News & Views - 02/17/98

Tuesday, February 17, 1998

YOU CAN'T TEST DRIVE A CREDIT REPORT

The staff of the Federal Trade Commission issued an advisory letter reminding automobile dealers that access to consumer credit reports is strictly limited under federal law. After questioning by the Texas Automobile Dealers Association and in response to consumer complaints that automobile dealers have accessed credit reports while consumers are simply shopping, the FTC staff have advised that credit reports cannot be obtained until a consumer has initiated a business transaction. "An automobile dealer may obtain a [credit] report only in those circumstances in which the consumer clearly understands that he or she is initiating the purchase or lease of a vehicle and the seller has a legitimate business need for the consumer report to complete the transaction," such as when the customer requests financing.

The use of credit reports is regulated by the Fair Credit Reporting Act (FCRA). The act, which is enforced by the FTC and by the states, limits the circumstances in which businesses can obtain credit reports. Automobile dealers and others who improperly obtained a consumer's credit report - before a business transaction has begun, for purposes other than "legitimate needs" such as applications for credit, or without proper permission - can be subject to civil penalties up to $2,500 for each offense. According to the staff's letter, dealers should follow the following guidelines for the use of credit reports:

A request to "test drive" a vehicle does not indicate an intent to purchase a vehicle and, therefore, does not "initiate" a business transaction. A dealer must obtain written permission if the dealer wants to check a consumer's credit report before or during a test drive.
Obtaining credit reports solely for the purpose of negotiating with consumers is not permitted.
The fact that a consumer asks questions about prices and financing does not necessarily indicate an intent to purchase or lease a vehicle from the dealer. The consumer may only be "window shopping" or comparison shopping. Thus, the dealer must obtain the consumer's written permission before obtaining the credit report if the consumer has simply asked questions about pricing and financing.
If a dealer needs to see a consumer's credit report before answering general questions, such as inquiries about available financing when the consumer has not applied for credit, the dealer must obtain written permission from the consumer.

"Not only can consumers be at a competitive disadvantage when the sellers pry into their credit reports during price negotiations, but their credit ratings can be hurt by multiple inquiries that make it look like they are desperately fishing around for credit," says Susan Grant, Vice President for Public Affairs at the National Consumers League. She also noted that dishonest company employees may abuse personal information in consumers' credit files by selling it to others who may then impersonate the consumers to get credit and other benefits in their names.

For more information about the FTC staff letter, check out the FTC press release.

The FTC also has additional information about the Fair Credit Reporting Act and consumer credit.

NOTE: The views set forth in the staff's letter, which also discuss the circumstances in which consumer reports may be accessed for employment purposes, are the staff's enforcement views and are not binding on the Commission. Such advisory letters are not legal judgments nor are they regulations. They are they opinions of law enforcement personnel.

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