A federal judge has ruled that auto dealers must tell consumers with lower credit scores why they are charged higher interest ratesthan those charged to the majority of car buyers.

U.S. District Judge Ellen Huvelle from Washington, D.C., upheld a Federal Trade Commission decision that dealers must comply with a provision in the Fair Credit Reporting Act requiring lenders to provide notice to consumers and provide instructions on how they can obtain a copy of their credit history report and, if necessary, correct any false or incomplete data.

One of the purposes of the statute is to provide consumers with information that might be helpful in preventing identity theft.

Dealers must comply even when a dealer makes a loan then immediately assigns the loan to a third party, such as a bank or finance company.

The National Automobile Dealers Association argued that auto dealers should be exempt from providing this notice. The FTC concluded that the auto dealers actually use the credit report even if they do not physically obtain it, and so must provide the notice to consumers. NADA sued the FTC, challenging this interpretation. The court agreed with the FTC's position in its ruling.

"This ruling will make it easier for consumers to learn about unfavorable information in their credit reports," said Stuart Delery, acting assistant attorney general for the civil division. "The autodealer is in the best position to provide this information because the dealer interacts directly with the consumer."

Under NADA's interpretation, the consumer would never receive this disclosure from the dealer or lender.

The dealer association said it will appeal to the Court of Appeals for the D.C. Circuit.

Read more atthe Free Press: http://www.freep.com/article/20120525/BUSINESS01/205250360/Judge-Car-dealers-must-tell-buyers-why-loan-interest-rates-are-raised