When mailing marketing pieces that make a firm offer of credit to potential customers, are you certain the offer and how you advertise it are legal?
Those mailings tell recipients they are “pre-approved for credit.” Such solicitations are called pre-screened offers of credit, also known as firm offers of credit. This means you or your marketing firm had earlier requested from a consumer reporting company a list of people in its database who met the criteria for your offer (such as certain credit scores), and then you mailed such a solicitation to these consumers.
Recent court rulings may affect what credit-offer marketing you do in the future. You could potentially land in civil or criminal court for mailing marketing pieces not in compliance with the court's interpretation of what constitutes a legal firm offer of credit.
The key to firm offer-of-credit marketing is:
- Such offers must pass the “permissible purpose” intent of the Fair Credit Reporting Act (FCRA) — the purpose being to make an offer that contains all the material terms of the offer.
- The offer must provide meaningful value.
A U.S. Court of Appeals determined that language and specifics discussed in such offers must be clear, meaningful and conspicuous. The court heard this case after lower courts had ruled the credit offer receive by a consumer from U.S. Capital, Inc. and Gleason Chevrolet did meet FCRA law. The plaintiff — a consumer who received the offer — appealed. The appellate court said the credit offer did violate the FCRA under its prescreening rules.
Let's circle back and look at some terminology.
Permissible purpose is when a consumer asks a dealership to pull his or her credit for the purposes of pre-screening the customer for credit. But what if I, as a dealer, want to pull your credit without your permission so I could determine whether to pursue you as a customer. Or to sort out the better credits for an upcoming mailing. Or seek lower credits for a subprime offer. FCRA generally forbids this sort of credit peeking.
But what if I, as the dealer, create an incentive or offer that triggers you to ask me to pull your full bureau? Yes, this can meet the requirement for permissible purpose, but be careful. You might get in trouble if you create a mailer that offers consumers, say, “pre-approval of credit up to $300.”
The appeals court says such a low-ball offer is not meaningful for financing a car purchase. The court says that is nothing more than an advertisement. An offer of $11,000 of credit is more meaningful.
Offers also must contain other precise language, says attorney Jean Noonan. Courts are saying put all of the terms of the offer in the letter or it is not a firm offer of credit.
“That can be a real challenge for dealers even if they are making a genuine offer, because the amount of credit, the interest rate and other terms are often unknowns that depend on the consumer's choice of vehicle and credit worthiness, which can only be explored later when the consumer is in the dealership,” she says.
Some dealers have addressed this problem by providing a phone number for consumers to call for more information. Some courts are saying that's not enough — the terms must be in the letter itself. Noonan notes that creditors try to address this requirement by giving minimum amounts or interest rate ranges when the dealer cannot provide the exact terms.
Courts say firm offers of credit must contain the following:
- Interest rate and method of rate calculation.
- Length of contract.
- Amount of credit.
- Clearly visible notices and disclaimers.
Noonan notes that since last year there are now very specific rules that govern the location, type size and wording of “opt-out” disclosures, which must be part of every pre-screened offer.
“It will bite you if you don't follow the rules,” says Kevin Clements, a senior vice president First Advantage CREDCO.
Jim Leman is a former dealership salesman and a veteran auto writer.
