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Mail Offers: Firm and Not So Firm

June 2008, F&I and Showroom - Feature

by Thomas B. Hudson and Michael Goodman

Dealers around the country have been beset by class action lawsuits challenging a particular sort of mailer — specifically, mailers in which the dealer makes a “firm offer of credit” to the customer as an inducement to pay a visit to the dealership. These “firm offers” are made for the purpose of permitting dealers to obtain “pre-screened” lists of consumers from credit-reporting agencies, a practice that would be prohibited but for an exception for “firm offer” mailers.

The cases involving firm offer mailers have some dealer lawyers we know so spooked that they would rather pick up a live rattlesnake than have to give an opinion on whether a particular “firm offer” mailer is inside or outside the law. Those lawyers, and the dealers they represent, should be able to breathe a bit easier now, at least in some states.

All this mischief started with the case of Cole v. U.S. Capital Inc. In Cole, the U.S. Court of Appeals for the Seventh Circuit found that a dealer’s mailing offering $300 in credit toward the purchase of a vehicle was not a valid firm offer of credit under the Fair Credit Reporting Act. Many lawyers disagreed with the Cole decision, pointing out that the court had read requirements into the FCRA that were not there.

In two recent decisions regarding pre-screening under the Fair Credit Reporting Act, the U.S. Court of Appeals for the First Circuit affirmed district court decisions rejecting consumers’ class action challenges to creditors’ firm offers of credit. Both decisions concluded that the FCRA’s “firm offer of credit” definition does not require the disclosure of any specific terms of the offer in the initial communication to consumers.

On March 19, 2008, in Sullivan v. Greenwood Credit Union, the court affirmed the district court’s award of summary judgment to the creditor. Greenwood Credit Union sent its credit offer to a pre-screened list of prospects provided by a consumer reporting agency. Sullivan argued that a valid firm offer of credit must satisfy the FCRA’s definition of that term and must also constitute a valid “offer” as that term has been interpreted by common law. Sullivan further argued that the credit union’s mailing was not a valid “offer” because it did not provide credit terms with enough specificity to allow for acceptance by consumers.

The court found no basis for looking beyond the statutory definition of “firm offer of credit” and explained that this definition does not require the disclosure of any particular terms in the initial mailing. Rather, the court reasoned that a firm offer of credit is valid as long as the creditor will not deny credit to any consumer who meets the creditor’s pre-selection criteria — that is, the criteria established before the pre-screening process was conducted. The FCRA allows the specific terms of the offer to be provided to consumers once they have expressed interest in learning more from the creditor.

In reaching this decision, the Sullivan court distinguished the Cole opinion. In Cole, the U.S. Court of Appeals for the Seventh Circuit found that a dealer’s mailing was not a valid firm offer of credit. The Cole court found that the mailing was an insufficient “guise for solicitation” in part because specific terms of the offer were missing and because it was unclear whether the mailing was in fact an offer for credit or a sales pitch for a car dealership.

The Sullivan court had no problem concluding that Greenwood’s offer was for credit. The court also noted that the “minimal invasion of privacy” created by pre-screening was offset by the value of the information provided in the credit union’s mailing.

On April 3, 2008, in Dixon v. Shamrock Financial Corp., the same court affirmed the district court’s decision to grant the creditor’s motion to dismiss Dixon’s challenge. As in Sullivan, the court applied the FCRA’s “firm offer of credit” definition and declined to look beyond that definition for any additional requirements for a valid firm offer. Because that definition does not require the disclosure of any particular terms in the initial mailing, the court concluded Shamrock’s mailing did not need to contain any such terms.

Once again, the court distinguished Cole. In this case, this distinction was based on the fact that in Dixon, unlike in Cole, the consumer did not allege that any consumer was or would have been denied credit despite meeting Shamrock’s internal criteria. Finally, the court noted that consumers’ “remedy” in response to the “invasion of privacy” created by pre-screening is to opt out of pre-screening rather than to sue the creditor.

So, things are a bit less dicey in the First Circuit (That includes Maine, Massachusetts, New Hampshire, Rhode Island and Puerto Rico, muchas gracias!).

Maybe we won’t have to pick up that rattlesnake after all.

Thomas B. Hudson, Esq. (thudson@special-finance.com) is the author of a book, CARLAW, and is the editor/author of the CARLAW F&I Legal Desk Book. He is also the publisher of Spot Delivery, a monthly legal newsletter for auto dealers, and the editor in chief of CARLAW, a monthly report of legal developments in all states for the auto finance and leasing industry (not to be confused with the book). He is also a partner in the Maryland office of Hudson Cook, LLP. Michael A. Goodman is a partner in the Washington, D.C. office of Hudson Cook, LLP. Spot Delivery, CARLAW and the books are produced by CounselorLibrary.com LLC. For information, call 410-865-5411 or visit www.counselorlibrary.com.

Copyright CounselorLibrary.com 2008, all rights reserved. Based on an article from Spot Delivery. Single print publication rights only, to Special Finance Magazine.

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