This question has puzzled note brokers and investors for years. The answer appears to be yes, and it comes straight from federal law.
What the Fair Credit Reporting Act says
Section 604(a)(3)(E) of the federal Fair Credit Reporting Act (FCRA), as amended by the Consumer Credit Reporting Reform Act, is titled “Permissible Purposes of Reports.” It says a permissible purpose is given to a person who:
“intends to use the information, as a potential investor or servicer, or current insurer, in connection with a valuation of, or an assessment of the credit or prepayment risks associated with, an existing credit obligation…”
What it means for note buyers
This section gives potential investors, servicers and insurers of credit obligations a permissible purpose to obtain a report on a payor. The purpose must be to evaluate or assess the credit or prepayment risks of that payor’s existing credit obligation.
For example, someone who plans to buy a note and trust deed would have a permissible purpose under this section to obtain a consumer report on the payor for that particular transaction.
I have verified this with my attorney and with the Federal Trade Commission. Still, consult your own attorney for legal advice on this matter.
How the credit bureaus read it
Here is the Associated Credit Bureaus’ analysis of the same section:
“Section 604(a)(3)(E) creates a permissible purpose for potential investors, servicers or insurers of credit obligations to obtain consumer reports for the purpose of evaluating or assessing the credit or prepayment risks involved in existing credit obligations of consumers. For example, an entity that plans to invest in a mortgage loan transaction would have a permissible purpose under this section to obtain a consumer report on the borrower in that transaction.”
