QUESTION:
At times, our loan officers pull credit without obtaining a written
authorization from the consumer? Is this acceptable or do we need written
authorization prior to pulling credit? What are the penalties for
noncompliance?
ANSWER:
Although it is always best to obtain a written authorization, a
consumer reporting agency may furnish a credit report “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.”
[15 USC §1681b(a)(3)(A)]
Absent a written authorization (or a documented verbal authorization),
the issue is whether this permissible purpose existed. If the consumer applied
for credit, whether in person, by phone, by mail, or electronically, the
creditor has a permissible purpose to obtain a consumer report on the
applicant, and thus does not need specific authorization from the applicant. That
being said, it is always best to obtain a written authorization from the
consumer so that you are protected in case the consumer asserts, especially in
instances of phone applications, that he did not apply for credit. If verbal
authorization was provided, the loan officer should document the file and
confirm such verbal authorization as soon as practical with the customer such
as through an e-mail confirmation.
The private enforcement provisions of the Fair Credit Reporting Act (FCRA)
permit a consumer to bring civil suit against a credit reporting agency for
willful noncompliance with the FCRA, for actual damages in an amount of at
least $100 but not more than $1,000 per violation. If a natural person obtains
a consumer report through false pretenses or without a permissible purpose, the
consumer will be entitled to the greater of $1,000 or actual damages.
Additionally, the consumer can seek punitive damages (there is no
ceiling on the amount that may be awarded) and, if successful, the consumer
will be awarded attorney’s fees and cost of suit.
[15 USC §1681n]
If a business or natural person obtains a consumer report from a
consumer reporting agency through false pretenses or without a permissible
purpose, the business or consumer will be liable to the consumer reporting
agency for the greater of $1,000 or actual damages sustained by the agency. In
the case of negligent noncompliance, the consumer may bring suit for actual
damages, and if the consumer prevails, obtain an award of attorney’s fees and
costs of suit. [15 USC §1681o]
The FCRA also outlines administrative enforcement consequences facing
businesses and individuals who intentionally and continuously persist in
violating the FCRA regulations. Repeat offenders are subject to a fine of up to
$2,500 per infraction. In determining the amount of the fine, consideration is
given to the history of the business’ or individual’s prior conduct, the degree
to which they are culpable, and their ability to pay, among other factors. [15
USC 1681s] An individual using false pretenses to obtain a consumer report may
also be subject to criminal charges.
In addition to the federal Fair Credit Reporting Act, a creditor must
be cognizant of state laws as some states, such as Vermont, require the
consumer’s authorization prior to pulling credit. Other states do not have such
a requirement.
Joyce Wilkins Pollison
Director/Legal & Regulatory Compliance
Lenders Compliance Group
