A customer applied jointly for a HELOC with a co-signer, and we pulled both co-signers’ individual credit reports. However, after underwriting the loan, we found that the co-signer’s credit caused the loan to be rejected. If the customer reapplies for a HELOC individually, can we reuse her credit report, which we first pulled in connection with the joint application?

Yes, the Fair Credit Reporting Act (FCRA) permits a lender to reuse a credit report for the purpose of reviewing a subsequent credit application (which is a “permissible purpose” under the FCRA). Before reusing the report, however, you should check your bank’s underwriting policies and procedures, which should indicate when a credit report is too stale to use. In this case, if the credit report is just a few weeks old, it may be within your underwriting policy to reuse the report. Also, if the HELOC will be used for a consumer purpose, you should provide the applicant with a new FCRA credit score disclosure and “Notice to the Home Loan Applicant.”

We are aware that some compliance consultants view the FCRA as prohibiting banks from reusing credit reports, even when for a permissible purpose. (For example, a recent compliance newsletter stated that: “. . . the credit report is a once-and-done type of document. A user cannot reuse the credit report for purposes other than the reason it was originally pulled.”) We believe that this view is mistaken.

The FCRA does require a credit report user to “certify the purposes for which the information is sought” and “that the information will be used for no other purpose.” But we do not see the logic in viewing this certification as narrowly applying to a single credit application. The Federal Trade Commission has approved the use of “blanket” certifications by credit report users — in most cases, such use does not require individual certifications for each credit report. Provided that your bank already has provided a certification indicating that you use credit reports for the permissible purpose of credit underwriting, reusing a report for that purpose will not violate the FCRA. Your added certification that you will use the credit report for “no other purpose” is directed at preventing abuses, such as pulling a credit report for underwriting purposes and later using it for impermissible marketing purposes.

Importantly, the reuse of credit reports for permissible purposes fits squarely within the consumer protection goals of the FCRA. By reusing a credit report, a lender spares the customer from paying an unnecessary fee for a duplicative credit report, while avoiding the negative consequences of creating an additional credit inquiry.

For resources related to our guidance, please see:

Fair Credit Reporting Act, 15 USC 1681g(g) (The credit score disclosure and “Notice to the Home Loan Applicant” must be provided by “[a]ny person who makes or arranges loans and who uses a consumer credit score, as defined in subsection (f), in connection with an application initiated or sought by a consumer for a closed end loan or the establishment of an open end loan for a consumer purpose that is secured by 1 to 4 units of residential real property . . . .”)

Fair Credit Reporting Act, 15 USC 1681b(a)(3)(A) (A permissible purpose to obtain a credit report exists when the user “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; . . .”)

Fair Credit Reporting Act, 15 USC 1681e(a) (A consumer reporting agency must require users of credit reports to “identify themselves, certify the purposes for which the information is sought, and certify that the information will be used for no other purpose. . . .”)

FTC, 40 Years of Experience with the FCRA (July 2011), page 66 (“Once the CRA obtains a certification from a user (e.g., a creditor) . . . it need not require the user to certify its purpose for each individual report obtained unless there is reason to believe the user may be violating its certification. . . . A CRA may accept a blanket certification that lists multiple permissible purposes.”)

Senate Committee on Banking, Housing, and Urban Affairs, Senate Report 104-185 (1995), page 39 (“Specifically, the bill provides that a person may use or obtain information from a consumer report only if the consumer report was obtained for one of the permissible purposes set forth in section 604 of the FCRA and is within the scope of the certification between the person and the provider of the report. The bill, however, does not require separate certifications for each request, but only that the request be within the scope of the applicable certification agreement. Thus, a person who obtains a consumer report will be in compliance with new section 604(f) if the person obtains the report for one of the permissible purposes set forth in section 604, and the report is covered under the person’s certification agreement with the provider of the consumer report.”)