Pub. 7 2019 Issue 1

Issue 1. 2019 7 T he Fair Credit Reporting Act, or FCRA for short, basically regulates the furnishing and collecting of credit information and imposes certain disclosure requirements in connection with accessing credit reports. The FCRA itself is a statute and only a few parts of the statute have implementing regulations, so it can be particu- larly tricky to interpret at times. One of the most common ques- tions we get on the Compliance Alliance Hotline is whether the FCRA applies to commercial loans. Unfortunately, there’s not a straightforward answer to this like there is for Regulations X or Z. Although the FCRA is generally limited to consumer purpose transactions, it also applies in some cases to com- mercial purpose transactions involving a consumer. You might be asking, if there is a “consumer,” how can this possibly be a commercial loan? Well, the answer is that the statute defines “consumer” very simply—just as an “individual”: ...§ 603. Definitions; rules of construc- tion [15 U.S.C. § 1681a] (c) The term “consumer” means an individual. As you can see, there’s no requirement that the individual be obtaining a product or service specifically for a consumer purpose. Likewise, the term “consumer report” includes other purposes besides just personal, family, or household purposes: (d) Consumer Report (1) In general. The term “consumer report” means any written, oral, or other communi- cation…used or collected in whole or in part for the purpose of serving as a factor in establishing the consumer’s eligibility for (A) credit or insurance to be used primarily for personal, family, or household purposes; (B) employment purposes; or (C) any other purpose authorized under section 604 [§ 1681b]. Does this mean that the bank has to have a permissible purpose be- fore pulling a credit report on an individual guarantor for a loan to a business entity? The answer to this is conclusively ‘yes’—there always has to be some permissi- ble purpose before pulling any consumer report on any individ- ual. The question is whether the application itself is enough of a permissible purpose, since the individual is just a guarantor. For this, we turn to the Federal Trade Commission’s (FTC) “Tatel- baum Opinion” which ultimately concludes that if an individual has any kind of personal liability on a business loan, including just a guarantee, there would be permissible purpose under the FCRA by means of the applica- tion for credit. What about during the term of the loan though? Many banks regularly pull consumer reports on individuals throughout the term of the loan, and there’s a question as to whether the need to review itself constitutes a permissible purpose. In the “Gowen Opinion,” the FTC concludes that in order to have COMPLIANCE CORNER COMMERCIAL LOANS AND THE FCRA By Victoria E. Stephen, Deputy General Counsel, Compliance Alliance