Section 326 "Customer Identification Program" -
1. Are "adverse action" letters required when a person is denied an account for which they've sought to open?
2. Is it suggested that we create a "script" to be quoted by each personal banker/new account representative to the account applicant when we deny them the account?

Adverse action notices come from two laws: equal credit opportunity and fair credit reporting. Refusing to open a deposit account would not be a decision subject to ECOA. Therefore, Regulation B's adverse action notice, including reasons for action, is not required.

However, if you used a credit report -- and that includes the check alert systems and the OFAC list -- to make the decision, you have to give the customer an FCRA notice. That requires explaining the use of the third party reporter, but does not require giving the customer any explanation.

As for using a script, I think that is a great idea. Does anyone have one?

Lucy, are you saying that the OFAC list constitutes a credit reporting agency? And/or are you saying that if we use ChexSystems (for example) to do the initial OFAC check for us, and they come up with a hit, that we must send an AAN since ChexSystems was involved?

ChexSystems is a consumer reporting agency. Their decline notice was revamped a few years back to meet the requirements for FCRA notification.

I agree that ChexSystems is a consumer reporting agency. I'm concerned that Lucy is saying that OFAC is as well.

The OFAC FAQ would apply to deposit as well as loan requests.

If a loan meets underwriting standards but is a true "hit" on the OFAC list, what do we use as a denial reason on the adverse action notice?

If you have confirmed with OFAC that you have a "good hit," there is no reason not to explain that to the customer. The customer can contact OFAC directly for further information. [09-10-02]

A "consumer report" under FCRA includes info about character. Being on the OFAC list would influence your ideas of a persons character.

And a "consumer reporting agency" includes one which assembles information on "a cooperative nonprofit basis". This is where I am unsure they meet the definition. Is the federal government doing this? Certainly they hope to profit from this, though not necessarily in a monetary way.

I could see this either way.

Thanks, Andy. Good answer. I personally don't like this answer, but both FTC and OFAC have given it. I really don't think that the OFAC list was what Congress had in mind when enacting FCRA. But FTC has taken the stand.

In reply to:

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But FTC has taken the stand

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Do you have a cite for this that you could provide?

Lucy and Andy, I see your points. In thinking through this, though, I started questioning whether all the times we check the OFAC list meets the 'Permissable Purposes of Reports' test in the FCRA. Most do, but one instance I can think of (checking the beneficiary of outgoing wire transfers) doesn't - to my mind.

FCRA says,

"(a) In general. Subject to subsection (c), any consumer reporting agency may furnish a consumer report under the following circumstances and no other:

...(F) otherwise has a legitimate business need for the information—
(i) in connection with a business transaction that is initiated by the consumer; or
(ii) to review an account to determine whether the consumer continues to meet the terms of the account."

That business transaction wording covers most of the OFAC checks that would come up, but in the case of an outgoing wire beneficiary - that 'initiated by the consumer' part trips you up. Any thoughts?

1. I cannot even contemplate that OFAC is covered by the CRA definition found in the FCRA. This a public list and checking it is required by law. The fact that a person appears on the OFAC list does not require disclosure that you received information from a CRA.

2. If you are utilizing a CRA to perform the check for you, yes, I agree that you have a problem if you are running them through normal channels that would also provide you with other "credit reporting information", i.e., if you run benefactors of a wire through Chexsystems and receive the standard report in return.