When a credit grantor is selling a sole proprietor, partnership, small corporate entity, or has obtained a personal guarantee, you should consider obtaining a consumer report on the owner(s) of that business. Although, the Fair Credit Reporting (FCRA) permits the use of a “consumer credit report” with a permissible purpose, it is recommended you include the authority to obtain an individual report within the body of the application or as a separate document with a signature below providing you authorization. If the personal guarantee is part of your credit application there should be a clear delineation from where the credit application ends and the personal guaranty begins. The signature line for the personal guaranty should be separately signed without a designation of title. Below are permissible purposes.
Permissible Purposes Include:
Congress has limited the use of consumer reports to protect consumers’ privacy. All users must have a permissible purpose under the FCRA (Fair Credit Reporting Act) to obtain a consumer report. A list of the permissible purposes under the law that pertain to business credit extension are:
§ 604. Permissible purposes of consumer reports [15 U.S.C. § 1681b] (a)
In general. Subject to subsection (c), any consumer reporting agency may furnish a consumer report under the following circumstances and no other:
(1) In response to the order of a court having jurisdiction to issue such an order, or a subpoena issued in connection with proceedings before a Federal grand jury.
(2) In accordance with the written instructions of the consumer to whom it relates.
(3) To a person which it has reason to believe:
(A) intends to use the information in connection with a credit transaction involving the consumer on whom the information is to be furnished and involving the extension of credit to, or review or collection of an account of, the consumer; or
(B) intends to use the information for employment purposes; or (Refer to state regulations on this)
(C) intends to use the information in connection with the underwriting of insurance involving the consumer; or
(D) intends to use the information in connection with a determination of the consumer’s eligibility for a license or other benefit granted by a governmental instrumentality required by law to consider an applicant’s financial responsibility or status; or
(E) intends to use the information, as a potential investor or servicer, or current insurer, in connection with a valuation of, or an assessment of the credit or prepayment risks associated with, an existing credit obligation; or
(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.
Please Note: There are other permissible purposes; disclosure to consumer section; and adverse action steps within § 604. Please refer to The Fair Credit Reporting Act (ffiec.gov) for additional detail.
