We have a policy that a customer’s credit report is valid for six months, so we do not pull a new report or charge the customer if they apply for an additional loan within that six-month period. Is it permissible to provide this benefit to returning customers when new customers applying for loans are charged for a credit report? Also, is it permissible for us to allow a loan officer to choose not to charge a new customer for a credit report for various reasons?

Yes, we believe it is permissible to reuse a credit report, allowing a returning customer to avoid the fee for a new report within the six-month timeframe set by your bank’s policy.

The 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). If your bank already has provided a certification to the consumer reporting agency indicating that you use credit reports for the permissible purpose of credit underwriting, reusing a report for that purpose will not violate the FCRA. Additionally, we do not believe that providing this benefit to returning customers raises any fair lending concerns since you are not waiving the credit report fees for the returning customers, as none are being incurred.

Note that when reusing a credit report for a consumer purpose residential mortgage loan, you should provide the applicant with a new Fair Credit Reporting Act (FCRA) credit score disclosure and “Notice to the Home Loan Applicant.”

However, allowing loan officers to use their individual discretion to waive credit report fees for certain new customers has some potential for raising fair lending concerns. Such use of discretion might result in a “disparate impact” on a protected class, even if no one at the bank has any intent to discriminate. The FFIEC Interagency Fair Lending Procedures provide a general review of disparate impact and note that “broad discretion in loan pricing,” including loan fees, “without clear and objective criteria” is an indicator of “potential disparate treatment.” While the FFIEC focuses primarily on interest rates and points, it also is focused on bank employees’ discretion when charging loan fees. Consequently, your bank may wish to establish clear and objective criteria for loan officers to use when waiving credit report fees.

For resources related to our guidance, please see:

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; . . .”)

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.”)

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 . . . .”)

Equal Credit Opportunity Act, 15 USC 1691 (“It shall be unlawful for any creditor to discriminate against any applicant, with respect to any aspect of a credit transaction (1) on the basis of race, color, religion, national origin, sex or marital status, or age (provided the applicant has the capacity to contract); (2) because all or part of the applicant’s income derives from any public assistance program; or (3) because the applicant has in good faith exercised any right under this chapter.”)

Equal Credit Opportunity Act, 15 USC 1691a(d) (“The term ‘credit’ means the right granted by a creditor to a debtor to defer payment of debt or to incur debts and defer its payment or to purchase property or services and defer payment therefor.”)

FFIEC Interagency Fair Lending Procedures, page iv (“When a lender applies a racially or otherwise neutral policy or practice equally to all credit applicants, but the policy or practice disproportionately excludes or burdens certain persons on a prohibited basis, the policy or practice is described as having a ‘disparate impact.’ . . . The fact that a policy or practice creates a disparity on a prohibited basis is not alone proof of a violation. When an Agency finds that a lender’s policy or practice has a disparate impact, the next step is to seek to determine whether the policy or practice is justified by ‘business necessity.’ The justification must be manifest and may not be hypothetical or speculative. Factors that may be relevant to the justification could include cost and profitability. Even if a policy or practice that has a disparate impact on a prohibited basis can be justified by business necessity, it still may be found to be in violation if an alternative policy or practice could serve the same purpose with less discriminatory effect.”)

FFIEC Interagency Fair Lending Procedures, page 9 (“Indicators of potential disparate treatment in Pricing (interest rates, fees, or points) such as: . . . Presence of broad discretion in loan pricing (including interest rate, fees and points), such as through overages, underages or yield spread premiums. Such discretion may be present even when institutions provide rate sheets and fees schedules, if loan officers or brokers are permitted to deviate from those rates and fees without clear and objective criteria.”)