Court: Dealers must tell buyers why interest rates are raised
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Dealership finance and insurance managers must tell a customer if a negative credit rating is the reason the customer is being charged a higher interest rate on an indirect loan arranged by the dealership.
A federal judge in Washington ruled that a dealership must disclose the reason even if the dealership did not purchase a credit report on the consumer and the decision was made by the third-party lender who bought the finance contract from the dealership.
The ruling is a legal setback for the National Automobile Dealers Association, which had argued that the disclosure, which is required by the Fair Credit Reporting Act, should be the responsibility of the lender.
Paul Metrey, NADA's chief regulatory council, wrote in an e-mail that the organization is "disappointed" with the ruling as NADA contends that the third-party financier, not the dealer, should provide the credit information when the dealer does not acquire the credit report.
"This decision effectively requires these dealers to purchase credit reports for the sole purpose of populating the Risk Based Pricing Notice or the alternative Credit Score Disclosure Exception Notice that must be given to consumers," Metrey wrote.
"Not only does this create what NADA believes to be unnecessary transactional costs on a continual basis, it also increases the flow of sensitive information whose exposure could harm consumers."
NADA plans to appeal the ruling to the federal court of appeals in Washington.
You can reach Joseph Lichterman at jlichterman@crain.com.
