Firm Offer Of Credit definition

Who Provides A Firm Offer Of Credit?

Lenders and creditors provide a firm offer of credit. A firm offer of credit is determined by the lenders upon getting a prescreened list of customer names from nationwide consumer reporting agencies or credit bureaus, such as Equifax, Experian, and TransUnion. Equifax, Experian, and TransUnion provide a list of consumer names and other information that qualifies for the specific prescreening criteria, such as minimum credit scores, credit histories, credit capacity, mode of living, or credit standing, set by lenders and creditors. Lenders and creditors may also send a prescreened consumer list to the nationwide consumer reporting agencies or credit bureaus and let the three major credit bureaus identify which consumers qualify for the prescreening criteria set by lenders or creditors.

A firm offer of credit can be sent via direct mail or email to the consumer. The consumer has ample time to ask for additional information upon receipt of the firm offer of credit via direct mail or email. Conversely, the Fair Credit Reporting Act (FCRA) states that consumers can also opt out of receiving firm offers of credit by providing an opt out notice to the nationwide consumer reporting agencies or credit bureaus via direct mail, email, website, or by phone using a toll-free number.

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Why Do Lenders Have To Wait For A Firm Offer Of Credit?

Lenders and creditors have to wait for a firm offer of credit to consumers because it is required by law under the Fair Credit Reporting Act (FCRA). FCRA allows a lender or creditor to obtain limited consumer information from one of the three nationwide consumer reporting agencies or credit bureaus. The consumer information in the prescreened consumer list must be used by lenders and creditors for the purposes of making a firm offer of credit.

Lenders and creditors should provide an established set of criteria prior to making a firm offer of credit. This set of criteria will be the basis for choosing the consumer that the lenders or creditors are targeting. Nationwide consumer reporting agencies or credit bureaus can provide a prescreened consumer list that satisfies the criteria set out by lenders and creditors.

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How Long Does A Firm Offer Of Credit Take?

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The duration of a firm offer of credit is 30 days or specified otherwise to the consumer when the lender or creditor makes a firm offer of credit. This period allows the creation of reasonable expectations for the lenders and creditors as well as the consumer.  If the consumer applies after the expiration date that was set by the lender or creditor, the application will not be subjected to the applicable requirements of the firm offer of credit but will be subjected to new or different credit criteria if there are any. If the consumer applies before the expiration date but is denied based on the updated consumer report, including the current credit score, the consumer is entitled to an adverse action notice. An adverse action notice informs the consumer of a denied credit application based on the information found on the consumer's credit report.

The Fair Credit Reporting Act (FCRA) also requires lenders and creditors who make a firm offer of credit to maintain on file the criteria that were used to select the consumer for the firm offer of credit and any requirement for the furnishing of collateral in order for an extension of credit for three years beginning on the date when a firm offer of credit was made.

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Do I Need A Firm Offer Of Credit On A Mortgage?

No, you do not need a firm offer of credit on a mortgage. A firm offer of credit does not guarantee that a consumer will be approved for a mortgage loan application, which is why an application is still required from the consumer. Once the consumer applies for a mortgage, a hard inquiry will be made on the credit file of the consumer.

The consumer can receive a firm offer of credit in two methods based on permissible purpose. The first method is if it is creditor-initiated. Creditor-initiated means that the FCRA allows a loan officer or creditor to obtain limited consumer credit information from a nationwide consumer reporting agency or credit bureau. FCRA states that any nationwide consumer reporting agency or credit bureau can provide a consumer report to loan officers or creditors if the information will be used in accordance with an extension of credit involving the consumer, for employment purposes, in connection with underwriting insurance, in connection with license eligibility of a consumer, in connection with a valuation or assessment of credit, and in connection with a credit transaction or insurance transaction that is initiated by the consumer.

The next method is if it is consumer-initiated. Consumer-initiated happens when a consumer has written instructions during the mortgage application. The written instructions give the loan officers and creditors the permissible purpose to pull out the consumer report. Lenders, such as mortgage lenders and auto lenders, and creditors are subject to the Dodd-Frank Act. The Dodd-Frank Act states that lenders, such as mortgage lenders and auto lenders, and creditors or any financial institutions that provide financial products or services like loans or credits must not engage in any unfair, deceptive, or abusive acts or practices (UDAAPs). The UDAAPs are enforced by the Consumer Financial Protection Bureau (CFPB).

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