Principles for the Exchange of Commercial Credit Information
RMA advocates using the highest ethical standards for the conduct of business, including the exchange of commercial credit information. This document is intended as a framework for the responsible exchange of credit information for commercial transactions. Banks may wish to tailor these Principles to their particular circumstances as well as to the laws and regulations to which they are subject. RMA recommends that banks consult their legal counsel for specific advice about the exchange of credit information.

 While encouraging the exchange of credit information and ways to improve the exchange process, RMA does not monitor such exchanges, nor does it enforce these Principles in any way.

Robert Morris Associates, 2000

Preamble
RMA has, since its inception, recognized the importance of a free and responsible exchange of information in credit-based economic systems. Practices for the Exchange of Commercial Credit Information facilitates such exchanges and promotes sound decision making while reducing the risk of loss due to fraud.

Commercial credit information is distinct from consumer credit information, whose exchange is expressly regulated. Both types of information exchange are subject to various laws that may differ by jurisdiction. RMA also advocates submission of information to credit-reporting agencies. (Specific guidelines for submitting that data are covered elsewhere.)

These Practices are designed for commercial transactions, and their use is subject to applicable federal and state laws and/or laws in other jurisdictions. In particular circumstances, these laws could relate to defamation and the right to privacy; antitrust laws; credit-reporting regulations; and limitations on the use of confidential records as well as customer-related information and computerized data. Such laws also include U.S. securities laws regulating disclosure of material inside (nonpublic) information. Since, under the securities laws, material inside information may, in some cases, not be disclosed (and in other cases may not be withheld), for transactions in connection with the sale or purchase of a security, and such transactions that may involve bank financing, care should be exercised and the advice of counsel sought when any such material inside information may be in the possession of the respondent.

A respondent may not be able or willing to answer an inquiry for many reasons. One reason may be the possible possession of non-disclosable inside information. Therefore, the respondent's silence should not automatically be interpreted as a negative response.

ARTICLES:

1. Two important elements in the exchange of credit information are confidentiality and accuracy of inquiries and replies. Confidential information includes the identity of inquirers and sources that cannot be disclosed without their permission.

2. Each inquiry should specifically indicate its purpose and the amount involved.

3. Responses should be prompt and disclose sufficient material facts commensurate with the purpose and amount of the inquiry. Specific questions should be given careful and frank replies.

4. It is inappropriate to approach a competitor about a prospect without frankly disclosing plans to solicit the account.

5. A request for information related to existing or intended litigation should be clearly identified as such.

6. All credit correspondence, including form letters, should bear the manual signature of a responsible party. When the use of e-mail or other electronic correspondence precludes a manual signature, the identity of the author should be fully disclosed.

7. The sharing of credit information on a mutual customer should not be more frequent than annually, unless a significant change in the relationship necessitates an earlier revision.

8. When a subject's bank(s) of account is (are) unknown and cannot readily be determined, all other banks, particularly RMA member banks, are encouraged to assist one another in locating the bank(s) of account.

 

Article 1:
Two important elements in the exchange of credit information are confidentiality and accuracy of inquiries and replies. "Confidential information" includes the identity of inquirers and sources that cannot be disclosed without their permission.

Comments:
Confidentiality, as it is used here, is based on the reliance placed upon the fidelity of another with whom information is being exchanged. A trust is placed in all parties involved that the information has been requested for a legitimate purpose and will not be used indiscriminately. Because of this mutual trust, there is no need to obtain a customer's permission when responding to an inquiry, unless dictated by the appropriate jurisdictional law.

When conducting investigations, the identity of the inquirer should not otherwise be divulged without its express authorization. Similarly, the identity of the source of the information should not be made known without its authorization. For example, if the information is being gathered by your bank on behalf of the inquirer (this is called an investigation), the companies for which you are gathering the information should not be identified. Therefore, it would not be appropriate to ask an inquirer for the name of the company on whose behalf it is inquiring. Likewise, when gathering data from various sources it would not be appropriate to name those sources in the report you prepare for your customer. If the information is developed on behalf of a customer, it should be screened according to the customer's needs, credit sophistication, and ability to handle the information discreetly.

