With apologies to Mr. Lucas, I never intended to create a trilogy. A long time ago in a galaxy not far away . . .
It has been almost a year since my last Fair Credit Reporting Act (FCRA) article* and I have a new FCRA issue to address that has been a big discussion topic within our compliance team. Many lenders contract with a third party to obtain a credit report from the big three; however, the preparation of the adverse action notice becomes challenging depending on what type of report is obtained.
First, let’s look at the FCRA basics. Section 615 of the act requires the lender to provide a notice of adverse action taken, and when information from a credit report was used in the decision process, the lender must provide details about the credit reporting agency (CRA). In addition, if a credit score was used in making the decision, the credit score and credit reporting agency must be disclosed.
Now that seems pretty simple: list the CRA used in making the decision. Well, not so fast. Section 603(f) defines the term consumer reporting agency to mean “any person which, for monetary fees, dues, or on a cooperative nonprofit basis, regularly engages in whole or in part in the practice of assembling or evaluating consumer credit information or other information on consumers for the purpose of furnishing consumer reports to third parties, and which uses any means or facility of interstate commerce for the purpose of preparing or furnishing consumer reports."
Does this make an intermediary third-party vendor who assembles the credit report the CRA listed on the adverse action notice?
Maybe, but it is more complex because there is another term we have to become aware of and that is reseller. Section 603(u) defines reseller as “a CRA that (1) assembles and merges information from other consumer reporting agencies for purposes of furnishing such information to third parties; and (2) does not maintain a database of the assembled or merged information.”
So it really depends on whether your vendor assembles the information and deletes duplicates in what is called a merge and purge process. If the vendor merges and purges the data, it is a reseller and then becomes a CRA. If, on the other hand, your vendor acts as a pass-through entity without deleting or combining duplicate information, it is not a “reseller."
So what does this mean . . . ?
If your vendor is a reseller, the vendor should be listed on the adverse action notice as the CRA. If your vendor acts as a pass-through, the actual originating CRA must be listed. Keep in mind that within your institution you may have different processes. Your mortgage area may use a merge and purge reseller, while your consumer lending area may use a pass-through process. Therefore, you may need two separate notice templates. What about the credit score disclosure? That is the easier part of the discussion. The name of the consumer reporting agency from which you obtained the score being disclosed should be used.
The following are examples of scenarios:
Example 1. Lender uses a reseller (LOAN CRA R Us) through its document vendor, and the lender orders a tri-merge and purge mortgage report. The application is denied, and the credit score used was from Trans Union. The adverse action notice would list in the FCRA CRA section LOAN CRA R Us as the CRA. The credit score section would list LOAN CRA R Us and the credit score.
Example 2. Lender uses a vendor to obtain a Trans Union credit report, and the loan is denied based on information from the credit report. A credit score was also used. The adverse action notice would list Trans Union in the FCRA section as well as in the credit score section. The takeaway here is to understand what type of vendor relationship you have and how your credit reports are delivered.
*Other FCRA-related articles I have authored recently are: