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SouthFi Settlement provides lessons for lenders marketing "soft pull" pre-approvals Adam Maarec, member of the DWT Payment teams, recently wrote an essay titled "SoFi Settlement Provides Lessons for Lenders Marketing'Soft Pull' Preapprovals" for the September/October 2016 edition of the FinTech Law Report. Full text of the paper is published below (reprinted with approval of Vol. 19 of the FinTech Law Report on Westlaw.

Please see legalsolutions.com for more information on the FinTech or Westlaw reports. The Commission has decided to initiate an investigation into the existence of a credit infringement by SoFi (SoFi) for allegations of infringement resulting from the commercialisation of credit resulting from a "soft" feature of the consumer's credit report which would not adversely impact his creditworthiness. The case was recently resolved with $2.5 million in protective funding and, as described below, provides lesson for the increasing number of banks that offer customers the opportunity to establish their entitlement to credit without a "hard" move.

SoFi' users' experiences in question began with a page that enabled users to define their entitlement to certain credit items with a'soft' pull, which would not impact the creditworthiness of the customer. In this case, before continuing with the "Student Loan Eligibility" program, a plaintiff was asked to tick a checkbox under the title "Soft Credit Pull Authorization & Final Submit" that reads: "I/We agree this is a credit request and hereby empower SoFi to obtain credit information from a credit bureau for the purpose of this credit request.

Your credit rating is not affected by this enquiry. "Today, for the purpose of this credit limit agreement, you authorize us...[to] examine your creditworthiness and obtain credit information, as well as a credit report for consumers...". "2 "2 SoFi handled this query with Experian using a subscription key that treats the query as a "soft" query, which means that it is not reflected in the creditworthiness of the user (and may not be passed on to other creditors who regard the credit report as a credit application).

On the basis of this authorization calculation, "Step 2" was presented to the plaintiffs for the "selection of an amount" for a credit. "After selecting the user, one claimant was asked to click the "Request Amount" icon and another claimant was asked to click the "Select Now" or "Select Later" icon. Once the customer had pressed one of these keys, SoFi handled a query to Experian using a subscription key that treats the query as a "hard" query, which meant that it was a credit query that would appear on the consumer's credit report and could impact the credit value of the customer.

Plaintiffs alleged that when they navigated through this episode they only approved a "soft" train, did not agree to a second "hard" train, were deceived into believing that only a "soft" train would be performed and that SoFi accordingly had no prior permission in writing or other permitted intent to perform a "hard" train.

In 1998, the Federal Trade Commission (FTC) published guidelines for applying for credit information from car dealers. This Directive was quoted by the plaintiffs to endorse the proposal that merely asking for the opportunity to obtain a credit in the near term or to show a similar "shopping behaviour" does not lead to a "credit transaction" for which credit information can be obtained without the prior consent of the customer in writing.

Plaintiffs allege that this behaviour constitutes a known and intentional violation of the Fair Credit Reporting Act and the California Consumer Credit Reporting Agencies Act. "The facts [were] far from uncontested as to whether the plaintiffs' claims on the defendant's website represented a credit operation or whether their claims merely represented a settlement purchasing behaviour, of which the [FTC] (in a non-binding but convincing consultation) declared that it was not sufficient to reach the standard of a credit operation under the FCRA" 5 ;

Supposed breaches of the FCRA's ban on receiving information from credit bureaux on "false allegations" 6 could not be denied because the clear wording of the Act did not preclude its possible use to obtain the approval of the user on false pretexts (as distinct from only making incorrect allegations to the Consumers Registration Authority) and the regulatory objective of the Act as a means of protecting consumers justified a permissive interpretation;

It was not possible to determine by summative judgement whether infringements of the FCRA were " intentional " and due to " objective sound " rulings, and that the evidence of the Company's statutory rulings on the basis of its acts alone was not adequate, and found that investigative applications for " instruction, counsel or expert opinion " regarding adherence to the FCRA were countered by allegations of attorney-client confidentiality; Following the Court's decision to reject SoFi's application for release, a $2 arrangement was reached.

The case should be used as a precaution for creditors who determine the admissibility of marketability on the basis of a "soft" pull of a consumer's credit report. In particular, the CRA does not distinguish between "soft" and "hard" credit reports; both lead to the submission of a report by the consumers and demand an admissible use.

Thus, while "soft" sweeps are often predicated on consumers' instruction in writing before a credit request is made, believers should consider if the "soft" sweep (and the fact that the "soft" sweep does not influence the creditworthiness of the consumer) is contained in any consumer-oriented language: 1. Whether the admissible objective of a future hard pull is due to the previous verbal instruction of the customer, new verbal instruction or the commencement of a credit operation (e.g. a clear credit application); and 2. whether a clear assertion that a future request could lead to a "hard" pull is necessary to eliminate possible misjudgments about the type of future credit pull.

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