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#114021 - 09/11/03 08:20 PM Business Application - Watch Out
Inquisitor / Sommelier Omega Offline
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I just handed my CIP packet to our board only to realize that one of the parts is in direct violation of FCRA! We can not require TIN / CBR from a signer on a business account of let say a c corp. We have no legitimate businses purpose. Does anyone else have this in thier policy?
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#114022 - 09/11/03 08:43 PM Re: Business Application - Watch Out
Princess Romeo Offline

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Our Personal Financial Statement includes an authorization to run a credit bureau report. For the most part, any signer on a corporate loan would also have an ownership or controlling interest, and we check the credit background of the individuals running the company. No PFS, no loan.

On deposit accounts, we use a Deposit Account authorization which all account signers must sign that gives us permission to run a credit bureau on them - usually a ChexSystems report.
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#114023 - 09/11/03 09:55 PM Re: Business Application - Watch Out
Inquisitor / Sommelier Omega Offline
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Getting thier permission and having a legit business purpose are two different things. If held to the letter of the FCRA, and using a CBR instead of check systems, you may have a problem. Given the recent attention the FCRA is getting (very recent) this is an issue that may pop up. Again we are talking about deposit accounts and authorized signers.
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#114024 - 09/11/03 10:15 PM Re: Business Application - Watch Out
Elwood P. Dowd Offline
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Omega,
You are not alone with the problem in your policy. One of the sample "free" policies from a major vendor had the same fault imbedded in the language.

However, I think, by including permission to pull a consumer report in her personal financial statement forms, Bonnie has things well covered. She either needs written permission or a permissible purpose, but not both.

Link to detailed post from Bear Collector.
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#114025 - 09/12/03 12:35 AM Re: Business Application - Watch Out
Princess Romeo Offline

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Quote:

If held to the letter of the FCRA, and using a CBR instead of check systems, you may have a problem.



Omega - a ChexSystems report IS considered a credit bureau report under the FCRA. You cannot pull a ChexSystems report on a business account signer unless:

A. The business account is for a sole proprietorship and the only signer is the sole prop.
B. You have written authorization from the individual.
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#114026 - 09/12/03 02:12 AM Re: Business Application - Watch Out
Anonymous
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When we open a business account such as a corporation, we obtain the name and tax ID number for all signers on the account and we do a Chex Systems inquiry on all signers. Would we still have to get their authorization even though we use this not a "credit" inquiry to determine credit worthiness, but a method to determine whether previous banking relationships had been handleed satisfactorily?

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#114027 - 09/12/03 02:34 AM Re: Business Application - Watch Out
Princess Romeo Offline

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Quote:

Would we still have to get their authorization even though we use this not a "credit" inquiry to determine credit worthiness, but a method to determine whether previous banking relationships had been handleed satisfactorily?



I don't know how to tell you this, but a report to help you determine if their previous banking relationships had been handled satisfactorily IS a classic definition of a credit report!!!

YES - ChexSystems is a credit report. They are subject to all of the Credit Reporting Agenciy minutae under the Fair Credit Reporting Act. ChexSystems even has FCRA notices that you can hand a person if you decline to open their account based on a ChexSystems report.

So unless you are opening an account for the person, then you will need that person's written authorization to obtain a ChexSystems report.

What is the difference between ChexSystems and, say, Experian? Most banks, when they decline someone based on a ChexSystems report, do not have to issue a Reg B Adverse Action notice. (I say MOST because who knows, there is probably someone out there that declines Overdraft lines based on ChexSystems.
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#114028 - 09/12/03 09:23 AM Re: Business Application - Watch Out
Elwood P. Dowd Offline
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Only confirming Bonnie's statement: ChexSystems is a consumer reporting agency. A bank's ability to obtain a report from one of these organizations is governed by the Fair Credit Reporting Act (FCRA). As Bear Collector notes, you can pull a consumer report when the consumer is seeking to do business with you or when the consumer gives you written permission.

If an entity is seeking to do business with you and you regard a consumer signatory's financial history as relevant, you need the consumer's written permission to pull the report.
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#114029 - 09/12/03 03:42 PM Re: Business Application - Watch Out
Princess Romeo Offline

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And just to further clarify (or confuse!) the issue, the FTC said that a bank would not need the written authorization of a GUARANTOR of a business transaction, so you can actually pull a credit report on a guarantor of a business loan without the written permission. (However, we still have the permission built into our financial statements anyways.)

