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5000 - Statements of Policy
{{4-30-99 p.5337}}
FFIEC POLICY STATEMENT— PRESCREENING BY FINANCIAL
INSTITUTIONS
AND THE FAIR CREDIT REPORTING ACT
What is prescreening?
Prescreening is a process by which a consumer reporting agency
(credit bureau) compiles or edits a list of consumers meeting specific
credit-granting criteria provided by an institution. The list is
provided to the institution or a third party acting for the institution
(for example, a mailing service) for use in soliciting specific
consumers for credit products.
Is a prescreen a consumer report?
A prescreened list represents a series of consumer reports since the
list conveys that each consumer named on the list meets certain
criteria for creditworthiness.
Is prescreening permissible under the FCRA?
While the Fair Credit Reporting
Act (FCRA) does not expressly authorize it, prescreening is
permissible if the institution follows certain rules. The act permits
prescreening if the institution makes a firm offer of credit to each
consumer whose name appears on the prescreened list. To obtain a
consumer report, the institution must have a "permissible
purpose" under the FCRA. Section
604(3)(A) of the FCRA permits an institution to obtain a
consumer report if it intends to use the information in connection with
a credit transaction involving the extension of credit to the consumer.
(Prescreening cannot be used to solicit responses for insurance,
employment or other purposes.) Therefore, an institution cannot use a
prescreened list solely to send promotional material.
The purpose of the FCRA is to safeguard the confidentiality of
consumer credit information. The statute requires a clear connection
between the creditor and consumer before the creditor obtains a credit
report. A firm offer of credit to the consumer provides this
connection. Permitting the practice of prescreening without this link
would be contrary to the purpose of the act.
What controls can the institution use to develop a
list?
• The institution may wish to be specific in the
credit-granting criteria it designates for targeting creditworthy
consumers. This will ensure that the institution is not obligated to
extend credit to individuals who do not meet its standards. In
addition, prompt use of the prescreened list after receipt from the
credit bureau will further ensure that credit is extended only to
individuals meeting the specified standards.
• The institution may request "tiered" lists that
identify consumers with different characteristics, enabling the
institution to make different credit offers (e.g., various credit
limits).
• The institution may include demographic analysis, such
as geographic data (for example, to establish a service area) or data
on income and type of employment (for example, by the use of
specialized magazine subscription lists) in the credit-granting
criteria. This analysis may be applied by the credit bureau or by a
third party after the initial screen. The application of demographic
analysis must not have the effect of excluding persons on a prohibited
basis.
• If the institution wishes to limit the number of
consumers it makes an offer of credit to, it may request the credit
bureau or a third party to make random deletions from the list if it is
too lengthy.
In all cases, whether or not an additional screen is obtained
(either demographic or random), the institution must make an offer of
credit to all consumers whose names appear on the final screened list.
What constitutes an offer of credit?
The institution must make a firm offer of
credit to all consumers whose names appear on the screened list. A
conditional offer of credit is inadequate since it indicates
that the institution does not intend to enter into a credit transaction
unless the consumer meets a
{{4-30-99 p.5338}}subsequent condition. For
example, imposing a minimum income requirement on the credit
application it provides to consumers on the screened list would not be
a firm offer of credit.
Can the institution withhold or withdraw an offer of credit
to a consumer whose
name appears on the list?
Once the consumer has accepted the offer of credit, the institution
cannot, except in limited circumstances, withdraw or deny the credit,
even when based on new information concerning the consumer. Errors in
applying the criteria to the data base of the credit bureau during the
prescreening or failure of the prescreening to retrieve all information
about the consumer do not qualify as permissible reasons for
withdrawing an offer.
Only in certain, specified, rare and unusual circumstances that
occur between the prescreen and the consumer's acceptance,
may the institution withdraw the offer of credit. These circumstances
include: foreclosure; attachment; garnishment; repossession;
charge-offs; filing for bankruptcy; or entry of liens or judgments.
These criteria must have been part of the original prescreening in
order to qualify as valid reasons for withdrawing or denying the offer.
Other reasons for withdrawal of an offer:
The institution may withdraw the offer if it determines that the
consumer:
• is below the age required to create a valid contract;
• has moved beyond the institution's service area for the
product offered (if the service area is limited); or
• has fraudulently altered information in the credit
report.
Other permissible practices:
• The institution may initially offer a modest credit
limit and then increase the limit after a full credit report has been
obtained, if the terms of the initial guaranteed credit are clearly
specified. A modest credit limit may not be lower than the usual
minimum limit offered for a particular product. Once the consumer has
accepted the initial credit offer, the institution may request
information verifying income for the purposes of offering a higher
credit limit.
• The institution may ask for identifying information
(such as the home address and social security number) in the offer of
credit.
• The institution may impose a reasonable time limit on
the period during which the offer of credit is available. It may treat
any response received after the deadline as a regular credit
application, and may obtain a full credit report to evaluate the
consumer's creditworthiness.
• Only when the consumer accepts the credit offer may the
institution obtain a full credit report on the consumer. The consumer's
account may be reviewed regularly and if the consumer does not prove to
be creditworthy, the institution may close the account. The
institution's timing for closing the account, however, must not make
the offer illusory.
• The institution may prescreen using its own records
related to the institution's prior transactions or experiences with
particular consumers without making an offer of credit. Any
prescreening that uses records held by either subsidiaries or
affiliates will trigger coverage by the FCRA.
• The institution may require consumers accepting
prescreened offers to take the steps necessary to create a legal
obligation for the credit offered, such as signing a credit contract or
security agreement.
[Source: FDIC financial institutions letter (FIL--62--91),
December 13, 1991]
[The page following this is 5349.]
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