Does FCRA Require the Guarantor to be Notified of Adverse Action

Issue/Inquiry

The Bank received a loan application from a business entity which offered an individual as the guarantor. The loan request was declined because of the guarantor’s low FICO score. Should the guarantor receive a separate adverse action notice?

Response Summary

Only the business entity would receive an adverse action notice, since neither the ECOA nor the FCRA recognize the guarantor as being an applicant. This is true even when the credit decision is based upon the guarantor’s creditworthiness. The adverse action notice to the business entity would note the credit weakness of the guarantor as a reason for the decline.

Response Detail

Regulation B, which gives effect to the Equal Credit Opportunity Act (“ECOA”), requires the applicant to be notified of the action taken on the application, including adverse action. An “applicant” is any person who requests or who has received an extension of credit from a creditor, and includes any person who is or may become contractually liable regarding an extension of credit. 12 CFR 1002.2(e),9.

Likewise, Section 615(a) of the Fair Credit Reporting Act (“FCRA”) requires that “any consumer” with respect to whom adverse action is taken must receive the disclosures mandated by Section 615(a) if that action is based “in whole or in part” on information from a consumer report.

In an advisory opinion, the Federal Trade Commission noted that the FCRA also provides that “adverse action,” in the context of a credit application, has the same meaning for the purposes of FCRA as is provided in the ECOA. It found that, as per Section 701(d)(6) of the ECOA (15 U.S.C. §1691(d)(6) and Section 1002.2(c)(1) of Regulation B, only an “applicant” can experience “adverse action,” and, further, a co-applicant is an applicant for FCRA purposes, but a guarantor is not.

Since the guarantor has not experienced the “adverse action” that triggers the notice required by Section 615(a) of the FCRA, a creditor need not provide the guarantor with an FCRA adverse action notice, even if the application is denied in whole or in part based upon information from the consumer report of the guarantor. FTC, Advisory Opinion to Stinneford (07-14-00).

In this case, Regulation B would require an adverse action notice to be provided to the business entity, which applied for the loan, but not to the guarantor, who was not an applicant. In the Adverse Action Notice to the business entity, the Bank would note the lack of credit strength of the guarantor as a reason for the denial. FCRA would not require an adverse action notice providing the consumer report information to be sent to the guarantor.

 

This entry was posted on Monday, January 7th, 2019 at 6:00 am.