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#49043 - 12/16/02 07:59 PM FCRA - Affiliate Sharing re: commercial apps
SJB Offline
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California
Our commercial lending side wants to provide copies of commercial loan applications to a wholly owned investment advisor affiliate who would then approach the principals of the commercial applicant concerning investment management or trust services. Some commercial applicants are individuals, others are businesses but all are for a business purpose.

GLB privacy provisions apply with regard to consumer transactions. FCRA allows the sharing of transactional and experiential information with affiliates if the practice is disclosed.

SO, in our situation we have information about individuals from a business purpose application which would include experience and transaction information plus additional info such as credit reports on individuals (principals in the business.)

I tend to think the info beyond transaction and experience cannot be shared under FCRA even if the info is obtained in a business loan application.

Ideas?
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General Discussion
#49044 - 12/16/02 08:08 PM Re: FCRA - Affiliate Sharing re: commercial apps
Kathleen O. Blanchard Offline

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Is this to solicit them for personal investments or business investments? If personal, I wouldn't share the information without customer permission unless this is a joint marketing agreement (doesn't sound like it) and you disclosed you share for joint marketing agreements. If business, even though not covered by GLBA or FCRA, it could be covered by state law, and in any event it would be very rude (and risky) to share a business's information without their permission. Why not approach the customers to gauge their interest before taking the chance of offending someone and losing the account?
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#49045 - 12/16/02 10:02 PM Re: FCRA - Affiliate Sharing re: commercial apps
SkyDiver Offline
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I agree that the best practice is to ask the business customer about his/her interest to be referred to another business line or information sent to another business line. Nevertheless, it is an interesting question, "Does FCRA affiliate information sharing provisions apply?" to that situation.

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#49046 - 12/16/02 10:29 PM Re: FCRA - Affiliate Sharing re: commercial apps
Don_Narup Offline

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I don't really want to sound like sour grapes here but,

Isn't this type of information "sharing" exactly why the privacy regulations were inacted? Sounds like OK lets find the loopholes and keep doing it. Which means eventually there will be more regulations.
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#49047 - 12/16/02 11:01 PM Re: FCRA - Affiliate Sharing re: commercial apps
redsfan Offline
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It sounds to me as if you will be sharing consumer data - that is, the information will be about consumers (either the principals of corporations or partnerships or the personal data of sole proprietors).

The purpose of the sharing seems to be to establish eligibility for various products, including insurance (think variable annuities and other insurance-based investment vehicles).

Sharing consumer data for the purpose of establishing eligibility for insurance is a credit report under CRA. In ordr to share this data with your affiliate, I think you need to offer the opportunity to opt out.
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#49048 - 12/17/02 12:29 PM Re: FCRA - Affiliate Sharing re: commercial apps
Skittles Offline
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I have this same sort of thing, but with a different twist. Our Brokerage Dept. wants reports showing customers names and addresses with maturing certificates of deposit. We do not have an opt out provision in our privacy policy. The Internal Auditor and I agree that we cannot give them this since they sell non-bank products. It would be giving them knowledge of a product these specific individuals have. Any opinions?
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#49049 - 12/17/02 02:14 PM Re: FCRA - Affiliate Sharing re: commercial apps
Bear Collector, CRCM Offline
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Autumn,
We ran into this same issue. Our branches would have "calling nights" to contact maturing CD customers to see if they were interested in investments. Because many of our branch platform employees are also licensed to sell investment products through a third-party, this became a "sticky wicket". We decided that the non- licensed employees will call the customers. If the customer indicates that they would like to be referred to an investment advisor, the licensed employee will call them back at another time. While it adds a step to the process, we felt it was much safer from an information-sharing and privacy standpoint.
Leslie
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#49050 - 12/17/02 02:30 PM Re: FCRA - Affiliate Sharing re: commercial apps
rlcarey Offline
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Galveston, TX
Well, this analysis may be a stretch, but let’s give it a try.

