apparently trained FDIC examiners to require banks to always check the FCRA disclosure if they had pulled a credit report. This is actually factually and legally wrong and incorrect under both ECOA and FCRA. If the credit report was fine and the appraisal was low, the appraisal is the reason -- and the ONLY reasond -- that should be disclosed.

As David also points out, the consequences of this erroneous disclosure involve confusion to the customer and inappropriate costs to the credit bureau.

Just say "NO" when the examiner asks you again!