Because the bank reference is one of the most pertinent sources of credit information, the facts presented should be accurate. When discussing data, favorable or unfavorable, the responding bank should give a reply that is restricted to or based on fact. If a discrepancy is discovered within a reasonable time after an inquiry has been answered and is considered significant in relation to the purpose of the inquiry, it is prudent and ethical that the discrepancy be disclosed to the inquirer unless the inquirer has been expressly advised that no such corrections will be made.

These Practices do not create or define substantive legal duties, nor can they form a basis for civil liability. RMA suggests, however, that all banks and financial professionals follow these Practices whenever possible except where prohibited by laws and regulations. Irresponsible information exchange practices can damage the reputations of banks and individuals, may affect the willingness of others to participate in credit information exchanges with those banks and individuals, and may have an adverse effect on their customers.

Article 2:
Each inquiry should specifically indicate its purpose and the amount involved.

Comments:
An important element of an inquiry is its purpose. The bank receiving the inquiry has a right to know why the information is needed. Knowing and understanding the purpose of an inquiry places the recipient in a better position to respond with the type and amount of information needed to satisfy the inquirer. The purpose of the inquiry is also needed to determine if the inquiry is commercial or consumer in nature. Banks need not respond to an inquiry if no purpose is given. Many banks will not respond if the stated purpose is solicitation, acquisition, merger, competition, or existing or intended legal action.

The inquirer undertaking an investigation should state the initial steps it has taken, as well as the information it has on hand, in order to avoid duplication of effort.

Inquiries may be initiated by telephone, fax, computer, or in writing. In the interest of timeliness, many banks regularly accept telephone, fax, or computer inquiries.

The legitimate use of credit information is to assist an inquirer who expects to extend credit or otherwise rely on the subject of the inquiry in business dealings. An inquiry should not be answered without first determining its legitimacy and establishing the identity of the inquirer. For example, information should not be disclosed on the first telephone inquiry unless the inquirer is known and identified. A return call to an independently known telephone number may be used to confirm the inquirer's identity.

In the majority of instances, a specific amount is involved in the transaction under inquiry. When initial trade credit is involved and no amount is established, the inquiring party should be asked for the normal size of its transactions. A range of figures, such as $500-$1,000 or $50,000-$60,000, is acceptable. It is unacceptable to use fictitious figures or to inflate the amount involved in the hope of inducing the responding bank to provide details beyond what may be necessary. If for some reason there is no amount involved, the inquirer should state this in a manner that would logically satisfy the respondent as to the overall purpose of the inquiry.

A proper inquiry should contain the following:
 

1. SUBJECT: The subject of the inquiry should be identified as completely as possible; include full name, address, names of the principals, and tax ID number or account number if available.
    

2. PURPOSE: The reason for the inquiry should be given in sufficient detail to allow the recipient to make an appropriate response.
    

3. EXPERIENCE: If the inquirer has had experience with the subject, a summary of that experience should be provided. Doing so creates a true exchange of information and helps eliminate duplication of effort.
    

4. REQUIREMENTS: The inquirer should be specific about the information required to satisfy the inquiry, such as deposit relationships, loan experience, financial information, and assessment of management.
    

5. OTHER: Any other factors relevant to the inquiry should be disclosed.
    

Article 3:
Responses should be prompt and disclose sufficient material facts commensurate with the purpose and amount of the inquiry. Specific questions should be given careful and frank replies.

Comments:
Prompt and accurate replies are signs of dependability and professionalism that help the users of the information conduct business on a timely basis. It is appropriate to respond using the same method in which the request is presented, depending on the nature of the inquiry. Although response time to inquiries will vary depending on the amount of information needed, the following general approaches are considered appropriate:

 

If unusual delays are expected, the inquirer should be informed.

Once the legitimacy and the requirements of the inquiry or investigation are established, it is answered by providing a summary of the bank's experience and knowledge of the subject commensurate with the amount involved and the respondent's confidence in the inquirer. When responding to inquiries, a reliance on limited electronic data may not provide sufficient information. Use of credit file information is encouraged in order to obtain sufficient material for a full exchange. If a response is based solely on a source or sources that may not contain all information in the respondent's possession, an appropriate disclaimer should be given.

