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The Gramm-Leach Bliley Act
The Gramm-Leach Bliley Act Does Not Cover Grantors of Commercial Credit
A response To Charles TatelbaumBy Mike Brittain, CAE and Scott N. Schreiber
On November 12, 1999 former President Clinton signed into law the Gramm-Leach Bliley Act (GLBA). In general, the GLBA expands some financial institution's powers, limits others, and places privacy provision.Title V, created restrictions on what personal and private consumer information financial institutions can be distributed to non-affiliated third parties. In the article "Gramm Leach Bliley Act Impacts Business Credit" published in Business Credit, June 2001, Charles Tatelbaum argues that the GLBA's requirement of providing consumers with their privacy policy. This article response to Tatelbaum's article and explains why the authors believe that the term "financial institution" does not include grantors of commercial credit and why GLBA ought not apply to grantors of commercial credit.
The authors agree with Tatelbaum that the GLBA affects "financial institutions". The authors, however find that the term "financial institution" id defined in section 4(k) of the Bank HOlding Company Act ("BHCA). Tatelbaum overlooked that reference and instead argued that the term "financial institutions" as defined in the GLBA includes "all business entities." Tatelbaum identifies two sources as authority for this expansive definition. First, he cites Robert Gordon, Counsel to the US HOuse Financial Services Committee. According to Gordon, "Congress intended to subject all business entities in the US to the provisions of the GLBA." Second, Tatelbaum analogizes the GLBA to the Fair Credit Reporting Act ("FCRA"). He suggests that because "the Federal Trade Commission has taken a position that is vert broad with respect to the use of consumer credit reports in trade or business transactions" the GLBA must also have a broad definition. Tatelbaum cites no other support for his conclusion, nor does he look to the interaction between Title V of the GLBA and section 4(k) of the BHCA to obtain the definition of "financial institutions."
The legislative states, Code of Federal Regulations ("CFR") and the BHCA, consulted by the authors suggest that the GLBA's coverage is narrower than Tatelbaum proposes. Based on these sources, the authors believe that the GLBA does not apply to grantors of commercial credit in corporate transactions.
According to the GLBA, financial institutions are defined as "any institution financial in nature" and by 4(k) of the BHCA, However, the BHCA further defines "financial in nature." It states the following activities are considered to be financial in nature; "(A) lending, exchanging, transferring, investing for others of safeguarding money or securities; (B) insuring, guaranteeing, or indemnifying against loss, harm, damage, illness, disability or death, or providing and issuing annuities and acting as principal, agent or broker for purposes of the foregoing, in any state; (C) providing financial, investment or economic advisory services, including advising an investment company; (D) issuing or selling instruments representing interest in pools of assets permissible for a bank to hold directly; (E) underwriting, dealing in, or making a market in securities; (F) engaging in any activity that the Board [of Governors] has determined, by order or regulation that is in effect on November 12, 1999, to be so closely related to banking or managing or controlling banks as to be a proper incident thereto." 12 USCA ss1843 4(k)(4)(A-1)
In addition, the Board of Governors of the Federal Reserve System created a list of activities that it considers to be financial in nature. The activities listed in 12 CFR 225.28 that are financial in nature are; "activities related to extending credit which includes real estate and personal property appraising, arranging commercial real estate, equity financing, check-guaranty services, collection agency services, credit bureau services, leasing personal or real property."
None of the activities enumerated in the BHCA or by the Board of Governors include grantors of commercial credit. If Congress intended the GLBA to apply to all business entities, as Tatelbaum suggests, Congress could have clearly stated that the GLBA applies to any entity that comes under the commerce clause.
In interpreting legislation, courts first look to see if the statute is ambiguous. If the statute is not ambiguous, courts look to the plain meaning of the statue. The definition of "financial institutions" is clear. The GLBA refers to the BHCA to define the term "financial institutions." Tatelbaum even acknowledges in his article that "financial institutions" is not an ambiguous term on its face. However, Tatelbaum disregards the reference to the BHCA and in relying on Mr. Gordon's oral statements of what Congress intended in the GLBA. Tatelbaum concludes that virtually all entities are financial institutions.
