What is the difference between authorized users and joint account holders, and how should each be reported to ensure compliance with FCRA and Metro 2® guidelines?
Understanding the distinction between authorized users and joint account holders is essential for both consumers and data furnishers. Accurate reporting of these relationships affects credit scores, lending decisions, and compliance with federal regulations.
Definitions and Context
- Authorized User: An individual permitted by the primary account holder to use a credit account (typically a credit card) but who is not contractually responsible for repayment.
- Joint Account Holder: Two or more individuals who share contractual responsibility for an account and are equally liable for repayment.
The Fair Credit Reporting Act (FCRA) and Metro 2® guidelines provide specific instructions for reporting these relationships to consumer reporting agencies (CRAs).
Step-by-Step Reporting Standards
1. Reporting Authorized Users
- ECOA Code 3: In Metro 2®, authorized users must be reported using ECOA Code 3 in the J1 or J2 Segment, not in the Base Segment.
- Required Data: For all newly added authorized users (on both new and existing accounts), the full Date of Birth (MMDDYYYY) must be reported, even if the Social Security Number is provided.
- No Contractual Liability: Authorized users are not legally responsible for the account’s balance or payments. Their credit report will reflect the account’s history, but they cannot be held liable for repayment.
- Removal in Bankruptcy: If an account is included in bankruptcy, authorized users must be deleted from the account using ECOA Code Z, as they are not contractually liable.
2. Reporting Joint Accounts
- ECOA Code 2: Joint account holders are reported using ECOA Code 2 in the Base Segment (and J1/J2 Segments if applicable).
- Contractual Liability: All joint account holders are equally responsible for the account’s balance and payments. The account’s history will appear on each joint holder’s credit report.
- Payment History: Payment activity, delinquencies, and closures are reported for all joint holders.
3. Co-makers and Guarantors
- ECOA Code 5: A co-maker or guarantor is someone who agrees to pay if the primary borrower defaults. Report this relationship using ECOA Code 5 in the J1 or J2 Segment.
4. Terminating or Deleting Relationships
- Terminated Association: Use ECOA Code T to indicate that a consumer’s association with an account has ended. Do not report this consumer in subsequent periods.
- Delete Consumer: Use ECOA Code Z to remove a consumer who was reported in error or who is no longer associated with the account (e.g., authorized users on accounts included in bankruptcy).
Compliance Requirements
- FCRA: Requires accurate and complete reporting of all account relationships. Only consumers with contractual liability should be reported as joint account holders.
- Metro 2®: Mandates the use of correct ECOA Codes and requires full Date of Birth for authorized users. Only one ECOA Code should be used per consumer per account.
Impact on Consumers
- Credit Building: Authorized users can benefit from the primary account holder’s positive payment history, but are not responsible for debt.
- Joint Accounts: Both parties are fully responsible for the account, and negative activity affects both credit reports.
- Disputes and Errors: Incorrect reporting of account relationships can lead to disputes, credit score impacts, and compliance issues.
Conclusion
Accurate reporting of authorized users and joint accounts is critical for compliance and fair credit reporting. By following FCRA and Metro 2® guidelines—using the correct ECOA Codes and reporting requirements—data furnishers ensure that consumer credit files reflect true legal obligations and relationships.