Thursday, February 29, 2024

Joint Users of Credit Reports


I am the Compliance Officer of a bank in the northwest. We run credit reports on applications. If we cannot make the loans, we provide them to our investors and other lenders. 

Be that as it may, our regulator suggests we revise our FCRA policy regarding transferring an applicant's credit report to other lenders for processing. They want us to include language requiring an applicant's express consent to transfer the credit report. 

What advice can you offer to revise our FCRA policy for transferring the credit report and application to another lender?


Policies and Procedures 


Let's begin with some basics about the Fair Credit Reporting Act (FCRA). In general, the FCRA affects any person or entity that is: 

·       A Consumer Reporting Agency (CRA), such as a credit bureau; 

·       Users of the consumer reports that a CRA produces; or 

·       Those who furnish information about consumers to CRAs. 

CRAs have several responsibilities under the FCRA, such as: 

·       Ensuring that consumer reports are provided to others only for a purpose permissible under the FCRA; 

·       Ensuring that consumer reports include required information but not information that is prohibited; 

·       Disclosing information on file to consumers in response to their request; and 

·       Investigating consumers' claims of inaccurate information in a consumer report and correcting the information if it is erroneous. 

Anyone who provides a consumer report to others becomes a CRA[i] and is subject to the regulations governing these agencies. This is true regardless of whether the person prepared the consumer report or provided a copy of a consumer report prepared by someone else. 

For example, if a financial institution obtains a consumer's credit report from a CRA (i.e., a credit bureau), it would become a CRA if it provided a copy of that credit report to anyone else. 

Most financial institutions do not want to become CRAs because they do not want the compliance responsibilities imposed on such agencies. Therefore, most financial institutions do not provide credit reports or information contained in credit reports to third parties unless doing so is specifically permitted under the FCRA. 

Which brings us to joint users of credit reports! 

Lenders are permitted to provide consumer report information to other lenders without violating the FCRA if they are "joint users" of the specific consumer report. Although not contained in the FCRA, this exception is established in a commentary of the Federal Trade Commission (FTC).[ii] 

Lenders who forward credit reports to other lenders jointly involved in a lending decision are not considered CRAs, provided the application is forwarded to the other lenders at the consumer's request. 

A loan application, including the credit report, is forwarded to several investors in many mortgage loan situations. If this exception were not permitted, the lender forwarding the credit report would be considered a CRA under the FCRA. However, because of the exception, the lender and the investors who receive the application and credit report are considered "joint users" involved jointly in the credit decision. 

The key to taking advantage of this exception is that the application is forwarded to these other lenders at the consumer's request: 

"In order for the additional creditors to whom your client forwards the loan application to have a permissible purpose to obtain a consumer report, the potential credit transaction must be initiated by the consumer. For this reason, … a lender may forward a loan application to another lender at the consumer's request. Accordingly, [the lender] must obtain the consumer's consent prior to forwarding such information to additional lenders."[iii] (My emphasis.) 

Note that consumer consent is required to forward the application. 

This leaves open the question of what form such consent should take. In light of this, the FTC concluded that the inclusion in a lender's loan application of a section that enables the consumer to indicate consent for the loan application file to be forwarded to "other lenders" would be 

"… sufficient to satisfy the requirement that subsequent creditors have a permissible purpose to receive the consumer report included in the file. Such action can only be taken, however, in pursuit of the approval of the loan application."[iv] 

Therefore, a consumer's written authorization to submit an application to other lenders should be included in any situation where it may occur. This can be done separately, as part of the application, or as part of a broker agreement with the consumer. 

Jonathan Foxx, Ph.D., MBA
Chairman & Managing Director 
Lenders Compliance Group

[i] Fair Credit Reporting Act, Section 603(f); 15 USC section 1681a(f))

[ii] Elucidated regarding an earlier version of the FCRA. See “Joint Users” – FCRA §§ 603(f) and 604(a)(3)(A), Federal Trade Commission Letter, November 20, 1998, Division of Financial Practices, Federal Trade Commission. 16 CFR 600. See also Statement of General Policy or Interpretation; Commentary on the Fair Credit Reporting Act, 55 FR 18804, May 4, 1990, Rules and Regulations.

[iii] Idem

[iv] Op. cit. ii