May 25, 2012: NADA lost the first round in what promises to be a heavyweight fight with the FTC this week. At issue is the FTC’s interpretation of a dealer’s responsibility in providing notices to consumers as required by the Risk Based Pricing Rule.
In what the NADA calls a flawed decision, and I call illogical to those of us who understand the business, the U.S. Court judge sided with the FTC’s ruling that requires dealers to provide a notice to consumers even if the dealer does not pull a credit bureau report. The FTC illogically established a ruling that insists that since the dealer uses the credit score, it is the same as if the dealer pulled the credit report itself.
The NADA sued the FTC, arguing that the Rule did not contemplate the word “use” the same way the FTC interprets it in requiring a dealer to provide the notice if it simply passed the credit application along to a third party lender.
Unfortunately, the judge disagreed with the NADA, who promises to appeal.
Until the appeal is heard, it certainly sounds like a dealer should provide a Credit Score Disclosure Notice to every customer it consummates a retail or lease deal with, even if the dealer did not pull a credit report. Unfortunately, this means if you have been in the habit of submitting the credit app to the lender and getting an approval before signing the customer up, you will need to get the credit score from the lender and generate a manual notice. Or (and like the NADA correctly points out), run the unnecessary expense of pulling a credit report just so that you can provide the notice before consummating the deal.