Dealers have been contracting for years with marketing companies that use so-called prescreen lists to offer auto financing to qualified consumers. The Fair Credit Reporting Act (FCRA) requires that each person on such a list receive a “firm offer of credit” — that consumer report information used for marketing purposes be used primarily for marketing credit, not merchandise.
Over the years, some of these programs have operated better than others. Most were within the letter, if not the spirit, of the FCRA with respect to the required disclosures contained in the solicitations. But in 2004, the 7th U.S. Circuit Court of Appeals in Cole vs. U.S. Capital Inc. held that firm offers of credit involving the purchase of merchandise had to be “valuable” in the context of the merchandise to be purchased. A later case from the same court, Murray vs. GMAC Mortgage Corp., added a requirement that “all material terms” of the offer must appear in “the four corners of the offer.”
This last bit created quite a headache for sales finance marketing. In fact, the Cole and Murray cases led to the filing of no less than 300 class-action lawsuits. All alleged disclosure violations in the solicitations.
Then on April 16, 2008, the Seventh Circuit backed off its unique position requiring all the terms of an offer to be disclosed in prescreen solicitations. It concluded that the FCRA does not, in fact, include such a requirement. Relying heavily on the statutory definition, the court explained that the “question posed by the definition is whether the offer will be honored (if the verification checks out), not whether all terms appear in the initial mailing.”
In particular, the court notes that neither the “firm offer” definition, nor anything else in FCRA says that the initial communication to a consumer must contain all of the important terms that must be agreed on before credit is extended.
While this holding provides a degree of relief from lawsuits claiming that the terms of an offer are not sufficiently disclosed, the court did not go far enough. It still got it wrong by continuing to treat sales finance offers (i.e., those linked to the purchase of merchandise, like a car) differently than “pure” offers of credit (e.g., a credit card). Specifically, the former must provide “value” to the consumer, while the latter need not — this despite the fact that there is no language in the FCRA that requires such treatment, nor any indication of Congressional intent to treat the offers differently.
How the court could base the retraction of its requirement in the Murray case that an offer contain “all material terms” on the fact that the FCRA doesn’t address the issue, yet ignore that same fact in requiring “value,” is curious, to say the least.
Dealers who use prescreen lists to prequalify customers (or hire firms to do this) still need to make a firm offer of credit that is “valuable” in relation to the cost of cars offered for purchase by such dealers. While the exact terms of the offer need not appear in the solicitation, a “firm offer” of $300 toward the purchase of a vehicle still won’t pass FCRA muster, at least not in the 7th Circuit Court of Appeals. It is likely not “valuable” in the context of a car purchase.
The good news is dealers have a greater degree of flexibility in the clarity or completeness of the terms offered in the original solicitation. Now the test seems to be whether or not a “firm offer” will survive FCRA scrutiny if, looking back, every qualified consumer who responded to the offer received an offer of terms that were valuable. In other words, there may continue to be lawsuits, but hopefully they will more likely be based on who actually got (or didn’t get) credit on what terms as opposed to the text of a particular solicitation.
It’s a start.
Michael Benoit is a partner in the Washington, D.C., office of Hudson Cook LLP. He is a frequent speaker and writer on a variety of consumer credit topics. He can be reached at [email protected]. Note: Nothing in this article is intended to be legal advice and should not be taken as such. All legal questions should be addressed to competent counsel.