The definition of "financial institutions" in the GLBA (found in section f(k) if the BHCA) is unambiguous. Grantors of commercial credit are not defined as financial institutions in the BHGCA because among things, they do not engage in activities that are primarily financial in nature.
Tatelbaum's broad reading of the GLBA does not consider the language of the BHCA nor does his interpretation comply with Congress' expressed intentions. Accepting Tatelbaum's definition of "financial institutions" would permit the exception to swallow the rule. In addition, Tatelbaum's interpretation chills the flow of the economy if suppliers will not sell to buyers on credit because of their concerns about whether the GLBA affects the transaction. Reading the GLBA and BHCA together, as Congress intended, creates a more narrow focus, yet one that is consistent with the congressionally expressed intent in the GLBA. Accordingly, the authors believe that the privacy protection policies of the GLBA were not intended by Congress to apply to grantors of commercial credit.
Senate Bill No. 112 (as amended)
SENATE BILL NO. 112 - By: HOBSON of the Senate and HEFNER of the House.
An Act relating to liens; defining term; requiring certain notice; excluding certain claims form notice requirements; providing for contents of notice; providing for delivery of notice; requiring original contractor to provide certain information and stating consequences; stating satisfaction of notice; requiring filing of certain affidavit; stating certain consequences; amending 42 O.S. 1991, Section 143.1, as amended by Section 23, Chapter 363, O.S.L. 2000 (42 O.S. Supp. 2000, Section 1443.1), which relates to filing of lien statement; clarifying language; making language gender neutral; deleting certain noticece requirements and consequences; providing for codification; and declaring an emergency.BE IT ENACTED BY THE PEOPLE OF THE STATE OF OKLAHOMA: SECTION 1. NEW LAW A new section of law to be codified in the Oklahoma Statutes as Section 142.6 of Title 42, unless there is created a duplication in numbering, reads as follows:
A. For the purposes of this section, "claimant" means a person, other than an original contractor, entitled to a lien pursuant to Section 141 of Title 42 of the Oklahoma Statutes.
B. 1. Prior to the filing of a lien statement pursuant to Section 143.1 of Title 42 of the Oklahoma Statutes, but no later than seventy-five (75) days after the date of supply of material, services, labor or equipment, the claimant shall deliver to the last-known address of the original contractor and owner of the property, except as provided in paragraph 5 of this subsection, written notice of a claim for the material, services, labor, or equipment. This statute does not require the delivery of notice with respect to any retain age held by agreement between an owner, contractor, or subcontractor. 2. The notice requirements in paragraph 1 of this subsection shall not apply to a claimant:3. The written notice required by this section shall contain, but not be limited to, the following:
- whose claim relates to the supply of material, services, labor, or equipment furnished in connection with a residential project. For the purposes of this subparagraph, the term "residential" shall mean a single family or multifamily project of four or fewer dwelling units, or
- whose aggregate claim is less than Two Thousand Five Hundred Dollars ($2,500.00).
4. A rebuttable presumption of compliance with paragraph 1 of this subsection shall be created if delivery of the written notice is provided as follows:
- the complete name, address, and telephone number of the claimant, or the claimant's representative,
- the date of supply of material, services, labor, or equipment,
- a description of the material, services, labor, or equipment,
- the name and address of the person who requested that claimant provide the material, services, labor, or equipment,
- the address, legal description, or location of the property to which the material, services, labor, or equipment has been supplied,
- a statement that the dollar amount of the material, services, labor, or equipment furnished exceeds Two Thousand Five Hundred Dollars ($2,500.00), and
- the signature of the claimant, or the claimant's representative.
5. The claimant may request in writing, the request to be delivered in the manner as provided in paragraph 4 of this subsection, that the original contractor provide to the claimant the name and last-known address of the owner of the property. Failure of the original contractor to provide the claimant with information requested within five (5) days from the date of receipt of the request shall render the written notice requirement to the owner of the property unenforceable.
- hand delivery supported by a delivery confirmation receipt,
- automated transaction pursuant to Section 15-115 of Title 12A of the Oklahoma Statutes, or
- certified mail, return receipt requested.
