Pub. 7 2019 Issue 1

www.uba.org 8 The general rule in the FCRA is that if the bank obtains a consumer report and takes adverse action based (in whole or in part) on any information in the report, it must give the consumer an adverse action notice. The catch here is how the FCRA def ines an “adverse action.” valid permissible purpose, the bank would need to have some au- thority to change the terms of the loan as a result of the review; for example, if the bank had the authority to terminate or freeze the loan if the report contained certain negative information. On the other hand, if the bank is just “reviewing” the report so as to potentially offer the borrower different terms, then it would generally not be allowed, “unless the contract expressly provides for such action.” As a caveat, however, these opinions are only informal guid- ance that are not binding on the FTC, and further, interpretive authority for the FCRA technically transferred to the Con- sumer Financial Protection Bureau (CFPB) pursuant to the Dodd-Frank Act. While plenty of banks do rely on them, we would still recommend getting written authorization from the individual to pull credit. In fact, we’d recommend this in every case, for any consumer report pulled. This way, the bank can rely on that written authorization as valid permissible purpose to pull the consumer report, rather than having to justify that one of the other permissible purposes apply. Said another way, the bank always has a permissible purpose to obtain a con- sumer report if the individual authorizes this in writing. (For reference, the full list of permissible purposes can be found in § 604(a) of the FCRA). Besides permissible purpose questions, the other common question we get on the Hotline is whether an adverse action notice has to be provided in a commercial context. The general rule in the FCRA is that if the bank obtains a consumer report and takes adverse action based (in whole or in part) on any information in the report, it must give the consumer an adverse action notice. The catch here is how the FCRA defines an “adverse action.” The definition is based on Regulation B’s (12 CFR § 1002) definition of “adverse action,” which does not include guarantors: …Under section 701(d)(6) of the ECOA and § [1002.2(c)] of Regulation B, only an applicant can experience adverse action. Further, a guarantor or co-signer is not deemed an applicant under § [1002.2(e)]. … Luckily, the FTC clarifies this in the “Stinneford Opinion.” If the consumer is only a guarantor (or acting in a similar capacity in which she or he is only secondarily liable on the business-purpose loan), then an adverse action notice would not be required to be provided to the guarantor. This is true even if the application is Victoria E. Stephen, CRCM, serves as Associate Gen- eral Counsel for Compliance Alliance and was recently appointed as the supervising attorney of Hotline. While receiving her Bachelor of Business Administration in Banking Finance from The University of Texas McCombs School of Business, Victoria worked in both deposit and lending services. She continued her interest in financial services at the University of Texas School of Law by focusing on secured transactions, taxation, contracts, and corporate governance. Victoria has since worked in corporate tax law, mergers and acquisitions, and performed legal research on a range of regulatory issues. Since joining the Compliance Alliance team in 2015, Victoria has written many articles for a variety of publications, and spoken at a number of compliance schools and conferences. Victoria heads our team of hotline attorneys who assist members with the spectrum of regulatory compliance questions on a daily basis, and serves as Editor of Compliance Alliance’s monthly Access Maga- zine, which you can access here. being denied based on information from the consumer report of the guarantor. On the other hand, if the individual is a co-bor- rower (or acting in a similar capacity in which she or he is primarily liable on the loan), then a FCRA adverse action notice would be required. If trying to figure out the difference between the two sounds like way too much work, the bank is welcome to provide an adverse action notice in both cases. Note, however, that any time the bank provides multiple FCRA adverse action notices, each individual should receive a separate adverse action notice with the credit score disclosures associated with just her or his own report. In other words, the individual should never receive the credit score information of another co-applicant. Although the focus of this article is the FCRA, we always get a follow-up question regarding whether a Reg. B adverse action notice is required, even if a FCRA adverse action is not. According to Reg. B, the bank may provide the adverse action notice only to the primary applicant, if there is one, but it also does not prohibit the bank from providing a notice to each applicant if it chooses. As always, Compliance Alliance and TBA members are welcome to contact us with any other questions by email at hotline@compliancealliance.com, or by calling 888-353-3933, or chatting in on the website. Non-members should direct inquiries to the Membership Team at info@compliancealliance.com. n