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
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.