By Donya Parrish, MCU VP- Risk Management
The CFPB issued an Advisory Opinion on FCRA Permissible Purpose for Credit Reports on 7/7/2022. My initial reading of the opinion confirms the information below as it relates to a “permissible purpose” for pulling a consumer credit report. This will be updated if necessary after further analysis. ~Donya
An often-debated question in credit unions — frequently between the marketing and compliance departments — is what triggers allow a credit union to pull a credit report? The debate doesn’t center so much on the use of vague or conflicting words in the regulation or court cases that may have clouded the interpretation of the rule. Instead, it comes down to one thing — the code says you have to have a “permissible purpose” to pull one, and we don’t always like the answer of what constitutes “permissible.”
The Fair Credit Reporting Act does contain several examples of what is permissible. That includes responding to a court order, when the consumer agrees to it in writing, or for employment purposes (which also requires specific written authorization). The category where it starts to get a little murky states, “To a person, including a financial institution, that the agency has reason to believe intends to use the report as information for any of the following reasons:
a. In connection with a credit transaction involving the consumer (includes extending, reviewing, and collecting credit)”
Credit unions use credit reports daily when a consumer applies for a loan and signs or authorizes a loan application. That is pretty straightforward, and also permissible. But what about pulling a credit report to see if the member has other loans that you might be able to convince them to refinance with the credit union? What if you prefer to pull a credit report when their deposit account is opened in case they later get a credit product (i.e. a loan)?
Marketing use of the credit report information almost always falls in the column of “not permissible” under the FCRA definitions. Does that mean your credit union can’t do it? Not necessarily. Remember that you always have the “when the consumer agrees to it in writing” option. Some credit unions have chosen to add verbiage to their account agreement that says the credit union may pull their credit on occasion and list possible purposes of it. Check with your forms vendor if you are considering this and ensure they confirm it is compliant with your process and forms (and don’t forget the “in writing” caveat to the requirement).
When in doubt, the best thing you can do is review internal procedures and practices and see if you need to get the consumer’s permission at any point in the process. The risk might be broader than just a fine or violation of the regulation. Read more about the risk of using credit reports for cross-selling in this CU Today article.