Pub. 15 2018 Issue 4

Issue 4 • 2018-2019 19 O V E R A C E N T U R Y : B U I L D I N G B E T T E R B A N K S - H E L P I N G N E W M E X I C O R E A L I Z E D R E A M S certain disclosure requirements in connec t ion 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 particularly tricky to interpret at times. One of the most common questions we get on the Compli- ance Alliance Hotline is whether the FCRA applies to com- mercial 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 trans- actions, it also applies in some cases to commercial 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 construction [15 U.S.C. § 1681a] (c) The term “consumer” means an individual. As you can see, there’s no requirement that the individ- ual must 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 communication… used or collected in whole or in part for the purpose of serv- ing 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 permissi- ble purpose before 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 permissible purpose before pulling any consumer report on any individu- al. 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) “Tatelbaum Opinion” which ultimately concludes that if an in- dividual has any kind of personal liability on a business loan, including just a guarantee, there would be permissible pur- pose under the FCRA by means of the application 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 valid permissible purpose, the bank would need to have some authority 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.” n FCRA continued on page 20