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FTC's Risk-Based Pricing Rule interpretation challenged by NADA

September 30, 2011
Legal action has been filed against a Federal Trade Commission interpretation of when dealers must issue either a Risk-Based Pricing Notice or a Credit Score Disclosure Exception Notice, as required by the Risk-Based Pricing Rule.
The National Automobile Dealers Association filed its challenge Sept. 22, following the interpretation the FTC issued July 15 regarding section 311 of the FACT Act, which the RBPR implements.
In order to be covered by section 311, initial creditors must, among other things, “use” a credit report. The NADA argues that dealers in three-party financing transactions who do not order, obtain, or otherwise review a credit report as part of the credit application or extension process do not “use” a credit report and thus fall outside scope of section 311.
The FTC on July 15 rejected that argument, generally concluding that such dealers “use” a credit report based on the use of a credit report by the finance source that underwrites and approves the consumer’s credit application and takes assignment of the credit contract from the dealer.
In three-party financing transactions, neither the dealer nor the finance source acts as an agent (or on behalf) of the other. But the FTC interpretation concludes, in part, that the finance source acts “at the behest of the automobile dealer” and does not obtain and use the credit report “independently of the automobile dealer.”
The FTC interpretation has the practical effect of requiring dealers who do not otherwise obtain credit scores to do so for the sole purpose of being able to complete the notice that must be delivered to consumers.
This can be very costly, and it requires these dealers to access sensitive customer information which, if compromised, could result in identity theft.
The NADA charges that the FTC interpretation is inconsistent with section 311 and adversely affects the dealers to whom it applies and their customers.