Home > Uncategorized > The FCRA at car dealerships: the FTC’s curious conclusions about “permissible purpose”

The FCRA at car dealerships: the FTC’s curious conclusions about “permissible purpose”

August 12, 2011

I’ve handled a number of lawsuits that involved a car dealer’s decision to obtain a credit report about a consumer who’d expressed interest in buying a car.  Several of these suits involved claims that the dealer didn’t get the consumer’s permission before obtaining the report.  These claims have always seemed surprising to me – it’s hard for me to fathom how a consumer could provide his or her personal information to a dealer (e.g., full name, address, social security number, etc.) without suspecting that the dealer wanted to use it to pull a credit report.

But put my suspicions aside.  The FCRA states that before a car dealer can obtain a credit report about a consumer, the dealer must have a “permissible purpose” under 15 USC Sec. 1681b.  A dealer can (and probably should) show permissible purpose by obtaining the consumer’s written consent.  Sec. 1681b(a)(2).

But suppose that a car dealer doesn’t obtain a consumer’s consent in writing.  What then?  Well, things are murky.  The dealer can argue that it needed the report “in connection with a credit transaction involving the consumer” (1681b(a)(3)(A)) or “has a legitimate business need for the information in connection with a business transaction that is initiated by the consumer” (1681b(a)(3)(F)(i)).  But under either argument, the dealer will have to establish facts suggesting that its decision to obtain a credit report was reasonable under the circumstances.

The FTC’s new commentary on the FCRA attempts to provide dealers with some guidance on when it would be reasonable under the circumstances to pull a consumer’s credit report.  The FTC opines that:

“The dealer would thus have a permissible purpose to obtain a credit report on a consumer who offers to pay for an automobile with a personal check or asks about credit options to finance a specific purchase.  However, this section would not allow the salesperson to obtain a report on “window shoppers” for bargaining purposes, deciding whether to spend time with consumers, or to respond to general questions about available products or financing, because there is no “transaction … initiated by the consumer” in those scenarios. For the same reason, a consumer’s request to “test drive” a vehicle, where he or she has not demonstrated an intent to initiate the purchase or lease of a vehicle, does not give rise to a permissible purpose under this section.”

None of this is supported by case law; it’s just the FTC’s opinion.  Some of it strikes me as reasonable – it’s hard to understand how it would be acceptable for a dealer to obtain credit reports for use in deciding whom to let window shop or whom to target as a serious buyer.  But two bits of it strikes me as off the mark.  They are:

1.  The FTC suggests that a dealer can obtain a credit report if a consumer offers to pay for a car by personal check.  Wouldn’t it be more reasonable for the dealer to call the bank and confirm that there’s enough money in the account to make the check good?  I don’t see how a credit report is going to answer that question, which is really what the dealer wants to know.  And I don’t think that calling a bank regarding a specific account qualifies as obtaining a credit report under the FCRA definitions at Sec. 1681a(d).  Because a credit report is about credit, not about money in the bank, I don’t see why a car dealer would be justified in seeking a credit report before accepting a personal check from a consumer.

2.   The FTC suggests that a car dealer does not have a “permissible purpose” to obtain a credit report about a consumer who wants to test drive a car.  It’s hard to understand this position.  Insurance companies are permitted to use credit reports in deciding whether and on what terms to offer insurance, on the grounds that a consumer’s use of credit sheds some light on what sort of driver he or she might be.  A car dealer is likely going to be liable for damage that a consumer does during a test drive, so it seems reasonable for the dealer, as the “insurer” of its test car(s), to obtain credit reports before allowing consumers to drive them.

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