Lending and credit card companies use a borrower's Social Security number (SSN) when opening an account primarily for these reasons:
- Identity Verification and Fraud Prevention: The SSN helps verify the borrower's identity accurately to protect against fraud, money laundering, and other financial crimes. It ensures that the lender is dealing with the correct individual and prevents identity confusion, especially among people with similar names.
- Credit Check and Creditworthiness Assessment: Lenders use the SSN to pull the borrower's credit history from credit bureaus. This helps them assess the borrower's creditworthiness, decide the terms of the loan or credit, and assign an appropriate interest rate.
- Tax Reporting Compliance: The SSN is required for reporting interest earned on accounts and other tax-related purposes to the IRS. This ensures proper tax documentation and compliance with federal regulations.
- Legal and Regulatory Compliance: Federal laws such as the USA PATRIOT Act require financial institutions to accurately identify customers to prevent illegal activities, making the SSN essential for regulatory compliance.
- Collection and Legal Actions: In cases of non-payment, having the SSN allows lenders to take legal actions such as garnishing bank accounts, since it helps precisely identify the debtor.
Overall, the SSN is a critical piece of information used for identity verification, credit evaluation, regulatory compliance, and legal purposes when opening lending or credit card accounts.
