BACK TO BASICS, Continued—The Guaranteed Offer of Credit!
The fundamental principle of the Fair Credit Reporting Act is that a creditor must have a permissible purpose for obtaining a consumer report on a consumer. For our purposes, this means that the consumer has initiated a consumer credit transaction with the creditor; and, the creditor then orders a consumer report to verify the creditworthiness of the consumer. In the absence of a consumer initiated request for credit (or insurance), the creditor does not have a permissible purpose for obtaining the report. That is how the system is designed
There is an exception to this rule if the consumer report is obtained by the creditor in connection with its plan to make a guaranteed offer of credit to the consumer. This process is initiated by the creditor supplying to the credit reporting agency the criteria that it is looking for in extending guaranteed offers to consumers. And, the credit reporting agency then responds with a prescreened list of consumers meeting such criteria. Then, the creditor extends the guaranteed offer of credit to all prescreened consumers on the list. The offer sometimes takes the form of a “live check.” Other times, the offer is simply extended in an offer-letter. That is how this exception to the rule is designed to work.
Consumers do have the right to prohibit information contained in their consumer file from being used in connection with any prescreened offer. We may opt-out of such prescreened offers of credit through a toll-free number or a website; and, notice of this opt-out right must be disclosed on each prescreened offer.
The Creditor must not lose sight of the basic requirement that it must extend the guaranteed offer of credit to all consumers meeting the criteria set out by the creditor, and used by the credit reporting agency, in preparing the prescreened list. The creditor does not have the right to pick and choose from among those names on the list. All consumers on that list, meeting the criteria, must be extended the offer of credit.
The Fair Credit Reporting Act does give a degree of protection to creditors. Section 615 of the Act provides that the credit offer may be withdrawn if the consumer no longer meets the criteria for creditworthiness as instructed by the creditor to the credit reporting agency in preparing the list.
Practice Pointer: If you order a prescreened list based on criteria contained in consumer credit files, be prepared to extend an offer for the credit to every person on that list. So, be very careful in choosing the credit criteria, and particularly the number of persons requested to be on the list.
Please note: This is the twenty-third blog in a series of Back to Basics blogs, in which relevant and resourceful information can be easily accessed by clicking here.