of Ethics Online Collection: 1987
Code of Ethics for the Exchange of Commercial Credit Information Between banks
(1916, rev. June 1976, rev. April 1980)
PREAMBLE
Robert Morris Associates, recognizing the importance of the free and responsible exchange of information in the credit-based American economic system, originally adopted this Code of Ethics in 1916. Since then, the Code has become the ethical standard for conduct in the exchange of commercial credit information. Although intended to relate to information exchange between banks, the precepts of the Code have served as the foundation for all commercial credit information exchange.
Adherence to this Code of Ethics is essential. Upon joining RMA, members acknowledge and agree to abide by these principles, and they expect others with whom information is exchanged to respect them also.
This Code is designed for commercial transactions, and its use is subject to applicable federal and state laws. Such laws include securities statutes regulating disclosure of material inside information and other laws affecting the exchange of credit information. In particular circumstances, these could include the antitrust laws, credit reporting regulations; and limitations on the use of confidential records and customer information or computerized data.
Since under the securities laws, "material inside (nonpublic) information" may, in some cases, be neither disclosed nor withheld as to transactions in connection with the sale or purchase of a security, care should be exercised and the advice of counsel sought where any such inside information may be in the possession of the respondent.
ARTICLE I
There are two cardinal principles in the exchange of credit information: confidentiality and accuracy of inquiries and replies. This includes the identity of inquirers and sources which cannot be disclosed without their permission. Adherence to these and the other principles embodied in this Code is essential, since offenders jeopardize their privilege to participate further in the exchange of credit information.
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.
When conducting investigations, the identity of the inquirer should not be divulged without its authorization. Similarly, the identity of the source of the information should not be made known without its authorization.
The facts presented must be accurate because the bank reference is one of the most pertinent sources of credit information. When discussing data, favorable or unfavorable, the responding bank must 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 to be significant in relation to the purpose of the inquiry, it is prudent and ethical that the discrepancy be disclosed to the inquirer.
It is expected that, as a matter of professional 'courtesy, no liability will be attached to or result from the good faith exchange of information.
If the information is for a customer, it should be screened according to the customer's needs, credit sophistication, and ability to handle the information discreetly.
Adherence to these and the other principles embodied in this Code of Ethics is essential. Violations of the Code could damage the reputation of offending banks and individuals. If they demonstrate an inability and/or unwillingness to handle and exchange credit information responsibly, they risk losing the privilege.
In addition, violations of the Code by RMA member banks may lead to the termination of their membership in the association, in accordance with Section 2.07 of the RMA By-Laws.
ARTICLE 2
Each inquiry should specifically indicate its purpose and the amount involved.
COMMENTS:
One of the most important elements of an inquiry is its purpose. The bank receiving the inquiry has a right to know why the information is needed. If no purpose is given, there is no obligation to respond. 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. When the purpose of the inquiry is solicitation, acquisition, merger, competition, or actual or contemplated legal action, reply is at the discretion of the bank of account.
The inquirer should state the initial steps taken, as well as the information on hand, in order to avoid duplication of effort.
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, when receiving a telephone inquiry, information should not be disclosed on the first call unless the inquirer is known and identified. A return call will usually establish the identity of the inquirer.
In the majority of instances, a specific amount is involved in the transaction which generates an 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-$60,000 is acceptable. 'It is unacceptable to use fictitious figures or to inflate the amount involved to induce the responding bank to provide details beyond what may be necessary to answer the inquiry suitably. If for some reason there is no amount involved, the inquirer should state this in a manner which would logically satisfy the respondent as to the overall purpose of the inquiry. A proper inquiry should contain the following:
1. SUBJECT: The subject of the inquiry should be identified as completely as possible including full name, address, and names of the principals.
2. PURPOSE: The reason for the inquiry should be given in sufficient detail to allow the recipient to make an appropriate response.
3. EXPERIENCE: If the inquirer has had experience with the subject, a summary of that experience should be provided. Doing this creates a true exchange of information and helps to eliminate duplication of effort.
