Question: Can a debt collector pull my credit report without my permission? I recently applied for a car loan and found out through the dealer that I had an inquiry on my credit reports from a debt collector.
Answer: Companies pulling your credit report must have a “permissible purpose” to gain access to your credit reports. But the “permissible purpose” rule has been interpreted in several different ways.
The Fair Credit Reporting Act (FCRA) Section 604(a)(3)(A) gives a creditor a permissible purpose to obtain a consumer report without the consumer's consent “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.”
This Section of the FCRA covers a collection agency pulling consumer credit reports. It assumes the collection agency has been assigned the debt by the original creditor. The original creditor does have permissible purpose to pull an account holder’s credit report and it passes on that permission for debt collection purposes.
Collection agaencies generally pull your credit report to learn about your assets; this qualifies as a permissible purpose because the information can be used to help collectors settle the debt.
But if the debt was reported in error by the collection agency or the debt does not belong to you, the credit bureaus will have to remove the inquiry from your credit reports.
The courts may also force a collection agency to remove an inquiry if a lawsuit is brought. A few years ago in a case in the U.S. Court of Appeals for the Ninth Circuit, Pintos v. Pacific Creditors Association, No. 04-17485 (April 30, 2009), it was found the Fair Credit Reporting Act (FCRA) does not give a creditor the right to obtain the credit report of a consumer in determining the likelihood of collecting a debt unless the debt has either arisen out of a transaction for which the consumer actively sought credit or been reduced to judgment.
The case involved a towing company where Pintos failed to pay a towing company and her car ended up being sold at auction. The auction did not result in enough money to pay the towing bill so they turned the remaining debt (the difference between the auction price and the towing bill) over to a collection agency.
The collection agency, Pacific Creditors Association, pulled Pintos’ credit report without her permission. Ms. Pintos did not apply for credit with the towing company and under the Fair and Accurate Credit Transaction Act (FACTA); a collection agency may only pull a consumer credit report in connection with a “credit transaction.” There was no “credit transaction” between Ms. Pintos and the towing company.
As you can see if the “permissible purpose” is challenged in court, the inquiry can also be removed. But generally, the FCRA allows for a collection agency to pull your credit report. The collection agency can pull a credit report in the form of a hard inquiry or a soft inquiry. The hard inquiry will take points away from your credit score but a soft inquiry will not affect your credit score.
The best of luck to you.