RSK.IQ Question of the Week 6/10/19

FCRA and Applications or Prequalifications


For residential first lien mortgage applications and prequalifications, does a written authorization have to be obtained from the applicant 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 prequalification request, the Bank will have a permissible purpose since the consumer has initiated the transaction. If the consumer has not initiated the transaction, the Bank must either obtain the consumer’s authorization or the transaction must consist of a firm offer.

Response Detail

The Fair Credit Reporting Act (“FCRA”) generally requires written authorization from a consumer or a permissible purpose before a creditor can obtain a credit report from a consumer reporting agency. 15 USC §1681b(a)(2),(3).

A permissible purpose includes using information for a credit transaction involving the consumer or 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 only be provided 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. In addition, 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 when a consumer has applied to the Bank for a loan or prequalification, the Bank is permitted to obtain a credit report on the consumer pursuant to the consumer’s written instructions, or because there is a permissible purpose due to the consumer having initiated the transaction. However, the Bank should be aware that if it evaluates the information contained in the consumer report and decides to decline the consumer’s inquiry or prequalification request, and the Bank communicates such decision to the consumer, then 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 a consumer has not initiated the transaction, but the Bank finds that such consumer is an acceptable candidate after evaluating them against pre-screened criteria, then a firm offer of credit must be made.

This entry was posted on Monday, June 10th, 2019 at 6:00 am.

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