Access to Credit Scores
Is Business Credit Next?
By Scott Blakeley

Federal statutes enacted to govern consumer transactions have recently been extended to commercial, or business, credit transactions. For example, the Federal Trade Commission (FTC) issued an opinion that the Fair Credit Reporting Act (FCRA), a federal statute enacted to protect consumers from the unauthorized pulling of credit reports, requires vendors extending business credit to obtain the express consent of a consumer before pulling a consumer credit report. Also, a federal court ruled that the Equal Credit Opportunity Act (ECOA), a federal statute enacted to protect consumers from creditors discriminating in the granting of credit based on a prohibited basis, governs business credit. With these recent extensions of federal laws intended to protect consumers being applied to business credit, credit professionals extending business credit must be mindful of recent legislation and cases intended to protect consumers may be applied to business credit. For instance, California recently adopted legislation, and like legislation is pending in the United States Congress to apply to all states, that requires creditors to reveal to applicants details of credit scores. Will this this type of legislation soon apply to business credit?

Legislation Disclosing Consumer Credit Scores Adopted

California recently adopted a law that requires lenders or creditors to tell consumers applicants the credit score used in any homeloan decision. Lenders also have to reveal the key reasons why the credit scoring was not higher. Presently, lenders are not required to reveal credit scores, which estimate an applicant's creditworthiness based on their credit reports. Under the new law, applicants may go to a credit reporting agency before applying for credit. Under the new law, applicants will also know what factors affect their credit scores and how to achieve a better credit score. The law is effective July, 2001.

Current Disclosures To Applicants Denied Business Credit

Given the recent interest by state legislatures and the U.S. Congress in requiring disclosure of credit information for consumer applicants denied credit, what is the present disclosure requirements imposed on credit professionals for applicants requesting business credit?

Disclosures Under the Equal Credit Opportunity Act

Under ECOA, a credit grantor must provide notice to the applicant of denial of credit, or an adverse action, taken with the request for credit within 30 days after a completed application is received by the credit grantor. The credit professional's letter states that the applicant may be provided with a statement of reasons why credit was denied within 60 days of the date of the letter. If an applicant requests an explanation for denial of within 60 days, the credit grantor is to provide a statement of reasons within 30 days. What information must the credit professional provide? ECOA does not require the credit professional to provide specific reasons for denying credit, but instead may provide language such as, "adverse credit history"; "lack of business experience"; "lack of working capital"; or "too much secured debt." Unlike the legislation recently adopted in California for disclosing consumers credit information where the creditor must provide reasons for declination, ECOA does not require such specific disclosure.

Disclosures Under the Fair Credit Reporting Act

The FCRA requires that a credit grantor provide notice to the consumer if the credit grantor is denying credit, or otherwise taking adverse action with respect to the credit application, based upon the information obtained in the credit report. Thus, a credit grantor will provide notice to the company of the denial of credit; the credit grantor must also provide notice to the president, shareholder or guarantor with respect to whom the credit report was obtained.

The notice can be oral, in writing, or electronic. The credit grantor is required to provide the name, address and telephone number of the consumer reporting agency. In addition, the credit grantor must state that the consumer reporting agency did not make the adverse credit decision and such agency is unable to provide the consumer with the specific reasons why the adverse credit decision was taken. Finally, the credit grantor must notify the consumer of the consumer's right to obtain a free copy of the consumer report. Notice must also be provided of the consumer's right to dispute with the consumer reporting agency the accuracy or completeness of any information in the consumer report.

Applying Consumer Legislation To Business Credit Transactions

How can a federal court in analyzing the ECOA, and the FTC in considering the FCRA, conclude that legislation intended to govern consumer credit apply to commercial credit transactions? Look to the statutes. ECOA and FCRA's broad definitions of "creditor", "applicant" and "credit transaction", for example, the court in analyzing ECOA, and the FTC in considering FCRA, could reasonably conclude that the FCRA and ECOA governs business credit as well as consumer credit. The United States Supreme Court has held that in interpreting a federal statute, courts are to give effect to a statute's plain meaning.

Vendors Vigilant To Consumer Law Developments

Given state legislatures and the U.S. Congress inclination to broadly define terms with consumer legislation, and the trend of courts and regulatory agency to liberally apply consumer legislation to business credit, credit professionals extending business credit should keep an eye on developments with consumer laws. It may be that the consumer legislation applies to business credit.