Permissible Purposes to Run a Credit Report
By
Keith E. Whann
The Fair
Credit Reporting Act regulates the use of credit reports in an effort
to protect a consumer's privacy. All users of a credit report must
have a permissible purpose under the Fair Credit Reporting Act in
order to obtain a credit report. While there are a number of
permissible purposes listed under the act, generally speaking, there
are three which are applicable in a motor vehicle transaction. The
first permissible purpose is whenever the consumer gives permission in
writing. The second is whenever the extension of credit is as a result
of an application for credit from a consumer. The third and more
complicated permissible purpose is when there is a legitimate business
need in connection with a business transaction that is initiated by
the consumer.
Given
the methodology which has been used in the past throughout the motor
vehicle industry in qualifying customers for motor vehicle financing,
some special problems can arise in this area. While it is naturally
important to have some sense of the consumer's ability to qualify
for financing prior to spending a great deal of time with that customer
throughout the sales process, the dealership must understand what
constitutes a legitimate business need and, more importantly, the
consumer's initiation of the transaction. In the past, merely considering
extending credit to a customer in connection with the sale of a
motor vehicle would, in many cases, have been enough to satisfy
the requirement for a legitimate business need. However, the recent
amendments to the act which inserted a requirement that the transaction
be initiated by the consumer drastically changes this practice.
The Federal Trade Commission opined on this issue and stated that
a consumer merely asking questions about prices and financing is
not necessarily indicating an intent to purchase a vehicle from
that particular dealership. Accordingly, the dealership does not
then have a legitimate business need for a credit report in this
situation. If the consumer is simply comparison shopping, as they
would be in a situation such as this, the dealer would have to obtain
written permission from the consumer prior to obtaining a credit
report. Similarly, a request by a consumer to test drive a vehicle
does not indicate an intent to initiate the purchase of a vehicle.
Only
in those circumstances where it is clear to both the consumer and
the dealership that the consumer is initiating the purchase of a
specific vehicle and the dealership has a legitimate business need
for the credit report may the dealership obtain a report without
written permission. Dealerships should be extremely careful when
deciding to obtain a credit report merely for negotiation purposes.
The dealership can, of course, obtain a report if one is necessary
in order to arrange financing requested by the customer. |
