The question of whether selling authorized user (AU) tradelines is legal often falls into a legal gray area. While no federal law explicitly prohibits the practice, it is widely viewed as a legitimate, though controversial, method of credit building supported by the Equal Credit Opportunity Act (ECOA).

However, the execution of selling tradelines can lead to violations of other laws and policies.

The Legal Foundation: ECOA

The primary legal basis for the tradeline industry stems from the Equal Credit Opportunity Act of 1974. This act ensures that an individual cannot be discriminated against or denied credit based on their relationship status. Creditors must report information for all authorized users, including spouses, without specifying the nature of the relationship. This legally allows a primary account holder to add anyone as an authorized user, regardless of whether they are a family member or a stranger, and the positive credit history is then reported to the credit bureaus.

No Direct Prohibition, But Significant Risks

There are no specific federal statutes that make the act of selling AU tradelines for profit inherently illegal. Federal agencies like the Federal Trade Commission (FTC) and the Consumer Financial Protection Bureau (CFPB) have acknowledged the practice (also known as "piggybacking credit") but have not declared it illegal.

However, engaging in the practice comes with risks related to:

• Credit Card Issuer Policies: Most major credit card companies and issuers explicitly prohibit the sale of authorized user slots in their terms and conditions. If discovered, they can close the account, which would negatively impact the credit scores of both the primary holder and the authorized user.

• Lender Deception: The core issue is that the practice might be considered a misrepresentation of one's true creditworthiness to future lenders. Lenders rely on credit reports to assess genuine credit history and ability to manage debt. Using a paid-for tradeline may be seen as a form of bank fraud if it involves an intent to deceive a lender to obtain a loan or credit that one would otherwise be denied.

• Federal Laws for Businesses: Tradeline companies must adhere to laws like the Credit Repair Organization Act (CROA) and the Telemarketing Sales Rule (TSR). Violations, such as charging upfront fees before services are delivered or guaranteeing specific results, can lead to lawsuits and regulatory action from the FTC.

What is Definitely Illegal?

The practice is legal when conducted ethically and within the bounds of the law, but some activities within the industry are strictly illegal and should be avoided at all costs:

• Using Credit Profile Numbers (CPNs): The creation and use of CPNs (also known as Credit Privacy Numbers) instead of a Social Security Number to apply for credit is a federal crime involving identity theft and synthetic identity fraud.

• Misrepresentation and Lying to Lenders: Encouraging or advising clients to misrepresent the nature of the tradeline to a bank or lender is a form of fraud.

• Fraudulent Tradelines: Working with companies that use stolen identities or create false accounts is illegal and can lead to severe legal consequences.

In conclusion, the act of selling an authorized user position is not illegal per se, but the associated business practices require strict adherence to consumer protection laws and a clear understanding of the risks involved. We are not providing legal advice, and interested parties should consult with an attorney to ensure full compliance.