To Extend, or Not to Extend?

Applications must be worded neutrally, so as not to ask for any prohibited information. Additionally, applicants must receive a credit decision within 30 days. If credit is denied, terms have been changed unfavorably, or an increase in a line of credit had been refused, the creditor must notify the applicant and he or she has 60 days to request, in writing, the reason for the ‘adverse action.’ The creditor must respond to the applicant within 30 days if such a request is made.

Denied application records for applicants with gross revenues of $1 million or less must be retained for 12 months after notification; 60 days after notification for applicants with more than $1 million in gross revenues or 12 months if so requested by the applicant.

In addition to actual damages, court costs, and complainant attorney fees, violators can face punitive damages of up to $10,000 in individual lawsuits and up to the lesser of $500,000 or 1 percent of the creditor’s net worth in class action suits.

Conclusion
The decision to extend credit and the terms of credit are different for every business. Company officials should set policies reflecting their own level of comfort with risk and perform due diligence on all of their customers’ financial stability, reputation, operations, and payment performance history.

Bates offers this advice when deciding whether to extend credit: “Know yourcustomer, keep [your sales department] in the conversation when you’re deciding to give credit, and stick to the facts. Make a fact-based decision.”