The staff of the Federal Trade Commission today advised automobile dealers that access to consumer credit reports is strictly limited under federal law. Responding to reports and consumer complaints that automobile dealers have accessed credit reports while consumers are "window shopping" at a showroom or are out for a test drive, the staff issued an opinion letter which provides guidance to automobile dealers concerning the circumstances in which they may obtain credit reports on consumers who are shopping for vehicles. The letter to the Texas Automobile Dealers Association, signed by David Medine, Associate Director for Credit Practices, cautioned that credit reports may not be obtained until the consumer does more than window shop or take a car out for a test drive.
According to the staff, improper access to credit reports can: result in an invasion of the privacy of consumers' confidential financial information; provide dealers an improper negotiating advantage over consumers because they will be aware of the consumers' financial condition; and, hinder consumers' ability to obtain credit in the future because inquiries will appear on consumers' credit reports, although recent changes in some credit scoring models will mitigate this potential harm.
The Fair Credit Reporting Act (FCRA), which is enforced by the Commission and the states, regulates the use of credit reports and other types of consumer reports. It does not allow an automobile dealer to obtain a credit report on a person who "comes to an automobile dealership and requests information" from the dealership. The FCRA, which was recently amended by Congress, generally limits the circumstances in which businesses may obtain credit reports when considering applications for credit, insurance, or employment or those situations where consumers "initiate" a business transaction for personal, family, or household purposes -- such as the lease or purchase of a family vehicle -- and the business has a "legitimate need for the information." Under the amended FCRA, automobile dealers or others who improperly obtain credit reports can be subject to civil penalties of up to $2,500 per violation.
The staff's letter includes the following specific guidance as to the use of credit reports by automobile dealers:
- 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 prices 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.
In responding to the Texas Automobile Dealers Association's general question as to when a business transaction initiated by the consumer begins and a dealer may obtain a credit report, the staff letter states, "[A]n automobile dealer may obtain a 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." The staff's letter emphasizes that, even when the consumer is purchasing or leasing a vehicle, the dealer has a right to obtain a credit report on the consumer only when it has a legitimate need for the information, such as if the consumer requests financing (to review creditworthiness and prior payment history), or a dealer may have a right to access a consumer report to see if the consumer has a history of passing bad checks after a check is presented but before the consumer takes possession of the vehicle.
The views set forth in the staff's letter, which also discusses 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.
Copies of the letter to the Texas Automobile Dealers Association, FTC consumer information about the FCRA, and FTC news releases are available from the FTC's web site at http://www.ftc.gov and also from the FTC's Consumer Response Center, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-326-3128; TTY for the hearing impaired 1-866-653-4261. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710.
Office of Public Affairs
Bureau of Consumer Protection