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Is it illegal for a car dealership to run credit without your permission?

The simple answer is: yes and no.

When a consumer seeks to finance the purchase of a car through a dealership or through a third-party institution (i.e., a bank), the dealership performs a “hard” credit inquiry. Hard credit inquiries are conducted when a consumer applies for credit or a loan and can only be done with the consumer's knowledge and consent. Thus, it is illegal for a car dealership to run a "hard" pull of your credit without your permission.

A dealership may, however, conduct a “soft” inquiry (or soft “pull”) of a potential buyer's credit without the consumer's knowledge or permission. A soft credit inquiry is one that does not appear on a consumer's credit report or affect a consumer's credit score. It is often used for higher level screening purposes, such as by a prospective employer assessing an applicant's overall financial responsibility. Soft inquiries are also used for credit pre-approval or to get an idea of how much credit is presently available to a particular consumer, such as a potential car buyer.

A dealership never has to run a shopper's credit report if the shopper is paying with cash or if they have already secured financing through a third-party. There are, however, reasons that a dealership would want to see a shopper's credit even if the shopper insists that financing is being handled elsewhere.

Even if a dealership does not offer or arrange financing, insight into a consumer's credit history can help the dealership in negotiating the best possible price for a vehicle. If a consumer has access to a good amount of available credit, for example, a dealership might set a higher initial price or might take a harder line during negotiations because they know the consumer has access to a certain amount of money.

A dealership that offers in-house or institution-associated financing has the added incentive of peeking into a shopper's credit because financing a vehicle purchase maximizes the value of the overall sale. Dealerships often offer competitive auto loan rates as an incentive for buyers to purchase the desired vehicle from them. In order for a dealership to effectively use a competitive financing rate during negotiations, the dealership needs to be reasonably sure it will be able to get the customer approved for the offered financing.

Even if it is legally permissible to run a soft credit check without a consumer's permission, you might assume that you would at least have knowledge that the check is being performed since the dealership needs certain information in order to run the credit inquiry, such as name, birth date, and tax ID or social security number. Auto dealers are notoriously crafty, however, and they use a number of tactics to get a consumer to hand over this vital information as early in the shopping process as possible.

Some dealerships are downright unscrupulous, but others simply rely on the average consumer's lack of legal knowledge to gain access to their credit. For example, it is true that the Federal government requires auto dealerships to collect certain information—information very similar to what is provided on a credit application—when a consumer makes a cash purchase totaling $10,000 or more. While the dealership is only required to collect that information prior to completing the sale, however, dealers often request that information early in the process under the guise of “getting things started” and suggesting it will save the consumer time. In some cases, a dealership might even tell the shopper the information is required before the dealership will begin discussing pricing. However it is obtained, once the dealership has the consumer's vital information, they can use it to run a soft credit inquiry without the consumer's express consent.

If you believe a car dealership has run your credit without your permission, give us a call at 1-800-219-3577 for a free not obligation case evaluation.

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