Judge Makes Dealers Give Credit Reports with Auto Loans
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UPDATED: Jun 19, 2012
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In the recent conclusion of a legal battle between the National Automobile Dealers Association (NADA) and the Federal Trade Commission (FTC), Judge Ellen Huvelle ruled that dealers who use auto loan borrowers’ bad credit histories to charge applicants above-average interest on auto loans must tell borrowers that they have negative information on their credit reports. As specified by the ruling, dealers must do this regardless of whether or not they originate auto loans through a bank or a different third-party lender.
According to the ruling, dealers are required to disclose information as part of a stipulation in the Fair Credit Reporting Act. Dealers must inform borrowers how to get a copy of their credit report whether or not dealers themselves obtain a borrower’s credit report since borrowers can use their reports to dispute incorrect or incomplete information.
NADA’s chief regulatory council, Paul Metrey, commented on the ruling, saying, “This decision effectively requires these dealers to purchase credit reports for the sole purpose of populating the Risk Based Pricing Notice or the alternative Credit Score Disclosure Exception Notice that must be given to consumers. Not only does this create what NADA believes to be unnecessary transactional costs on a continual basis, it also increases the flow of sensitive information whose exposure could harm consumers.”
But those fighting on behalf of the consumer disagree with NADA’s opinion.
“This ruling will make it easier for consumers to learn about unfavorable information in their credit reports,” said Stuart Delery, acting assistant attorney general for the civil division in a press release. “The auto dealer is in the best position to provide this information because the dealer interacts directly with the consumer and establishes the credit terms in the agreement that it enters with the consumer.”
Metrey stated that NADA was “disappointed” with the Judge’s ruling since NADA believes that third-party financiers—not dealers—should provide credit reports to borrowers of auto loans when dealers do not acquire the credit report themselves.
It was that train of thought that persuaded NADA to file suit against the FTC in the first place. Judge Huvelle’s ruling, however, was in agreement with the FTC’s position.
While the ruling requires that dealers comply with the Fair Credit Reporting Act it does not specify that dealers must tell borrowers of auto loans why their credit ratings are at the level they are. Dealers may tell auto loan borrowers the reason they are getting a certain rate—or dealers may take the more passive approach and simply give borrowers their credit reports.
NADA has already stated its intent to appeal the ruling in the Court of Appeals in the Federal Circuit.