A Member Moves to Accept a Prescreen Offer, Now What?
The NAFCU compliance team has written plenty of blogs on Fair Credit Reporting Act (FCRA) issues. Some of these blogs have explained the FCRA requires a permissible purpose before using information from a member’s consumer report. Occasionally, we receive questions about whether a credit union can postscreen members who have been sent a firm offer (often referred to as “prescreening”), along with questions about changing the terms of the offer once a member expresses interest. This blog focuses on the answers to these questions.
Postscreening for Verification
As a starting point, the requirements for prescreening members in order to make firm offers of credit are explained in the Federal Trade Commission’s (FTC) guide, 40 Years of Experience with the Fair Credit Reporting Act (40-Year Guide). As described in the 40-Year Guide, the FCRA:
- explicitly authorizes prescreening;
- “allows creditors and insurers the right to conduct limited ‘postscreening’ so that they can deny credit or insurance to consumers who no longer meet the creditworthiness or insurability criteria initially used to select them for the prescreened offer”;
- allows members to “opt out” of receiving prescreened offers; and
- requires specific disclosures in offers sent to members.
Described in the second prong above, credit unions have limited opportunity to conduct postscreening after a firm offer has been sent. This postscreening is permitted because the FCRA’s definition of “firm offer of credit” states the firm offer may be conditioned on verification of the information relied on in sending the offer:
“The term ‘firm offer of credit or insurance’ means any offer of credit or insurance 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:
(A) that 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 insurance, or other information bearing on the credit worthiness or insurability of the consumer; or
(B) of the information in the consumer's application for the credit or insurance, to determine that the consumer meets the specific criteria bearing on credit worthiness or insurability.”
Under the FCRA, a firm offer of credit is one that will be honored by the credit union as long as the member continues to satisfy the specific criteria used to identify the member as someone who was qualified to receive the offer. Accordingly, once the offer is made and the member expresses interest in accepting it, a credit union may verify the information already considered to ensure the member qualifies for the credit. This is not a second chance to qualify the member based on new criteria or an opportunity to have a deeper look at the member’s creditworthiness. The postscreen is simply an opportunity to verify correct information was relied on in making the offer and ensure the member still qualifies once they attempt to accept it.
The 40-Year Guide explains that because postscreening may only be used for verification, a credit union “may not employ a two-step process where a [consumer reporting agency (CRA)] first provides a list of all consumers who have credit scores above a certain minimal level for the initial offer, and then provides each responding consumer’s report to enable the [credit union] to postscreen by applying new, more refined criteria to set the interest rate or to determine other specifics of the offer.”
Terms of the Firm Offer
In addition to postscreening members, some credit unions have asked about changing the terms of a firm offer or stating in the offer that terms are subject to change after verification. Although the FCRA does not include specific requirements around what terms are required to be disclosed in a firm offer, we can look back to the definition of “firm offer of credit” for insight here. If a firm offer is one that “will be honored” if the member meets the verification requirements, it does not appear there is much room for changing the terms of the offer once the member expresses interest in accepting it.
There may be a case for including some fixed terms in the prescreened offer while making it clear that other terms are estimates or will fall within a range. Ultimately, a firm offer is one that can be accepted by a member and honored by a credit union, which means it is not the starting point in negotiation of terms. The 40-Year Guide offers an example of how credit unions can tier their firm offers so that each member receives the most appropriate offer for their level of credit worthiness: “A user of prescreening lists may have the CRA provide separate or tiered lists for consumers who meet different criteria, and make different offers of credit or insurance to the consumers depending on which criteria the consumers meet.”
Although credit unions may conduct limited postscreening and create different firm offers for different groups of members, keep in mind that the FTC has explicitly stated “a firm offer of credit may not be a ‘sham offer’ used as a ruse to engage in target marketing.” Although enforcement of the FCRA is now under the authority of the CFPB, the bureau has not issued new guidance, so the FTC’s guidance can provide valuable insight about the intent of the rule. Credit unions making firm offers of credit may consult local counsel to review offer language, loan terms, and all procedures to ensure compliance with the FCRA.