In a June 22 letter to the OCC, Fed, FDIC and OTS, the FTC has largely reversed last year's Medine/Tatelbaum opinion. According to the letter from Joel Winston, Acting Associate Director: "We agree that it is reasonable to view a business transaction in which an individual has accepted personal liability for the business debt as involving the consumer, thus providing a permissible purpose for the lender to obtain a consumer report under Section 604(a)(3)(A)." Would apply to reports pulled on cosigners, guarantors, sole proprietors. Doesn't help on business principals who aren't liable for debt (for ex., authorized signers on deposit accounts). To see the entire letter go to: www.ftc.gov/os/statutes/fcra/tatelbaum2.htm

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Pat Patrick
Wachovia Corp. Compliance
336-732-3394
pat.patrick@wachovia.com

That is BIG news -- and very welcome news. Thanks for the quick heads-up, Pat!

The tricky thing is for bankers to note what you pointed out -- that this is not blanket authorization to pull credit reports on anyone associated with a business. It's a major improvement over the original Tatelbaum letter, but the boundaries must be observed.

Any chance that someone from FTC can hop on over to HUD??? I hear RESPA interpretations need fixing in a BIG way! LOL!

I'm not sure we are out of the woods yet. The new letter says "that it is reasonable to view a business transaction in which an individual has accepted personal liability for the business debt as involving the consumer, thus providing a permissible purpose."

The question remains, what do they mean by "accepted personal liability"? If they mean that the guarantee must be signed first, we're still in "the hard place." If they mean that the application has indicated that an individual will be expected to sign a guarantee, then we're fine.

I'm trying to get a copy of the letter from the agencies to see if it sheds any light on the quesion.

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Al Miller, CRCM
Fremont Bank (CA)
(510) 790-5825
(510) 505-5211 FAX

Opinions expressed are my own and not necessarily shared by my employer.

Good point, Al.

I'm working on getting the Agency letter, too.

A couple of other points:
1. Sometimes overlooked is that deposit account histories (for ex., NAPS, ChexSystems) that are pulled also are FCRA "consumer reports" and a permissible purpose is a concern there, too.
2. FCRA allows private lawsuits, where unofficial staff opinion letters may or may not help.

So, given this new interpretation, will you only be running credit reports on the principals if they agree in advance to guarantee the loan if needed (prior to any kind of analysis on the business)? I can think of some instances where a lender may want to run credit on the business and principals in the beginning while analysis is going on. They may end up not needing the principals to guarantee, however.

[This message has been edited by Buffy D (edited 07-05-2001).]

I have obtained a copy of the agencies letter to FTC and have e-mailed it to MaryBeth to make available.

In the agencies conclusion, they clearly indicate that we should be able to pull reports "where the consumer is or will be personally liable on the loan." The "or will be" seems to have been overlooked.

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Al Miller, CRCM
Fremont Bank (CA)
(510) 790-5825
(510) 505-5211 FAX

Opinions expressed are my own and not necessarily shared by my employer.

What we did was modify our Personal Financial Statement to include the authorization to run the credit report "from time to time" so that we can check the credit when doing a renewal of a commercial loan as well.

We also did a form, based on a form that someone from MoneyPage Forum sent me, that allows us to pull a ChexSystems report for an authorized signer. If the ChexSystems report is derog and causes us to either decline the account, or disallow the authorized signer, the form gives us the authorization to communicate the decline decision to the owners of the account. We don't share the ChexSystems report, just the fact that we either rejected the account or the authorized signer because of it. The form also allows us to order further credit reports as long as that person is the authorized signer on the account.

I'm all for Privacy, but not to the extent that we allow con artists and fraud perpetrators free reign.

That's exactly what we did as well. We are using a PFS that is complete enough to serve as a business loan application that the principals all have to sign agreeing that we can run credit on them personally "from time to time" as well. It works out good. I've notified everyone of the change in the FTC's position, but cautioned that we need to continue to utilize this form as an extra caution so that there is not question that we were authorized to run credit.

I like that option you are talking about, too, on running the individuals through ChexSystems, too.

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The opinions expressed are not necessarily those of my employer.

Thanks, Al! Sorry for the delay. Been out of state for a few days.

To access the Word document containing the text of the letter the agencies sent to the FTC, click here. (NOTE: works best if you're using Internet Explorer as your browser.)

I'll be posting an html version shortly to make it even easier to access.

Here's the html version of the request letter from the bank regulators to the FTC, which Al Miller so kindly supplied.

It has a Printer Friendly version with it -- just click the Print Friendly icon.

Opinion Request Letter

FDIC has issued a Financial Institution Letter on this topic. It says (in part) that "there would not be a permissible purpose ... to obtain a consumer report on an individual for an extension of credit ... when the person would not be personally liable for repayment."

That seems clear for renewals where we will expect a guarantor to continue, but does not answer the question on new applications. If our policy is that all owners (of 20% or more) WILL guarantee, can we pull personal credit during the application process?
http://www.fdic.gov/news/news/financial/2001/fil0161.html

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Al Miller, CRCM
Fremont Bank (CA)
(510) 790-5825
(510) 505-5211 FAX

Opinions expressed are my own and not necessarily shared by my employer.

I have been on vacation and am catching up. I feel like I am missing something here. I got excited when I saw posts in several forums about Tatelbaum being overturned. However, the letter is the agencies ASKING the FTC to reconsider based upon the information provided by the agencies in their meeting and this followup letter. But a new opinion letter has not been issued yet. Or have I missed something?

Pat's original post has the link to Tatlebaum 2, www.ftc.gov/os/statutes/fcra/tatelbaum2.htm

The later posts were the regulators request.

Part of the opinion has changed.

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Andy Zavoina
Opinions stated are not necessarily that of my employer.

Thank you. It becomes clear now. I can return to work enlightened.

Can we change our password on this forum? I hate cryptic passwords...just cannot remember them. I am replying under another signon name because of the password.