February 6, 2020 at 4:54 pm #31600Vicki KramerParticipant
Hi. Am I understanding FCRA Section 605A(h) Fraud and Active Duty Alerts correctly, that if the Bank obtains a credit report that has a fraud alert on it but denies the account application due to various reasons (e.g. derogatory credit, insufficient collateral value, etc.) then the Bank has no further requirements regarding the fraud alert? We’d only need to document the fraud alert and the steps taken to verify identity of the applicant if we approved the account application, correct? Thanks in advance for your help!February 12, 2020 at 3:29 pm #31656rcooperKeymaster
While that does seem to be the case with the way the law is worded (and I think you could make a good arguement for this interpretation), this has been an area that has been debated over the years and I think there are still differing opinions. One reason for this debate is that in other areas of the Red Flag rules, such as address discrepancy, it does require you form a reasonable believe that the report actually relates to the consumer on which you requested it. Aside from this discussion, you might want decide your bank wants to know who you’re dealing with/if it is a fraudulent app even in a denial situation? Since this is an area that there’s been confusion in, I would either take the conservative approach and apply it regardless of action taken or talk with your regulator to get their take.
From the FRB exam manual:
Section 605A(h)(1)(B) requires users of consumer reports, including financial institutions, to verify a consumer’s identity if a consumer report includes a fraud or active duty alert. Unless the financial institution uses reasonable policies and procedures to form a reasonable belief that it knows the identity of the person making the request, the financial institution may not • Establish a new credit plan or extension of credit (other than under an open-end credit plan) in the name of the consumer, • Issue an additional card on an existing account, or • Increase a credit limit.
Also take a look at the Red Flag rules in FRB’s Reg V, Appendix J, Section iv regarding responding to Red Flags (including fraud alerts).
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