What Is Permissible Purpose and Who Has It?
The Fair Credit Reporting Act (FCRA) includes a section known as permissible purpose. It establishes the need for written consent or documentation from the consumer before a financial institution can pull the individual’s credit report. This credit report investigation is generally a result of an individual’s request for a credit line increase or opening a bank account.
Section 604 of the FCRA (15 U.S.C 1681) protects consumers from unfair use of their personal credit information. This section of the FCRA was made for the protection of consumers from improper use of their credit information. This act is explicitly for consumer reporting agencies and their use of personal credit information.
What Is a Consumer Reporting Agency?
A consumer reporting agency is an institution that tracks consumers’ financial transactions and gathers information to share with others. For example, when you pay bills, such as a credit card statement or utilities, that information would be shared and received by a consumer reporting agency to assemble and sell to another company. This information is used to identify if you are suitable for commitments like loans, jobs, insurance, and more. Examples of consumer reporting agencies are:
- Equifax
- Transunion
- Experian
There are a number of consumer reporting agencies, but these are the main ones that companies request data from in order to investigate a consumer’s credit information.
How Do Consumer Reporting Agencies Establish Permissible Purpose?
A permissible purpose is established by obtaining written consent from the consumer. Documentation and verbal consent are not enough in this case to obtain their consumer report.
There is another way of establishing a permissible purpose. If the requester intends to implement a credit extension, review, or collection of a consumer’s account, the consumer does not need to explicitly consent to a credit report check. For example, when you apply for credit at a financial institution, the institution has a permissible purpose of obtaining your credit report. In this case, specifically, the financial institution does not need written consent. Still, it is always the best course of action to obtain it with initials on an application or something similar to show compliance.
Other ways to obtain a permissible purpose is when it is required by court order or to prospective creditors, employers and others specified in the act.
Lastly, the final way of obtaining a permissible purpose for financial institutions to obtain a consumer’s credit report is to establish a legitimate business need for the consumer’s information. The guidelines pertaining to this are:
- It has to be in connection with a business transaction that is consumer-initiated
- For a review of an account to determine whether or not the consumer continues to meet the terms of the transaction
These permissions can be very confusing to an individual not well-versed in consumer rights law. If you are unsure of whether your consumer rights have been violated, contact a consumer rights lawyer to learn more about your situation and options.
Why Is Permissible Purpose Important?
The FCRA established the need for a permissible purpose to protect consumer information and privacy and requires consumer reporting agencies to set policies and requirements to comply with the act.
Additionally, it is essential for financial institutions to obtain a permissible purpose for each time they need a credit report. Reusing previously used credit reports creates issues with the FCRA, fair lending, and repayment loan calculations if you don’t pull a credit report for each new credit transaction. The credit reports could also be inaccurate and not have up-to-date fraud alerts.
The Law Offices at Jibrael S. Hindi Are Here to Help
The office of Jibrael S. Hindi is dedicated to helping you with your consumer rights. If you believe that a credit reporting agency has violated your rights due to neglecting permissible purposes in the FCRA, Attorney Jibrael S. Hindi is here to help you build a case to achieve justice.
Our law firm specializes in resolving issues related to credit reporting agencies, creditors, retailers, and other companies. For a no-obligation free consultation regarding your case, call (844) 542-7235 or complete our contact form.