Some things are a given…almost every time we provide training on the Fair Credit Reporting Act (FCRA) we end up in deep discussions about credit reports used in connection with business transactions. There are typically two issues on bankers’ minds:
- When is it permissible to request a consumer report in connection with business credit?
- When are an Equal Credit Opportunity Act (ECOA) and/or FCRA Adverse Action Notice required?
The answer to the first question has a direct correlation to individual liability. 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… However, a lender would not have a permissible purpose to obtain a consumer report on a consumer who will not be personally liable for repayment [2011 FTC Staff Interpretations page 51]
To answer the second question, you need to determine whether the liability incurred is that of a co-signer or guarantor. A creditor need not provide a guarantor (or co-signer) with an adverse action notice (ECOA or FCRA), even if the application is denied in whole or in part based upon information from the consumer report of the guarantor. Regulation B states that only an “applicant” can experience “adverse action” in a credit context and excludes a guarantor from its definition of “applicant.” [2011 FTC Staff Interpretations page 83]
Since Regulation B states that a guarantor or co-signer is not deemed an applicant under § 202.2(e) and Sections 603(k)(1)(A) and 603(k)(1)(B)(2) of the FCRA provide that adverse action has the same meaning for purposes of the FCRA as is provided in Regulation B a guarantor or co-signer would not receive an adverse action notice under the ECOA or the FCRA. [Federal Register/Vol. 76, No. 136/7-15-11/Rules and Regulations – Page 41597]