The Federal Trade Commission has issued two recent pronouncements affecting dealers – one helpful, the other not so much.
Privacy Rule
The first, issued December 1, 2009, provides assistance in complying with the FTC Privacy Rule. Under the Rule, a dealer must provide notification to a customer of what it will do with the non-public personal information gathered from the customer who is leasing or financing a vehicle. It has been in effect for a number of years, and dealers have used forms created by their attorneys, their associations, or form companies.
Under the newly issued guidance, the FTC has provided three model forms, one with no opt-out opportunity, a second with an opt-out opportunity by telephone or online, and a third with an opt-out opportunity by mail.
Each form is designed so that it can be customized to the user’s own requirements. The FTC has provided guidance about the modifications that are permitted and not permitted. A dealer that begins using the form by December 31, 2010 will have a “safe harbor” from FTC enforcement action under the Privacy Rule.
This action by the FTC is quite helpful in that it provides specific guidance as to what a dealer’s privacy notice should look like to help it avoid potential FTC action for violation of the Privacy Rule. Most dealers today use privacy notices that do not provide an opt-out, and it is expected that dealers will choose to use the no opt-out form published by the FTC. We will provide further guidance in the future.
Risk Based Pricing Notices Rule
The other pronouncement by the FTC came right before Christmas, but it was hardly a holiday gift. The FTC issued its final “risk based pricing notices” rule.
The Fair and Accurate Credit Transactions Act of 2003, which amended the Fair Credit Reporting Act, required the FTC to study the impact of credit reports on financing rates offered to consumers and to issue a rule. The FACT Act requires a creditor to provide notice to a consumer when the creditor uses a credit report to extend credit to a consumer on terms that are materially less favorable than the most favorable terms available to a substantial proportion of consumers. The language of the bill generated a tremendous volume of comments to the FTC because of the generality of the legislative definitions of when notice may be required.
The FTC Rule provides alternative means for complying with the rule. However, it is expected that most dealers will follow a procedure under which a customer will be given a disclosure of credit score. That disclosure will provide the customer’s credit score, the source of the score, and an explanation of the score.
It will further give the customer information on how the score lines up against the scores of others and will provide information for obtaining the credit report and challenging mistakes.
The effective date of this rule is January 1, 2011. Consequently, dealers will have to train employees in compliance with this rule by the end of 2010. We expect that credit reporting agencies that dealers use will provide products that will help dealers in complying with this new Rule. However, understanding this Rule and training employees will require some work at a dealership, and we will provide further guidance later this year.