LANGUAGE BARRIER; DIFFERENCE BETWEEN BEING PRE-APPROVED, PRE-QUALIFIED CAN BE TRICKY.

Byline: Enrique Rivero / Daily News Staff Writer

Is being ``pre-approved'' for credit or a loan the same thing as being ``pre-qualified''? The answer is no, as independent businessman Frank Sheftel learned to his surprise and anger earlier this month.

When Sheftel, owner of The Candy Factory, received an unsolicited letter from Great Western Bank that he was pre-qualified for a $50,000 line of credit, he thought it would be a good way to put a small pool of money to work.

He applied for a $25,000 line - and was stunned when the bank turned him down. Given that it came from the bank where he has kept his business accounts for years, he took the offer to mean the credit line was his for the taking.

``It's semantics. What's the difference between `pre-qualified' and `pre-approved'?'' said a puzzled Sheftel. ``They're two different words, but to me they mean the same thing.''

Sheftel isn't alone, said Herschel Elkins, head of the consumer law section of the state Attorney General's Office.

``There is a technical difference between pre-qualified and pre-approved, and there is a substantial amount of confusion in the public's mind as to which is which,'' Elkins said.

Great Western officials said people pre-qualify for a GW loan when they meet a partial set of criteria, and are approved only when they meet the full set of qualifications. Yet, Elkins said, recipients of unsolicited credit offers are pre-approved when their credit reports show they meet the criteria for a loan or credit.

The Federal Trade Commission interprets existing law to allow creditors to obtain only a very limited amount of information from credit reporting agencies and make an unsolicited credit offer only if it is a so-called ``firm offer'' - that is, the offer is honored if the consumer is determined to meet the criteria used to make the unsolicited offer, said Susan Henrichsen, deputy attorney general in the consumer law section.

Creditors can submit their list of criteria to a credit reporting company and ask for a list of people meeting those qualifications, Elkins said. They can then send the solicitation under the firm offer of credit, but can reject the offer if there has since been a drastic change in a person's credit record. Among those changes are a move to an area not covered by the bank or if the person being solicited has gone to jail.

``Pre-approval generally means that they will give the particular credit or loan to these people unless something has happened subsequent to the credit report,'' Elkins said.

And the term ``pre-qualified'' is basically meaningless. ``It means they have picked up a list of people who are alive or have a bank account or something,'' he said.

Confusing, right? Well, things will get worse come October, when a federal law takes effect that will substantially loosen the regulations.

More confusion

Under the change, the law will allow creditors to obtain credit information to make an unsolicited firm offer, Henrichsen said. But the companies will have far more leeway than before to conduct post-application screenings of the applicants, she said. So, even pre-approved solicitations won't be guaranteed loans.

``Right now it's somewhat limited,'' she said. ``It will be far less limited after the law changes. They can do a whole lot more credit checking after the law changes.''

The law also will permit consumers to ``opt out'' of receiving unsolicited offers, require credit bureaus to set up an opt-out notification system and, for those that operate nationwide, establish a joint notification system.

But the law will not bar them from stamping the solicitations as pre-approved.

``There may be more confusion because the solicitation that you are getting will no longer be as assured and hence, if they start using terms like `pre-approved,' it may be more deceptive,'' Elkins said.

So to protect themselves from potential lawsuits from customers whose supposedly pre-approved application is turned down - and whose credit suffers when the rejection pops up on their credit report - banks and other companies may start using other terms indicating an applicant's chances for obtaining the credit.

For example, creditors may make wider use of ``pre-qualified'' solicitations, which many people already confuse with ``pre-approved'' offers, Elkins said. Or creditors could come up with other murky terms.

``So people are going to be even more confused after October,'' he said.

Candy offer melts

For Sheftel it began with a June 26 letter from the manager of the Great Western Bank branch on Riverside Drive and Woodman Avenue telling him he had pre-qualified for the credit line.

The timing was good because demand for Sheftel's chocolates drops in the summer months. The Candy Factory, which he expects this year will have some $250,000 to $300,000 in sales, does about 60 percent of its business between November and February.

The credit line, he said, would help tide him over if he needed it.

But Sheftel soon was told he did not get the credit line because the bank considered his business too volatile, his personal credit history was unsatisfactory, he had excessive personal obligations, and there were too many credit inquiries about him.

He was outraged, particularly with that first point. ``I couldn't believe that,'' he said. ``I would think that if they pre-qualify me, they know what my business is.''

He began contacting attorneys as well as a local television station, which ran a segment about his travails.

The afternoon before that night's broadcast, the bank contacted Sheftel and offered him a $15,000 line of credit.

``I said, `No, that wasn't enough,' '' Sheftel said. ``I felt that was just a token, and based on what my business was and my sales and what my needs were, that wasn't going to cut it. It was an insult.''

The day after the broadcast, the bank came back with a $20,000 package. ``I told them the only thing I would accept was a $25,000 line of credit,'' Sheftel said.

A week later, the bank extended him the $25,000 line of credit.

Great Western Bank spokesman Tim McGarry said the bank offered the $25,000 after reviewing Sheftel's application, as it would with anyone who had been turned down and appealed the decision. The bank's change of heart had nothing to do with any bad publicity, he said.

Customers pre-qualify for a program such as the line of credit by meeting a partial set of criteria, McGarry said, but must meet a full set of qualifications to be approved.

He said the concept of pre-qualification should be familiar enough that Sheftel should have known it was not tantamount to a pre-approval.

``In fact, the bank in its literature has stressed this,'' McGarry said. ``But I certainly think it's important for the bank to communicate this as early as possible. And the earlier in the process and the more clearly this is communicated is certainly the best, from the point of view of customer relations and avoiding misunderstandings.''

Most banks will explain in their solicitations what they mean when they pre-qualify someone for a loan, Elkins said. But he noted that Great Western's letter to Sheftel didn't include any caveats.

``It pre-qualified him, and there was no explanation about what that meant, and that is sort of unusual,'' he said.

Recourse available

Richard Kaufman, president of the Credit Managers Association of America, said he didn't know enough about the coming changes in the law to speculate about their effect. However, a bank or other creditor is looking for new customers, so it wouldn't make sense for them to look for excuses to reject an applicant, he said.

In addition, businesspeople are presumed to be more savvy about these things than the general consumer, a presumption that is reflected in current laws offering the general consumer more protection, he said.

Still, Kaufman conceded that it is easy to think of ``pre-qualified'' and ``pre-approved'' as interchangeable.

``They're interchangeable as long as only one of them appears in a letter,'' he said. ``If they both appear, then you have to question it.''

Meanwhile, people who believe a solicitation was misrepresented should notify authorities, Henrichsen said.

``Anyone after Sept. 30 who gets a solicitation that says `pre-approved' and doesn't get it should consider filing a complaint with the (Federal Trade Commission),'' she said.

``Or the Attorney General's Office,'' added Elkins. ``We'd be interested in looking at that.''

MORE INFORMATION

To report a credit or loan application that was characterized as pre-approved and was rejected, contact authorities at:

The Federal Trade Commission's Consumer Response Center

600 Pennsylvania Ave. N.W.

Washington, DC 20580

[phone]

The California Attorney General 

Department of Justice

P.O. Box 944255

Sacramento, CA 94244-2550

[phone]

CAPTION(S):

2 Photos, Box

PHOTO (1--color) Frank Sheftel, The Candy Factory's owner, was shocked when Great Western denied him a line of credit.

(2--color) Frank Sheftel fears it may be too late to secure a small business loan.

Bob Halvorsen/Daily News

BOX: MORE INFORMATION (see text)