It is recommended that a full response include:
 

1. The opening date of the relationship.
    
2. History of the subject.
    
   • Length of time established.
      
   • Legal form of organization.
      
   • Names of the principals as well as their background and experience.
      
   • Line of business.
     
      
3. Depository relationships.
   A. Demand deposit relationships.
    

   • Opening date—if different from the opening date of the relationship.
      
   • Average collected balances, for at least the past three months, in RMA General Figure Ranges.³
      
   • Number and frequency of returns.
      
   • Rating on the account—here, overall words like "satisfactory," "generally satisfactory," and "unsatisfactory" may be used, but ensure that your bank's definition is understood by the inquirer.
     
      

   B. Time and savings deposit relationships.
    

   • Opening date—if different from the opening date of the relationship.
      
   • Average collected balances, for at least the past three months, in RMA General Figure Ranges.⁴

   
   C. Other.
   If any other accounts affect the credit relationship, such as cash management or disbursement accounts, their existence should be disclosed and explained if necessary.

    

4. Summary of the borrowing relationship, if any.
    

   • Qualitative account or relationship ratings, such as "substantial," "satisfactory," "generally satisfactory," "unsatisfactory," and "as agreed," may be used, but the respondent should be confident that the definition of these terms is understood by the inquirer.
     Types and nonprice terms of loans or other facilities. If a facility is secured, describe the collateral.
      

   • Aggregate high credit and outstanding balances in RMA General Figure Ranges. These figures should be broken down further by specific facilities if the situation warrants it.
      

   • Guarantees and endorsements, if any, and relevant off-balance-sheet financing, such as letters of credit, should be made known. Names of specific guarantors and endorsers need not be disclosed.
      

   • Opening and maturity dates, length, and frequency of payouts.
     
      

5. Financial statement data.
    

   • When the subject is a publicly held company that publishes current financial information, the release of financial statement data will normally be in compliance with the securities laws.⁵ When financial statements of non-publicly held companies are submitted to the bank, with no instructions to the contrary, a general summary of the data may usually be disclosed subject to jurisdictional law. This disclosure should be tempered by the respondent's confidence in the inquirer and by the amount and nature of the inquiry. The summary may consist of:
      

   • Dates of the statements and the period they cover.
      
   • Auditor's opinion.
      

   • A description of the subject's financial condition and trends, which should include current assets, total assets, current liabilities, net worth, sales, and an indication of profitability. It is the option of the responding bank to disclose these data in actual figures or in RMA General Figure Ranges.
      

   The respondent should indicate whether comments as to the subject's financial standing are based on the bank's analysis of the company or another source.
   
   A response should not include:
    

   1. The purpose of the credit extension.
   
   2. Pricing mechanisms/considerations—Caution:
   Banks should not discuss pricing and compensation. Interest rates, fees and charges, compensating balance requirements, and other methods of compensation should not be disclosed. Exchanging information about these items may not, in itself, constitute an antitrust violation. However, if after such an exchange anything approximating parallel action is manifested by similarity of terms, it could be claimed that the information exchanged was used illegally. Banks with questions about the propriety of an inquiry or a response should consult with their legal counsel.
   
   3. Information from internal loan review, audit, or regulatory examination reports.

Further Considerations:

1. It remains at the discretion of the responding bank to provide the inquirer with recommendations and opinions. If a recommendation or opinion is asked for, the account officer should be consulted unless the person answering the inquiry is authorized to provide this information. If a respondent furnishing general information is unable to provide specific data during an inquiry, the inquirer should be told why.
   
    

2. Legal considerations may preclude a respondent from offering a qualitative statement, disclosing financial information, or disclosing certain details of the relationship. Questions regarding these and other legal considerations should be addressed by the respondent's management or legal counsel.
   
