FTC’s Recent Proposed Changes Call Attention to Five Important Consumer Protection Rules Applicable to Motor Vehicle Dealers

10.01.20

The Federal Trade Commission (“FTC”) is seeking public comment on recently proposed changes to the Fair Credit Reporting Act (“FCRA”) intended to clarify that five consumer protection rules apply only to motor vehicle dealers. Although these changes are merely technical and meant to align the FTC’s rulemaking authority with the Dodd-Frank Act, they nonetheless serve as an important reminder for motor vehicle dealers that fall within their scope. The five FCRA rules discussed below apply specifically to motor vehicle dealers ​“predominately engaged in the sale and servicing of motor vehicles, the leasing and servicing of motor vehicles, or both,” but not to dealers subject to Consumer Financial Protection Bureau rules that directly extend credit to consumers and do not routinely assign the extensions of credit to an unaffiliated third party.

1. The Address Discrepancy Rule requires a motor vehicle dealer to develop and implement a policy that enables it to form a reasonable belief that a particular consumer report relates to the appropriate consumer when the dealer receives a notice of address discrepancy from a consumer reporting agency (“CRA”). A notice of address discrepancy typically indicates that the address provided by the dealer substantially differs from the address the CRA has in the consumer’s file. In addition to having a policy to determine the appropriate consumer, if the dealer has a continuing relationship with the consumer, regularly furnishes information about it to the CRA, and can confirm which consumer the report relates to, then the dealer must also provide the CRA with the consumer’s accurate address. 
2. The Affiliate Marketing Rule provides that if a motor vehicle dealer receives certain consumer eligibility information from an affiliate, it cannot use that information to make solicitations to the consumer about its products or services unless it gives the consumer notice and an opportunity to opt out, and the consumer does not opt out. 
3. The Furnisher Rule requires a motor vehicle dealer to establish and implement reasonable written policies and procedures regarding the accuracy and integrity of information about consumers that it furnishes to a CRA. For example, a dealer should have a procedure for correcting or updating inaccurate or incomplete consumer information. 
4. The Pre-Screen Opt-Out Notice Rule provides that any motor vehicle dealer that uses consumer reports for the purpose of making unsolicited offers of credit or insurance to consumers must provide a clear and conspicuous statement with each written solicitation. The statement must reveal that: (1) information contained in the consumer’s report was used in connection with the transaction; (2) the consumer received the offer because it satisfied criteria for credit worthiness or insurability; (3) the credit or insurance may not be extended if the consumer later does not meet the criteria; (4) the consumer has a right to prohibit information contained in the consumer’s file from being used in connection with the transaction; and (5) the consumer may opt-out of the offer altogether. 
5. The Risk-Based Pricing Rule applies when a motor vehicle dealer uses a consumer report to evaluate a consumer’s risk of nonpayment and adjusts the price and other terms of credit offered to the consumer based on such information. If a dealer extends credit to a consumer with poor credit history on terms that are materially less favorable than the most favorable terms available to a substantial proportion of consumers, the dealer must provide a risk-based pricing notice to the consumer. The notice generally should alert the consumer that there is negative information in its consumer report and inform the consumer that the dealer used such information when extending less favorable credit.

While the FTC’s proposed technical changes do not make any substantive amendments, they clarify that these five FCRA rules apply exclusively to motor vehicle dealers. In addition to complying with obligations under federal consumer protection laws, Wisconsin motor vehicle dealers also have many obligations under state consumer credit laws. Boardman Clark’s Franchise and Dealership team is here to assist motor vehicle dealers in fulfilling these obligations and navigating complex consumer transactions.