Answer:
Answer by Ken Golliher:
If you pulled a consumer report (including ChexSystems) on the signatory on an entity's account, the assumption has to be that you had the signatory's written permission to do so. (The signatory is not applying to do business with you, the entity is.) The wording of that written permission is critical to you. Giving you permission to pull his consumer report is not the equivalent of giving you the right to disclose it to a third party, particularly an employer whose assessment of an employee might change markedly based on the information.
Review the language in the written permission you got from the consumer. If it does not incorporate an indication that you can disclose the results to the owner of the account, you have opened Pandora's box; i.e., you have information that you want to act on, but cannot because doing so would be a clear indication that the report was negative.
Just a question for those who want consumer reports on signatories: If the signatory on a proposed corporate or partnership account has handled his checking account badly, how does that affect the risk of opening the account for the entity? The entity is separate from the signatory.
Answer:
Answer by John Burnett:
Although the entity is separate from the signatory, there's no denying that entities operate through individuals. In many cases, in spite of a corporate or other entity existence, the party that controls virtually everything that entity does (including operating a checking account) is an individual whose ability to manage a household account may well be reflected in the operation of the entity's accounts.
None of this dismisses anything Ken has said about being very careful about pulling ChexSystems or other CRA reports.
Answer:
Answer by Lucy Griffin:
I interpret paragraph 604(a)(3)(E) more broadly than my fellow gurus. That paragraph allows use of a report when the user "has a legitimate business need for the information in connection with a business transaction that is initiated by the consumer." The knotty problem is whether the authorized signer meets this consumer definition. The bank regulatory agencies support the finding that it does, the Federal Trade Commission tends to be more cautious. That is why Ken recommends getting each authorized signer's permission and that is a very good idea.
However, in my view, you have a legitimate business purpose to obtain the report and having done so and found a problem, you now have notification problems. What is very clear under FCRA is that you must send a notice to the authorized signer who has the problems reflected in his or her report. As for the business, this isn't credit so you don't have to give a reason. You can simply close the account.
First published on BankersOnline.com 9/15/03
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