FTC Tells Auto Dealers to Limit Credit Checks

The federal government Wednesday told car dealers to stop looking at the credit records of their customers before they decide to buy.

The Federal Trade Commission said in a letter that automobile dealers are prohibited from looking at customers’ credit reports while they are out for a test drive or merely window shopping.

Car dealers who violate the guidelines may be subject to civil penalties of up to $2,500 per violation under the Fair Credit Reporting Act, the FTC said. The action was prompted by complaints from consumers.

FTC staff wrote the letter to the Texas Automobile Dealers Assn. to answer questions from the association.

“Credit reports may not be obtained until the consumer does more than window shop or take a car out for a test drive,” the FTC said.

The FTC said that if auto dealers check on customers’ credit records, the dealers may gain an unfair negotiating advantage over consumers because they will know the consumers’ financial condition.

In addition, the check on consumer credit may hinder a person’s ability to get credit in the future because inquiries will be recorded on the credit report, the FTC said.

The Fair Credit Reporting Act, which is enforced by the FTC, limits circumstances under which businesses can get credit reports when dealing with applications for credit, insurance or employment.

The FTC said dealers must get written permission from consumers before obtaining a credit report to answer questions about available financing, if the consumer has not actually applied for credit.

In its letter, the FTC also said:

* Seeking credit reports solely for the purpose of negotiating is prohibited.

* The fact that a consumer asks questions about an auto’s price or financing options does not necessarily indicate an intent to purchase.