Question & Answer

Question: When we consider applications for deposit accounts, we obtain reports from a check reporting system to determine whether there is any fraud or problem activity for that customer on previous accounts. Under the new Fair Credit Reporting Act, I know we have to give a notice when we decide not to open an account based on information in this report. What kind of notice do we have to give the consumer when we refuse to open the account based on information from another bank about their account with that bank?

Answer: None! Now, let's be sure we understand why. There's a trick to Section 615 of the Fair Credit Reporting Act. This is the section that requires notices to applicants when adverse action is taken. Section 615(a) is the credit reporter section. Whenever you use information from a credit reporting company (note that the company is defined as a "consumer reporting agency" in the Act) to take adverse action against the consumer, you must provide the consumer with an FCRA notice. When the FCRA was amended in 1996, this requirement was revised in several significant ways. First, the definition of "adverse action" was adjusted to match that in ECOA and Regulation B. This was a simplification because now adverse action means the same thing under both laws. That's for credit actions.

The major change to Section 615(a) involved removing the term "credit" so that the requirement now reads: "If any person takes any adverse action with respect to any consumer that is based in whole or in part on any information contained in a consumer report..." The restriction to credit actions is gone. Thus, refusal to open a deposit account based on information provided by a consumer reporting company is now subject to the notice requirement.

A bank reporting information about their own experience with the consumer is not a consumer reporting agency, thus bringing this question under 615(b) instead of 615(a). Section 615(b) is a different story. This provision, often referred to as the third party information requirement, is limited to credit. It requires that "Whenever credit for personal, family, or household purposes involving a consumer is denied or the charge for such credit is increased either wholly or partly because of information obtained from a person other than a consumer reporting agency..." the consumer be advised that third party information has been used and that the consumer has a right to learn about the nature of that information. The key word here is credit. And a deposit account, without a line of credit or overdraft protection connected to it, isn't credit!

Copyright © 1997 Compliance Action. Originally appeared in Compliance Action, Vol. 2, No. 12 & 13, 10/97