But an authorized signer on a deposit account is not considered to be a guarantor, so you will need written permission to pull a ChexSystems or any other consumer credit report.
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#114030 - 09/12/03 06:06 PM Re: Business Application - Watch Out
Inquisitor / Sommelier Omega Offline
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This CBR is not being pulled for extension of credit or insurance. We may have signed authorization instead of a legit business purpose, but we are not talking about a consumer intitated transaction. It does not appear that US PATRIOT ACT section 326 requires a CBR for an authorized signor on a corporate account, why mess with FCRA 604? Is there an upside?
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#114031 - 09/12/03 09:26 PM Re: Business Application - Watch Out
Anonymous
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We have a notice in our CIP regarding obtaining consumer reports on a business transaction. If we need to get a consumer report on signatories get written permission.

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#114032 - 09/12/03 11:35 PM Re: Business Application - Watch Out
Princess Romeo Offline

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Quote:

This CBR is not being pulled for extension of credit or insurance. We may have signed authorization instead of a legit business purpose, but we are not talking about a consumer intitated transaction. It does not appear that US PATRIOT ACT section 326 requires a CBR for an authorized signor on a corporate account, why mess with FCRA 604? Is there an upside?




We want a ChexSystems report on all authorized signers. We don't want someone signing on an account if they have a history of unsatisfactory account handling at other institutions.

Also, the ChexSystems report is part of our Non-Documentary verification for persons who have a controlling interest in an account which IS addressed in the regulation under 103.121(b)(ii)(C)
Additional verification for certain customers. The CIP must address situations where, based on the bank's risk assessment of a new account opened by a customer that is not an individual, the bank will obtain information about individuals with authority or control over such account, including signatories, in order to verify the customer's identity...

We've determined that since we are located smack-dab in the middle of a HIFCA, we need to verify account signers.
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#114033 - 09/17/03 03:25 AM Re: Business Application - Watch Out
Anonymous
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I'm concerned and confused. At our bank we do obtain credit reports on the principals for a business deposit account. In reading the FTC letters it appears that they are specifically addressing loan accounts - business "credit". So I believe I understand that on a loan account it appears you need written permission unless that individual is personally liable, a guarantor. Where is this addressed for deposit accounts? I've been given a reason that states that there is an "implied" permission given when someone applies to open up a business account. Can someone shed some light on this for me? It appears in the different threads that your banks are applying the same requirements under FCRA for loans to deposit accounts (getting written permission) and I am not sure where I see this. What am I overlooking? Thanks!

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#114034 - 09/17/03 05:01 AM Re: Business Application - Watch Out
Princess Romeo Offline

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Here's the problem:

FCRA doesn't give a rat's rear about the differnces between a loan and a deposit account. FCRA is ONLY concerned about someone (say - a Bank) obtaining a credit report on an individual without either that individual's express written permission or for a "permissible purpose."

Okay - so express written permission is pretty self explanatory.

It's the "permissible purpose" that creates the problem. You will ALWAYS have a permissible purpose if you are opening an account for the INDIVIDUAL on whom you are pulling the credit report.

So if an individual (or individuals) come in to apply for a loan or open a deposit account, you have a permissible purpose to obtain a credit report on that individual(s), and that credit report can be Experian, Equifax, TransUnion, ChexSystems, or any other third party database the reports experience information gathered from non-related sources. (Ex: Experian has credit habits from other lenders who are not Experian. ChexSystems has deposit account habits from other institutions that are not ChexSystems.)

HOWEVER - this all gets thrown a bit off kilter when the Individual now has a business entity - let's say a partnership or corporation. Now, you are no longer opening an account for the individual, you are opening the account for the business entity. The Experian or ChexSystems you want to pull is NOT on the business entity, it's on the individual who is empowered to act for the entity.

FCRA doesn't care about who is empowered, it cares if you have a permissible purpose for an account of the individual.

The FTC finally relaxed this very strict interpretation to say that you have a permissible purpose to obtain a credit report on an individual who will be a GUARANTOR for a business entity. But this little loophole will only help in the case of a loan where you KNOW this person would be REQUIRED to be a guarantor.

So now what about a deposit account? Can you have an individual who will be REQUIRED to be a GUARANTOR on a deposit account? In the Operations arena, there is no such animal as a "guarantor" on a deposit account. The closest you might come is someone who will guaranty an overdraft line of credit on a deposit account. But when you are first opening up a deposit account for a business, that little scenario would be rare indeed.

And so you have it. Another example of what happens when someone other than the FRB writes a consumer regulation that affects banking.