4. REQUIREMENT$- The inquirer should be specific about the information required to satisfy the needs of the inquiry, such as deposit relationships, loan experience, financial information, assessment of management, etc.
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. Although response time to inquiries will vary depending upon the amount of information needed, the following general guidelines are considered appropriate:
| TYPE | RESPONSE TIME |
| Wire or cable inquiry | Within 24 hours of receipt |
| Telephone inquiry | Within 24 hours of receipt |
| Written inquiry | Within 4 days of receipt |
| Telephone investigation | Two working days |
| Written investigation | Six working days |
If unusual delays are expected, the inquirer should be informed.
Once the legitimacy and the requirements of the inquiry 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.
A full response may include:
1. The opening date of the relationship
2. History of the subject
• How long established
• Legal form of organization
• Names of the principals as well as their background and experience
• Line of business
3.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*
Several cautions in this area:
A. General figure ranges are ordinarily not used in mutual revisions. Rather,industry practice is to describe balances simply as "compensating" (or "commensurate"), "less than compensating," etc. Or, if there is no compensating balance requirement, that fact may be revealed, followed by words such as "satisfactory," " less than satisfactory," etc.
B. Do not use the term "substantial" to describe the balances in demand deposit accounts. Also avoid "satisfactory," except in the limited situation noted in (A.) above.
C. It is not recommended that compensating balance requirements be disclosed if they exist. Exchanging information about compensating balance requirements does not, in itself, constitute an antitrust violation However, if after such an exchange there is anything approximating parallel action manifested by similarity of terms, it could be claimed that the information exchanged was used illegally. This applies to the disclosure of interest rates charged on loans as well. Like compensating balances, the rates charged are arrived at by the lending bank and the borrower on particular transactions and cannot be used by others as a basis for similar arrangements.
Number and frequency of returns
Rating on the account-here, words like "satisfactory ... .. generally satisfactory," "unsatisfactory " are appropriate.
4. Summary of the borrowing relationship, if any
• Types of loans. If a loan is secured, describe the collateral.
• Aggregate high credit and outstanding balances in RMA General Figure Ranges.* These figures may be broken down further by specific loans if the situation warrants it.
• Guarantees and endorsements, if any, should be made known. Dates, length, and frequency of payouts
• Ratings-for example, "satisfactory," 11 unsatisfactory," etc.
• Interest rates charged on loans should not be disclosed because of the possibility of antitrust violations. (See comments in (3C.) above regarding compensating balance requirements.)
5. Financial statement data. Where the subject is a publicly held company publishing current financial information, the release of financial statement data will normally be in compliance with the securities laws.** When financial statements of nonpublicly held companies are submitted to the bank, with no instructions to the contrary, a general summary of the data may usually be disclosed. 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 financial condition and trends of the subject, 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 this data in actual figures or in RMA General Figure Ranges.* Even when financial statements are submitted in confidence, a brief general description of the company's strength, size, and trends may usually be disclosed.
*See definition of RMA General Figure Ranges on page 16.
**See comments in Preamble
If comments are made regarding the financial standing of the subject, they should be based on the bank's analysis of the company, pointing out to the inquirer that "our analysis shows" or using other such wording.
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 cannot answer specific questions brought up in the inquiry, the inquirer should be told why.
*See definition of RMA General Figure Ranges on page 16.
ARTICLE 4
It is not permissible when soliciting an account to make an inquiry to a competitor without frankly disclosing that the subject of the inquiry is a prospect. Reply is at the discretion of the bank of account.
COMMENTS:
The free exchange of information between banks depends to a large degree on the confidence that the inquiring bank will not use the credit information it receives to solicit the respondent's accounts. Providing credit information is a courtesy, and, in some instances, revealing information could jeopardize the account relationship between the responding bank and the subject.
Violations of this confidence are very serious. They not only damage the inquirer's relationship with the responding bank, but 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 must be clearly stated to the bank of account, which has the option to decline information on such inquiries.
If a bank is soliciting an account of a competitor and is asked by a customer to obtain credit information on that account, the soliciting bank should explain the ethical considerations involved and suggest that the inquiring customer contact the subject's bank directly.
