Banking Regulations Compliance | Legitimate Business Purpose

The Fair Credit Reporting Act says a financial institution can obtain a credit report in connection with any legitimate business purpose.  That could be related to a deposit account, a loan, etc.  Seems simple enough, right?  Well we’ve experienced some pretty creative twists when it comes to “legitimate business purpose” over the years.  Here are a few of our favorites:

1. A bank president thought it would be okay to have his secretary order a credit report on his neighbor (not even a bank customer). When we asked the president about this, his response was that he was just curious what was going on with the neighbors.

2. A loan officer thought it would be okay to order a credit report on someone they were dating.

3. A bank officer thought it would be okay to order a credit report on his/her children who were away at college.

Hopefully, it’s clear to you that none of these examples represent a legitimate business purpose of any kind.  At least not in when it comes to banking.  Shockingly, we have seen #2 and #3, very often over the years.  Just because you can pull a credit report, doesn’t necessarily mean you have the right to do so.  A person’s credit report is a big deal.  You just have to look at the volume of consumer complaints regarding credit reports over the last couple of years to see it’s an important issue.

Proper training for is the first step.  Make sure your people know what is allowed and what is not when it comes to pulling credit reports.  But, don’t stop there.  You should develop procedures, implement controls to help mitigate risk and do periodic monitoring to ensure everyone is doing what they are supposed to be doing (or not doing, in this case).

See all our training at store.bankerscompliance.com.

Published
2018/12/06
Jerod Moyer