C. The written notice requirements of this section shall be satisfied by furnishing one notice during the course of construction or during the course of the business transaction in which material, services, labor, or equipment are furnished.
D. At the time of the filing of the lien statement, the claimant shall furnish to the county clerk a notarized affidavit verifying compliance with the written notice requirements of this section. Any claimant who falsifies the affidavit required by this subsection shall be guilty of a felony.
E. Failure of the claimant to comply with the written notice requirements of this section shall render that portion of the lien claim for which no notice was sent invalid and unenforceable.
SECTION 2. AMENDATORY 42 O.S. 1991, Section 143.1, as amended by Section 23, Chapter 363, O.S.L. 2000 (42 O.S. Supp. 2000, Section 143.1), is amended to read as follows:
Section 143.1 A. Within one (1) business day after the date of the filing of the lien statement provided for in Sections 142 and 143 of this title, a notice of the lien shall be mailed by certified mail, return, return receipt requested, to the owner of the property on which the lien attaches. The claimant shall furnish to the county clerk the last-known mailing address of the person or persons against whom the claim is made and the owner of the property. The notice shall be mailed by the county clerk. The fee for preparing and mailing the notice of mechanics' and material men's lien and costs for each additional page or exhibit shall be as provided for in Section 32 of Title 28 of the Oklahoma Statutes and shall be paid by the person filing the lien. The fee shall be deposited into the County Clerk's Lien Fee Account, created pursuant to the provisions of Section 265 of Title 19 of the Oklahoma Statutes.
B. The notice shall contain the date of filing; the name and address of the following: The person claiming the lien; the person against whom the claim is made and the owner of the property; a legal description of the property; and the amount claimed. Provided that, if with due diligence the person against whom the claim is made or the owner of the property cannot be found, the claimant after filing an affidavit setting forth such facts may, within sixty (60) days of the filing of the lien statement, serve a copy of the notice upon the occupant of the property or the occupant of the improvements, as the case may be, in a like manner as is provided for service upon the owner thereof, or, if the same be unoccupied, the claimant may post a copy in a conspicuous place upon the property or any improvements thereon.
SECTION 3. It being immediately necessary for the reservation of the public peace, health and safety, and emergency is hereby declared to exist, by reason whereof this act shall take effect and be in full force from and after its passage and approval.
COMMITTEE REPORT BY: COMMITTEE ON JUDICIARY, dated 2-20-01 - DO PASS, As Amended and Coauthored.
Oklahoma Lien Law Changes:
Pete Stamper, partner in the law firm, Nichols, Wolfe, Stamper, Nally, Fallis & Robertson, Inc. Tulsa, provided some insight on how these changes will affect construction suppliers.
"The 2000 session of the Oklahoma Legislature amended Title 42, Oklahoma Statutes 1991, section 143.1, to add requirements that could affect the rights of subcontractors and material and equipment suppliers to enforce mechanic's liens in order to get paid.
Previously, prior notice of non-payment was not required as a prerequisite to the enforcement of a lien. Now, if the work was not performed or the material or equipment was not furnished under a contract directly with the property owner, a notice is mandatory.
A lien claimant who is owed payment by the prime (general) contractor must send written notice of the unpaid amount to the owner of the property and the prime contractor not later than the tenth day of the third month following each month in which the unpaid labor, materials, or equipment was furnished.
A lien claimant who is owed payment by a subcontractor must send the same written notice not later than the tenth day of the second month following each month in which the unpaid labor, materials, or equipment was furnished.
Failure of the lien claimant to send the required written notice shall render that portion of the lien claim for which no notice was sent invalid and unenforceable.
The amendment to the law makes no mention of the retain age and does not specify the form required for the notice no the method of itsdeliveryy."
Confounding this issue further is the fact that the changes appear to have gone into effect as of June 6, 2000 possibly jeopardizing liens filed since that time. An accurate interpretation of the law is subject to test, but for now, suppliers and subcontractors must follow the letter of the law and provide, in writing, the details of the transaction and deliver the notice to the owner and prime (general) contractor/subcontractor in such a manner as to provide proof of the delivery of the notice.
