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Auto finance marketing: 7th Circuit makes U-turn on 'firm offer' requirements

November 16, 2010
Fair Credit Reporting Act

By Jean Noonan

Car dealers, their marketing companies, and auto finance companies got good news last month from a court that has been creating legal havoc for the past three years. In Murray v. New Cingular Wireless Services, Inc., the U.S. Court of Appeals for the Seventh Circuit did a major about-face on its opinions regarding pre-approved credit offers – opinions that have been making plaintiffs’ lawyers rich and tormenting dealers and auto finance creditors.

For more than 30 years, sellers have used pre-approved credit offers to encourage customers to come in and shop. Congress officially blessed this practice in 1996, when it amended the Fair Credit Reporting Act to set out the rules for using credit bureau information to identify potential recipients of pre-approved credit offers. In exchange for getting a peek at consumers’ credit information, creditors must follow the FCRA’s "firm offer" rules.

This generally worked well for dealers and other merchants that extend credit, until the 7th Circuit decided one company took the firm offer rules too far. In Cole v. U.S. Capital, Inc., the court objected to a company’s use of prescreened credit lists to make $300 offers of credit to finance a car purchase.

The court said that the credit offer must have "value" to the consumer in light of the merchandise the consumer must purchase to use the credit. By itself, this opinion was not a disaster; few people wanted to defend using prescreening to make worthless credit offers. But courts around the country, and especially those in Illinois, Wisconsin, and Indiana, quickly extended the Cole opinion. The 7th Circuit seemed to go along when, in Murray v. GMAC Mortgage Corp., it said that all material terms of the credit offer had to appear in "the four corners of the offer." 

Over 300 class action lawsuits were filed against companies that made firm offers of credit. Some of them were settled for millions of dollars each. Companies faced being put out of business by judgments that could be from $100 to $1,000 for each piece of mail containing a pre-approved offer. It didn’t matter that companies were making legitimate, valuable credit offers. Courts were often siding with plaintiffs just because the pre-approved offer did not spell out every credit term.

The New Cingular decision restored some sanity to the "firm offer" rules. The best part of the opinion is the court’s clear rejection of the notion that the "firm offer" rules require a company to include all material terms of the offer when using prescreening.

The court noted that the FCRA’s "firm offer" definition simply does not include such a requirement. We are pleased the 7th Circuit has learned how to read. This decision should bring a swift end to the class action lawsuits seeking millions simply because an auto finance offer did not promise a specific credit amount, interest rate, or other credit term. 

Our celebration over the newly found literacy skills of this court is not unqualified, however. The court clung to its earlier holdings that sales finance offers must have "value" as credit offers. We might have hoped that the court would extend its reading ability to this issue, too, because the judges would quickly see that theFCRA’s "firm offer" definition nowhere mentions the concept of "value." For now, however, companies using prescreening must still be prepared to justify their sales finance credit offers as having value.

In the wake of this decision, we are left with two questions:

What must we do to show our auto credit offers have value to consumers?

There is no bright line for a value test, which is why we cannot be completely happy with the New Cingular decision. Financing of only $300 for a car sale does not have value, the court has said. But how much is enough?

Your minimum offer apart from prescreened solicitations should be a good guide. For example, if a sales finance company’s usual minimum credit amount is $5,000, and the dealer has cars available in that price range, a $5,000 minimum offer should be sufficient. The best way to show an offer has value is to show that previous customers have accepted and used credit on those terms.

Is there any legal reason to include credit terms in our prescreened credit offers?

Even though the court has confirmed that the FCRA doesn’t require including all material credit terms, there are still good reasons to provide them, or at least as many of them as you can. By putting the terms of the credit offer in the mailer, you let consumers (and their class action lawyers) see just by reading it that the offer has value. That makes any FCRA challenge much easier and cheaper to defend. Even better, it means you are much less likely to be sued in the first place. 

You sometimes will not have enough information to provide the precise credit terms. Those terms may depend on information the consumer provides after accepting the offer, such as income, and on the car selected for purchase. Providing ranges for some terms will usually be enough to demonstrate the offer’s value. Avoid using only the most favorable end of the offer range, however, such as "You are pre-approved for up to $25,000" or "Down payments as low as $1." The point is to show that even the least favorable offer has value to some consumers.

The 7th Circuit’s U-turn on firm offers is a welcome development, even though the court is still not entirely on the right path. The road for dealers who use prescreened lists for pre-approved credit offers has now become much safer.

Murray v. New Cingular Wireless Services, Inc., 2008 WL 1701839 (7th Cir. (N.D. Ill., N.D. Ind., E.D. Wis.) April 16, 2008).

Jean Noonan is a partner with Hudson Cook, LLP, where she manages the Washington, D.C. office. Jean can be reached at 202.327.9700 or by e-mail

Copyright 2008., LLC, all rights reserved. This article appeared in Spot Delivery®. Reprinted with express permission from, LLC.