Is an Adverse Letter Required?

Answer by Mary Beth Guard: Keep in mind that there are two types of adverse action notices: those required under ECOA/Regulation B, and those required under the Fair Credit Reporting Act. If your business customer is a sole proprietorship and you pull the credit report on the owner (sole proprietor) and turn down the credit based in whole or in part upon information contained in that report, you would not only need to furnish the Reg B adverse action notice, but your customer would also be due an FCRA adverse action notice. If your business customer is something other than a sole proprietorship, you first have to get across the hurdle of being legally able to pull a credit report on an individual associated with the business. Since the transaction is being initiated by the business, rather than a consumer, you don't automatically have a permissible purpose to pull the individual's credit report and you must instead have direct permission (which I would recommend getting in writing.) If you don't have that, you can't pull the report and the adverse action notice is a moot issue. If you do get the authorization and you pull the report, my view is that you should do both types of adverse action notices. One final note -- if the report you pull is not a consumer report, but is instead a report on the business itself, it's not a "consumer" report and thus would not trigger the FCRA notice.

First published on BankersOnline.com 12/05/05