October 31, 2015 • By Dennis Beaver
Ever wondered what the consequences can be when a business runs a check on your credit, but without your approval? Timothy, who reads our column in the Eureka Times-Standard, send the following email:
“In September of 2014, I visited the Folsom Auto Mall, wanting to see if my credit was adequate for a loan at a decent rate. At one of the dealerships, I gave them written authorization to run my credit, which they did, but, as I had some earlier problems, the score was too low for a loan at payment amount I could afford.
“I returned to the dealership this past September, looked around, talked with the same salesman, but never got beyond just looking and talking price, but nothing more. I did not submit a credit application, nor did I give them permission to run my credit.
“Two days later, I received a text from an identity-theft service I subscribe to stating that my credit had indeed been run and that a number of lending intuitions received inquires from the dealership about a possible loan.
“This can’t be legal! What are someone’s rights when this happens? Could it have harmed me? Are there any penalties for what they did?”
It is illegal to run a credit check without your permission
“While there are certain limited exceptions — such as a debt collector taking a valid assignment of a debt — in a retail context, such as shopping for a car, a person does not have authority to run someone else’s credit unless there is express permission to do so,” Los Angeles Attorney Robert Brennan told You and the Law.
He is regarded as one of the nations most accomplished lawyers handling violations of the Federal Fair Credit Reporting Act and specifically, cases just like this.
“Your Eureka reader gave the dealership written permission to run his credit once. They cannot legally run it whenever he comes back onto the lot, and isn’t entering into a transactions, or signing a sales contract,” he points out.
And, as you’ll see in a moment, running Timothy’s credit without his express permission can damage his credit score and wind up being be very costly to the dealership.
Does running a credit check harm your credit?
We asked Brennan this question: “Timothy did not actually buy a car or take on any more debt, so how is he harmed when someone just looks at his credit report?”
“I’m often asked that question,” he replied. “The technical term used by the industry is ‘pulling a credit report,’ and there are two different types, a hard pull and a soft pull:
- “When you apply for credit — a loan to buy a car, a mortgage to buy a house or a credit card — this is a hard pull, and can have very adverse consequences. A soft pull — checking your own credit, or a review by an existing creditor — has no negative impact.
- A hard pull will damage a credit score as it signifies to other lenders that you are looking for credit. Generally, it will lower your credit score from 10 to 20 points. In the post-mortgage meltdown, lenders have become wary of extending credit in general, but, if you are below 670 it is all that more difficult to obtain credit.
- With less than a good credit score, today lenders see a hard pull and often think, ‘This person is out shopping for credit. Maybe they are not financially stable, but in any event, are increasing the risk of default, so, let’s not make the loan.’
- The harm to Timothy is that when he really does attempt to finance a car purchase, it will have looked to some other lender that he tried earlier and was refused. So, why should they give him the loan when another company said no? Or, if they do, it will be at a higher interest rate.”
This is a violation of the Fair Credit Reporting Act
“Timothy has described a violation of the Fair Credit Reporting Act which could lead to a lawsuit with substantial value. But first, he must send a certified dispute letter–never online-to the three credit bureaus, explaining that the pull was done without his authorization, and politely insist that the inquiry be removed from his file. Sometimes they will.
“If they don’t, they and the dealership can become defendants in a 1681b lawsuit under the impermissible access section of the Fair Credit Reporting Act,” Brennan observes, adding, “Minimum penalties are $1,000, but these cases can have significant value.”
Next time: We’ll tell you just how much this could wind up costing the dealership and also look at the risks of hiring a credit repair service.
Dennis Beaver practices law in Bakersfield and enjoys hearing from his readers. Contact Dennis Beaver.