Burton - more on credit checks

[Gretel]

I didn't want to hijack Sandy's thread but was wondering if you, or someone else, knows how car dealers can do a credit check not having your ss no nor your consent.At least this is what I heard.

[Koss]

Credit Reports

Ummm....

Sure, I'll take that question.

I have never heard that car dealers can obtain a credit report without your consent.

I can offer some educated speculation on how this may happen. This is probably going to be a much longer answer than you anticipated.

Credit reports can be obtained without an SSN. The credit bureaus can use current and former addresses, and date of birth, among other things, to confirm the identity of the person.

I believe it is unlawful for an auto dealer, or anyone, to order a credit report without proper consent. In my earlier post, I described a service for landlords, and I noted that a handwritten signature is required on the rental application. But in other contexts, a written signature may not be required. For example, you can apply for a credit card over the phone, and the lender can obtain verbal consent to procure your credit report.

Auto dealers often have electronic access to systems that allow them to obtain credit reports directly from the three credit bureaus. So if they obtain consent, they can get a credit report without having to send a paper application to the credit bureau. They have to keep the consent on file in their office. Whether they can obtain consent verbally may vary from one state to another, or from one dealer to another, depending on what kind of relationship they have with the credit bureaus. But even if the consent has to be in writing, the dealer probably doesn't have to send the consent to the credit bureau before obtaining the report; the simply have to keep it on file (like we do with Form 8879). My point is that if the dealer chooses to ignore the law, or the staff is poorly trained, it may be very easy for them to actually obtain the credit report without first gaining consent. That doesn't make it legal.

But there's another issue that may contribute to misunderstandings and errors in the process. I actually have personal experience with this.

Auto dealers are subject to a body of federal regulations which prohibits them from conducting business with known terrorists. Before selling a car to you, dealers are required to check your name against a list known as the Specially Designated Nationals List (SND List). The list is maintained by the Office of Foreign Assets Control (OFAC), which is part of the US Treasury Department.

Dealers rely on the credit bureaus to check to see if a buyer's name is on this list. The process is often referred to as an "OFAC check."

Dealers are required to perform this check even if the buyer is paying cash for the car (or has already arranged financing through their own lender).

If the buyer is not applying for a loan through the dealer, the dealer has no need for a credit report. But the dealer still has to submit the buyer's name to the credit bureau in order to perform the OFAC check.

You can probably begin to see how dealers may be obtaining credit reports without proper consent. Sales people often have a very poor understanding of this process. Since they do not understand the process, they cannot explain it to their prospective buyers. Car salesmen may tell buyers that "we're required by federal law to run your credit, even if you are paying cash, in order to confirm that you are not on the terrorist list." Or they may, in good faith, think that they are submitting the buyer's name only for the purpose of the OFAC check, but in reality, their system defaults to a full credit check unless they mark a specific field to suppress it.

This is more or less what happened a few years ago when my partner bought a car and paid cash. I went along to facilitate the transaction. The salesperson asked her to sign a form authorizing them to run her credit. We objected, for the obvious reason that she was not applying for credit. He said he was required to do the OFAC check, and that the OFAC check is done through the credit bureau, and that he could only do it if she signed the form.

I told him that my partner would authorize the OFAC check, but not a credit check.

He didn't know how to do that. After an extensive discussion, during which he "checked with the finance department" of the dealership, he wrote in big bold letters across the top of the form, "OFAC ONLY."

I wish I could tell you how the story ended, but I can't. The issue was academic; it was an intellectual exercise. My partner signed the form, bought the car, and never checked her credit report history to see whether the dealer had run a full credit report.

With that being said...

I'm not an attorney. But I can play golf with the best of them. If you go through this process and do what my partner did, explicitly authorizing the OFAC check without authorizing a credit report, and you then discover that the dealer ran a full credit check anyway, you do have a cause of action against the dealer. You can sue the dealer for violating federal law. And you may have actual damages if the credit inquiry lowers your score.

Next non-tax question?

BMK

[Koss]

Final thoughts

It may be true that auto dealers can perform an OFAC check without the buyer's consent. The OFAC check is done through the credit bureau, so this creates further opportunities for miscommunication.

Salespeople may tell buyers that "We have to run the OFAC check. It's done through the credit bureau, and we don't need your consent. It's required by federal law."

This statement is technically true. But it doesn't mean they can obtain a credit report without consent.

BMK

[Gary2]

To the best of my knowledge, no consent is needed to get a credit report for legitimate business purposes, with the exception of employment purposes which does require consent. See https://www.privacyrights.org/fs/fs6-crdt.htm#3.

[Koss]

Consent

Gary--

You may be correct that consent is not legally required when the party has a legitimate business purpose for the credit report.

But an auto dealer does not have a legitimate business purpose for obtaining a credit report if the prospective buyer is not applying for a loan.

BMK

[FEDUKE404]

Observation

The things I can learn on these boards. Wow!

But, OTOH, I guess this verification process is entirely consistent with the perspective of those who feel it is an "imposition" (or even worse.....disenfranchisement!!!) to require someone to show an ID prior to voting.

FE

[Gretel]

Burton, Thank you so very much. Your experience and willingness not only to share but to spend quite some time explaining the whole picture is highly appreciated.

[S T]

Ditto

Burton,
My thanks as well - the information you share with us is very enlightening.

Sandy

[Gretel]

So now we are all running around with light bulbs on our head? Comes in handy for Christmas and the dark days.

[Gary2]

Gary--

You may be correct that consent is not legally required when the party has a legitimate business purpose for the credit report.

But an auto dealer does not have a legitimate business purpose for obtaining a credit report if the prospective buyer is not applying for a loan.

I would agree, but I don't think the law or regulations are any more specific than that, and obviously the auto dealer will assert that the business purpose is to qualify the customer.