UNITED STATES OF AMERICA
FEDERAL TRADE COMMISSION
WASHINGTON, D.C. 20580
Division of Credit Practices
Direct Dial: 202-326-3224
Fax : 202-326-2558
February 11, 1998
Karen Coffey, Chief Counsel
Texas Automobile Dealers Assn.
1108 Lavaca -- P. O. Box 1028
Austin, Texas 78767-1028
Re: Section 604 of
the Fair Credit Reporting Act
Dear Ms. Coffey:
This responds to your letter dated August
29, 1997, asking the views of the Commission staff on a number
of issues concerning application of the amended Fair Credit Reporting
Act ("FCRA"), including (1) the propriety of an auto
dealership obtaining a consumer report from a consumer reporting
agency ("CRA") on an individual who visits the showroom,
(2) the disclosure required to be provided to a job applicant
or current employee before a consumer report may be obtained by
the employer, and (3) the items required to be provided to the
consumer before adverse action may be taken by the employer based
on the report.
1. Section 604(a)(3)(F) permits CRAs to
provide consumer reports to any party who has a "legitimate
business need for the information in connection with a business
transaction that is initiated by the consumer." You ask whether
this provision allows a dealer to obtain a consumer report on
a person who "comes to an automobile dealership and requests
information" from a salesman about one or more automobiles.
In our view it does not, because a request for general information
about products and prices offered does not involve a business
transaction initiated by the consumer.
More generally, you ask "when is the
beginning of a business transaction" initiated by the consumer?
In responding to this question, it is important to note that Section
604(a)(3)(F) limits this "business need" permissible
purpose to transactions (i) that are "initiated" by
the consumer and (ii) where the seller has a "legitimate
business need" for the information. The staff's view is that
an automobile dealer may obtain a report only in those circumstances
in which the consumer clearly understands that he or she is initiating
the purchase or lease of a vehicle and the seller has a
legitimate business need for the consumer report information in
order to complete the transaction.
For example, a consumer who asks a dealer
questions about prices and financing is not necessarily indicating
an intent to purchase or lease a vehicle from that particular
dealer. Nor does the dealer have a "legitimate" business
need for a consumer report in this situation. The consumer may
simply be comparison shopping. In such a situation, the dealer
must obtain written permission from the consumer before obtaining
a consumer report. If the dealer would like to see a consumer's
credit report before answering general questions about the availability
of financing, this must be explained to the consumer and written
permission must be obtained. In the same way, a request to "test
drive" a vehicle does not indicate an intent to initiate
the purchase or lease of the vehicle. Accordingly, if a consumer
asks to test drive a vehicle, the dealer must obtain written permission
from the consumer before obtaining a report.
Only in those circumstances where it is
clear both to the consumer and to the dealer that the consumer
is actually initiating the purchase or lease of a specific vehicle
and, in addition, the dealer has a legitimate business need for
consumer report information may the dealer obtain a report without
written permission. In this regard, we note that obtaining information
for negotiation purposes does not constitute a "legitimate"
business need. The dealer must have a specific need for the information
directly related to the completion of the transaction. For example,
a dealer may obtain a report, if one is necessary, in order to
arrange financing requested by the consumer.(1)
The dealer may also obtain a report to check a consumer's creditworthiness
when the consumer presents a personal check to pay for the vehicle.
By contrast, a permissible purpose would not arise if a consumer
intends to pay by cash.
2. Section 604(b)(2)(A) requires consumer
report users, before procuring a report for employment purposes,
to make a written disclosure to the consumer "in a document
that consists solely of the disclosure" that a consumer report
may be obtained for employment purposes. You ask whether a party
that has secured an employee's authorization for the report in
an employment application must also make the disclosure in a separate
document. The answer is yes, because Section 604(b)(2)(A) specifically
states that the document containing the required disclosure may
not include other items.
You also ask what information may appear
on the document and if "the FTC is suggesting that the document
be of a certain size." It is our view that Congress intended
that the disclosure not be encumbered with extraneous information.
However, some additional information, such as a brief description
of the nature of the consumer reports covered by the disclosure,
may be included if the information does not confuse the consumer
or detract from the mandated disclosure. We suggest no size requirement
for the disclosure; a document that meets the "clear and
conspicuous" standard set by the FCRA will be acceptable.
3. Finally, you ask two questions relating
to Section 604(b)(3), which requires an employer "before
taking any adverse action" based on a consumer report, to
provide the consumer with a copy of the report and the summary
of consumer FCRA rights prescribed by the Commission. First,
you ask if a CRA is responsible for sending the required summary
to employers. The answer is yes, because Section 604(b)(1)(B)
imposes this duty on CRAs that provide reports for employment
purposes. Second, you ask if there is any specific amount
of time that must elapse from the time the required items are
provided to the consumer and the employer's adverse employment
action. The law is silent as to how long the employer must wait
after making the Section 604(b)(3) pre-adverse action disclosure
before actually taking adverse action; it states only that the
specified items be provided before the adverse action is
taken. Employers may wish to consult with their counsel in order
to develop procedures that are appropriate, keeping in mind the
clear purpose of the provision to allow consumers to discuss the
report with employers before adverse action is taken.
The opinions set forth in this informal staff letter are not
binding on the Commission.
1. The dealer's "permissible purpose"
here is provided by Section 604(a)(3)(A), which permits the use
of consumer reports in connection with a credit transaction involving