District Court (D.C.) Finds Against Car Dealer Association’s Claim against the FTC on FACTA Risk Based Pricing

Yesterday, the FTC prevailed against the National Automobile Dealers’ Association’s challenge to the FTC’s Risk Based Pricing Rules under FACTA.  The FTC’s Motion to Dismiss was granted and the NADA’s Summary Judgment Motion was denied.  (National Auto. Dealers Ass’n v. F.T.C., — F.Supp.2d —-, 2012 WL 1854088 (D.D.C. 2012) Judge Huvelle summarized the case as follows:

The National Automobile Dealers Association (“NADA”) challenges the Federal Trade Commission’s (“FTC” or “Agency”) interpretation of the meaning of “uses a consumer report” in the amended Fair Credit Reporting Act (“FCRA”), 15 U.S.C. § 1681m(h). As set forth in a preamble to amended regulations related to “risk-based pricing” of consumer credit, the FTC contends that an automobile dealer that does not obtain a consumer report nonetheless “uses” it when the dealer executes a credit contract based upon a third-party financing source’s use of the consumer report. NADA contends that this interpretation violates the Administrative Procedure Act (“APA”), 5 U.S.C. §§ 701 et seq., claiming that it is (1) ultra vires and (2) arbitrary, capricious, or otherwise not in accordance with law. Before the Court are the FTC’s motion to dismiss and NADA’s motion for summary judgment. For the reasons explained herein, the FTC’s motion will be granted and NADA’s motion will be denied. . . . In 2003, Congress enacted the Fair and Accurate Credit Transactions Act of 2003 (“FACT Act” or “Act”), Pub.L. No. 108–159, 117 Stat.1952, to “pre-vent identity theft, improve resolution of consumer disputes, improve the accuracy of consumer records, [and] make improvements in the use of, and consumer access to, credit information.” The FACT Act amended the FCRA by adding, among other things, a provision that governs the “[d]uties of users in certain [consumer] credit transactions.” 15 U.S.C. § 1681m(h). That provision addresses a practice known as “risk-based pricing” and provides statutory protec-tions for consumers who, based on information con-tained in their “consumer report[s],”  are offered credit at “materially less favorable [terms] than the most favorable terms available to a substantial proportion of consumers.” In such circumstances, prospective buyers are entitled to re-ceive a “risk-based pricing notice” (“RBPN”) alerting them to the potential existence of negative information in their credit reports so that they can check their credit histories and correct any inaccuracies. Specifically, the creditor must explain that information in the credit report was a factor in setting the unfavorable interest rate, how the consumer can obtain his or her credit history report, and how to correct false or incomplete data. Prior to the 2003 amendment, consumers were not entitled to receive such notice upon receiving less favorable credit terms; they only received notice for more drastic “adverse actions,” such as denial of a loan. These RBPNs must be provided to consumers by “any person” who “uses a consumer report in connection with an application for, or a grant, extension, or other provision of, credit.” 15 U.S.C. § 1681m(h)(1).  .  .  .On January 15, 2010, the FTC adopted the Fair Credit Reporting Risk–Based Pricing Regulations. 75 Fed.Reg. at 2724–84. In the final regulations, it ad-dressed—and rejected—NADA’s argument, con-cluding that an initial creditor, FN5 such as an auto dealer, must provide the RBPN within the context of three-party transactions. Id. at 2730, 2759, 2775–76; see 16 C.F.R. § 640.6(b); 12 C .F.R. § 222.75(b). Specifically, the Agency took the position that auto dealers that are original creditors are considered to “use” the credit reports to determine which third-party financing source to approach for financing, even if they do not set the risk-based price, and therefore fall within the purview of § 1681m(h). 75 Fed.Reg. at 2730.

In the end, the District Court held that the FTC’s interpretation of FACTA was entitled to Chevron deference, explaining that “[w]hile NADA may not like the Agency’s conclusions, the persuasiveness of the FTC’s reasoning entitles it to deference under Mead.”.