By Ronald D. Gorsline and K. Dailey Wilson*
When a customer sits down at the finance desk in your dealership, the first step is to get some basic information. But the credit application isn’t just about obtaining identifying information. Federal law requires certain disclosures to appear in a credit application, and there are other disclosures that, while not required, are recommended.
A credit application should include the following disclosures:
- Alimony, Child Support, and Separate Maintenance: If your credit application asks whether an applicant is receiving alimony, child support, or separate maintenance payments, the application also must state that the applicant is not required to reveal that income unless he or she wants to rely on that income in the determination of creditworthiness.
- Credit Report: The Fair Credit Reporting Act allows persons to pull credit reports for “permissible purposes,” including in connection with an application for credit. The submission of an application (even if the creditor doesn’t tell the customer that his or her credit report is being pulled) or a separate express written authorization allows a creditor to pull a credit report. Even though the application itself allows the creditor to pull the applicant’s credit report, including a statement in the application authorizing a credit report puts the applicant on notice that you will be checking his or her credit and may help avoid misunderstandings.
- Telephone and Text Message Authorization: Providing a cell phone number on a credit application constitutes consent to receive account-related calls and text messages, including servicing and collection calls. Even though not required, it is a good idea to include a disclosure explaining that by providing a cell phone number in connection with the application, the customer consents to receive account-related communications. If the creditor will engage in any marketing by placing calls or sending text messages to a cell phone (e.g., calling the customer to sell an extended warranty), the Telephone Consumer Protection Act requires that the creditor first obtain the customer’s prior express written consent. This consent can be obtained by including a specific disclosure in the application, along with a place for the customer to initial or sign, indicating that the customer wants to receive marketing calls and texts. However, the customer is not required to agree to receive marketing communications and must be able to apply for credit without giving such consent.
- References: Consider revising your application to include a statement explaining when references will be contacted. The Consumer Financial Protection Bureau has cited companies for failing to inform customers that their references will be contacted for collection purposes, even though the Fair Debt Collection Practices Act allows creditors to contact references to obtain location information about a customer.
The credit application is the first document that you put in front of your customer. You don’t want the transaction to be a lemon – that is, faulty from the start. Give your credit application a multi-point inspection today, and make sure that it includes these important federal disclosures.
*Ronald D. Gorsline is a partner in the Tennessee office of Hudson Cook, LLP. He can be reached at 423.490.7562 or by email at firstname.lastname@example.org. K. Dailey Wilson is an associate in the Tennessee office of Hudson Cook, LLP. Dailey can be reached at 423.490.7567 or by email at email@example.com.