Federal Laws Do Not Require a Credit Check if You Bring Your Own Financing to the Car Dealership

Dealers do not have any legals rights to invoke the Patriot Act in order to get you to agree to a credit check

Thinking about Buying a Car? Don't Get Taken In by the Patriot Act Credit Check Scam
Image: NCCC
April 5, 2019

Whether you are the kind of car buyer who already has financing in place when going to check out new cars or if you just have a sudden urge to stop by the lot on the way home, there's something you need to know to avoid becoming a victim of an unscrupulous car dealer or salesman. Regardless of what you might hear, the USA PATRIOT Act of 2001 does not require that the dealership perform a credit check.

money motivates people to lie

The consumer marketplace is a mix of many different kinds of people, from those who are always honest to those who would lie to themselves. Most people try to do honest business, but sometimes the stresses of life get to even the most honest people. Money is a very strong motivating factor, and it can cause people who wouldn't ordinarily lie to do so.

In an attempt to make extra money, whether it's due to greed or a simple need to feed the family, a salesperson may tell you that a credit check is required, even if you have your own financing in-hand. It may even be the dealership manager or owner who is telling salespeople to advise potential customers of this falsehood, and many may do it without knowing that it isn't true.

It's all about learning your true credit worthiness

As part of this ruse, someone at the dealership is trying to figure out the true terms of your credit in order to find a way to get you to spend more money. The instant you give information to a car dealer, your negotiating position changes. If you walk in with a blank check auto loan for $20,000 at 5% interest, the dealership personal can check your credit, see that you have a few blemishes, and then tell you that there are no vehicles for that amount in an attempt to lock you into a $25,000 loan at 8% interest. Loan markups are big business for car dealerships, which get a portion of the proceeds from the lender just for getting you to agree to the higher terms.

when can a dealership check credit?

Vehicle dealers are allowed to check your credit under the Fair Credit Reporting Act, but only if you agree to do so by filling out and signing a loan application. If you pay with cash or pre-arranged financing, dealers have no right to try to make you consent to a credit check by the USA PATRIOT Act, which is a federal anti-terrorism law, or any other law. To make matters worse for the consumer, most people don't even know what the USA PATRIOT Act even is.

Even if you have a blank check auto loan, it may be worth allowing the dealership to work with you on a loan application. If you have a blank check auto loan, your credit has already taken a ding and further inquiries for the same type of credit typically don't affect it much, if any, within a short period of time. Start by refusing dealership credit, only at the very end of the process allowing the dealer to secure financing but only if the rate of your blank check auto loan can be beat by a good enough percentage (and for the same loan length).

The Patriot Act and Credit Checks

If you want a loan from a dealership, the application process is straightforward. You fill out a credit application and the dealer pulls your credit and shops around for a loan. If you are approved, you sign the agreement, and the dealer gets a commission from the lender. Dealers often mark up interest rates and split the proceeds with the lender.

Some dealerships check credit illegally

The vast majority of salespeople will move on quickly when you don't agree to a credit check, opting instead for other add-ons, such as upgraded floor mats, useless undercoating, and extended warranties. But some will do an illegal credit check anyway against your wishes. Believe it or not, providing your driver license for a test drive can provide all the information necessary to run your credit. No; you don't need to provide a Social Security Number for someone to run your credit.

While you are out for that test drive, someone at the dealership could be working the numbers in order to find out how to undercut the financing you already received.

Basis in Reality

Vehicle dealers might also mention the Patriot Act because they are required by federal law to take certain measures to fight crime, including terrorism. They do have to check all buyers against the U.S. Department of Treasury Office of Foreign Assets Control's list of designated nationals and blocked people. But those regulations don't require a credit check. The simple thing to keep in mind is that if you are not financing a car, a dealership should not be checking your credit.

How to Avoid Unnecessary Credit Checks at a Dealership

  1. Be upfront
  2. If you are not willing to take out a loan through the dealer for any reason, make it clear right away.

  3. Bundle
  4. Have you already been approved for a vehicle loan? If you act fast, you can avoid getting an extra ding on your credit when asking if the dealer can beat the terms of your preapproved loan. Multiple inquiries for a vehicle loan in a short time period—usually 30 days—are bundled and counted as one.

  5. Know your rights
  6. If a dealer cites the Patriot Act or any other law in an attempt to get your consent for a credit check, ask them to show you the statute in writing. If they are able to show you something, double check it with a quick web search on the spot.

  7. Check your credit reports and challenge unauthorized hard pulls
  8. Pull at least one of your credit reports when you're buying a car. Make sure that no dealer has run a credit check without your consent. If one has, dispute it.