Obtaining Credit Report for Application or Pre-Qualification
Issue/Inquiry
For residential first lien mortgage applications and pre-qualifications, does a written authorization to pull a borrower's credit report have to be obtained from the borrower before pulling the credit report?
Response Summary
Generally, the Bank can request a consumer report if the consumer has provided written instructions to that effect or the Bank has a permissible purpose. If the consumer has applied for a loan or made a pre-qualification request, the Bank will have a permissible purpose, as the consumer has initiated the transaction. If the consumer has not initiated the transaction, then the Bank must either have the consumer’s authorization or the transaction must consist of a firm offer.
Response Detail
Under the Fair Credit Reporting Act, the general rule is that before a creditor can request a credit report from a consumer reporting agency, there must either be written instructions from the consumer or a permissible purpose to do so. 15 USC §1681b(a)(2),(3).
A permissible purpose includes using the information in connection with a credit transaction involving the consumer and an extension of credit to the consumer, or that is in connection with a business transaction that has been initiated by the consumer. 15 USC §1681b(a)(3)(A),(F).
If the credit transaction has not been initiated by the consumer, then the credit report can be provided only if the consumer authorizes the consumer reporting agency to provide such a report to the creditor, or the transaction consists of a firm offer of credit. If the credit report is being obtained because the transaction consists of a firm offer of credit, the information provided cannot identify the consumer’s relationship with a particular creditor. 15 USC §1681b(c)(1)(A),(B);(c)(2).
These requirements mean that if a consumer has applied to the Bank for a loan or pre-qualification, the Bank can obtain a credit report on the consumer either pursuant to the consumer’s written instructions or because there is a permissible purpose, as the consumer has initiated the transaction.
Please note, however, that if the Bank evaluates the information contained in the consumer report and decides to decline the consumer’s inquiry or pre-qualification request, and communicates this to the consumer, it has treated the inquiry or request as an application and must comply with the notification requirements of Regulation B. Official Interpretations, 1002.2(f) – 3.
If the consumer has not initiated the transaction, the request by the Bank for a credit report must be related to a firm offer of credit to the consumer (i.e., if the Bank runs the candidate against pre-screened criteria and the candidate passes, a firm offer of credit must be made).