I have just finished reading the FCRA applicable sections, the Gowan letter and the FACT act amendments and am still not sure how to apply this to my situation. Because, as prescreened is defined, we are not prescreening.

Situation: We are a major auto lender who recieves applications and we score their application using our inhouse system. Sometimes we close the deal, and sometimes another lender ends up closing the deal. Either way we want to use that credit information to solicite potential customers or current customers for different products (for example home loans).

1) I am unsure if we can even do this.

2) It seems like if we can do this, that both customers and non-customers will need the opt out notice.

Any thoughts?

I have done some extensive research on this. It seems like you are prohibited from using credit reports that were for an auto loan, to determine if someone should be given a solicitation for another product.

However, I am having a difficult time finding regulatory definitions for prescreening and cross selling.

What is the difference between using information contained in a credit report, to asking a credit bureau to come find people that fit into your criteria to solicit products to?

"we score their application using our inhouse system."

So are you saying you use a credit bureau report or not? If you do not use a credit bureau report in your analysis - then you can do what ever you want with the information you gathered from the applicant.

If you have a credit bureau report - the Gowan letter would prevent you from using any information contained in the credit bureau report for any purpose other than evaluating the original application.

Part of our scoring process uses information from their credit report, including score. I discussed this with our regulator this week and they suggest that we can "cross sell" using this information.

I asked them to put this in writing for me. Given my lack of experience with this regulation, I am not surprised by a misinterpretation, but I read the Gowan letter to say otherwise.

If you get a written response contrary to the Gowan letter I would be very much surprised.

I actually have it in writing now. It is not a formal letter, but is in the form of an email. I am going to guard this with my life.

You can guard it with your life, but it will do little good in defending your bank in a class action lawsuit or when your credit bureau finds out that you have violated your contract with them. Every credit bureau contract that I have seen lately requires you to certify that you will only use the information for the purpose for which you originally pulled it. I would not put that much credence in an e-mail like this unless it came directly from the legal staff.

Randy,

Thank you for the information. I will definately make management aware of all issues.

If your email is from your regulator, and push came to shove with the FTC standing behind Gowan, your regulator will yield as the FTC has ownership. You might avoid regulatory scrutiny, then again you may get an EIC like I had who simply disagreed with prior opinions on informal guidance we had from his agency, and he wrote us up. I couldn't argue, because I agreed with him, not the opinion before him.

Thanks. I also tend to agree with Randy. The big problem for me has become, once you have something that says its ok, it becomes very difficult to sway management to support something else. My biggest fear is not of the regulator, it is from the CRA. Thanks again for all of your help.

Any comments? - footnote 7 of the Gowan letter points to Senate Report No. 104-185 - page 33 provides the following discussion:

Credit or insurance transaction that is not initiated by the consumer

This term is used throughout the Committee bill to describe prescreening transactions. Section 402(c) of the bill adds to section 603 of the FCRA new subsection (m) which clarifies the scope of the phrase ‘‘credit or insurance transaction that is not initiated by the consumer’’ for purposes of the prescreening provisions set forth in the bill. Section 603(m) makes it clear that the prescreening provisions of the FCRA do not apply where a consumer report is obtained by a creditor in connection with reviewing or collecting an existing account of the consumer for safety and soundness purposes, even if the creditor subsequently decides to change the credit available to the consumer. Thus, for example, a credit card issuer may obtain a
consumer report on a consumer in connection with its regular annual or other review of the consumer’s credit card account, and may decide to offer to the consumer a higher credit amount or an additional or improved product, such as a gold card.

I am unsure of the relevance to the above discussion, but I am sometimes a little obtuse - could you elaborate?

Is it permissible to obtain a credit report for reviewing an account to be used to determine if an offer for additional products could be made as compared to it is not permissible to obtain a credit report for opening or establishing an account and use it to determine if an offer could be made for other products?

