Adverse Action Letters & Guarantors

Question: Why does the FTC's interpretive letter on adverse action letters not apply to guarantors but the letter stating that we must get permission for obtaining a credit report on business loans includes guarantors?

Answer: These two interpretations draw on different parts of the Fair Credit Reporting Act. The July 16, 2000 interpretation concludes that there is no permissible purpose to obtain a credit report on consumers who are listed as applicants or guarantors when a business applies for credit. The interpretation is based on the fact that FCRA protects the privacy of individual consumers by limiting the circumstances and reasons that authorize a creditor to obtain their credit report. This interpretation is driven by the restrictions on obtaining a consumer's credit report.

The July 14, 2000 letter interprets a different section of FCRA, ?615(a). This section dictates what you must tell a consumer about how their credit report was used. Section 615(a) requires creditors to provide an adverse action notice to each consumer whose credit report was used to take the adverse action. The FCRA adverse action notice explains that the consumers credit report was used to deny the application and how the consumer may get information about the credit report. This notice is triggered after the report has been used - and we do hope that the use of the consumer report was legal!

Copyright © 2000 Compliance Action. Originally appeared in Compliance Action, Vol. 5, No. 15, 12/00