FCRA, Joint Accounts, and Adverse Action

by Mary Beth Guard, BOL Guru

Question: The Fair Credit Reporting Act ("FCRA") requires that certain disclosures be given to loan applicants when adverse action is taken on a loan application that was based on credit information obtained from a credit reporting agency. In the case of joint applicants as I understand it, each is to receive her/his own notice copy even though the application was denied on credit information obtained on only one of the applicants. First Question: If I tell applicant "B" that the credit application was denied on credit information obtained on applicant "A", doesn't that create other problems with privacy issues? Second question: Do the same rules apply in the case of co-signers where "B" helps "A" to get a loan and it is not considered to be a joint application?

Answer: You won't have a problem with privacy in this scenario. It is important for you to tell the applicants why you have taken the action you have taken. In the FRB's recent revisions to Reg B, the FRB addressed a similar issue relating to ECOA adverse action notices in the prefatory material, stating as follows:

"Many commenters were concerned about the co-applicant's or guarantor's privacy when the reasons for adverse action pertaining to creditworthiness are given to the primary applicant. When a person agrees to be a co-applicant, guarantor, or similar party, however, there is (or should be) a general understanding that information will be shared."

With respect to FCRA adverse action notices specifically, the clearest guidance regarding who must receive an FCRA adverse action notice is found in the Federal Trade Commission's Stinneford opinion letter issued July 14, 2000. In it, the FTC said that any consumer with respect to whom adverse action is taken must receive FCRA adverse action notice if that action is based "in whole or in part" on information from a consumer report.

The Stinneford letter addressed the following question:

Is it permissible for a creditor to send a combined ECOA/FCRA adverse action notification (similar to Form C-1) only to the primary applicant, even if the application was denied based on the co-applicant's (or guarantor's) consumer report?

FTC gave the opinion that when there are two applicants a creditor must provide a separate adverse action notice to the co-applicant if the application is denied, even in part, based on information in a co-applicant's consumer report. In that circumstance, the co-applicant has been the subject of "adverse action" and must be provided his or her own separate FCRA adverse action notice.

With a guarantor, however, the guarantor does not experience "adverse action" that triggers the FCRA notice. That means a creditor does not need to provide a guarantor with an FCRA adverse action notice, even if the application is denied in whole or in part based upon information from the consumer report of the guarantor. Under such circumstances, only notification to the applicant is required.

The original version appeared in the January/February 2003 edition of the Oklahoma Bankers Association Compliance Informer.

First published on BankersOnline.com