Executive Letter: New CFPB Advisory Opinion Fails to Consider Wisconsin’s Marital Property Act

By Rose Oswald Poels

As many would know, I started my career at WBA answering compliance questions for members through WBA’s Legal Call Program and a frequently asked question has long been, “May a bank pull a credit report on a non-applicant spouse when a married Wisconsin resident applies for credit individually?” WBA’s longstanding answer has been yes. Banks have a permissible purpose under the Fair Credit Reporting Act (FCRA) to pull credit on the non-applicant spouse when an applicant is a married Wisconsin resident. Under Wisconsin’s Marital Property Act (MPA), the creditor should consider the couple a unit, taking into consideration all income and all debt of both spouses.

The Bureau of Consumer Financial Protection (CFPB) recently issued an advisory opinion regarding permissible uses of credit reports. The opinion appears to be primarily directed at consumer reporting agencies who furnish credit reports. However, given statements within the opinion regarding use of credit reports, I believe it worth a reminder about how the MPA plays a role in there being a legitimate business need for a bank to pull a credit report on a non-applicant spouse when a married Wisconsin resident applies for credit individually, as CFPB failed to take into considerations a state’s property laws when it analyzed permissible purposes under FCRA Section 604.

Under the MPA, when credit will result in an obligation that is “in the interest of marriage or the family” pursuant to sec. 766.56(1), Stats., creditors need to consider both the assets and liabilities of each spouse when evaluating an applicant spouse’s creditworthiness. By reviewing both the assets and liabilities of each spouse, the creditor can meet its obligations under s. 766.56(1) to consider “all marital property available to satisfy the obligation in the same manner that the creditor, in evaluating the creditworthiness of an unmarried credit applicant, considers the property of an unmarried credit applicant…” Credit reports are the tools most often used to determine liabilities of both spouses.

The Federal Trade Commission (FTC), the agency with authority for banks regarding FCRA prior to the Dodd-Frank Act, recognized states’ property laws under its interpretation of FCRA permissible purposes. To use a credit report, the FCRA provides that one must have a permissible purpose for the report. FCRA Section 604 sets forth the permissible purposes of credit reports. Section 604(a)(3)(A) allows a consumer reporting agency to furnish consumer reports to a person which it has a reason to believe “intends to use the information in connection with a credit transaction involving the consumer on whom the information is to be furnished and involving the extension of credit to, or review or collection of an account of, the consumer.” Past FTC interpretation of this section has confirmed that creditors may pull a credit report on a non-applicant spouse.

In particular, FTC interpretation of FCRA Section 604(a)(3)(A) has been,

“A creditor has a permissible purpose to obtain a consumer report on an applicant’s spouse if that spouse will be permitted to use the account or will be contractually liable upon the account, or if the applicant is relying on the spouse’s income as a basis for repayment of the credit requested. In addition, a creditor may obtain a consumer report on an applicant’s spouse if (i) the state law doctrine of necessaires (which may make a consumer liable for certain debts of a spouse) applies to the transaction, (ii) the applicant resides in a community property state, (iii) the property upon which the applicant is relying as a basis for repayment of the credit requested is located in such a state, or (iv) the applicant is acting as the agent of the nonapplicant spouse.”

The requirements under the MPA and FTC’s interpretation of a permissible purpose under the FCRA were the areas of law WBA has cited as rationale why banks may use the consumer reports of both the married Wisconsin resident applicant and his/her non-applicant spouse when determined debt in connection with new credit or review of an account.

However, with CFPB having issued an advisory opinion regarding the furnishing and use of credit reports under the FCRA, members need be aware of the opinion.

In its opinion, CFPB stated that the permissible purposes listed in FCRA section 604(a)(3) are consumer specific and that a consumer reporting agency may not provide a consumer report to a user under FCRA section 604(a)(3) unless it has reason to believe that all of the consumer report information included pertains to the consumer who is the subject of the user’s request. CFPB believes section 604 analysis need be on a consumer-by-consumer basis, intending the use of information in connection with a credit transaction to be one involving the consumer on whom the information is to be furnished and involving the extension of credit to, or review or collection of an account of, the consumer.

CFPB’s new advisory opinion could be read to not allow a credit report to be pulled on a non-applicant spouse as the non-applicant spouse is not party to the application. In writing this opinion, CFPB has failed to consider a state’s property law — such as the Wisconsin MPA — and of the legitimate business need for debt information. Separately, a creditor cannot require spouses to apply together to then obtain a credit report on both spouse as that would be a violation of Regulation B. CFPB’s focus only on federal law when writing this advisory opinion without considering state marital property laws raises a question for banks in marital/community property states, including Wisconsin banks when trying to comply with s. 766.56(1) Stats.

WBA believes banks do have a permissible purpose under state law, and therefore under FCRA section 604, to obtain a credit report of a non-applicant spouse in connection with an application involving a married Wisconsin resident, since CFPB’s advisory opinion focuses solely on the fact that FCRA permissible purposes are consumer-specific and is silent on any relevant state law.

It is clear under s. 766.56(1), Stats. that when credit will result in an obligation, that is “in the interest of marriage or the family,” creditors need to consider both the assets and liabilities of each spouse when evaluating an applicant spouse’s creditworthiness. This requirement results in a legitimate business need to identify debts of both the applicant spouse and non-applicant spouse. Furthermore, pursuant to s. 766.55(1), Stats., an obligation incurred while married is presumed to be incurred in the interest of the marriage or family, and under para. (2) the obligation is to be satisfied from all marital property and all other property of the married Wisconsin resident applicant. These MPA provisions make the non-applicant spouse part of the credit transaction and resulting obligation for which a credit report is being used thereby meeting the conditions under CFPB’s advisory opinion despite CFPB not specifically addressing marital property interests.

Due to the requirements of ss. 766.55 and 766.56, Stats., banks have a permissible purpose under FCRA section 604(a)(3) to use a consumer report of a non-applicant spouse when an applicant is a married Wisconsin resident. A bank’s current practice to pull a credit report on both spouses need not change as a result of CFPB’s advisory opinion.

While CFPB’s release is only that of an advisory opinion, and is not regulation, I want to make sure that members are aware of the opinion and its narrowness, along with WBA’s thoughts on it.