Under the Equal Credit Opportunity Act (ECOA), anyone—person or company—in the business of regularly assessing applications for financing is required to provide written notice to an applicant when an application is not granted. Notice of such adverse action against consumers is also required in certain circumstances under the Fair Credit Reporting Act (FCRA). This notice must provide the reasons for either not approving (or denying) or approving on terms different than those for which the applicant applied. Since auto finance companies are in the business of assessing buyers' credit, they are required to provide such informative notification.
Say, for example, a shopper goes to a CAR dealership and wants to finance the purchase of a new car. The shopper chose that particular make and model of car and that particular dealership from which to buy the car because of an advertisement the buyer heard regarding a low finance interest rate of 0.9%. The shopper finds their car on the lot and the salesman collects their information and runs their credit application through CAR Financial Services, a CAR-owned auto loan financer. After hearing back from the bank, the salesman informs the shopper that the bank will finance the shoppers purchase of the desired vehicle but not at the offered rate.
From here, the scenario could proceed a number of ways. If the shopper was intent on buying the car only if they could get it for the advertised rate of 0.9%, then the buyer might state as much and simply leave the dealership. In that case, the shop or should receive at the mailing address they provided written notice from CAR Financial Services that the shoppers credit was run and that an offer of financing could not be extended to the shopper on the terms under which the shop are applied for credit. Since the financer in this case made what amounts to a counteroffer by agreeing to the loan under a higher interest rate—i.e. under different terms—the notice must state so. The notice must also provide at least a basic explanation for not approving the application on the applications terms, such as because the applicants credit score does not meet the requirements for the advertised interest rate.
Likewise, if the lender simply denied the shoppers credit application and did not intend to finance the shoppers vehicle purchase under any terms, the lender must make such notice to the shop or within 30 days of the application for credit.
If, instead of simply leaving the dealership, the shopper decided to accept the lender's offer to finance the vehicle at a higher interest rate than advertised and went through with the purchase and financing of the vehicle, the lender would not be required to provide a separate written notice regarding its offer or counteroffer to the shopper. Since the shopper in this instance executed a sales agreement and a loan terms sheet providing for the higher interest rate, those documents serve as sufficient written notice or, rather, evidence proving the buyer or credit applicant was aware of the lender's decision upon reviewing the applicant's credit.
