FTC Examining Small Business Credit Reporting System
On March 17, the FTC announced its inquiry into the small business credit reporting industry. In particular, it is ordering five firms to provide detailed information about their products and processes.
The FTC notes that unlike credit reports for individual consumers, which are governed by the FCRA, there is no federal law that specifically outlines processes and protections available to small businesses when it comes to credit reporting. This can make business credit reporting hard to understand, and it can be particularly difficult for small businesses to navigate how to correct errors or omissions in their credit reports in a timely fashion. These reports can significantly affect small businesses, potentially impacting the terms on which they can obtain the goods, services, and equipment they need to stay in business. Among the questions the FTC is asking are:
How do they gather information for business credit reports?
What kind of algorithms, machine learning, or other automated systems do they use in relation to business credit report data?
What steps do they take to ensure that information in business credit reports is accurate and current?
How do they address a business’ assertion that information in its report is incorrect or obsolete?
How do they market their reports to different entities in the business ecosystem?
What services do they offer to businesses to monitor or enhance their credit reports?
The FTC is issuing the orders under Section 6(b) of the FTC Act, which authorizes it to conduct studies without a specific law enforcement purpose. The companies will have 60 days from the date they receive the order to respond. The Commission vote to issue the orders was 4-0.
Putting It Into Practice: This latest news is particularly noteworthy as it seems to portend that the FTC may be seeking to eventually use UDAP-type enforcement as a means of applying FCRA rules to commercial business credit reporting. This, of course, is not the general rule today (i.e., FCRA applies only to consumer credit), but in light of this inquiry and action against a leading provider of business credit report services last year, small business credit reporting may be significantly impacted in the future (we previously drafted a blog on this action here).