WASHINGTON - Dealers and lenders beware: Those deals coming in over the Internet can be a legal minefield because of regulations governing customer credit reports.
The Federal Trade Commission, which enforces the Fair Credit Reporting Act, late last year developed guidelines for online credit applications. The bottom line: The same underlying rules that apply to traditional credit checks also apply to Internet transactions.
Thus, a simple mouse click is not enough to authorize a credit check. Dealers and lenders cannot pull a credit report unless one of the following has occurred:
A consumer has initiated a purchase, and the dealer has a legitimate business need for the information.
The consumer has given written instructions authorizing the dealer to check credit history.
But at what point does the Internet purchase begin? And how can a consumer give written authorization online?
A mouse click on its own is a far cry from written authorization, according to the FTC. That applies even if the Web site spells out that clicking 'yes' means the customer has authorized a credit check.
The FTC points out that job applicants can give an electronic OK to authorize a credit report for employment purposes. So-called 'adverse action notices,' which tell credit applicants why their credit was rejected, also can be handled by e-mail.
But Congress drew the line when it came to credit transactions such as car loans.
Because the FTC considers a completed credit application to be written authorization for a credit check, one way to avoid problems is to have the customer print a credit application from a Web site and fax it to the dealership.
But even then, dealers should check local laws on whether a fax transmission is accepted as written authorization.