D.C. Federal Court Holds FCRA Credit Report Notice Requirements Apply to Auto Dealers Engaging in Third Party Financing Transactions

FTC FCRA Auto Finance

On May 22, the U.S. District Court for the District of Columbia rejected the National Automobile Dealer's Association's (NADA) challenge to an FTC determination that an automobile dealer that executes a credit contract based on a third party financing source "uses a consumer report" under FCRA, and, thus, must provide prospective buyers with a “risk-based pricing notice.” National Automobile Dealers Assoc. v. Federal Trade Commission, No. 11-cv-01711, 2012 WL 1854088 (D.D.C. May 22, 2012). A “risk-based pricing notice” must be provided to buyers who, based upon information contained in their consumer reports, are offered credit at terms “materially less favorable than the most favorable terms available to a substantial proportion of consumers.” The notice is intended to alert buyers to the existence of negative information in their credit reports to enable them to correct any inaccuracies. The FTC's 2011 amendments to the Fair Credit Risk-Based Pricing Regulations clarified that even in the context of a third-party transaction—where the auto dealer is not the ultimate source of financing and does not physically obtain a consumer's credit report—the auto dealer must provide a risk-based pricing notification. According to NADA, the FTC’s interpretation placed an unreasonable burden on auto dealers who outsource financing to banks or other entities. NADA also argued that the interpretation was arbitrary and capricious and that it was not entitled to Chevron deference. In its ruling, the court rejected these challenges, stating, among other things, that the FTC's determination was "eminently reasonable" and consistent with the overall regulatory scheme of FCRA because auto dealers are able to obtain credit report information and are best suited to convey that information to consumers. NADA intends to appeal the decision.