I guess I have to go back to the Tatelbaum fiasco of a couple of years ago, when the argument raged between the banks and the FTC over whether banks had a permissible purpose to pull credit reports on principals of businesses that were anticipated to guarantee the business loans. The FTC originally said no, however, they rescinded the original ruling and stated:

“Your letter advocates an alternative interpretation of Section 604(a)(3)(A), concluding that "the FCRA would permit a lender to obtain a consumer report in connection with a business credit transaction where the consumer in question is or will be personally liable on the loan, such as in the case of an individual proprietor, co-signer, or guarantor."(1) 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).”
1.However, we note that you "generally agree that a lender would not have a permissible purpose under section 604(a)(3)(A) of the FCRA to obtain a consumer report on an individual who will not be personally liable for repayment of the credit, such as when the individual is a shareholder, director, or officer of a corporation, but does not guarantee or co-sign the loan, and is not an individual proprietor liable for the loan."

It is readily apparent that the FTC considers consumer information obtained from individuals in connection with a business application to still be considered consumer information – otherwise there would have been no need for this ruling. As such, I would opinion that sharing any information outside of the information regarding the transactional and experiential information concerning the business with an affiliate would require FCRA opt out notices, as you are sharing a consumer credit report with your affiliate.

Autumn, what relation is the “brokerage department” to you bank and do you have "dual employees"??
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#49051 - 12/17/02 02:34 PM Re: FCRA - Affiliate Sharing re: commercial apps
Skittles Offline
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Yes, they are dual employees. Maybe I'm overly conservative, but I know something similar happened in the past and a few of the bank customer's got concerned and wanted to know 'how' this information was discovered.
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#49052 - 12/17/02 03:05 PM Re: FCRA - Affiliate Sharing re: commercial apps
Pale Rider Offline
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We have such a program in which the info is shared with a subsidiary. The sub has a joint marketing arrangement with the non-deposit investment company. We allow our customers to opt out and disclose this relationship in our privacy notices. This program is a signficant contributor to non-interest income. It has been reviewed by the FDIC for a number of years without comment.
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#49053 - 12/17/02 03:07 PM Re: FCRA - Affiliate Sharing re: commercial apps
Skittles Offline
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My issue is our customer's don't have the 'opt-out' option. In my opinion if we prepared these reports we would have to supply this to our customers.
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#49054 - 12/17/02 03:10 PM Re: FCRA - Affiliate Sharing re: commercial apps
Skittles Offline
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My problem with this is our customer's don't have the 'opt-out' priviledge. I feel that if we started providing this information to our NDIP investment area we are required to begin the opt-out situation.
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#49055 - 12/17/02 06:14 PM Re: FCRA - Affiliate Sharing re: commercial apps
Anonymous
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Do customers opt out of sharing info with an affiliate...or opt out of sharing information with the third party?

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#49056 - 12/17/02 06:36 PM Re: FCRA - Affiliate Sharing re: commercial apps
Skittles Offline
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In my opinion this information is going to the third party since these employees are selling their products and not our bank's products.
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#49057 - 12/17/02 07:14 PM Re: FCRA - Affiliate Sharing re: commercial apps
rlcarey Offline
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I think the preamble to the regulation supports that stance. It indicated that:

"...........the Commission believes it is appropriate to deem the information to have been given to the financial institution that is providing the financial product or service in question. Thus, if an employee of a mortgage lender is a dual employee with a securities firm, information received by that person in connection with a securities transaction conducted with the securities firm would be deemed to have been received by the securities firm."

That supports the position that although they are dual employees, there is a firewall for information being passed back and forth and would require an opt-out.
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#49058 - 12/17/02 07:32 PM Re: FCRA - Affiliate Sharing re: commercial apps
Skittles Offline
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Thank you all for your opinions. Now I don't feel so much like 'The Grinch'.
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#49059 - 12/17/02 08:11 PM Re: FCRA - Affiliate Sharing re: commercial apps
Anonymous
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I feel like the Grinch...still can't quite get it...what type of opt out do you offer....an FCRA opt out (sharing information with an affiliate) or a Reg P, Privacy opt out (sharing information with a nonaffiliated (outside) party?
The post first started as a discussion of FCRA; thus, my confusion.

