IBA Compliance Connection

Your go to source for compliance!

Can we review the criminal history and prior liens or judgments of an individual who signs loan documents on behalf of a small business applying for a Small Business Administration loan? Do we need the individual’s written authorization?

—

by

admin

Yes. We are not aware of any law or regulation that would prohibit lenders from reviewing judgments, liens, or the criminal history of persons who sign loan documents on behalf of a business entity. However, you would need written authorization from the individual before obtaining a consumer credit report as a source for your inquiry if they are not personally liable for the loan. 

If you plan to obtain this information from a consumer credit report, the Fair Credit Reporting Act requires your bank to have a “permissible purpose.” One enumerated permissible purpose is when the individual will be personally liable for the loan. If the individual will not be personally liable for the loan, then you would need their written authorization before obtaining the consumer credit report, as no other enumerated permissible purpose would apply to this situation.

However, if you plan to obtain this information by reviewing public records that are not compiled by a consumer reporting agency, neither federal nor Illinois law requires you to obtain the individual’s prior written authorization.

For resources related to our guidance, please see:

  • Fair Credit Reporting Act, 15 USC 1681b(a) (“Subject to subsection (c), any consumer reporting agency may furnish a consumer report under the following circumstances and no other: . . . (2) In accordance with the written instructions of the consumer to whom it relates. . . (3) To a person which it has reason to believe . . . (A) intends to use the information in connection with a credit transaction involving the consumer on whom the information is to be furnished and involving the extension of credit to, or review or collection of an account of, the consumer . . . ”)
  • FTC Advisory Opinion to Tatelbaum (06-22-01) (Tatelbaum II) (“We agree that it is reasonable to view a business transaction in which an individual has accepted personal liability for the business debt as involving the consumer, thus providing a permissible purpose for the lender to obtain a consumer report under Section 604(a)(3)(A).”)