Are You Checking Consumers’ Credit? Be Careful!
In today’s world, credit is everything. If you are a business that loans money, hires people, rents property, or which needs to do any kind of background check, your first instinct may be to do a credit check. Whether credit is a reliable indicator of character is debatable. What is not debatable, is that pulling someone’s credit improperly, can result in your business owing a lot of money.
The Fair Credit Reporting Act
The Fair Credit Reporting Act, among many other provisions, protects consumers against having their credit pulled without their knowledge or consent in certain situations. In most cases, the simple act of pulling or checking someone’s credit lowers a credit score, even if no credit is ultimately extended. That’s why there are penalties for pulling credit without a consumer’s consent.
As a general rule, any business that has what the law defines as a “permissible purpose,” can pull someone’s credit without permission. However, it is always the safest route to speak to a business attorney before pulling credit without permission, and an even safer route to get consumers’ permission.
Even businesses like landlords, or car dealerships, get written permission from consumers before pulling credit even though they may have a “permissible purpose” for accessing credit.
Remember that even though the FCRA may make it OK for you to pull or check a consumer’s credit without consent in limited cases, state credit laws may make your credit check illegal, which is another reason to always get written consent from the consumer in advance.
The right to pull a consumer’s credit is very case specific. For example, assume you are a car dealership, and a consumer tells you that she wants you or gives you permission to check her credit to get a loan with Bank A. If you were to also check/pull her credit (or her ability to get financing) with Bank B, C and D, you would be violating the FCRA, because the consumer only gave you permission to pull credit from Bank A.
If a potential tenant comes to check on an apartment, looks around and leaves, and you pull his credit, you could be violating the FCRA. Unless the tenant is actually renting—for example, he fills out a rental application—the potential tenant’s mere act of looking at a rental unit, does not give you the “permissible purpose” you need to check credit without the tenant’s approval.
Get Attorney Review of Consent Language
Employers who pull credit must also make certain specific disclosures. If you are pulling potential employees’ credit, make sure you have an attorney review your disclosure documents in advance.
For that matter, you should always have a business law attorney review your disclosures and consent forms, because there have been cases that held the consent language to be too hidden, vague or ambiguous to be considered valid consent.