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HOT TOPICS
2017
MEMBERSHIP
DIRECTORY
163
CREDIT APPLICATIONS, CREDIT REPORTS,
AND CONTRACTS
Since the late 1960s, federal law has restricted the
use of credit reports and required creditors to notify
consumers of credit decisions and describe credit
terms in finance contracts. The federal Consumer
Credit Protection Act, passed in 1968, includes the
Truth in LendingAct (“TILA”), the Fair Credit Reporting
Act (“FCRA”), and the Equal Credit Opportunity Act
(“ECOA”), as well as other laws relating to wage
garnishments and debt collection practices. The
2003 FACT Act added additional consumer rights,
disclosures, and protections concerning credit
reports, affiliate information sharing, identity theft
protection, and risk-based pricing notices to the
FCRA. Title X of the 2010 Dodd-Frank Act, known as the Consumer Financial Protection Act of 2010, requires
additional consumer disclosures in adverse action notices. State laws also govern lease and finance transactions,
limit fees and charges in connection therewith, and require certain additional consumer disclosures for motor
vehicle finance and lease contracts.
IMPORTANT LAWS AND REGULATIONS
The Fair Credit Reporting Act (“FCRA”)
FCRA is a federal law that regulates, among other things, the access, use, and distribution of information that
meets the definition of a“consumer report,”including a credit score. For FCRA purposes, a“consumer report”(often
informally called a credit report) includes eligibility information contained in such reports, as well as certain
information obtained from third parties, such as employer or landlord.
FCRA requires a dealer to have a“permissible purpose”to obtain a consumer report. A consumer’s written consent
is the best proof of a permissible purpose and may be required to access consumer reports in a state like Vermont.
Most credit application forms contain language providing for such written consent. However, a dealer also has a
permissible purpose to obtain a consumer report at the time the consumer completes an application for credit.
Many dealers have reason to want a consumer report earlier in the process, in which case they must rely on written
authorization from the consumer to obtain the report, as the FTC has stated that pulling a consumer report for
comparison shopping purposes or for cash customers is not permitted under the FCRA without the customer’s
prior written consent to do so. FCRA also requires giving the consumer an “adverse action notice” if the creditor
used a credit report, in whole or in part, as a factor in denying credit to the consumer or offering the consumer
credit on terms less favorable than those the consumer requested (unless the consumer accepts the less favorable
terms). Adverse action notices are discussed below.