Pub. 8 2018-2019 Issue 5

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 C O L O R A D A N S R E A L I Z E D R E A M S March • April 2019 11 OVER YEARS OF IMPACT Call us today at 303.860.0242 or refer a small business anytime at coloradoenterprisefund.org Financing startups and existing businesses up to $500K plus SBA loans up to $250K Fortuna Chocolate l Boulder 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 borrow- er 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 guidance that are not binding on the FTC, and further, inter- pretive authority for the FCRA technically transferred to the Consumer 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 per- missible 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 permissi- ble purpose to obtain a consumer 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 com- mon 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 Opin- ion.” 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 being denied based on infor- mation from the consumer report of the guarantor. On the other hand, if the individual is a co-borrower (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 pro- vide 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 as- sociated 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@complian- cealliance.com .  Victoria E. Stephen, CRCM, serves as Associate General 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 Univer- sity 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 Com- pliance 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 spec- trum of regulatory compliance questions on a daily basis, and serves as Editor of Compliance Alliance’s monthly Access Magazine, which you can access here.