Prescreening Opt-out Notices
The compliance team occasionally receives questions about when a credit union can obtain a consumer report from a credit reporting agency under the Fair Credit Reporting Act (FCRA). Section 604 of the FCRA explains when a credit reporting agency can provide a consumer report to a credit union (i.e., when a credit union has a permissible purpose to obtain a consumer report). For example, a permissible purpose exists under the FCRA when a member submits an application for credit to the credit union or when a credit union reviews a consumer report to determine whether a modification of the terms of an existing credit card account is warranted. This blog will examine an issue solely relating to firm offers of credit and prescreening. In this context, unsolicited means not initiated by the credit union’s member: No application for credit was submitted by the member.
Firm Offers of Credit and Prescreening
In general, there is no permissible purpose to obtain a consumer report for marketing purposes. Despite that general prohibition, the FCRA permits credit reporting agencies to provide credit unions with consumer reports so credit unions can make unsolicited firm offers of credit to members. This process, also commonly known as prescreening, may involve the credit union establishing specific criteria obtained from information contained in a consumer report to qualify members for offers of credit that are unconditional but for verification of whether the members continue to meet the eligibility criteria.
What if a credit union runs prescreening campaigns in sequence, one after the other? Let us assume that a member receives a prescreened offer but chooses not to accept it. Four weeks later, the member receives another prescreened offer from the credit union and still has time to accept the first firm offer of credit. The member then decides to accept the first prescreened offer. Is that second prescreened offer unconditional? Possibly, but only if the member continues to satisfy the specific criteria that was used to develop the subsequent prescreened offer. If the member no longer satisfies the specific criteria because of the acceptance of the prescreened offer that came first in time, then the FCRA suggests the second prescreened offer is no longer unconditional.
You may be wondering whether there is a notification or messaging requirement that relates to this issue. The short answer is yes. Section 1022.54(c) of Regulation V, which implements certain FCRA provisions, requires credit unions to provide both a short notice and a long notice with each written solicitation made to a member about a firm offer of credit.
Both notices must be clear, conspicuous, and easily understood. They both have form and content requirements. Here is a table that compares the two:
|Type of Notice||Form Requirements||Content Requirements|
Section 1022.54(c)(2)(i) of Regulation V requires that the long notice include a statement, to the extent it is possible, that the credit union may not extend the credit pursuant to the terms of the prescreened offer if the member no longer satisfies the original selection criteria. In other words, Regulation V contains a requirement to notify the member of the possibility that the prescreened offer may not be unconditional.
The content requirements for the long notice come directly from section 615(d) of the FCRA. Appendix D to Regulation V contains model forms that may be used to comply with the opt-out notice requirements in section 1022.54 and those content requirements found in section 615(d) of the FCRA. Failure to provide the long notice content with each written solicitation of a firm offer of credit could subject the credit union to administrative enforcement actions or the civil liability provisions for willful or negligent noncompliance under the FCRA.