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 CMA-sponsored webinar 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 added.
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.