Dealers do not have the right to invoke the Patriot Act to get you to agree to a credit check
Many consumers already have their financing in place when they go to buy a car. Sometimes, however, the dealer tries to throw them a hurdle by claiming that the Patriot Act requires them to do a credit check. What's this about?
It's a scam. The dealer is trying to figure out where you are in terms of your credit and make you fork over more money.
The reality is this: if the dealer pulls your credit, your credit score will go down.
Vehicle dealers are allowed to pull customers' credit under the Fair Credit Reporting Act, but only if you agree by filling out and signing a loan application. If you pay with cash or pre-arranged financing, however, dealers have no right to try to make you consent to a credit check by the Patriot Act, which is a federal anti-terrorism law.
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.
According to Randy Henrick, private consultant and president of AutoDealerCompliance.net, this is one of the top ways that dealers make money. For this reason, they have financial motivation to getting you to apply for a dealership-affiliated loan, even if you already have a preapproved loan or want to pay in cash.
The majority of salespeople at dealerships follow the rules even as they do their best to make a sale. If the customer refuses to fill out a credit application, the salesperson will move on and try other ways to make a profitable sale, such as floor mats and undercoating.
Unfortunately, not every dealer is on the up-and-up. Shady ones will raise the pressure on customers by invoking the Patriot Act, and often they get away with it.
"Many people have no idea what's in the Patriot Act," says Henrick.
Some will go even further and do an illegal credit check. When you provide your driver's license for a test drive of the vehicle, they get all the information they need to pull your credit.
"What a lot of dealers do is pull a credit report while a customer is out for a test drive and then try to undercut the financing the customer got from a credit union or bank," notes Henrick.
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.
For instance, says Henrick, they 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.
"The OFAC list is generally people who are sympathetic with or involved with foreign terrorist groups," says Henrick. He adds that no one in the U.S. is allowed to make a sale to any person on the list, even if it's only a pack of gum.
None of the regulations requires a credit check, however.
"If you're not financing a car, there's no reason for them to check your credit," says Jeff Ostroff, CEO of CarBuyingTips.com.
How to Avoid Unnecessary Credit Checks at a Dealership
- Be upfront
- Know your rights
- Check your credit reports and challenge unauthorized hard pulls
If you are not willing to take out a loan through the dealer for any reason, make it clear right away.
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.
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.
"They won't be able to," says Ostroff.
That's because there isn't one. Checking your credit is not necessary to sell you a car.
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.