Has a car dealer rejected you for financing? If so, the Equal Credit Opportunity Act requires the dealer to provide you with a written statement explaining why it rejected your credit application. The Act’s notice requirement can be satisfied in one of two ways:
- A dealer can routinely provide written statements of reasons for credit denials to applicants; OR
- A dealer can advise applicants they have been denied and then explain that such applicant has the right to request a specific written explanation.
Last week, the Sixth Circuit Court of Appeals ruled that a Michigan car dealer violated the ECOA by failing to provide this explanation. The Court stated, “any ‘creditor’—middle-men included—that regularly participates in credit decisions and takes an adverse action with regard to a credit application bears the burden of providing notice under the ECOA.” The full text of the opinion can be found at http://www.opn.ca6.uscourts.gov/opinions/opinions.php.
This ruling is important. First, it confirms that car dealers are active participants in setting credit terms because they prepare the contracts, select the interest rate, and discuss payment terms. Second, it lets consumers know specifically why their credit is denied so any credit errors can be fixed and follow-up applications can be made.
The Federal Trade Commission provides additional information about your rights under the Equal Credit Opportunity Act at https://www.consumer.ftc.gov/articles/0347-your-equal-credit-opportunity-rights. Credit decisions cannot be based on your race, color, religion, national origin, sex, marital status, age, or receipt of public assistance. Requiring credit denials to be explained in writing helps ensure decisions are not made for these prohibited reasons.