U.S. Court Rules That Nation’s Auto Dealers Are Required
to Provide Complete Data on Car Loan Terms
WASHINGTON - A federal judge in Washington has ruled that automobile
dealers who engage in certain three-party financing transactions must
disclose certain information to consumers who take out car loans if they
are offered less favorable terms, such as a higher interest rate, than
the most favorable terms available to the majority of consumers.
When a lender relies on a credit report in setting an
unfavorable interest rate, a provision of the Fair Credit Reporting Act
requires lenders to provide notice to the consumer and
provide instructions on how the consumers can obtain a copy of their
credit history report and, if necessary, dispute and correct any false
or incomplete data.
One of the purposes of the statute is to provide consumers with information that might be helpful in preventing identity theft.
Judge Ellen Huvelle upheld the Federal Trade Commission’s (FTC)
determination that auto dealers must comply with this provision even
when they engage in “three-party” financing transactions, in which the
dealer agrees to extend financing to a consumer and then immediately
assigns the loan to a third party, such as a bank or finance company.
In the FTC rulemaking proceeding, the National Automobile Dealers
Association (NADA) argued that auto dealers engaging in these
transactions should be exempt from providing this notice.
NADA argued that, when only this third party, and not the car
dealer, actually obtains the credit report, then the car dealer should
be exempt from providing any disclosures to the consumers.
The FTC rejected this argument and concluded that the auto
dealers actually use the credit report even if they do not physically
obtain it, and so must provide the notice to consumers.
NADA sued the FTC, challenging this interpretation.
The court agreed with the FTC’s position in its ruling.
“This ruling will make it easier for consumers to learn about unfavorable information in their credit reports.
Not only will this give them an opportunity to correct any
inaccuracies, but it also provides a key tool needed to combat identity
theft or fraud,” said Stuart Delery, Acting Assistant Attorney General
for the Civil Division. “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.”
Under NADA’s interpretation, the consumer would never receive this
disclosure – not from the dealer nor from the third-party finance
company.
In addition, all entities that extend credit to consumers could
enter similar arrangements and thereby exempt themselves from giving
consumers any disclosures relating to adverse information in consumer
reports.
The Federal Trade Commission was represented in the case by Drake Cutini
of the Consumer Protection Branch of the Justice Department’s Civil
Division.
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