    

3. Information on troubled accounts can be particularly challenging for the respondent. RMA suggests that those likely to receive an inquiry on a troubled account determine an appropriate response prior to receiving an inquiry. Respondents should decline to give a response rather than give incomplete or misleading information. RMA suggests that any response on troubled accounts be reviewed in advance by senior management and legal counsel.

Article 4:
It is inappropriate to make an inquiry to a competitor about a prospect without frankly disclosing plans to solicit the account.

Comments:
The free exchange of credit information between banks depends to a large degree on confidence. The inquiring bank should not seek the information in order to solicit the respondent's accounts.

Violations of this confidence not only damage the inquirer's relationship with the responding bank, but they also create a guarded situation that can only impede the exchange of credit information. For this reason, when solicitation is the purpose of an inquiry, this fact should be clearly stated to the bank of account. Many banks will not respond to such inquiries.

All parties to credit inquiries involving solicitation should be aware of the basic confidence inherent in the exchange of information and act responsibly to preserve that confidence and trust.
 

Article 5:
A request for information related to existing or intended litigation should be clearly identified as such.

Comments:
When the purpose of a request for information is existing or intended legal action, that purpose should be disclosed by the inquirer. It is inappropriate to disguise the purpose of any inquiry. Such an act could be detrimental to the parties involved, especially when legal action is associated with an inquiry. Under those circumstances, the potential for damages is such that all parties need to exercise considerable judgment before conducting an investigation or answering an inquiry of this nature.

Many banks will not respond to requests for information intended to be used in connection with litigation. A bank faced with such a request may wish to consult its legal counsel.

 

Article 6:
All credit correspondence, including form letters, should bear the manual signature of a responsible party. When the use of e-mail or other electronic correspondence precludes a manual signature, the identity of the author should be fully disclosed.

Comments:
Manual signatures (or, in the case of electronic correspondence, a means sufficient to establish personal identity of the sender) on all credit correspondence, both inquiries and replies, are essential. The signer assumes good-faith responsibility for the accuracy of the information contained in the correspondence, whether the signer gathers the information or not. The title, if any, and name of the authorized signer should also be typed or printed on the correspondence. Doing so will help address responses correctly and clearly identify the contact person if questions regarding the inquiry or reply arise.
 

Article 7:
The sharing of credit information on a mutual customer should not be more frequent than annually, unless a significant change in the relationship necessitates an earlier revision.

Comments:
Credit information on mutual customers is normally reviewed annually. It should not be necessary to inquire more frequently unless interim financial data, news items, agency information, or other sources suggest an actual or potential problem. Information should not be requested when there is no real need.

The bank requesting the information should give a summary of its experience first. This sharing of information by both inquirer and respondent is important because it prevents duplication of effort and is consistent with the cooperative spirit inherent in the exchange of credit information.

On mutual revisions, care should be taken not to discuss interest rates charged, compensating balance requirements, fees, or other price mechanisms. Revealing these data could have antitrust implications.

 

Article 8:
When a subject's bank(s) of account is (are) unknown and cannot readily be determined, all other banks, particularly RMA member banks, are encouraged to assist one another in locating the bank(s) of account.

Comments:
If, for some reason, the name of the bank(s) of account cannot be determined, the inquiring bank then has two courses of action open to it: 1) It could make multiple inquiries (often not desirable as a "fishing expedition"); or 2) it could approach just one bank in the subject city and ask if it would locate the name of the bank of account, which the inquiring bank could then approach separately. If the first course of action is taken, the fact that multiple inquiries are being made should be disclosed to all banks contacted, and each should report information only from its own files.
 

RMA GENERAL FIGURE RANGES
The RMA General Figure Ranges should be used to ensure accuracy and consistency in an exchange of credit information. At times, it may be necessary to clarify these terms so that the inquirer and respondent are "speaking the same language." There are four ranges:

Footnotes
¹ Inquiries are requests for information on a bank's own customer.
² Investigations are a bank service in which information is gathered on a company from other financial institutions or creditors for a bank customer's use.
³ If a bank is not using RMA General Figure Ranges, it should make that clear to the inquirer.
⁴ See definition of RMA General Figure Ranges.
⁵ See Preamble.