A Credit Check Pitfall Cooperative Boards Can Avoid

A Credit Check Pitfall Cooperative Boards Can Avoid

By Randall Pentiuk, Esq., and Kerry L. Morgan, Esq.

In considering a new member, cooperative boards usually include a credit check authorization form in their application packet. The credit check form to be signed by the applicant is usually straightforward, authorizing the board to run a credit check on the applicant to be used in the membership eligibility process. The Fair Credit Reporting Act (FCRA) indicates that the credit check authorization form, however, “consists solely of the disclosure.” See 15 U.S.C. § 1681b(b)(2)(A)(i).  Thus, courts will carefully scrutinize authorizations which add additional language to the disclosure.

As it happens in life, someone had a new idea. The thinking goes like this:

“Why not include some additional language in the disclosure? In addition to the housing applicant authorizing the cooperative to run a credit check, let’s add release and indemnity language in the disclosure form.  That way, if the cooperative misuses the credit check information, it can’t be sued because the applicant has released the cooperative.”

Good idea?  Bad idea? New ideas sometimes lead to unexpected consequences. A recent case of interest to cooperative boards was decided in California. It did not involve an application to a cooperative. It involved an application for employment, but the principle is the same. The applicant sought a position with a company, and the company asked the applicant to sign an authorization allowing the company to run a credit check under the FCRA. So far so good. The applicant filled out and signed a one-page form entitled “Pre-Employment Disclosure and Release.” That form contained acceptable disclosure language, but it also added the following language:

“I understand that the information obtained will be used as one basis for employment or denial of employment. I hereby discharge, release, and indemnify prospective employer, PreCheck, Inc., their agents, servants, and employees, and all parties that rely on this release and/or the information obtained with this release from any and all liability and claims arising by reason of the use of this release and dissemination of information that is false and untrue if obtained by a third party without verification.”  Syed v. M-I LLC, CIV. NO. 1:14-742 WBS BAM (E.D. Cal. Oct. 22, 2014).

Note the additional language—“I hereby discharge, release, and indemnify.” The applicant alleged that the FCRA prohibited this language on the disclosure form.  On Appeal, the Ninth Circuit Court of Appeals agreed. The Court found that the employer’s agent’s Pre-Check, violated the FCRA by adding this additional release language. It was a good idea that led to a bad result for the employer.

The Court’s exact ruling held that a prospective employer violates 15 U.S.C. § 1681b(b)(2)(A) when it procures a job applicant’s credit report after including a liability waiver in the same document as a statutorily mandated disclosure. The Court also held that, in light of the clear statutory language that the disclosure document consists “solely” of the disclosure, a prospective employer’s violation of § 1681b(b)(2)(A) is “willful” when the employer includes terms in addition to the disclosure, such as the liability waiver here, before procuring a credit report or causing one to be procured. A “willful” violation triggers statutory damages from $100 to $1,000 per violation, punitive damages, and costs, including attorneys’ fees.

What should you do? The best place to start is to look at your membership application packet, especially the credit check disclosure form. Read it carefully. Does it contain any language about “discharge, release, and indemnify?” If so, send it off to your legal counsel for review and possible revision. There may be an opportunity to keep the release language in a separate stand-alone document that covers the entire membership application process. But one thing is for certain: to let such language remain in the credit check authorization form is inviting disgruntled and denied applicants to go to a lawyer of their own and question why they were denied membership. That could lead back to the FCRA and the possibility of damages. Why expose the cooperative when prior legal review, care and planning can better ensure that your membership application package is in tip top legal shape?

Randall Pentiuk is the founding member, attorney and managing shareholder at Pentiuk, Couvreur and Kobilijak, PC. In Wyandotte, Mich.

Kerry L. Morgan, Esq., is an attorney with the firm of Pentiuk, Couvreur and Kobilijak, PC. He leads the firm’s Civil Rights and Employment Practice along with Class Actions and Complex Litigation.

Understanding HUD and the Budget Process

Understanding HUD and the Budget Process

By Judy Sullivan

The Department of Housing and Urban Development (HUD) is currently operating with funding under a Continuing Resolution (CR) that expires April 28, 2017. The federal government operates under a Fiscal Year (FY) which lasts from October 1 to September 30, of the following year. However, Congress did not approve a budget for the current FY, and in order to avoid a government shutdown, it has passed a series of CRs with the current CR expiring this April. When the government operates under a CR, funding continues at the previous FY levels (By the way, all other federal departments are also currently operating under a CR).

Every year, usually in February, the president submits a budget to Congress. This is the starting point for the budget process because Congress uses the president’s budget to begin its budget deliberations.

According to the Blueprint * document the Trump Administration submitted, the president is considering cuts to the HUD budget in order to increase defense spending. The president’s 2018 budget requests $40.7 billion in gross discretionary funding for HUD, a $6.2 billion or, 13.2 percent decrease from the 2017 annualized CR level.

Following, are some of the programs impacted:

  • The Community Development Block Grant Program (CDBG), which has enjoyed bipartisan support in Congress, is budgeted to receive $3 billion this fiscal year; yet, the proposal would cut those funds entirely for the future. By eliminating block grants for community development and housing production, states lose their ability to address pressing needs such as cleaning up struggling neighborhoods;
  • Housing for the elderly — known as the Section 202 program — would be cut by $42 million, nearly 10 percent; and
  • There is a huge capital needs backlog (close to $40 billion and growing at a rate of $4.3 billion per year). Unfortunately, the proposed budget cuts the resources needed to repair and rehabilitate HUD developments. These cuts mean that despite the billions of dollars invested over decades, HUD properties fall further into disrepair.

*Budget blueprint document

How Does the Federal Government Create a Budget?

There are five key steps in the federal budget process:

Step 1: The President Submits a Budget Request

The president sends a budget request to Congress each February for the coming fiscal year, which begins on October 1.

Step 2: The House and Senate Pass Budget Resolutions

After the president submits his or her budget request, the House Committee on the Budget and the Senate Committee on the Budget each write and vote on their own budget resolutions.

Step 3: House and Senate Subcommittees “Markup” Appropriation Bills

The Appropriations Committees in both the House and the Senate are responsible for determining the precise levels of budget authority or allowed spending for all discretionary programs.

Step 4: The House and Senate Vote on Appropriations Bills and Reconcile Differences

The full House and Senate then debate and vote on appropriations bills from each of the 12 subcommittees.

Step 5: The President Signs Each Appropriations Bill and the Budget Becomes Law

The president must sign each appropriations bill after it has passed Congress for the bill to become law. When the president has signed all 12 appropriations bills, the budget process is complete. But rarely is work finished on all bills by October 1.

(From:  https://www.nationalpriorities.org/budget-basics/federal-budget-101/federal-budget-process)

How can you weigh in on the HUD Budget?

Deep cuts to the HUD budget are expected this year. It’s not too early to contact your members of Congress to urge them to tell Budget Committee members how important HUD funding is to you and your cooperative. The timing is perfect as the budget process is just beginning. Call them today!

USA.gov is an easy way to find your senators and representative.

The following are links to Congressional Budget Committee members:

House Budget Committee Members

Senate Budget Committee Members