Disclaimer: This presentation does not constitute legal advice or a legal opinion on any matter discussed. This presentation is for educational purposes only. If you have a specific legal question



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Disclaimer: This presentation does not constitute legal advice or a legal opinion on any matter discussed.  This presentation is for 

educational purposes only.  If  you have a specific legal question, please consult with an attorney of  your own choice.

Steve Van Beek, Esq., NCCO

Attorney and Counselor

svb@h2law.com

| (248) 723-0521

Obtaining Credit Reports Properly



Understanding Permissible Purposes 

under the Fair Credit Reporting Act

© 2016 Howard & Howard Attorneys PLLC

Overview 

Permissible Purposes



Cross-Selling

Prescreen Offers



Required Disclosure & Opt-Out

Negative Information Notice



Other FCRA Issues



2

© 2016 Howard & Howard Attorneys PLLC

Fair Credit Reporting Act

Section 604 of Fair Credit Reporting Act



15 U.S.C. 1681b

Except for prescreen offers, a consumer 



reporting agency may furnish a consumer 

report under the following circumstances 

and no other:

1.

In response to court order or a grand jury 



subpoena (not applicable to CUs)

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© 2016 Howard & Howard Attorneys PLLC

Fair Credit Reporting Act

Under the following circumstances and 



no other:

2.

In accordance with the written instructions



of the consumer to whom it relates;

Strongest permissible purpose:



Member gives authorization, in writing



Example: Consent to credit report pull to 

establish membership or open new 

checking account

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© 2016 Howard & Howard Attorneys PLLC

Fair Credit Reporting Act

Under the following circumstances and 



no other:

3.

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;

Member loan application



Review existing member loan or account



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© 2016 Howard & Howard Attorneys PLLC

Fair Credit Reporting Act

Under the following circumstances and 



no other:

3.

To a person which it has reason to believe



B.

Intends to use the information for employment 

purposes;

C.

Intends to use the information in connection with 



the underwriting of insurance involving the 

consumer;

For employment purposes, special requirements 



under 15 U.S.C. 1681b(b) apply

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© 2016 Howard & Howard Attorneys PLLC

Fair Credit Reporting Act

Under the following circumstances and 



no other:

3.

To a person which it has reason to believe



D.

Intends to use the information in connection with a 

determination of the consumer’s eligibility for a license or 

other benefit granted by a governmental instrumentality 

required by law to consider an applicant’s financial 

responsibility or status;

E.

Intends to use the information, as a potential investor or 



servicer, or current insurer, in connection with a valuation of, 

or an assessment of the credit or prepayment risks associated 

with, an existing credit obligation;

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© 2016 Howard & Howard Attorneys PLLC

Fair Credit Reporting Act

Under the following circumstances and no other:



3.

To a person which it has reason to believe

F.

Otherwise has a legitimate business need for the 



information

i.

In connection with a business transaction that is initiated 



by the consumer; or

ii.


To review an account to determine whether the consumer 

continues to meet the terms of the account

G.

Executive departments and agencies in connection with the 



issuance of government-sponsored individually-billed travel 

charge cards.



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© 2016 Howard & Howard Attorneys PLLC

Fair Credit Reporting Act

Three Permissible Purposes for Member Transactions



1.

Written instructions

2.

In connection with a credit transaction (including 



review and collection)

3.

Other legitimate business need:



Transaction initiated by member

Review an account to determine if still meet the terms



Each credit pull must have a permissible purpose

Review existing procedures



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© 2016 Howard & Howard Attorneys PLLC

Fair Credit Reporting Act



Compliance Review

When does our CU obtain credit reports?



Credit report versus consumer report?

Soft pull vs. Hard pull



Beacon, ChexSystems, FICO

What is disclosed to members?



Membership application

Loan application



Written authorization?



Do we have a permissible purpose?

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© 2016 Howard & Howard Attorneys PLLC

Cross-Selling

Can we use a credit report pulled for 



membership to cross-sell a credit card?



What was the permissible purpose?

If it was to open the membership, the permissible 



purpose is limited to that action

Transaction initiated by the member



Membership request

Member did not request or authorize the 



cross-sell of the credit card or other loans

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© 2016 Howard & Howard Attorneys PLLC

Cross-Selling

Federal Trade Commission Opinion



“Gowen Letter” – 1999

“Your questions raise the issue of whether a 



creditor in a closed end credit transaction may 

exploit consumer reports obtained for "review" 

purposes in order to market its products or 

services. In the circumstances you described, we 

believe the answer is "no.".”

12


© 2016 Howard & Howard Attorneys PLLC

Cross-Selling

No permissible purpose for cross-selling



First, "review" is not a purpose for which a closed-end 

creditor would ordinarily need to obtain consumer reports 

on its customers…. The terms of a closed-end credit 

transaction are predetermined and generally may not be 

changed unilaterally by the creditor unless the contract 

expressly provides for such action (e.g., in the event of 

default). Therefore, the creditor is unlikely to have a reason 

to consider "whether to retain or modify current account 

terms" and, thus, would not have any routine need to 

procure consumer reports to "review" its accounts.

