Topic: Credit Reports
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We are using ChexSystems to review customers before they open a checking account. If a customer receives a “declined” rating from ChexSystems, we will not decline the customer’s request to open an account but will offer a different type of checking account designed for that rating. Do we need to obtain customer authorizations before using ChexSystems? Do we have any UDAAP concerns here?
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No, we do not believe that you need to obtain a customer’s authorization before obtaining a report from ChexSystems. Under the Fair Credit Reporting Act (FCRA), your bank has a permissible purpose to pull a consumer’s credit report when it has “a legitimate business need for the information in connection with a business transaction that…
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Can our bank obtain a consumer credit report on behalf of a landlord customer? The landlord would like our bank to obtain credit reports as part of its tenant application process. When a potential tenant applies, the landlord provides the tenant with a document requiring the tenant to acknowledge that their credit will be reviewed as part of the application. However, the document does not expressly authorize our bank to obtain the credit report.
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No, your bank should not pull credit reports on behalf of your landlord customer without obtaining express written permission from his applicants to do so. The Fair Credit Reporting Act (FCRA) permits a bank to obtain an individual’s credit report in limited circumstances. In our view, the only permissible purpose for pulling a credit…
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Can we review the criminal history and prior liens or judgments of an individual who signs loan documents on behalf of a small business applying for a Small Business Administration loan? Do we need the individual’s written authorization?
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Yes. We are not aware of any law or regulation that would prohibit lenders from reviewing judgments, liens, or the criminal history of persons who sign loan documents on behalf of a business entity. However, you would need written authorization from the individual before obtaining a consumer credit report as a source for your inquiry…
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An individual applied for a consumer loan and was denied. We sent him an adverse action notice regarding our credit decision. Subsequently, his wife agreed to co-sign on the loan with him, so she added her name to his original application. We have decided to deny that application, too. Is the wife as a co-applicant entitled to an adverse action notice? If so, what should the notice contain?
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Yes, the wife is entitled to an adverse action notice, but only if your denial was based at least in part on the information in her consumer report (which appears to be the case here). Adverse action notices are required by two different laws. The Equal Credit Opportunity Act (ECOA) — as implemented by Regulation…
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Our bank is hiring for an open position. We pulled credit reports for the applicants (with their consent), without obtaining numerical credit scores. One applicant had a number of negative items on their report. The hiring employee emailed the applicant regarding the report, identifying the negative items and including verbiage from the report regarding those items. Would this violate the Fair Credit Reporting Act (FCRA)?
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No, we do not believe that sharing information from a job applicant’s credit report with that applicant would violate the FCRA. Nothing in the FCRA prohibits the sharing of information from a credit report with the consumer who is the subject of the report. In fact, the FCRA may require your bank to share some…
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We obtain credit reports from a third party vendor. On the Loan Estimate for consumer mortgage loans, do we have to disclose and charge the exact fees expected to be charged by the vendor, or are we permitted to round up this fee?
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Regulation Z requires lenders to round credit report fees to the nearest whole dollar on the Loan Estimate. Amounts ending in $0.49 or under must be rounded down, and amounts ending in $0.50 or up must be rounded up. Under both Regulation X and Regulation Z, the general rule is that a lender must charge…
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We have a consumer loan with a co-signer who did not receive any proceeds of the loan. Our agreement states that if the debt is ever in default, that fact may become a part of the co-signer’s credit record. Does the Consumer Fraud and Deceptive Business Practices Act require us to provide a co-signer on a consumer loan with fifteen days’ notice before reporting a delinquent loan to credit reporting agencies? What negative information can we report with respect to the co-signer? Can we report the borrower’s late payments on the co-signer’s file with the credit bureaus?
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Yes, your bank must notify a co-signer of the primary borrower’s delinquency at least fifteen days before reporting adverse information about the co-signer to a credit reporting agency. The Illinois Consumer Fraud and Deceptive Business Practices Act (“Consumer Fraud Act”) requires lenders to notify co-signers before reporting adverse information to a consumer reporting agency. While…
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We obtain our credit reports through a vendor, not directly from the credit bureaus. The vendor provides merged credit reports for married co-applicants, but not for unmarried co-applicants (for unmarried co-applicants it requires us to obtain two individual credit reports). We currently charge loan applicants the exact credit report fees that the vendor charges us. The vendor’s charge for an individual report is slightly more than half the cost of a merged report; in other words, married co-applicants receive a slight pricing advantage over unmarried co-applicants. Does this create a fair lending issue?
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Yes, we believe that a pricing disparity between a merged credit report for two married co-applicants (commonly misnomered as a “joint credit report”) and two individual credit reports for unmarried co-applicants would pose a fair lending issue, since the cost of the less expensive merged credit report is made available on the basis of the…
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We use a third party vendor that prepares credit reports on our loan applicants. Sometimes the reports show multiple names and addresses associated with the applicant’s social security number under “SSN Validation.” Our customers disclaim any knowledge of these names and addresses, and the other information on their reports appears to be accurate. The report does state that its information cannot be used “in establishing a customer’s eligibility for credit, residence, or employment.” Should we require the customers to contact the credit bureaus or certify in writing that they are unaware of who these people are, or is there other information we should require?
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From what you have told us, it appears that you are describing a vendor’s proprietary report and not a credit report issued by a credit bureau. If so, it is possible the additional names and addresses are being provided as part of your vendor’s process for validating an applicant’s social security number (which may be…
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When we report negative information about a customer to a credit bureau, what notice must we provide to the customer? Do we have to provide a disclosure for every delinquent loan? Should we provide the disclosure before reporting, or within a specified number of days after reporting?
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The Fair Credit Reporting Act (FCRA) requires you to provide customers with a notice before furnishing negative information to a credit bureau. Regulation V provides two model forms of notice for this purpose. While the FCRA and Regulation V do not require the use of these model notices, they do provide a safe harbor when…