For many, many years when a consumer finance company or credit seller wanted to find out more about an applicant, the CSR would pick up the phone and call his/her friendly competitor, and just ask about the competitor's experience with the applicant. This was common place procedure; and the “ledger exception” within the Fair Credit Reporting Act (“FCRA”) allowed the competitor to respond without the competitor having to worry about becoming a credit reporting agency under FCRA.

With the advent to the Gramm-Leach-Bliley Financial Privacy Act (“GLBA”), we began to wonder about how this process could work, since the competitor was essentially being asked to disclose nonpublic personal information (“NPI”) about the applicant—something that GLBA restricts. So, we began our quest for an exception to the GLBA prohibition.

Some argue that this is a non-problem because of the very existence of the ledger exception under the FCRA. After all, why would there be a ledger exception if it cannot be used?

Well, the answer to that question is twofold: First, the exception is to prevent the one reporting its experience with a debtor from being deemed a credit reporting agency under FCRA—a very particular purpose. Second, FCRA pre-dates GLBA by some 25 years. So, the ledger exception really never contemplated the prohibition against NPI being disclosed by the disclosing party. So, creditors have never been totally comfortable that the ledger exception is implicitly an exception to the non-disclosure requirements of the GLBA.

So, what is to be done for those who are worrywarts like me?

Well, there are exceptions under the GLBA with respect to disclosure of NPI. So, if we can fall within one of the exceptions, the issue does become a non-problem. The trick is to find an exception. Some suggest that by combining the conditions for disclosure under GLBA with the exceptions under GLBA, a disclosure exception needed to exchange ledger experience about an applicant can exist for GLBA purposes.

The key is applicant consent. And, that, my friends is what can be conveyed in a credit application and a promissory note or installment sales contract template.

Practice Pointer: Check your application to determine if the applicant has agreed that non-affiliated third-parties may discuss their ledger experience with you.