A federal judge issued a ruling today telling auto dealers to inform buyers when they have negative information on their credit report, even if the loan is handed off to a bank or finance company.
Car buyers with bad credit histories often have higher interest loan terms.
The National Automobile Dealers Association wanted car dealers exempted from a provision in the Fair Credit Reporting Act.
From the Detroit Free Press:
The FTC concluded that the auto dealers actually use the credit report even if they do not physically obtain it, and so must provide the notice to consumers. NADA sued the FTC, challenging this interpretation. The court agreed with the FTC's position in its ruling.
"This ruling will make it easier for consumers to learn about unfavorable information in their credit reports," said Stuart Delery, acting assistant attorney general for the civil division. "The auto dealer is in the best position to provide this information because the dealer interacts directly with the consumer."
The Freep reports the National Automobile Dealers Association plans to "appeal to the Court of Appeals for the D.C. Circuit."
Michigan Radio's Tracy Samilton recently reported that Chrysler's sales have been buoyed by loans to buyers with less-than-stellar credit histories:
Chrysler's new car sales have been improving faster than almost any other car company in the U.S. in recent months. But the company has also been relying on subprime borrowers more than almost any other car company. That's according to Edmunds.com.
Samilton reports that the loans are riskier, but people still tend to pay them:
People are much more likely to default on a subprime house loan than a subprime car loan.
One analyst said the bigger risk for auto manufacturers is that more subprime loans might tarnish a brand's image.