Yes, we believe you have a permissible purpose under the Fair Credit Reporting Act (FCRA) to pull the customer’s credit report without his permission in this situation. You also may pull a credit report with the customer’s written permission.
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. However, 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, a 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 the line of credit to prevent further fraudulent withdrawals). Consequently, we believe that your bank has a permissible purpose to pull the customer’s credit report to review the account. Further, courts have found that when a permissible purpose exists, businesses do not need to obtain a consumer’s permission to pull their credit report.
In addition, the FCRA permits a bank to pull a credit report for a consumer who provides their written permission to do so. When dealing with closed-end loans, you should check your loan agreement for language that may authorize this.
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.’”)
- Washington v. S. Shore Bank, No. 02 C 7403, 2004 WL 2038425, at *6 (N.D. Ill. Aug. 27, 2004) (“It does not matter whether ShoreBank had her permission because one can obtain a credit report without the consumer's permission as long as the credit report is obtained for permissible purpose under the FCRA.”)
- FCRA, 15 USC 1681b(a)(2) (“Subject to subsection (c), any consumer reporting agency may furnish a consumer report under the following circumstances and no other: . . . (2) In accordance with the written instructions of the consumer to whom it relates; . . .”)