Due to the recent FTC guidance, if we pull an individual credit report on a business owner (with their permission) do we have to also give that owner the right to opt out under the FCRA if we want to share information about that business with an affiliate? For example: we make a loan to a business entity, and pull individual credit reports on each principal. That business then indicates they are in the market for a product or service provided by one of our affiliates. Can we send the file, containing the individual credit reports, to that affiliate without giving the principals the right to opt-out first?
Thanks.
Leslie

FCRA requires notice and opt-out before affiliate sharing of non-experience information (such as the credit report)

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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.

Al,
I agree in principal. However, FCRA overall does not apply to business credit. If the business is applying for a product or service offered by an affiliate (who also only deals in business products) and the principal's credit report happens to be part of the business file (permission was obtained to pull it initially) can that entire file be shared with the affiliate if the business indicates a desire to obtain the affiliate's services, or does the individual principal have to be given the ability to opt out?
I know this is a murky area of the law, but I need to know how far FCRA sticks it's "nose" into business credit.
Thanks
Leslie

FCRA's sticks its nose into the transaction whenever a consumer report is involved. FTC staff has made it clear recently (and this is not a new position) that FCRA does not look to the nature of the loan or the type of loan file, but to the nature of the report. If the report is a "consumer report" as defined by FCRA, which we usually refer to as a credit report, then FCRA applies.

Thus, a consumer report on a business principal that is sitting in the business loan file IS subject to FCRA and you should not share it with affiliates unless you have given the opt-out. It is the nature of the report, not the bank department or loan type, that controls.

THANK YOU, LUCY! You're my hero!
Leslie

FYI...
we just completed a Compliance exam with FDIC and they were really looking at business loans to determine if we had proper authorization when Credit Reports were pulled.

On our commercial side, we do not have an application, so there is not a way to obtain authorization. What are others doing? Would it be permissable to add some verbiage on a brochure that all commercial customers receive?

I built it into the personal financial statement blank. That way we have one from each principal.

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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.

We have a small business application but it did not contain the FCRA notices or the authorization to obtain a credit report. We created a form that contains both and can be downloaded from the computer and either given, faxed or e-mailed to all business loan applicants for whom we require personal credit reports. The form was approved by our legal counsel prior to implementation, and procedures were written and communicated to all business lenders and all branch sales people that this is a required form. It appears to be working so far. I plan to monitor for compliance soon!
Leslie

Jeff and/or anyone else with FDIC regulators - For Business Loans during your exam, did the FDIC look at the verbiage you had on the applciation form or do you have a seperate authorization form? What should the verbiage say? If on the commercial side, a bank doesn't have an application form, what else can you do that would be acceptable to the FDIC. We have heard that some banks are waiting to see what the FDIC requires since this only came out in a FTC opinion letter, not the FDIC. Could this be a valid argument? Thanks

[This message has been edited by Janet (edited 03-05-2001).]

The safest course to follow is to obtain permission from each individual, including individuals who apply for or will guarantee a business loan. Giving them a notice, as you would on a brochure, does not meet the permission test. You need their signature.

The interpretation is from FTC, BUT FTC is the lead agency on FCRA. It is only recently that the banking agencies have authority to do anything other than enforce it. They now have some authority to give guidance but in doing so, they really can't cross the FTC. So right now, while we debate about what to do, your bank regulator is also debating what to do. There is recognition at the banking agencies that obtaining a credit report is an important safety and soundness issue. But, in obtaining a credit report, you must comply with FCRA. We can expect some guidance in several months (or later). In the meantime, get the customer's permission.

I was talking with another CO recently that just finished an FDIC exam. She too indicated that the FDIC was looking for authorization from principals and guarantors for credit reports. They also inquired about the banks procedures in the Human Resources Department.

In light of this, I have started monitoring for compliance too.

Dolly Nugent