We believe that a bank may obtain a credit report on the guarantor of a business lease under the Fair Credit Reporting Act (FCRA), but only for the purpose of reviewing the lease terms to decide whether to retain or modify the current lease terms, and provided that the lease agreement permits you to modify the lease terms (for example, if modifications are permitted when the lessor misses a lease payment).

The FACT Act, which amended provisions of FCRA, requires you to have a permissible purpose before pulling a consumer’s credit report. 15 USC 1681b. Permissible purposes include pulling a credit report when you have a “legitimate business need for the information . . . to review an account to determine whether the consumer continues to meet the terms of the account.” 15 USC 1681b(a)(3)(F)(ii). Such reviews are permissible even if the consumer did not request the account review. 15 USC 1681a(m)(1). But an account review is a permissible purpose for pulling a credit report only if the bank is deciding whether to retain or modify the current lease terms, and then only if the bank has the power to change the account terms under the terms of the lease agreement. Federal Trade Commission (FTC) Gowen letter (April 29, 1999).

(Note that most of the other permissible purposes do not apply to leases, which are not considered “credit transactions” under the FCRA. However, the permissible purpose of account reviews is not limited to credit transactions, and therefore it would apply to a lease situation. See FTC Long letter (July 6, 2000).)

Further, the fact that the individual was a guarantor on the lease, rather than the lessor, does not prevent you from pulling a credit report when the bank has a permissible purpose for doing so. The bank has a permissible purpose to review the ability of the “consumer” to meet the lease’s terms, and in this case, the personal guarantor counts as the “consumer.” As stated in the FTC letter known as Tatelbaum 2, “a business transaction in which an individual has accepted personal liability for the business debt” involves the consumer, “thus providing a permissible purpose for the lender to obtain a consumer report.” (You should be aware that the FTC originally ruled in July 2000 that a creditor did not have a permissible purpose to pull the credit report of a personal guarantor, but that letter, known as Tatelbaum, was superseded (to the extent that it applied to credit reports on personal guarantors) in June 2001 by Tatelbaum 2.)

Note, however, that FTC letters are non-binding, and we have not found any court decisions interpreting or applying the Tatelbaum 2 letter. In other words, there is no guarantee that a court would rely on the FTC’s letter if you were to be sued by the guarantor.

We trust that you will find our response to be helpful guidance.  Please note, however, that we do not provide legal advice on matters in which liability of any kind may be at issue, and you may wish to consult further with your bank counsel.