The Fair Credit Reporting Act ("FCRA") is the federal law that regulates the credit reporting industry. The FCRA determines when a credit report can be obtained and grants credit report access to companies which have a "permissible purpose."
The FCRA specifies those purposes as the granting of credit, the collection of a debt, the underwriting of insurance, employment purposes, for issuing a license as required by some government agencies or for a legitimate business transaction between a business and a consumer. Obtaining a credit report under false pretenses, or improper use of a credit report is a violation of federal law.
LINK TO FEDERAL TRADE COMMISION – FCRA (PDF)
WHAT DOES “PERMISSIBLE PURPOSE” MEAN?
The Fair Credit Reporting Act ("FCRA") is the federal law that regulates the credit reporting industry. The FCRA determines when a credit report can be obtained and grants credit report access to companies which have a "permissible purpose."
One permissible purpose is when a lender pulls a soft inquiry for the purposes of prescreening the customer for credit, and making a “Firm Offer of Credit”. But you must make certain that your offer and how you advertise it is legal.
WHAT IS A FIRM OFFER OF CREDIT?
The term "firm offer of credit" is important to understanding "prescreening". Its refers to any offer of credit to a consumer that will be honored if the consumer is determined, based on information in a consumer report on the consumer, to meet the specific criteria used to select the consumer for the offer, except that the offer may be further conditioned on one or more of the following:
- The consumer being determined, based on information in the consumer's application for the credit, to meet specific criteria bearing on credit worthiness, as applicable, that are established before selection of the consumer for the offer; and for the purpose of determining whether to extend credit pursuant to the offer.
- The lender making the offer may determine whether the consumer continues to meet the specific criteria used to select the consumer for the offer, by using information in a consumer report on the consumer, information in the consumer's application for the credit, or other information bearing on the credit worthiness of the consumer; or of the information in the consumer's application for the credit, to determine that the consumer meets the specific criteria bearing on credit worthiness.
- The consumer furnishing any collateral that is a requirement for the extension of the credit that was established before selection of the consumer for the offer of credit; and disclosed to the consumer in the offer of credit.
- Such offers must pass the “permissible purpose” intent of the FCRA. The purpose being to make an offer that contains all the material terms of the offer.
- The offer must provide meaningful value.
But be careful of the meaningful value, you might violate FCRA regulations if you create a mailer that makes an offer of credit such as: “pre-approval of credit up to $300.” The appeals court has ruled that such a low-ball offer is not meaningful for financing a car purchase. This is the reason why our lenders offer a minimum of $4,000 up to $39,000.
Offers must also contain additional precise language in the text. Courts are demanding that all of the terms of the offer are disclosed in writing in the letter or it is not a firm offer of credit and may violate FCRA regulations.
Courts say that a firm offer of credit must contain the following:
- Interest rate and method of rate calculation
- Length of contract
- Amount of Credit
- Clearly visible notices and disclaimers
We have remained fully compliant in accordance with FCRA guidelines, and we are familiar with the laws and recent court rulings in these matters. We continuously strive to make sure that your marketing piece is fully complaint and entirely legal.