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The advisory letter also addressed whether a permissible purpose exists under section 604(a)(3)(F)(i). This section provides that a request may be made when there is,

a legitimate business need for the information (i) in connection with a business transaction that is initiated by the consumer.

According to Medine, this language was not meant to include commercial or credit purposes. Rather, Medine contends that this provision "is designed to provide a permissible purpose to a business that is considering a consumer application for a purpose other than credit, employment or insurance." As examples where this provision would be applicable, Medine cites the following,

1. By a landlord when a consumer applies to rent an apartment,

2. By a financial institution when a consumer applies to open a checking or savings account, or

3. By a merchant when a consumer offers to pay for goods or services with a personal check.

Medine states that this position is backed by the majority of courts. See Houghton v. New Jersey Manufacturers Ins. Co., 795 F.2d 1144, 1149 (3rd Cir. 1986) (stating that a "consumer relationship must exist between the party requesting the report and the subject of the report"); see also Mone v. Dranow, 945 F.2d 306, 308 (9th Cir. 1991) (obtaining a report on a principal to evaluate the ability of a company to pay a judgment is not a permissible purpose.) Although Medine concedes that courts are not unanimous on this issue, he suggests that contrary opinions may be easily dismissed as occurring prior to the 1996 amendments which added the "initiated by the consumer language."

It should be recognized that the FTC's advisory letter does not prevent financial institutions from seeking consent from a principal, owner, officer or guarantor of a commercial loan applicant. As noted in the previous issue of the Advisor, this is always the best method of obtaining a consumer report.

To review this advisory letter in its entirety, please visit the FTC's website at: