Illinois Kia dealership sued over notice of adverse action
A firm credit application is a traditional, formal inquiry that typically affects a consumer’s credit rating. Soft credit is less formal, does not affect credit scores, and can be used to give customers an idea of how much financing they can expect and what vehicle they will be able to afford.
Soft withdrawals can be requested by customers, as May said, or done unilaterally by a lender or dealership to find and market qualified car buyers. Unsolicited due diligence, known as prequalifications, creates an obligation to honor preliminary financing terms available to a customer if a formal check shows similar creditworthiness, according to Experian. Customer-authorized soft pulls, known as prequalifications, do not require a firm credit offer, Experian explains.
May filed a soft credit application on the World Kia Joliet website on Aug. 16, 2021, according to the lawsuit. He said he wanted to avoid a difficult investigation and that the online application promised not to affect his credit.
World Kia Joliet responded with an estimate of the loan amount, loan term and interest rate that she thinks might be available. May also received a call from a dealership salesman who asked for additional information, including May’s social security number.
May’s lawsuit alleges that a salesperson filled out a credit application for him while they were discussing a car purchase, and “the agent said the applicant’s credit application was ‘good.'” But the request had not been approved, May claims in the lawsuit.
May said she received a notification from Credit Karma that the dealership had thoroughly investigated her TransUnion credit report. He said he thought written consent would have been necessary for World Kia Joliet to do so, but he did not press the issue out of a desire “to maintain an amicable business relationship”.
Jean Noonan, a partner at law firm Hudson Cook, said Automotive News written consent is not required to obtain firm credit in response to a credit application. In the absence of a request, a business can perform a soft or hard pull for certain qualifying reasons, she said. However, credit bureaus often require the consumer’s written consent before releasing a report on a non-candidate, Noonan said.
However, if a dealer conducted a raffle after informing the customer that an informal, non-credit-impacting inquiry would be made, the retailer could be exposed to an allegation of deceptive behavior, she said.
Noonan said it’s a good idea for dealerships to alert consumers who approve a soft draw and apply for credit that asking would mean a hard draw.
O’Loughlin said that while the dealership may have a legally permissible goal of pulling someone’s credit, it’s best to get the customer’s consent in writing if there’s a dispute. Otherwise, “the dealer is taking some risk,” he said.