Shopping Dealer Paper under the FCRA By BOL Guru John S. Burnett

Shopping Dealer Paper under the FCRA
By BOL Guru John S. Burnett

Two suburban Chicago automobile dealers did what they had routinely done for years when they "shopped" two potential deals with area lenders. As it happened, both of the potential loans were offered to First Midwest Bancorp, Inc., which did what it had routinely done for years -- requested credit reports. First Midwest declined to purchase the loans, apparently based on what they read in those reports. The two applicants later decided to try to turn on its head the routine practice of shopping indirect dealer paper by claiming First Midwest violated the Fair Credit Reporting Act (FCRA) by requesting consumers' credit reports without the consumers' knowledge or explicit consent.

In George Stergiopoulos & Ivelisse Castro v. First Midwest Bancorp, Inc., decided by the U.S. Court of Appeals for the Seventh Circuit on October 25, 2005, plaintiffs Stergiopoulos and Castro separately signed contracts with the two dealers. One signed a "purchase contract" and a financing application with GMAC; the other signed an installment contract naming a credit union as assignee and an application with Nissan's captive finance arm, NMAC. Neither credit application or contract mentioned that other third-party lenders might be "shopped" for these deals.

The plaintiffs alleged that when First Midwest requested their credit reports and subsequently declined to purchase the retail installment contracts, it not only violated the FCRA, but also weakened their credit ratings. First Midwest, of course, argued that the plaintiffs' credit ratings had not been harmed by the inquiries, and that the requests were, in fact, permitted by the FCRA.

In a clear and concise opinion, Circuit Judge Wood writes, "While it may be a better practice for car dealers explicitly to inform their customers that unknown third-party lenders might request the customers' credit reports, we are not convinced that a failure to do so violates the FCRA as it is now written."

The decision of the lower court in favor of First Midwest was affirmed.

First published on BankersOnline.com 10/26/05