Creditors Pulling Credit Reports for “Account Review” Purposes

Posted By: John Albanese September 29, 2016

The Fair Credit Reporting Act strictly limits the purposes for which credit reports can be accessed. 15 U.S.C. § 1681b. One permissible purpose is the so-called” account review” purpose which allows a creditor to obtain a credit report on a consumer with whom it has a credit relationship. Specifically, the FCRA allows a credit reporting agency to furnish a credit report “to a person which it has reason to believe 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.” 15 U.S.C. § 1681b(a)(3)(A).

The Federal Trade Commission has opined that it is not permissible to pull a credit report for “account review” purposes on a closed account:

Once an account is closed because the consumer has paid the debt in full (and also, in the case of an open-end account such as a credit card account, notified the creditor to close the account), it is our view that no permissible purpose exists for a CRA to provide file information on a consumer to the creditor. Because there no longer exists any account to “review” and the consumer is not applying for credit, the FCRA provides no permissible purpose for the creditor to receive a consumer report from a CRA.

Advisory Opinion to Benner (April 30, 1999), available at https://www.ftc.gov/policy/advisory-opinions/advisory-opinion-benner-04-30-99; see also Advisory Opinion to Gowen (April 29, 1999) (stating similar), available at https://www.ftc.gov/policy/advisory-opinions/advisory-opinion-gowen-04-29-99.

The question that has come up in litigation is whether a mortgage servicer can pull a credit report after the mortgage obligation has been discharged in bankruptcy. In Godby v. Wells Fargo Bank, N.A., 599 F. Supp. 2d 934, 935 (S.D. Ohio 2008), the plaintiff discharged his mortgage loan through Chapter 7 bankruptcy. Over a year after the discharge, the defendant pulled the plaintiff’s report in connection with an account review. The court found that there was no “permissible purpose” to pull the plaintiff’s report:

Notwithstanding Plaintiff’s name on the title to the property, as a practical matter, the parties did not have an existing relationship. Plaintiff had surrendered her rights to the property. In addition, Defendant would have been unable to collect any debt since it had been discharged in the bankruptcy proceedings. Therefore, Defendant did not have a permissible purpose under section 1681b(a)(3)(F).

Id. at 942. Other courts have followed the reasoning of Godby to find that there is no permissible purpose to pull a report post-bankruptcy. See Barton v. Ocwen Loan Servicing LLC, No. CIV. 12-162 MJD, 2013 WL 5781324, at *4 (D. Minn. Oct. 25, 2013) (“If Ocwen was informed that the debt had been discharged, or given the name of Plaintiff’s bankruptcy attorney to verify the discharge, Ocwen would not have had a permissible purpose to pull her report in April and July 2011, as no credit relationship existed and there was no longer any basis for a good faith belief that a credit relationship continued to exist.”)

However, if the borrower remains in the home after the discharge of the mortgage obligations, courts have found that there is a permissible purpose to pull credit reports. For example, in Germain v. Bank of Am., N.A., No. 13-CV-676-BBC, 2014 WL 5802018, at *6–8 (W.D. Wis. Nov. 7, 2014), the two plaintiffs had remained in their properties post-discharge and the court therefore found that there were permissible purposes to pull the plaintiffs reports:

On March 26, 2012, December 27, 2012 and February 19, 2013, defendant obtained Germain’s consumer report because Germain had asked defendant to accept a deed in lieu of foreclosure on his property. Because this transaction also posed risks for defendant, if, for example, Germain had taken out other loans on the property, it was permissible for defendant to determine the extent to which Germain had extended his credit as well as his compliance with the account. Finally, on November 29, 2012, defendant obtained Germain’s consumer report when defendant and Germain were in mediation to resolve their dispute over foreclosure. Because the parties remained in negotiation over resolution of Germain’s obligations, defendant had a legitimate reason to know Germain’s compliance with the account, his present ability to pay and his creditworthiness.

Id. at *8. See also Saumweber v. Green Tree Servicing, LLC, No. 13-CV-03628 SRN/SER, 2015 WL 2381131, at *4 (D. Minn. May 19, 2015) (“Plaintiffs in this case were relieved of their personal liability under the mortgage loan when the loan was discharged in the bankruptcy proceedings, but they remained in possession of their home. Thus, they had an obligation to Defendant to make payments on the mortgage, even after the bankruptcy proceedings were concluded, or face foreclosure. And, in fact, they continued to make payments for several years. Accordingly, an account—and a credit relationship between the parties—existed for purposes of the FCRA.”)

Thus, based on the case law, as long the plaintiff remains on the property and continues to make payments on a discharged mortgage, there is probably a permissible purpose to pull the report. On the other hand, if the plaintiff no longer has any interest in the property, then there probably is not permissible purpose to pull the credit report.