At the association office, we are continuing to gather information about the changes and will inform you as we learn about this issue. In the meantime, we are working on a NOTICE FORM for affected members to use and are contemplating the introduction of a Pre Lien Notice Service for your convenience. Let me know if this is of interest to you.
We will have updates on the new law at both of the construction group meetings this month. Mr. Stamper is tentatively scheduled to attend Tulsa's meeting. Don't miss!
Credit grantors must get okay to pull consumer reports according to federal trade commission:
Two long standing questions surrounding the FCRA's "permissible purpose" section have finally been answered by the FTC. And the answers are "NO".
As a result of actions that had been taken by the FTC pertaining to interpretations of the legitimate business purpose exception included in the Fair Credit Reporting Act (FCRA), two specific questions were asked by NACM:
- Can a business credit grantor request a consumer report on a customer without getting specific permission from the consumer in writing?
- Can a business credit grantor request a consumer credit report on a person who signs a personal guaranty in connection with a business transaction without getting a specific written authorization?
The recent answer clarifies their position and it is not favorable to those who extend business or trade credit. The conclusions reached in the letter are disappointing. Although the letter is only an informal staff opinion and not "binding on the FTC", NACM members should consider the language of the letter as the position that will be taken by the FTC in the future. It also appears that the FTC's position is inflexible on this issue and that there is no room for debate or digression. Notwithstanding any possible subjective interpretation to the contrary, it is clear that a simple rule has been adopted:
A CONSUMER CREDIT REPORT CANNOT BE USED FOR ANY PURPOSE WITHOUT THE CONSUMERS WRITTEN CONSENT.
In light of the FTC's opinion, members should get written permission to run a consumer credit report. The appropriate language should be included as a separate form, or an addendum to accompany the credit application, as the party signing the application may not be the same party form whom you seek authorization. It should be noted that a credit application that provides general authority to pull a consumer credit report on a corporation's officers may be insufficient. Rather, the credit grantor should obtain an authorization form from each party on whom a credit report is to be pulled.
NACM members should carefully review policies and procedures within their credit departments to make sure that in connection with the extension or continuation of credit to sole proprietorships or when seeking a personal guarantee in connection with a business transaction, that written permission be obtained from the consumer before acquiring the consumer credit report. Violation of the Act will lead to enforcement by the government against credit grantors which could include fines, penalties, and injunctions. More importantly, one or more consumers could join to start a class action lawsuit against credit grantors which would subject a creditor to substantial compensatory and punitive damages as well as attorney's fees.
The following is simple language that may be used by an NACM member in a credit application to comply with the requirements of the FCRA. The language must be in a separate paragraph following the signature at the bottom of a credit application or other agreement. It must be conspicuous and it must provide for the individual signature of the consumer whose credit report is to be acquired;
The undersigned individual who is either a principal of the credit applicant or a sole proprietorship of the credit history may be a factor in the evaluation of the credit history of the applicant, hereby consents to and authorizes the use of a consumer credit report on the undersigned by the above named business credit grantor, from time to time as maybe needed, in the credit evaluation process.With respect to a personal guarantee, the following language may be included in the body of the guaranty so long as it is in a separate paragraph and it should be conspicuous by the use of either bold type or larger type:
The undersigned personal guarantor, recognizing that his or her individual credit history may be a necessary factor in the evaluation of this personal guarantee, hereby consents to and authorizes the use of a consumer credit report on the undersigned, by the above named business credit grantor, from time to time as may be needed, in the credit evaluation process.The above is simple language which we believe may be generically used in every type of credit application/guarantee situation. However, each NACM member should review the company's credit application form and guarantee form to make sure that the other language in the document does not in any way contradict of vary the language suggested above.
A copy of the FTC's letter is posted on the NACM website in the "NACM News" section (found under Resources, then click Publications). Also, the September issue of Business Credit will feature a more detailed explanation of the importance of this ruling. NACM's view is that this issue must be resolved by Congressional action. NACM will take immediate steps to try to have the next session of Congress deal with the issue promptly.
In them meantime, NACM MidAmerica will require that each member who requests an individual's consumer credit report provide evidence of the appropriate signature(s) with their request.
Please call me if you have any questions regarding this issue.
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