(Although I will admit that my faith in the FRB is shaken after their little HMDA debacle on business loan refi's. )

P.S. In the case of a loan or deposit account for a sole proprietor, depending on state law, you will have a permissible purpose to pull a credit report on the individual because in MOST places, a sole prop is indistinguishable from the individual.
Last edited by Bonnie M; 09/17/03 05:05 AM.
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#114035 - 09/17/03 10:57 AM Re: Business Application - Watch Out
Elwood P. Dowd Offline
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Anon,
As Bonnie notes, aside from the suggestion inherent in its name, the Fair Credit Reporting Act does not focus on the extension of credit. It focuses on the use of consumer reports. Consumer reports may be used to make credit decisions, but they are used in many other contexts, including employment.

Personally, I am in total agreement with the FTC's interpretation that a bank has no implied right to pull a consumer report on an individual in connection with an entity's account. (I encouraged banks to get written permission in this circumstance before the Tatelbaum letters were issued, but the advice was never well received.) To me the consumer's privacy outweighs what is often a marginal or nonexistent "need to know" on the part of the bank.

For example, say you took a part-time job for with a local CPA firm during tax season. They want to add you as a signatory to the partnership's account. Would you think it necessary for the bank to pull your consumer report? Would your opinion be the same if you signed on the account of a Fortune 500 company? In neither case would you have any personal liablity on the checks that you signed. Does the bank need to know your credit history? (Any argument that the bank does it to protect the business customer is a red herring - the bank has no right to tell the business customer the results, unless it wishes to be a consumer reporting agency.)

The counter argument is that there may be little difference between the financial prowess of a company and its owners or partners and the information is relevant. Clearly, that is true. However, think about how hard it would be to write a regulation that distinguished between owners (10% or more?) and mere signatories. It is simpler to administer if the bank just gets permission from any consumer who is not directly liable on the contract. Personally, if I thought my company was creditworthy, I would not give permission (even if my credit was pristine) and would look for a bank that agreed with me. If I realized that my company's fortunes and my own were indistinguishable, I would give permission.

The point is that both the information and the decision to share it are yours, not someone else's.
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#114036 - 09/17/03 02:45 PM Re: Business Application - Watch Out
Anonymous
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Thank you Ken and Bonnie for your comments. It helped clarify my understanding that we probably should get written permission on our deposit accounts. However, I am sort of caught between what I understand would be the proper thing to do and what my boss has explained to me which doesn't give me a good comfort level. I hate to do it, but I guess I'll just have to beg forgiveness if it comes up in an exam. Thanks again.


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#114037 - 09/17/03 04:23 PM Re: Business Application - Watch Out
Inquisitor / Sommelier Omega Offline
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I may look at this differently if the bank were located in a high risk area. As it is, I will error in favor of customer relations.
Isn't this fun?
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#114038 - 09/18/03 09:17 PM Re: Business Application - Watch Out
Inquisitor / Sommelier Omega Offline
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Just a thought. If my CBR company can provide a search that does not involve credit (OFAC and others)there will not be a FCRA issue. Will there? We are talking about the risk of them being a bad guy , not a bad risk .
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#114039 - 09/18/03 11:50 PM Re: Business Application - Watch Out
Princess Romeo Offline

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A strict check of the OFAC list and any other government maintained lists of "bad" people would, in and of itself, not be considered a credit report.

You just have to watch out if those ancillary checks are part of a greater credit report on transactional information with unrelated third parties.
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#114040 - 09/19/03 09:20 AM Re: Business Application - Watch Out
Elwood P. Dowd Offline
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I agree with Bonnie, using a third party resource that only checks governments lists is not obtaining a consumer report.

However, I have met several bankers who have been told (by vendors) that using a search engine which only checks public information is not the equivalent of pulling a consumer report.

I think it more likely that the FTC would consider a fee paid seach engine to be a "consumer reporting agency," a person which, for monetary fees...regularly engages in whole or in part in the practice of assembling or evaluating consumer credit information or other information on consumers for the purpose of furnishing consumer reports to third parties, and which uses any means or facility of interstate commerce for the purpose of preparing or furnishing consumer reports.

The FTC has previously opined: An entity that meets the definitional requirement for a "consumer reporting agency" (CRA) in Section 603(f) of the FCRA is covered by the law even if the only information it collects, maintains, and disseminates is obtained from "public record" sources. Link to 1999 Sum letter.

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#114041 - 09/19/03 04:10 PM Re: Business Application - Watch Out
Al Miller Offline
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We happen to be rolling out platform automation concurrently with CIP, so are revising our corporate signature card at this time. By being an Authorized Signer, you agree:

" By signing below, you authorize us to make any inquiries we consider appropriate from time to time to evaluate you and the account(s) indicated above. This may include ordering a consumer credit report on you personally. You also agree that information regarding your credit may be provided to or obtained from the Bank and our affiliates. You authorize us to disclose information about the account to credit reporting agencies and to other persons or agencies who we reasonably believe have a legitimate business purpose for obtaining this information.
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