commercial loan - individual owner as guarantor.
Can u pull credit on owners as guarantors at applaication - and send credit score exception notice? I think you can because if the borrower cannot repay then the guarantor may be personally liable on the note. The credit score exception notice is problematic as the rule applies to consumers and this is a business loan, but where we have contracted with the credit bureau to send out the exception notice in all pulls, then it is probably ok to send this out on the occasional commercial gurantor.

annual loan review
can you pull new credit on owners as guarantors as part of annual review? I think you should be able to pull the credit as it will assist you in grading the loan, but here, the guarantor is secondarily liable and even if you find a problem in the updated credit report what would you do? So I would say you cannot pull credit on an annual review.

does that sound right?

A lender has a permissible purpose to obtain a consumer report on a consumer in connection with a business credit transaction when the consumer is or will be personally liable on the loan as a co-signer or guarantor, because such a transaction involves the “extension of credit to ... the consumer” by virtue of the individual’s liability. A lender would not have a permissible purpose to obtain a consumer report on a consumer who will not be personally liable for repayment of the credit… because this section does not include the extension of credit to commercial entities. If a consumer has partnership, and that individual defaults, the creditor has a permissible purpose for obtaining the consumer report of the individual. [2011 FTC Staff Interpretations page 45]

If you don't mind, I would love to throw another scenario out there...mother and son own a business; they sign the note as the principles of the business. The son's wife is a guarantor for the loan and therefore liable for the debt, although she did not sign the note. Would we have permissible purpose to pull her credit?

I have been reading the FTC Interpretations and while I think you would have permissible purpose on the mother and son, the wife becomes questionable in my mind because she is not associated with the business, although now she is liable on the loan as a guarantor which then makes me think you have permissible purpose (based on Page 44 of the interpretations). Am I completely overthinking this?

See the reply directly above your question:

A lender has a permissible purpose to obtain a consumer report on a consumer in connection with a business credit transaction when the consumer is or will be personally liable on the loan as a co-signer or guarantor, because such a transaction involves the “extension of credit to ... the consumer” by virtue of the individual’s liability. A lender would not have a permissible purpose to obtain a consumer report on a consumer who will not be personally liable for repayment of the credit… because this section does not include the extension of credit to commercial entities. If a consumer has partnership, and that individual defaults, the creditor has a permissible purpose for obtaining the consumer report of the individual. [2011 FTC Staff Interpretations page 45]

Thank you Kathleen....I thought I was overthinking it.

I hope the son's wife brought some additional skin to the game or you most likely have a spousal signature violation.

That is very true and I glossed over it yet it is one of the first things I look for in commercial files. Is the wife a business owner? If not, was a guarantor needed and she volunteered? How she came to be involved is extremely important.

This loan was entered into long ago, but the scenario stuck in my head and came up the other day. If memory serves me, the wife brought something to the table. Mother and son had the business before the wife came into the picture. Wife is a savvy business woman and volunteered.

That is a good point though; thank you for pointing that out.