Update on Consumer Credit Reports

Kenneth Harney's March 1 "Your Mortgage" column ("Home-Loan Applicants Will Get Break on Credit Scores") incorrectly states that car dealers may look at your credit report "to see if you're really qualified to handle the purchase."

As an attorney working in the consumer credit area, I know this has been common practice in the auto retail business in the past. However, the Federal Trade Commission has just made it very clear that this practice is, in the FTC's definitive view, illegal.

The FTC, on Feb. 11, in a staff opinion letter, advised the Texas Automobile Dealers Assn. that:

* A request to test-drive a car does not indicate intent to purchase a vehicle and does not permit a dealer to pull a consumer's credit report.

A dealer must get written permission if the dealer wants to check a consumer's credit report before or during a test drive.

* Getting credit reports solely for the purpose of negotiating with consumers is not permitted (e.g., seeing if the report indicates that the consumer can afford a car at a certain price).

* "Window shopping" by asking about price or financing is not sufficient to permit a dealer to pull a consumer's credit report. Written permission must be obtained from the window shopping consumer to pull his or her credit report.

The complete FTC staff opinion letter may be found on the FTC's Internet site: http://www.ftc.gov.

Unauthorized pulling of credit reports creates inquiries on your credit report. Inquiries are notations in your report of who has pulled a copy of the report.

If there are more than two or three on your report, they can hurt your ability to get credit, say a home mortgage, because numerous inquiries suggest you are applying for credit and being turned down--each inquiry is supposed to merge into the information on your newly opened account, but inquiries stay on the report when credit is denied.

I teach an adult education class at the Learning Tree University in Chatsworth on resolving credit problems. One of the biggest problems the students have is unknowingly getting a dozen or more inquiries on their credit reports in an afternoon of "tire kicking" at car dealers.

This should certainly stop now that the FTC has clarified the matter and advised: "Dealers or others who improperly obtain credit reports can be subject to civil penalties of up to $2,500 per violation."

Nonetheless, I suggest that when you go for a test drive you tell the dealer very clearly that you do not want your credit report pulled.



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