13


© 2016 Howard & Howard Attorneys PLLC

Cross-Selling

No permissible purpose for cross-selling



Second, the credit bureau must, pursuant to Section 607(a), 

require the creditor to "certify the purposes for which the 

information is sought, and certify that the information will 

be used for no other purpose." (emphasis added). Because 

Section 604(a) provides no authority for a creditor (or any 

party) to use a consumer report for marketing purposes, a 

creditor would violate its certification by using an existing 

report in such a manner.

https://www.ftc.gov/policy/advisory-opinions/advisory-opinion-gowen-04-29-99



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© 2016 Howard & Howard Attorneys PLLC

Cross-Selling

No permissible purpose for cross-selling



Credit union cannot use a credit report obtained for a 

membership or loan application for a second purpose

Similarly, credit union cannot use a credit report obtained 



for an “account review” for a second purpose

FCRA requires the CU to always be able to “point back to” 



the permissible purpose for that specific credit report usage



Solution:  Obtain the member’s written authorization 

that specifically grants the ability to cross-sell

15


© 2016 Howard & Howard Attorneys PLLC

Prescreen Offers

Prescreen Offers



Section 604(c) allows the credit union to 

prescreen members for “credit transactions 

that are not initiated by the consumer”

Prescreening is the credit reporting agency 



determining which members meet a credit union’s 

predetermined criteria

Excludes members who have opted out of 



prescreening and members under 21 (unless the 

member has opted in)



16

© 2016 Howard & Howard Attorneys PLLC

Prescreen Offers

Prescreen Offers



Credit union must provide a “firm offer of 

credit” to consumers meeting the criteria



Firm Offer of Credit:  “any offer or credit…to a 

consumer that will be honored if the consumer is 

determined, based on information in a consumer 

report…to meet the specific criteria used to select 

the consumer for the offer…”



Example: All members with a 720 credit score will be 

offered a 9.99% APR credit card



17

© 2016 Howard & Howard Attorneys PLLC

Prescreen Offers

Prescreen Process



The credit union sends criteria to the credit bureau

Consumers meeting that criteria are sent the 



prescreened offer

A consumer accepting the offer must receive the 



offer (as long as they still meet the criteria)

The credit union cannot add new criteria or 



requirements (“postscreen”) when the consumer 

attempts to “accept” the firm offer

Cannot use a “Two-Step” process



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© 2016 Howard & Howard Attorneys PLLC

Prescreen Offers

Prescreen Disclosure and Opt-Outs



Regulation V – 12 CFR 1022.54

(c) Prescreen opt-out notice. Any person who uses a 



consumer report on any consumer in connection with any 

credit or insurance transaction that is not initiated by the 

consumer, and that is provided to that person under 

section 604(c)(1)(B) of the FCRA (15 U.S.C. 1681b(c)(1)(B)), 

shall, with each written solicitation made to the consumer 

about the transaction, provide the consumer with the 

following statement, consisting of a short portion and a 

long portion, which shall be in the same language as the 

offer of credit or insurance:



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© 2016 Howard & Howard Attorneys PLLC

Prescreen Offers

Prescreen Disclosure and Opt-Outs



Regulation V – 12 CFR 1022.54



Short Notice (Appendix D to 1022):

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You can choose to stop receiving “prescreened” 

offers of credit from this and other companies by 

calling [toll-free number]. See PRESCREEN & 

OPT-OUT NOTICE on the other side for more 

information about prescreened offers.


© 2016 Howard & Howard Attorneys PLLC

Prescreen Offers

Prescreen Disclosure and Opt-Outs



Regulation V – 12 CFR 1022.54



Long Notice (Appendix D to 1022):

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PRESCREEN & OPT-OUT NOTICE: This “prescreened” offer of 

credit is based on information in your credit report indicating that 

you meet certain criteria. This offer is not guaranteed if you do not 

meet our criteria [including providing acceptable property as 

collateral]. If you do not want to received prescreened offers of credit 

from this or other companies, call the consumer reporting agencies 

toll-free, [toll-free number]; or write: [consumer reporting agency 

name and mailing address].


© 2016 Howard & Howard Attorneys PLLC

Negative Information Notice

Fair Credit Reporting Act



Section 623(a)(7)

“(A) Notice to Consumer Required 



(i) In general. If any financial institution that extends credit 

and regularly and in the ordinary course of business 

furnishes information to a consumer reporting agency 

described in section 603(p) furnishes negative information 

to such an agency regarding credit extended to a customer, 

the financial institution shall provide a notice of such 

furnishing of negative information, in writing, to the 

customer.”



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© 2016 Howard & Howard Attorneys PLLC

Negative Information Notice

Appendix B to 12 CFR 1022 (Regulation V)





Model B-1

We may report information about your account to credit 

bureaus. Late payments, missed payments, or other 

defaults on your account may be reflected in your credit 

report.



Model B-2



We have told a credit bureau about a late payment, missed 

payment or other default on your account. This information 

may be reflected in your credit report. 

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© 2016 Howard & Howard Attorneys PLLC

Other FCRA Issues



Risk-Based Pricing Notices

Subpart H to Regulation V (12 CFR 1022.70 – 75)





Adverse Action Notices

Credit Score Disclosure



Includes denials for debit card; checking account



Affiliate Marketing

Subpart C of Regulation V (1022.20 – 27)





Duties of Furnishers of Information

Subpart E of Regulation V (1022.40 – 43) 



Including direct disputes 



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© 2016 Howard & Howard Attorneys PLLC

Key Takeaways

Which permissible purposes can we use?





Which permissible purpose are we using?

What disclosure are we giving to members?



Are we obtaining a member’s written authorization?

Does that written authorization specifically discuss our 



ability to obtain and use credit reports for cross-selling?

If we are prescreening, are we making firm offers of credit?



Confirm we are providing negative information notice

Review and confirm FCRA/Regulation V compliance



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Disclaimer: This presentation does not constitute legal advice or a legal opinion on any matter discussed.  This presentation is for 

educational purposes only.  If  you have a specific legal question, please consult with an attorney of  your own choice.

Steve Van Beek, Esq., NCCO

Attorney and Counselor

svb@h2law.com

| (248) 723-0521

FCRA Permissible Purposes



QUESTIONS?


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