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HOT TOPICS
2017
MEMBERSHIP
DIRECTORY
174
Ruling
The court ruled that, among other things, the dealer had violated the Truth in Lending Act by failing to disclose
a hidden finance charge – the bank fee based on the consumer’s credit risk. It awarded plaintiff the following:
1. Statutory damages.
2. Punitive damages against the dealer for the dealer’s failure to send an adverse action notice under ECOA.
3. Treble damages. The court treated the dealer’s repossession of the vehicle as a conversion (theft) of property
because the consumer had never signed a spot agreement entitling the dealer to cancel the contract, and the
consumer was not in default of the RISC when the vehicle was repossessed.
4. Damages under the Uniform Commercial Code (UCC) because the dealer sold the car without giving the
plaintiff notice of her potential deficiency liability.
5. Attorney’s fees and court costs.
RECOMMENDED PRACTICES
1. Always have a “permissible purpose” to pull a consumer’s credit report.
A signed authorization from
the consumer (generally on a credit application) is strongly preferred but not required (except in certain states)
when both the dealer and customer understand they are close to completing a credit transaction. Most credit
applications, which are usually signed by the consumer, contain language where the consumer agrees that you
can access their credit report. Finance sources usually obligate dealers to provide to credit applicants a list of the
names and addresses of the finance sources to which the dealer may send their credit application to avoid being
deemed a consumer reporting agency under FCRA.
2. Give or send a risk-basedpricingnotice or credit score disclosure exceptionnotice to every applicant
for credit.
You can obtain the consumer’s credit score and the distribution of credit scores for the scoring model
used from a credit bureau, or a third-party source such as Dealertrack. The only exception is for customers who
do not have a credit score, and they should receive the FTC notice for consumers without a credit score. Even if
you don’t typically pull credit on applicants, you may have to buy a credit score to give the credit score disclosure
notice to all credit applicants to meet your obligation to your lenders. Give the notice to the consumer as soon as
possible after getting the credit score information necessary to complete the credit score disclosure notice form.
Keep a copy in the deal jacket.
3. Send adverse action notices when required.
Remember to send an adverse action notice when you
decline credit or when unwinding a spot deal, for example. Note that adverse action notices require inclusion of a
consumer’s credit score and credit score disclosures including up to four to five key factors that adversely affected
the credit score – if the credit score was a factor in the adverse action.
4. Do not charge credit customers higher prices than cash customers on vehicles or aftermarket
products.
Be prepared to show there is no negative purchase price differential for credit as opposed to cash
customers. Use a menu-selling process for aftermarket items to show you consistently offer products to all
consumers at the same prices. Complywith Car Buyer’s Bill of Rights and/or other applicable state law requirements
for disclosures of aftermarket products.