Counselor's Corner

by Mark Hargrave, Esq.

Question: One of my legal people is telling me that if I turn down an account, I now have to give a specific reason and a disclosure. It was always my understanding that we had the privilege of choosing our customers, and if we decided not to service an account for an individual, we should be careful not to give a reason, in order not to be considered discriminatory. Can you shed some light on this?

Answer: What your legal department may be referring to are new requirements imposed under recent amendments to the Fair Credit Reporting Act or the "FCRA." Those amendments expanded the scope of transactions covered by the FCRA and imposed substantial new requirements on consumer reporting agencies and users of consumer reports. As they relate to your question, the amendments expanded the definitions of "consumer report," "consumer reporting agency" and "adverse action."

Under these expanded definitions, if a consumer initiates a transaction or makes an application and you take action or make a determination that is adverse to the consumer on the basis of a consumer report, an adverse action notice is required.

As written, this requirement is not limited to credit-related transactions or applications.

Thus, if a consumer asks to open a deposit account and you deny that request on the basis of a consumer report, you are required to give the consumer an adverse action notice. The question has been raised addressing whether or not the use of a negative file such as that provided by ChexSystems or TeleCheck is considered to be consumer reporting. The FTC has promised a decision "soon" on that question, and until they do, most Fair Credit Reporting experts maintain that you should consider them to be consumer reporting entities, similar to Equifax, TransUnion, etc., to be on the safe side.

If you do not use any consumer report from any source in deciding to deny the consumer's request to open a deposit account, then these requirements do not apply.

If you are required to give an adverse action notice, that notice must inform the consumer of the adverse action taken. It must also include the name, address and telephone number of the consumer reporting agency that furnished the consumer report and tell the applicant that the consumer reporting agency did not make the decision to take adverse action and that the agency is not able to give specific reasons why the action was taken.

Finally, it must provide the consumer notice of his or her right to obtain a free copy of a consumer report from the agency during a 60 day period and to dispute the accuracy or completeness of any information included in a consumer report by the agency.

Mark Hargrave is a banking attorney with Shook, Hardy & Bacon LLP, Kansas City, MO.

Copyright © 1998 Bankers' Hotline. Originally appeared in Bankers' Hotline, Vol. 8, No. 8, 7/98