Identity Verification & Notice of Refusal

Question: We use a company to verify the identity of customers before they open a deposit account with us. The report verifies the customer's identity and also alerts us to any problems reported by other financial institutions, such as check kiting. Do we have to send the customer a notice if we refuse to open the account?

Answer: The short answer is yes. When you obtain a report on the customer such as you describe, it meets the Fair Credit Reporting Act's definition of consumer report. Don't be misled by the name of the act. The FCRA deals with compiling information about consumers and producing that information for a variety of purposes - including credit.

The deposit report meets the definition of consumer report. Because it does, when you refuse to open an account, you have taken adverse action and owe the customer a notice. The good news is that a deposit account denial notice is a bit different from a credit denial notice. You must tell the customer that you used information in a consumer report to make the decision, and you must provide the customer with information about the provider of the report. But you do not have to give any reasons for refusing to open the account. In fact, if the consumer specifically asks for reasons, you still don't have to give any. Reasons are a requirement in Regulation B which applies only to credit applications. The FCRA by itself does not require you to give the customer reasons.

Copyright © 2002 Compliance Action. Originally appeared in Compliance Action, Vol. 7, No. 15, 12/02