The FCRPA (Fedral Credit Reporting and Practices Act)  pertains only to consumer (business to individual) and not to commercial (business to business) transactions. Your credit department is not obliged to provide source, content or reasons for denial of credit to a retailer who has applied for credit privileges. This amendment to the Consumer Credit Protection Act was passed by the U.S. House of Representatives and Senate in 1991 (Public Law 91-508) outlining terms and conditions of consumer credit reporting in the United States.
As you are aware, a consumer, who is considered an individual applying for credit under his/her personal name, is entitled to know both the source and content of a negative credit report. With regard to commercial (business to business) credit transactions, no such entitlement exists under statute. A business (sole proprietorship, partnership, or corporation) is not interpreted as a "consumer" for credit reporting purposes.
Unless a retailer applies for credit under his/her personal name, i.e., John Smith, rather than a fictitious name, which is defined as any name other than his/her own, i.e., John Smith's Gifts, John & Mary's Gifts, Gifts-R-Us, etc., you are not obligated to provide any information relative to your company's credit decision-making process. Many uninformed retailers confuse personal credit procedures, as written under the FCRA, with commercial credit measures and believe they are entitled to access to their commercial credit report. They are not.
Conversely, uninformed creditors may believe that because a business's credit may be closely linked to an individual (as in the case of a sole proprietorship), that the creditor is entitled to the individual's credit report. Unless the individual applying to your company for commercial credit grants permission by written instruction for you to obtain his personal credit report, you should not attempt to obtain this information. A provision of the FCRA states, "Any person who knowingly and willfully obtains information on a consumer from a consumer reporting agency under false pretenses shall be fined not more than $5,000 or imprisoned not more than one year, or both."
The Most Commonly Asked Question
"How do we decline credit terms to a company?
First, remember that the ultimate credit decision comes from your company's credit policy, not necessarily what you read in a credit report. A credit decision is based on your evaluation of the retailer's ability to remit your invoice(s) within terms.
A requirement of your company's membership in MCC is that you never disclose information (source or content) to anyone who is not an MCC member. Failure to comply with this condition of your membership will result in the termination of your company's participation in the program. As you are aware, we live in a litigious society and it is our intention to avoid any form of litigation, either to our members or ourselves. (This does not, however, affect your sharing credit reference information with other vendors or with manufacturers on your company's credit experience with a retailer.)
To this end, we are insisting that each Cooperative member comply with both the nondisclosure provisions of your membership in MCC as well as with the existing body of law (Fair Credit Reporting Act) pertaining to commercial credit transactions by not divulging information which you receive from MCC to retail accounts. Please ensure that every member of your credit department is familiar with these requirements.
New Account
Rather than engage the retailer in a discussion of the reason(s) for which you are not extending credit terms, we suggest that you utilize one of the following statements:
"Our company's policy is that all first/second orders be shipped on a COD/Prepaid/proforma basis."
"We require COD/prepaid/proforma on any orders under $____."
"We have been unable to develop sufficient credit information on your store. Please send us your most recent financial statement."
By responding in one of these ways, you will direct the conversation to the subject of the order, rather than to the customer's credit history and the reason for not extending credit. Credit decisions, by their very nature, can become adversarial and frequently result in loss of the order and/or the customer. It is our intention to enable you to restructure your terms of sale in such a way that you can complete the sale and be paid for it.
Established Account
We suggest you first review the account's past payment record with your company. If they have been delinquent, then your refusal of credit terms can be on the basis that they are paying slowly and they do not honor your company's credit policy. At this point, you can offer them Performa, COD terms or a reduced credit line.
If this customer has paid you in the past, there may be no reason they would not continue to do so. Their submission to MCC is not an indication not to extend credit terms, but a tool to use as a precaution when dealing with them. Some retailers will pay certain vendors and not others.
If you feel it is necessary to refuse credit terms to an existing account, we suggest the following phrase:
"We have access to industry credit information which states there have been some problems" and that you have elected to exercise caution on the account and that you must restructure the terms of sale.