Auto dealers plan appeal of D.C. court's decision

Michael P. Tremoglie May 31, 2012, 7:14am


WASHINGTON (Legal Newsline) - The National Automobile Dealer's Association will appeal a ruling by the a District of Columbia federal court that upholds the Federal Trade Commission's interpretation of the scope of the Risk-Based Pricing Rule.

On May 22, the court granted the FTC's motion for summary judgment against the action brought by NADA, which opposed the agency's interpretation of the scope of the federal Risk-Based Pricing Rule.

This rule requires that "a creditor that uses a credit report or score in connection with a consumer's application for, or a grant, extension, or other provision of, credit that is primarily for personal, family, or household purposes, to provide the consumer a Risk-Based Pricing Notice when, based wholly or partially on the credit report or score, the creditor grants, extends, or otherwise provides credit to the consumer on material terms that are materially less favorable than the most favorable material terms available to a substantial proportion of consumers from or through that creditor."

According to NADA, the law that the rule implements applies to persons who, among other requirements, use a credit report in particular credit transactions. The FTC issued an interpretation in July stating that dealers engaged in third-party vehicle financing transactions who do not obtain, receive or review a credit report nevertheless "use" a credit report based on the finance source's use of a credit report and therefore are responsible for complying with the Risk-Based Pricing Rule's notice requirement.

But NADA believes this should not apply to car dealers. It says the FTC interpretation is "flawed, unnecessary and burdensome" to many dealers. It obligates them to purchase credit reports for no purpose other than to comply with the Risk Based Pricing Rule.

Paul Metrey is an NADA attorney. He elaborated on the objections.

"This is litigation that pertains to a subset of dealers who never obtain a credit report," he said. "There are two forms of notice. One is the risk based price notice, which requires consumers to be told that they are receiving less favorable credit terms. The other is the credit score disclosure exception notice is typically issued to consumers."

He noted the FTC has a rule that the consumer gets one notice per transaction and it must come from the original creditor. FTC is applying this rule to original creditors even when they do not meet the statute's threshold requirement that they use a credit report in the transaction, he said.

"The dealership takes a credit application and sends it out to a finance source," Metrey said. "If they obtain a credit report first then they must comply with the notice requirements - and they do comply with the rule.

"But if they do not obtain a credit report - because they only send it to one finance source - they should not have to send a notice."

NADA has two main objections. One is the extra expense incurred by these dealers when obtaining and processing credit reports and sending out the notices.

The other is the enhanced exposure of financial information. The Justice Department claims that this process of issuing these notices will prevent identity theft. But NADA says it will exactly have the opposite effect as more people are privy to personal financial data.

NADA represents nearly 16,000 new-car and -truck dealers, with 32,500 franchises, both domestic and international.

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