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Published Articles by David Balovich

Title: Confidentiality
Published in: Creditworthy News
Date: 1/29/03
This is the second part of a two part series on confidentiality and reporting. In this article we discuss confidentiality as it pertains to information received by the organization and the internal use of the information. For clarification at the end of the article there will be a brief Q & A session conducted by Rich Hill. I want to stress to the readers that the opinions expressed below are mine alone and do not represent the opinion of Creditworthy.

Five years ago I wrote that confidentiality in credit was a myth. What I should have written was that there is a misunderstanding in the credit community with regard to confidentiality and credit.

I have been a member of the National Association of Credit Management for twenty-seven years. I taught credit classes long before there was a CAP/ACAP program and taught the CAP/ACAP program after its inception. Nowhere in Credits and Collections, Credit Executives Handbook, Credit Manual of Commercial Law, Consumer and Commercial Credit Management, Consumer and Business Credit Management (all these publications have been used as texts) is the subject of confidentiality and credit addressed as the sole responsibility of the credit department. In fact, on page 150 of the Credit Executives Handbook it reads that: a policy should be established as to who may have access to the credit files. It goes on to read: this policy must be adapted to the size of the organization, the extent and nature of information contained in the files, and the use to be made of it.

The NACM by-laws read that the NACM member is the organization and the organization determines who from the organization will represent the organization. It does not say whom or from what department within the organization that representative must come from. In the days when floor-plan financing was a popular method of selling large quantities of inventory it was not unusual for the large finance companies such as Borg-Warner, Westinghouse Credit and ITT to be members of NACM and have their representatives attend industry group meetings. Often these representatives were “account managers” who not only handled credit but also sales for their respective regions. There was never an issue of confidentiality among industry group members because these organizations had policies on how information, confidential or otherwise, was to be handled.

The information provided to NACM or any other entity or received from NACM or any other entity by the member’s representative is from or for the organization. It is the organization that should decide, through its policies, what information from its credit department will be shared and with whom, externally or internally.  For the many organizations that do not have a formal credit function it is the organization that decides who in the organization is responsible for its credit activities. Many organizations assign that function to their sales departments. 

Confidentiality should be determined and defined by the organizations policies and procedures not those of an association or third party organization. I will even go so far to say that not every person employed in the credit department should have access to all the information obtained in the credit department because not everyone in the credit department has the need to know.

Designated management including the account manager (sales person) has a right to know the reasons behind credit decisions both favorable and unfavorable. We have an obligation to share the information such as payment history, current ratios, debt to equity ratios, judgments and lien information that determines our decisions. To expect them to accept credit decisions without facts is no different then they asking the credit department to accept “the applicant is good for it” when wanting a credit line increase or an order to be released on a past due customer.

The argument has been made that information received by the credit department is confidential and even when the request for disclosure is made the credit person should invoke that the information was received in confidence. The fact is, in today’s legal environment the only confidential information that is still recognized is between individuals and their priest, rabbi or minister. The Supreme Court ruling during the Clinton Administration has caused the American Bar Association to re-address its rules on attorney-client privilege.

If the credit department truly wants to bridge the gap between credit and sales and have management recognize their contribution to the organization they will begin by proposing a policy to address the handling of confidential information and I would hope that the policy would call for openly sharing this company information with those that are making the ultimate decision so that future decisions can be informed decisions where everyone takes responsibility for the good and the bad.

I am not now nor have I ever promoted that credit information should not be treated in a confidential manner. If we inform an applicant or another vendor that the information, they provide, will be treated in confidence, that statement should be based on the confidentiality policy of our organization. It should be the organization and not any one individual or department who determines who in the organization may have access to any information, confidential or not, that is the property of the company.

Question:  Please comment on the responsibilities of the people within the organization who do receive bank and trade information on a customer.

Reply:  It should be clear in the policy that information received by the company from either customers or other sources be treated in a confidential manner. It has been stated on more then one occasion that if it is believed a particular individual (such as a sales person) cannot be trusted with the information then either 1) don't share or 2) provide the information in such a manner that they cannot identify the source. For instance showing them a D&B or NACM report. Both of these reports contain payment information but do not reveal the identity of the firm reporting the information.

Question:  There are some Industry Credit Groups who have confidentiality rules.  Can you comment on that?

Reply:  Confidentiality, whether it be through industry groups or information received from the customer, applies to the organization. It is the organization who belongs to the industry group and it is the organization who the customer provides information to. It is the function of the organization to determine who in the organization will have access to this information and provide, through its policies, for its safekeeping.

I wish you well.  

This information is provided as information only and not legal advice. Legal advice should be obtained from a competent, licensed attorney, in good standing with the state bar association.

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