2018 GNYADA Membership Directory

for actions taken in connection with a default or delinquency on the account. An example is unwinding or re- contracting a “spot delivery” contract on less favorable terms. Auto dealers are identified as the creditor/seller on the retail installment sales contract (RISC), despite the fact they later sell the RISC to a finance source. As creditors, dealers should give adverse action notices to consumers in at least three situations: • When a dealer takes a credit application but does not send it to any financing source, typically because the consumer is credit-challenged; • When a dealer unwinds or re-contracts a spot delivery deal; and • When the dealer is unable to get the customer financed on terms acceptable to the dealer. It is a common misunderstanding that a dealer can rely on a finance source’s adverse action notice. In fact, a finance source’s adverse action notice will not shield the dealer from liability in these instances as it does not contain the necessary disclosures that must be given by the dealer, including but not limited to naming the credit bureaus used and the federal agency that administers compliance for dealers (i.e., the FTC). Furthermore, most lenders advise dealers in their dealer agreement or their program materials that the lender’s issuance of any adverse action notice is only on such lender’s behalf. Generally, a single form can be used to comply with both FCRA and ECOA adverse action notice requirements. Additional language is required if the dealer’s decision was based in whole or in part on information received directly from a third party that is not a consumer reporting agency. An adverse action notice must inform the consumer of the adverse action; either give up to four primary reasons for the adverse action (or tell the consumer how they may contact the dealership within 60 days to get the reasons); identify any consumer reporting agency that provided a credit report or credit score used by the dealer; provide the consumer’s credit score, information about the credit score, and up to four to five “key factors” that adversely affected the credit score (up to four key factors unless one of the factors is the number of recent credit inquiries, in which case up to five key factors). The notice must contain other mandatory language as well. A sample adverse action notice is attached at the end of this chapter. If the adverse action is completely due to the credit score, the primary reasons must indicate which factors in the credit score caused the adverse action. Using a general statement like“credit score too low”as a primary reason for adverse action does not comply with ECOA. The primary reasons for the adverse action required by ECOA are not necessarily the same as the FCRA-required “key factors” that must be disclosed to describe what most adversely affected the credit score. These “key factors” are related to the credit score only, not the consumer’s overall application for credit, which may also consider other factors, for example, income and ability to repay. If the dealer uses credit information obtained from a third party that is not a consumer reporting agency, the adverse action notice must so inform the consumer and advise they may make a written request within 60 days of the notice to obtain the nature of that information. An example would be information received directly from the consumer’s employer, landlord, or a private creditor.

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