The important focus in developing prospective member screening forms for a private club is to maintain an arms length separation between the club and the candidate.  This separation is best accomplished by requiring any form to be completed by the candidate to be given to the candidate by the sponsor.  The candidate should not be given the form by the club membership office or management.  Preferably, except for the personal interview(s), all dealings with the candidate respecting consideration for membership admission should be through the sponsor(s).

            The use of an “application” should be assiduously avoided.  An “application” arguably gives standing for the candidate to contend he or she has some contractual or quasi-contractual privity or relationship with the club once an application is given to the candidate.  Rather, the form should be entitled “proposal,” “nomination form” or “preliminary data sheet.”  The candidate should be referred to on the form as a “candidate,” “prospect,” or “nominee” not as an “applicant.” 

            A number of matters need to be covered by the proposal form if the candidate is being asked to sign it or is to be interviewed as part of the vetting process.  We assume the club is being careful to vet the candidate for character, general reputation, personal characteristics and mode of living, including without limitation candidate's education, social position, congeniality and likelihood of compatibility with existing club members.  We assume further the club will initiate an investigation of the candidate by requesting persons whom either the candidate has identified as references or others to report on the candidate’s attributes as described above.  These reports constitute “investigative consumer reports” for purposes of the Fair Credit Reporting Act. See Appendix C to Part 601 Prescribed Notice of User Responsibilities III. Obligations Of Users Of Investigative Consumer Reports under the federal Fair Credit Reporting Act (FCRA). The FCRA, 15 U.S.C. 1681-1681u, is set forth in full at the Federal Trade Commission's Internet web site (http://www.ftc.gov).[1]

Section 606 of the FCRA requires the following:  The user must disclose to the consumer that an investigative consumer report may be obtained.  This must be done in a written disclosure that is mailed, or otherwise delivered, to the consumer not later than three days after the date on which the report was first requested.  The disclosure must include a statement informing the consumer of his or her right to request additional disclosures of the nature and scope of the investigation as described below, and must include the summary of consumer rights required by Section 609 of the FCRA.  The club should be able to obtain a copy of the notice of consumer rights from the CRA (credit reporting agency if a CRA furnished the investigative consumer report) that provided the consumer report.)

            Upon the written request of the candidate made within a reasonable period of time after the disclosures required above, the club must make a complete disclosure of the nature and scope of the investigation that was requested. This must be made in a written statement that is mailed, or otherwise delivered, to the candidate no later than five days after the date on which the request was received from the candidate or the report was first requested, whichever is later in time.

            Additionally, if the club is checking on the candidate’s credit worthiness and requests a consumer report from a CRA, the club must comply with additional requirements under the FRCA. In general, “The term ‘consumer report’ means any written, oral, or other communication of any information by a consumer reporting agency bearing on a consumer's credit worthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living which is used or expected to be used or collected in whole or in part for the purpose of serving as a factor in establishing the consumer's eligibility for (A) credit or insurance to be used primarily for personal, family, or household purposes;. . .” 15 U.S.C.§ 1681a.(d)(1).

            We believe a club which extends credit to its members should exercise prudence and request a consumer report from one of the three major CRAs for any candidate it is seriously considering for membership. There appears little doubt the purpose of procuring the report is to determine whether the candidate is credit worthy, “a factor in establishing the candidate’s eligibility for a personal purpose.”

            If the club determines on the basis of the consumer report to deny admission to or to further process the candidate for membership, it will be deemed an “adverse action” for FCRA purposes. Thereafter, the club will be required to provide certain information to the candidate. 

            Other considerations for inclusion in the information or acknowledgements the club may be well advised by its counsel to include in the proposal form include ensuring the candidate agrees to forbear making demand for disclosure of any of the information developed by the club in vetting candidate for admission; payment or partial payment of initiation fees or deposit does not constitute acceptance for membership; if elected to membership, to pay all dues, fees, assessments and accounts as and at the time prescribed; and releases and discharges club and all persons furnishing information about candidate for having done so and for any claims arising therefrom, e.g., defamation.

            Generally, we recommend against including statements such as “The club does not discriminate in its membership practices on the basis of race, color, creed, national origin or sex.”  The problem with these kinds of statements is that they invite a claim to the contrary if a candidate is denied admission.  Rather, if the club is truly private, it might include an acknowledgment by the candidate that the club is indeed truly private and entitled to reject any and all candidates for any or no reason.

            Preparation of proposal or nomination forms should only be undertaken with the advice and assistance of legal counsel.  State laws, club articles of incorporation, bylaws and policies vary.  Thus all candidate forms and procedures checklist should be reviewed if not prepared by legal counsel to ensure compliance with state and local law as well as federal and state consumer credit legal requirements.

The furnishing of the foregoing information is not intended to and should not be construed as legal advice by its author. No reliance on either the completeness, legality or applicability of the matters included on the checklist should be assumed, the same being disclaimed by its author.  The author will only assume responsibility for individual club forms and procedure manuals prepared by the author pursuant to written engagement letters, signed by a club’s authorized representative.  

[1] If the candidate is married, the spouse should also sign the consent, authorization or proposal form.

Copyright 2003

Fred L. Somers, Jr., P.C.