Topic: Fair Credit Reporting Act (FCRA)
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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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Our bank received a Chapter 7 bankruptcy notice for a customer who has a home equity line of credit (HELOC) with our bank. Can we decrease the available amount on the line, without terminating it, so that the customer may no longer access the funds? If so, what notification, if any, do we need to provide to the customer? Also, would we need to send an adverse action notice to the borrower, or does the bankruptcy prevent us from doing so?
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Yes, we believe that your bank may reduce a HELOC’s line of credit after receiving a Chapter 7 bankruptcy notice, subject to the notice requirements discussed below. Regulation Z generally prohibits creditors from reducing or freezing a HELOC’s credit limit unless an exception applies. One exception permits the reduction or freezing of a line of…
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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 are a national bank, and we recently moved our wealth and farm management groups into a separate, state-chartered trust company that will be regulated by the IDFPR and the Federal Reserve. Which compliance regulations apply to a trust company? Do the following apply? BSA, OFAC, AML, CIP, USA Patriot Act, FACT Act, Elder Financial Abuse, UDAAP, and GLBA.
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Trust companies are subject to all the laws mentioned in your question. Broadly speaking, there are no exemptions for trust companies in the laws and regulations that generally apply to banks, bank holding companies, and their subsidiaries. Also, you mention in your question that the trust company will be regulated by the IDFPR and the…
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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…
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Do the CFPB’s changes to the FCRA model notices in appendices I and K of Regulation V change any disclosures that the bank makes to its customers or potential customers?
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Yes, your bank will need to use one of the modified disclosures, but only in situations where your bank is taking an adverse action in an employment context. The CFPB’s interim final rule modifies two notices required by the Fair Credit Reporting Act (FCRA): (1) the “Summary of Consumer Rights” (Appendix K), which must be…
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One of our customers is making payments under a confirmed Chapter 13 bankruptcy plan. The plan requires the customer to make certain payments to the Chapter 13 trustee to be distributed to the bank. If we have not received the payments, or receive late or incomplete payments, can we report the customer’s loan account as delinquent to a credit bureau? The customer has advised that they are current on all plan payments due to the trustee.
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Yes, if a delinquency exists on an account under the terms of the original loan agreement, a bank may report the account as delinquent. Although a bankruptcy filing triggers an automatic stay that prohibits a creditor from engaging in any activity that might be construed as an attempt to collect on a debt, the stay…
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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…