It is now as important as ever to make sure your dealership has an effective storage and retrieval capability for consumer-credit applications that don’t end up as part of completed vehicle sales.
Unless you are able to put your hands on a signed application that includes the authorization to run a credit-bureau check for every consumer inquiry that you process, you are asking for trouble.
We are not talking about deals in which you sell or lease a vehicle. Each completed deal involving a credit inquiry should have a credit application with appropriate authorization.
Rather, we are talking about deals in which the dealership takes a credit application and accesses a consumer’s credit report, but the sale of a vehicle does not result, for whatever reason. Where do those credit applications wind up?
Why should you ask that question? Because many dealers now subscribe to compliance services that issue adverse-action notices under circumstances that historically have not been considered a credit turn-down.
When these adverse-action notices are delivered, some of the recipients may not even remember or realize they had applied for credit.
And the concept of a loan-request rejection may upset many people who may ask, “Why was I turned down?” and “What will that mean for me?” When those questions arise, a consumer may visit a credit counselor or an attorney.
Not believing that they applied for credit may lead them to claim that you had no authorization to run the credit report. The next step is a letter either from the consumer or a lawyer claiming you improperly ran a credit report. What will you do in that event?
If you have a solid system for maintaining credit information on dead deals, you will find the credit application and respond that you have signed authorization to run a credit-history check. That usually will be the end of it.
But if you can’t show that the person authorized the access to the credit history, if you are unable to even show that the person came to your dealership or inquired over the Internet, then what do you do?
Whether you ignore the letter or respond with generalities, you may wind up facing a lawsuit.
Here are guidelines to stay safe:
- For transactions that take place in the dealership, have a system for keeping the applications in a manner allowing retrieval for five years (a change several years ago in the statute of limitations for claims under the Fair Credit Reporting Act make a 5-year retention period a best practice).
- For Internet applications, have an organized system for storage and recovery of each application for five years.
- For other applications, such as by fax or phone, keep copies of the faxed authorizations and keep notes of the phone transactions. However, fax and phone applications may not provide the protections that consumers and your dealership should have.
- Those who want to do business with you on a remote basis should be encouraged to use the dealership’s secure Internet credit-application process. If you don’t have such a process, get one.
- Follow up. Periodically check the bills from the credit reporting agencies. Make sure you have an authorization for each report that was run. If you do not, find out why, isolate the defect in your system and fix it.
Whenever you receive a communication from a consumer complaining that you have improperly accessed his or her credit history, respond. Retrieve the application, learn how and when the person authorized access to the credit history, and defend your dealership with the facts.
Michael Charapp is a lawyer who represents auto dealers. Based in McLean, VA, he is at (703) 564-0220 or firstname.lastname@example.org.