Advisory Opinion to Throne (11-20-98)

November 20, 1998

Ms. Linda J. Throne
Bodman, Longley & Dahling
229 Court Street
Cheboygan, Michigan 49721

Re: "Joint users" -- FCRA §§603(f) and 604(a)(3)(A)

Dear Ms. Throne:

This is in response to your correspondence concerning the Fair Credit Reporting Act ("FCRA"). You indicate that your bank client uses a loan application format which includes a section where the consumer may request that the bank forward the application to another lender if the bank is unable to make the loan. You ask whether the joint user exception to the definition of consumer reporting agency, found in the Federal Trade Commission Commentary on the FCRA ("the Commentary"), requires the disclosure to the consumer of the identity of the additional lenders to whom a loan application may be forwarded. We conclude that it does not.

As you note, Comment 603(f)-(8) takes the view that the FCRA definition of consumer reporting agency does not include a creditor that qualifies as a "joint user" with another party involved in evaluating a consumer's loan application. It states, in pertinent part:

Entities that share consumer reports with others that are jointly involved in decisions for which there are permissible purposes to obtain reports may be "joint users" rather than consumer reporting agencies. For example, if a lender forwards consumer reports . . . to another creditor for use in considering a consumer's loan application at the consumer's request, the lender does not become a consumer reporting agency by virtue of such action.

16 C.F.R. 600 Appendix; 55 Fed. Reg.. 18,813 (May 4, 1990). In short, the Commentary treats entities as "joint users" when both parties are considering the same loan application and both have a permissible purpose.(1) The situation you present is the one set forth in the commentary example -- your client and the additional creditors to whom they forward a consumer's loan application are involved in the evaluation of a particular consumer loan application. Further, there is no doubt that your client has a permissible purpose in obtaining a consumer report in connection with a consumer's application for credit under Section 604(a)(3)(A). However, in order for the additional creditors to whom your client forwards the loan application to have a permissible purpose to obtain a consumer report, the potential credit transaction must be initiated by the consumer. For this reason, the Commentary notes that a lender may forward a loan application to another lender at the consumer's request. Accordingly, your client must obtain the consumer's consent prior to forwarding such information to additional lenders.

The FCRA and the Commentary are uniformly silent on what form such authorization should take. In light of this, we conclude that the inclusion in your client's loan application of a section which enables the consumer to indicate consent for the loan application file to be forwarded to "other lenders" would be sufficient to satisfy the requirement that subsequent creditors have a permissible purpose to receive the consumer report included in the file. Such action can only be taken, however, in pursuit of the approval of the loan application.

I hope that this information is helpful to you. The views expressed in this letter are those of the staff and do not necessarily represent the views of the Commission or of any individual Commissioner.

Sincerely,

Helen G. Foster

1. Although the Commentary employs the term "joint user" to describe the two parties, its focus is not the use two parties make of a consumer report, but rather to determine whether one user is to be considered a "consumer reporting agency" under Section 603(f) if it simply forwards the report to a second such party.