Yes, we believe that your bank has a permissible purpose under the Fair Credit Reporting Act (FCRA) to pull the borrower’s credit report in this situation.

The FCRA permits a bank to obtain an individual’s credit report in limited circumstances, including for purposes of a “review” of a consumer’s loan account. The Federal Trade Commission (FTC) has issued an advisory opinion concluding that, based on the FCRA’s legislative history, this permissible purpose “is limited to an account review for the purpose of deciding whether to retain or modify current account terms.” The FTC explains that in many cases, this permissible purpose does not exist for a closed-end credit transaction, since a lender generally is not in a position to modify such account terms.

By contrast, in this situation, the loan is an open-end transaction, and your bank does have the option of modifying the account terms (for example, by freezing or terminating the line of credit). Consequently, we believe that your bank has a permissible purpose to pull the borrower’s credit report in order to review the account.

For resources related to our guidance, please see:

• Fair Credit Reporting Act, 15 USC 1681b(a)(3) (“Subject to subsection (c), any consumer reporting agency may furnish a consumer report under the following circumstances and no other: . . . (3) To a person which it has reason to believe (A) intends to use the information in connection with a credit transaction involving the consumer on whom the information is to be furnished and involving the extension of credit to, or review or collection of an account of, the consumer; . . .”)

• FTC, Advisory Opinion to Gowen (April 29, 1999) (“In commenting on the proposed provision which became Section 604(a)(3)(F)(ii), the Senate Committee on Banking, Housing, and Urban Affairs stated: ‘Like creditors, banks and others may need to consult a consumer's report in order to determine whether the consumer's current account terms should be modified. For example, the institution may provide more favorable pricing terms after consulting the report. The permissible purpose created by this provision, however, is limited to an account review for the purpose of deciding whether to retain or modify current account terms.’”)

• FTC, Advisory Opinion to Gowen (April 29, 1999) (“The terms of a closed-end credit transaction are predetermined and generally may not be changed unilaterally by the creditor unless the contract expressly provides for such action (e.g., in the event of default). Therefore, the creditor is unlikely to have a reason to consider ‘whether to retain or modify current account terms’ and, thus, would not have any routine need to procure consumer reports to ‘review’ its accounts.’”)