A company’s credit department is often one mired in legal issues and while many
of them relate to reducing legal exposure and getting money when a customer goes
delinquent, many others are problems that could penalize the debtor due to
inadvertent unfair practices. Laws like the Fair Credit Reporting Act (FCRA),
multiple antitrust statutes and the Equal Credit Opportunity Act (ECOA) are all
geared toward preventing discriminatory, anticompetitive and unsafe privacy
practices and credit professionals up and down the corporate ladder need to be
aware of them to prevent legal woes.
In a recent NACM-sponsored
teleconference entitled "Legal Issues in Credit: An Update," Wanda Borges, Esq.
of Borges & Associates, LLC led listeners through these potential problems
and offered advice on how best to avoid these issues. "It is a way of being fair
in the extension of credit," said Borges of the ECOA, adding that many companies
who think they’re exempt from ECOA requirements are not in many instances.
"Those of you with large companies may think to yourself ‘you never have to deal
with this because you’re dealing with Fortune 500 companies, etc.’ Well, yes and
no. Anytime you make a credit decision that is ‘no,’ you need to stop and think
if ECOA applies to you."
The ECOA deals with discrimination in terms of
credit and the issue of when a vendor needs to notify a customer when denying
them credit or when reducing their current level of credit, referred to in the
law as "adverse actions." Borges went through what constitutes an adverse action
and noted the times when the law’s stipulations do not apply. "The ECOA means an
individual," said Borges. "That’s also your personal guarantor. So perhaps
you’re dealing with a large company and ask for a personal guarantee. Then you
need to think of the ECOA."
"Creditor [as defined by the ECOA] is anyone
in your company that makes the credit decision. It’s not just the director of
credit, it’s not just the CFO; it can be a credit analyst and they need to be
sure to know the ECOA and abide by its rules and regulations," she
Borges also discussed how to comply with the ECOA without having
to keep a list to check over and over again, and went on to address compliance
with the FCRA, the Uniform Commercial Code (UCC) and several antitrust statutes.
For more information on NACM’s teleconference series, or to register,
Jacob Barron, NACM staff writer