The Federal Trade Commission can require an auto dealer who does not obtain credit reports in three-party financing deals to provide risk-based pricing notices to car buyers, a federal judge in Washington, D.C. has ruled.
In her May 22, 2012, decision in National Automobile Dealers Association v. Federal Trade Commission, U.S. District Judge Ellen Segal Huvelle of the District of Columbia held that the FTC’s interpretation of its Fair Credit Reporting Act risk-based pricing notice (RBPN) regulations did not exceed its statutory authority. The FCRA requires a creditor to provide an RBPN to a consumer when the creditor “uses” a consumer report in connection with a credit application and, based on the report, grants credit on terms that are materially less favorable than the most favorable terms obtained by a substantial portion of consumers.
In the preamble to 2011 amendments to the RBPN regulations, the FTC, responding to a comment submitted by the plaintiff, concluded that, even when an auto dealer does not directly obtain a consumer report, the dealer nevertheless “uses” a consumer report for purposes of triggering the RBPN requirement when it enters into a credit contract based on credit terms set by a third-party financing source in reliance on the buyer’s consumer report.
In deciding whether the FTC’s interpretation was entitled to deference under Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., Judge Huvelle found that the meaning of the term “uses” in the FCRA is ambiguous. However, before looking at the reasonableness of the FTC’s interpretation under Chevron’s second step, the court considered and rejected the plaintiff’s argument that the interpretation was undeserving of deference because the FTC lacks authority to regulate dealers who do not obtain copies of consumer reports. She also rejected the plaintiff’s alternative argument that any deference due the interpretation was less than Chevron deference because the interpretation did not result from notice-and-comment rulemaking.
Turning to the question of reasonableness, the court concluded that the FTC’s interpretation was reasonable because it was consistent with the FCRA’s language (in that the FCRA supported a meaning for “use” that was broader than physical possession) and the FCRA’s “goal of increasing consumers’ access to accurate information about their credit reports.”
The court also found the FTC’s interpretation to be reasonable because, first, it avoided the possibility of a consumer receiving multiple RBPNs—something that could occur, in the court’s view, if the financing source was required to provide the RBPN—and, second, because it would not create an incentive for creditors in other industries to arrange financing through third parties in order to avoid being required to provide the RBPN.
While the court acknowledged that the FTC’s interpretation “may create an inconvenience” for dealers because a dealer may not have “on hand” all of the information needed for an RBPN, the court observed that “given the preexisting channels of communication between financing sources and auto dealers (to convey, for example, credit applications and loan rates), the dealer could get the credit report information from the financing source as well.” (The court also noted that, even if the FTC’s interpretation was not due Chevron deference, it would still prevail under Mead deference “based on the persuasive power of its reasoning.”)
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