Not IMHO - you get to pull a report for the permissible purpose for which it was obtained and it can only be used for that purpose. If you pull for review - you can't use it for marketing.

See the FTC Gowan letter: Gowan Letter

"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."."

I have a feeling that there are some consultants going around the country telling they can get updated credit scores on all their credit accounts and telling them they can load it on the bank's system and use that to market - which is flat wrong. Banks are even pulling credit scores on closed-end credit after the account is performing and that is also deemed to be not permissible under the Gowan interpretation.

Doesn't the Senate Report indicate, in its example, using information from a consumer report [for reviewing of an account] to offer an additional product is permissible?

A higher credit limit or an improved product, such as a gold card, is a little different than pulling the credit report for a mortgage loan and then offering them a HELOC or Auto loan based on the credit report. That is more in the context of which we speak. Regardless, the Senate Report is not elevated to law.

Yes, it is clear that obtaining a consumer report to review closed-end credit is not permissible. However, for open-end credit, it is permissible. Can such permissible obtained consumer report be used to determine if additional credit or new credit product may be offered?

Although the Senate Report is not law, it clarifies the intent of our law makers and the FCRA.

The FTC is the enforcement agency for the FCRA and I think they were pretty clear in the Gowan letter, even though it was based on closed-end credit, that a report pulled for review purposes can not be used outside of the possible modification of the existing account relationship. I also think that you are reading too much into the Senate Report. I read that to say that if you are reviewing a current credit card account, you can offer them "an additional or improved product, such as a gold card". This offer would replace the existing credit product, not be an actual additional product. That would be like review an existing line of credit and saying "Mr Customer, your credit is so good we would like to offer you our Credit Line Gold product instead of your current product" - not an automobile loan. However, this is only my opinion and the only way to receive a definitive answer would be to request an opinion from the FTC.

I agree with rlcarey's advice. Account review pulls can only be used for account review. I don't think its the right interpretation of the law, but its the FTC's interpretation. The way around this is to take your account list and use it to prescreen for new product solicitation. The downside, of course, is that you have to make a firm offer.

Some of this discussion seems to be about "can you reuse a credit score for purposes other than what it was obtained?" For example, can you use the credit score you obtained for a loan origination approval to "cross sell" (offer) a credit card product or a deposit account or whatever. There seems to be two schools of thought on thisas expressed by Randy and Jim below. Please see following copy of a Guru Q/A. Does anyone have legal/regulatory information/interpretation to be a tiebreaker?

"Is Internal Cross-Selling an FCRA Violation?
Jim Bedsole and Randy Carey, BOL Gurus
Guru Bios

Question: My question relates to the FCRA and the ability of a bank, or other lending institution, to internally cross-sell. Let's say that a bank does a credit check (for a proper purpose under FCRA) to determine whether a potential borrower would be approved for a mortgage. Based on the information contained in the credit report, the bank then solicits the potential borrower to also obtain a HELOC. The HELOC is also done through the bank, although in a separate department, and another credit check would be pulled in connection with the HELOC if it was pursued by the potential borrower. Is this prohibited by FCRA? I have looked at the provisions of the act and it does not seem to be expressly prohibited.

Answer by Jim Bedsole: Nothing in FCRA prevents a bank from sharing credit report information internally between departments of the same bank, even when such sharing is for cross-selling purposes.
Answer by Randy Carey: One thing that a bank should consider prior to using credit reports in any type of cross-selling/marketing endeavor would be to review the FTC Staff Opinion that is commonly referred to as the Gowen letter.

The Gowen letter indicated that the use of a credit report obtained for one purpose, then used for cross-selling/marketing purposes, would not be deemed as used for a permissible purpose. While the cross-selling/marketing of HELOCs to individuals that have recently obtained or applied for a first mortgage loan is a great idea, the bank might be safer to choose to stick with the information that the applicant provided to the bank through the application process rather than referring to anything found in the original credit report.

First published on BankersOnline.com 4/03/06