Topic: Credit Reports
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Our loan department is considering extending auto loans to minors with an adult co-borrower. Can we require the co-borrower to be the minor’s parent or guardian? What would happen if the adult co-borrower dies, leaving only the minor on the loan? Can we pull credit reports for or report negative credit information on a minor?
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Requiring a Parent or Guardian to be a Co-Borrower Yes, we believe you may require the co-borrower for a loan to a minor to be the minor’s parent or guardian, as a minor cannot enter into a legally binding contract in Illinois. In Illinois, the general rule is that an agreement with a minor is…
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Our bank issues balloon notes that we frequently extend on maturity. When considering an extension, our loan review policy requires us to examine the borrower’s credit (without obtaining their consent), and we have always run hard credit inquiries for these reviews. We would like to switch to using soft credit inquiries that do not appear on our customers’ credit reports. Are there any rules that would prohibit us from using soft credit inquiries for these reviews, and do we need the borrowers’ consent to pull their credit? An examiner once advised us to do credit checks before renewing loans, and an auditor recommended a hard credit pull for new loans, but a representative from the Federal Reserve said we could use soft credit pulls in this case.
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No, we are not aware of any law or regulation that would prohibit you from using “soft pulls” for your loan reviews conducted before renewing loans. We do not believe that you need to obtain borrowers’ consent when pulling credit for purposes of deciding whether to offer a loan extension for the balloon notes. Under…
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Do we need to include the part of a credit report disclosing an individual’s credit score when sending an adverse action notice? In certain situations, we use Form C-2 from Appendix C of Regulation B as our adverse action notice, and we want to make sure that we do not have to provide any additional documentation when using the form. But if we don’t use Form C-2, are there any situations where we would have to send an individual this part of the credit report along with an adverse action notice?
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No, we do not recommend separately including any part of a consumer report with an adverse action notice. If the adverse action was based on information from a consumer report, you must provide certain information about the consumer report in the adverse action notice, and if the consumer’s credit score was a factor in the…
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Are joint (merged) credit reports allowed for joint consumer loans? For example, if two applicants have indicated their intent to jointly apply for credit, and each applicant’s income and assets will be used as a basis for our underwriting, may we obtain a joint credit report? If so, are there any privacy concerns regarding providing a joint report to two parties, and do different rules apply to married applicants? Also, Fannie Mae and Freddie Mac require “tri-merge” credit reports — does this pose any concerns?
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Yes, you may obtain a merged credit report for co-applicants, in which vendors merge the information from two individuals’ credit reports — subject to the caveat that there may be some fair lending concerns if your vendor offers joint reports for married couples at a lower cost than separate credit reports for unmarried individuals. The…
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A customer applied for credit, and we denied the application. The customer reapplied with a new co-applicant, and we denied the second application. Do we need to send a second denial letter to both the original applicant and the new co-applicant?
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We believe you must send an adverse action notice to the original applicant, and if the denial was based in part on information in the co-applicant’s consumer report, to the co-applicant as well. The Equal Credit Opportunity Act (ECOA) and Regulation B adverse action requirements apply to the “applicant” for credit. When there are multiple…
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Our loan policy states that we may reuse credit bureau reports that are less than sixty days old. Are there any regulations that prohibit credit reports from being reused? Are there any issues with keeping this provision in our policy?
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No, we are not aware of any regulations that prohibit a credit report from being reused for the purpose of reviewing a subsequent credit application, subject to the requirements below. As such, we believe your bank may continue to reuse credit reports less than sixty days old for the permissible purpose of credit underwriting. Of…
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We have a customer with a home equity line of credit (HELOC) at our bank who believes that there has been fraudulent activity on his account. The customer said that a fraudulent check was drawn on the HELOC and paid to another bank. Do we have a permissible purpose to pull this customer’s credit report — without obtaining his permission — to determine if there has been any fraud on the account? Can we pull the credit report if the customer does grant permission?
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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…
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Our bank received a Chapter 7 bankruptcy notice for a customer who has a home equity line of credit (HELOC) with our bank. We are in a second lien position and want to know what our current position is with respect to the first lien. We also are considering freezing the line due to the borrower’s bankruptcy. Do we have a permissible purpose to pull the customer’s credit report?
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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…
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When an individual applies to open a new account, we make an oral disclosure to the applicant that we are pulling their consumer credit report, which we obtain from ChexSystems. When an applicant’s request to open a new account is denied and we provide them with an in-person adverse action notice, we also make an oral disclosure that we pulled the applicant’s consumer credit report. Is this form of notification appropriate, or do we need to follow the notice requirements for investigative consumer reports? Should we obtain written permission from an applicant before pulling a consumer credit report?
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We believe the account opening notification procedures you described are appropriate. We are not aware of any initial disclosures required by the Fair Credit Reporting (FCRA) at the time of an account opening. When pulling a credit report from ChexSystems, your bank is not required to follow the FCRA’s notice requirements for investigative consumer reports,…
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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?
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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…