A dealer asked a new American Credit Systems staff member a specific question regarding soft pulls/compliance and we wanted to get the right answer for him so we went directly to our Senior Compliance Specialist. The following is a summary of the conversation:
Auto Dealer Compliance Question:
The dealer said sometimes he sends credit applications straight to the bank without running credit on them. He asked American Credit Systems staff “if a soft pull takes place and they deem the soft pull applicant credit worthy, can the I just send the application to the bank and not run a hard credit inquiry?”
Our representative wanted clarity on the issue. The representative’s position was this: Both scenarios are not compliant; however, he did not know exactly why. The representative often runs across dealers who send the application straight to their captive and never pull credit.
Question for our Senior Compliance Specialist: Is that complaint?
Specialists Answer: Great question! A soft pull DOES NOT replace a traditional hard inquiry in any situation. If a dealer is sending a credit application to a bank or captive, that will not change. The Prequal (soft pull) application does not contain proper consent to use as a credit application. IF the dealer gets consent to pull a Prequal report and then gets a signed credit application, the credit application can be sent to the bank without pulling a hard inquiry. The problem arises when the bank pulls credit on behalf of the dealer, the dealer is still responsible for doing standard auto dealer credit reporting compliance actions. The problem there is they have no credit report to use to fulfill those actions with, therefore putting them out of compliance.
American Credit Systems Representative asking for clarity:
So if I am hearing you correctly, when I run across a dealership that does not pull credit and sends applications to the bank and does not run any standard compliance on them, they are not complying with the FCRA, FTC, and such?
Compliance Specialist's Answer
You are correct. As soon as a dealer accepts a signed credit application, they are considered an agent of a lender or lenders and are required to comply with the same rules as the puller of credit (bank).