All parties to credit inquiries that involve solicitation must be aware of the basic confidence inherent in the exchange of information and act in a responsible manner to preserve that confidence and trust.
ARTICLE 5
A request for information based on actual or contemplated litigation shall be clearly identified as such. Reply is at the discretion of the bank of account.
COMMENTS:
When the purpose of a request for information is actual or contemplated legal action, full disclosure of this fact by the inquirer is necessary. It is clearly unethical to disguise the purpose of any inquiry. This 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 must exercise considerable judgment before conducting an investigation or answering an inquiry of this nature.
Whenever the bank of account is placed in a conflicting position of providing information and, at the same time, protecting its customers, the amount of information, if any, will be at the discretion of the responding bank.
ARTICLE 6
All credit correspondence, including form letters, should bear the manual signature of a responsible party.
COMMENTS:
Manual signatures on all credit correspondence, both inquiries and replies, are essential. Good faith responsibility for the accuracy of the information contained in the correspondence is assumed by the signer. This is the case 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 this will help to address responses correctly and to identify clearly the person to contact if questions arise regarding the inquiry or reply.
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 requires 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 point out 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 stressed because it prevents duplication of effort and is consistent with the cooperative spirit inherent in the exchange of credit information. On mutual revisions in particular, care should be taken regarding discussion of interest rates charged and compensating balance requirements since revealing these data could have antitrust implications.
ARTICLE 8
When multiple inquiries are made simultaneously on the same subject, the inquirer should clearly state that information from the bank's own files is sufficient.
COMMENTS:
There are basically two situations under which simultaneous inquiries are made to banks within the same city: where it is known that the subject has account relationships with more than one of them, or where the subject's bank(s) of account is not known (which gives rise to what is commonly known as a "fishing expedition").
In the first instance-more than one known bank of account-courtesy dictates that each responding bank be told that research beyond its own files will not be necessary.
The second situation- "fishing"-should be avoided whenever possible. The inquiring bank should make every effort to determine the subject's bank(s) of account before initiating any inquiry.
But 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. It could make multiple inquiries as described above, again indicating to each bank that research beyond its own records will not be necessary. Or, preferably, it can approach just one bank in the city in question and ask if it would either conduct the investigation or at least locate the name of the bank of account which the inquiring bank, in turn, can then approach separately. All banks, particularly RMA member banks, are encouraged to assist 'one another in situations like this, as long as this courtesy is not abused.
RMA GENERAL FIGURE RANGES
To ensure accuracy and consistency when exchanging credit information, the RMA General Figure Ranges should be used. It may be necessary, at times, to clarify these terms so that the inquirer and respondent are speaking the same language."
Low 4 figures= $ 1,000 to $1,999
Moderate 4 figures = $2,000 to $3,999
Medium 4 figures= $4,000 to $6,999
High 4 figures= $7,000 to $9,999
The ranges are adjustable to accommodate all amounts in the following manner:
"Nominal" = under $100
"3 figures"= from $100 to $999
"4 figures" =from $1,000 to $9,999
"5 figures" =from $ 10,000 to $99,999
"6 figures" = from $ 100,000 to $999,999
and so on.
CODE OF ETHICS ARTICLES:
1. There are two cardinal principles in the exchange of credit information: confidentiality and accuracy of inquiries and replies. This includes the identity of inquirers and sources which cannot be disclosed without their permission. Adherence to these and the other principles embodied in this Code is essential, s offenders jeopardize their privilege to participate further in the exchange of credit information.
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 not permissible when soliciting an account to make an inquiry to a competitor without frankly disclosing that the subject of the inquiry is a prospect. Reply is at the discretion of the bank of account.
5. A request for information based on actual or contemplated litigation shall be clearly identified as such. Reply is at the discretion of the bank of account.
6. All credit correspondence, including form letters, should bear the manual signature of a responsible party.
7. The sharing of credit information on a mutual customer should not be more frequent than annually, unless a significant change in the relationship requires an earlier revision.
8. When multiple inquiries are made simultaneously on the same subject, the inquirer should clearly state that information from the bank's own files is sufficient.