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#49060 - 12/17/02 08:14 PM Re: FCRA - Affiliate Sharing re: commercial apps
Princess Romeo Offline

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One more thought to toss into the collective pool. Think about the people your bank would be "messing" with. These are the people in charge of your major customer relationships. And while we may nit and pick (and watch the angels dance on the pin) about whether or not GLB "really" applies to these people, the bottom line is - do you really want to risk alienating these customers on the hope that you might sell them an insurance policy or mutual fund?

To put in a more positive light, IMHO, the program would be more successful if you first ask for permission. Then, the "leads" you give to your affiliate/subsidiary/what-have-you will actually be of much better quality.
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#49061 - 12/17/02 08:14 PM Re: FCRA - Affiliate Sharing re: commercial apps
Skittles Offline
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I segued this thread into a slightly different issue than FCRA. The opt-outs I was talking about are the ones with the privacy policy and the Grahamm-Leach-Bliley Act. Our Privacy Policy is basic and does not offer the opt-out priviledge since we 'do not divulge information except as allowed by law'.
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#49062 - 12/17/02 08:23 PM Re: FCRA - Affiliate Sharing re: commercial apps
rlcarey Offline
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Anon,

Read my previous response and I think you will see these commments are only related to a FCRA opt-out, because as far as I could tell there is no non-affiliated third party involved.

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#49063 - 12/17/02 09:31 PM Re: FCRA - Affiliate Sharing re: commercial apps
SJB Offline
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California
I started this jolly discussion and appreciate the input. I agree with those who do not like the idea of this sharing regardless of whether it is LEGAL or not. I have to advise on the legal/compliance issues and other management will have to deal with the public image and reputation issues (which I will of course point out.)

In looking at this some more, I agree that the GLB provisions do not apply because the "subject" is applying for business credit and therefore is not a "consumer." However, when the loan application goes to the subsidiary investment advisor, it is going as information on the individual(s) for a "consumer" service or product and that is where I think FCRA comes in to play. Unless we meet the exception (experience and transaction info only) the information becomes a consumer report under FCRA and we become a consumer reporting agency.

Sound about right?
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#49064 - 12/17/02 09:41 PM Re: FCRA - Affiliate Sharing re: commercial apps
rlcarey Offline
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Actually, on a technical basis, unless you give the customer the FCRA opt-out, if you pass information to an affliate that exceeds your experience and transaction info. it becomes a "consumer report" and turns you into a "credit reporting agency". Nobody wants to be there.
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#49065 - 12/18/02 01:16 PM Re: FCRA - Affiliate Sharing re: commercial apps
redsfan Offline
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Steve, that's how I see it. If the data shared is beyond transactions and experience, then it has the potential to be considered a consumer report under FCRA.

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#49066 - 12/18/02 09:09 PM Re: FCRA - Affiliate Sharing re: commercial apps
SJB Offline
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California
Latest twist - "How about if a dual employee shares what he learns (from the bank) and passes it on to the affiliate?"

Somehow I knew they would not accept my guidance that the bank could only share transaction and experience information. :-)
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#49067 - 12/18/02 09:18 PM Re: FCRA - Affiliate Sharing re: commercial apps
Dan Persfull Offline
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Wouldn't that employee have an obligation to protect the privacy of the bank's customer, as well as to protect the privacy of the affiliate's customer? If the employee is sharing the information, and the bank is aware of it, then as for as I'm concerned the Bank is sharing the information.

Even if the bank was legitimately not aware of it, but then later found out about it, I would think they would be obligated to put an end to it.

Outside of this opinion, I can give you no further guidence then you have already received. Good Luck, sounds like you're in for a up hill battle.
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