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The Y2K
reincarnation of the FDCPA appears to be the federal
Fair Credit Reporting Act, 15 U.S.C 1581, which
applies to both collection agencies and creditors.
There are about five or six legally recognized grounds
for obtaining a consumer's personal credit report
without the prior consent of the consumer. Collecting
on commercial accounts is ordinarily not one of them.
Violations of this statute carry the same draconian
penalties as violations of FDCPA, and again, since the
FCRA applies to creditors as well as collectors, many
of our creditor clients run the risk of being
blind-sided by federal court litigation.
Since
locating the personal guarantor in situations in which
the corporation is defunct, assetless and/or bankrupt
frequently makes all the difference as to the
collectability of many claims; this is an important
issue for all of us.
In
order to obtain the individual's consent in such
manner that a consumer credit report may be obtained
legally, creditors should be advised to use the
FTC-recommended language as set forth in the attached
notice downloaded from the Internet. While this may
require complete re-drafting of credit applications
and personal guarantees, creditors should do so
immediatley and should discard any old stock.
Whenever
a governmental agency or court provides suggested
language and urges that it be generally used as a sort
of "safe harbor", this will indeed prove to
be the case. Most examples to date have arisen in the
FDCPA context, and concern suggested wording for
collection letters. It is a rare collection attorney
who is willing to attack suggested language when used
by regulated parties, even though they may privately
believe that the suggested language is not as well
crafted as it could have been.
In
order to maximize the anticipated protection that
"safe harbor" language provides, prudent
creditors would be well advised to stick closely to
the FTC's recommended language and other suggestions
as to conspicuousness, placement on the form, and use
of separate signature lines. Any attempts at creative
re-working of the FTC's suggestions would probably be
regarded by the consumer bar as an open invitation to
engage in federal court litigation.
Sample Credit Application Language
The
language must be in a separate paragraph following the
signature at the bottom of the credit application or
other agreement, it must be conspicuous and it must
provide for the individual signature of the consumer
whose credit report is to be used:
The undersigned individual who is either a principal
of the credit applicant or a sole proprietorship of
the credit applicant, recognizing that his or her
individual credit history may be a factor in the
evaluation of the credit history of the applicant,
hereby consents to and authorizes the use of a
consumer credit report on the undersigned by the above
named business credit grantor, from time to time as
may be needed, in the credit evaluation process.
As
regards to a personal guarantee, the following
language may be included in the body of the guarantee
so long as it is in a separate paragraph and it should
be conspicuous by the use of either bold type or
larger type:
The
undersigned personal guarantor, recognizing that his
or her individual credit history may be a necessary
factor in the evaluation of this guarantee, hereby
consents to and authorizes the use of a consumer
credit report on the undersigned, by the above named
business credit grantor, from time to time as may be
needed, in the credit evaluation.
This
simple language can be used in almost every time of
credit application. However, you should review your
company's forms for consistent language.
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