Adverse Action Notice to Multiple Borrowers

Question: When a loan has two borrowers who live at different addresses does the bank need to provide the negative information notice to both individuals, or is one sufficient? Similarly, if there is a borrower and a cosigner on the loan, do they both need to receive the notice?

Answer: This is an interesting question, made more complicated by the fact that there are model notices but no regulations for this provision of the act. For most purposes, the Fair Credit Reporting Act used the term "consumer" for the protections and requirements of the act. In this section, however, the act uses the term "customer." Section 223 (7)(A)(i) of the FCRA states: If any financial institution that extends credit and regularly and in the ordinary course of business furnishes information to a consumer reporting agency described in section 603(p) furnishes negative information to such an agency regarding credit extended to a customer, the financial institution shall provide a notice of such furnishing of negative information, in writing, to the customer.

Because the FCRA defines consumer but not customer, the FACT Act contains a provision for defining customer by referring to the Gramm- Leach-Bliley Act's privacy provisions: (G) For purposes of this paragraph, the following definitions shall apply: .... (ii) The terms "customer" and "financial institution" have the same meanings as in section 509 Public Law 106-102 (Gramm-Leach-Bliley).

Now comes the fun part. That section of the G-L-B Act contains a definition for consumer but does not specifically define customer: (9) The term "consumer" means an individual who obtains, from a financial institution, financial products or services which are to be used primarily for personal, family, or household purposes, and also means the legal representative of such an individual.

So next, we look to the regulation implementing that part of the G-L-B for a definition and here we find definitions that distinguish between consumer and customer. (e)(1) Consumer means an individual who obtains or has obtained a financial product or service from you that is to be used primarily for personal, family, or household purposes, or that individual's legal representative. A customer, on the other hand, has a stronger, continuing relationship with you: (i)(1) Customer relationship means a continuing relationship between a consumer and you under which you provide one or more financial products or services to the consumer that are to be used primarily for personal, family, or household purposes.

None of these definitions really answer our question, so now what? First, let's look at the difference between the definitions in the FACT Act and the FCRA's definition of consumer. The definition of consumer is pretty basic: The term "consumer" means an individual.

In spite of the FACT Act's references to a non-existent definition in G-L-B, there is a substantive difference between the FCRA and G-L-B definitions. The FCRA definition is broad, bringing in an individual regardless of any past, current or future relationship with a creditor. In contrast, the FACT Act definition for this provision limits the coverage to someone who has a business relationship with you. While this still doesn't give us an answer to this question, it does get us within range, so to speak.

The notice requirement is based on having a business relationship - which is pretty much a given, since there wouldn't be a negative information notice if there weren't a credit arrangement. But arguably, using the more limited relationship definition puts the notice requirement into the context of other typical credit notices, which can go to one of the borrowers or one of the addresses. However, a cautious compliance manager would ask their examiners how they are interpreting this rule. Whatever the interpretation, this is the best way to avoid a citation.

Copyright © 2006 Compliance Action. Originally appeared in Compliance Action, Vol. 10, No. 16, 1/06