Adverse action notices can throw a wrench in the car-buying process, but if dealt with carefully, they’ll just be a minor speed bump.
After spending a couple of hours with a prospective car buyer, it’s finally time — he or she is ready to purchase a vehicle. You’re thrilled because you’ve put a lot of hard work into answering the customer’s questions, browsing inventory, and going on test drives. The customer has chosen a newer used model, and you stand to make an excellent commission once you close the deal.
Sitting down at your desk, the customer fills out a credit application to have the vehicle financed. Once the customer is done, you grab the paperwork and head to the finance office to run a credit report. As you’re walking, you skim the application…and there are red flags everywhere. You check the customer’s credit report, but it just confirms what you already knew — this person is never going to be approved for credit. It’s like a ball of fire in your hands that you now have to deliver to the customer.
Car salespeople find themselves in situations like this all the time. It’s frustrating and disappointing to realize all of your hard work may have been for nothing. Then comes the awkward situation where you have to notify the consumer that his or her credit has been denied, or it hasn’t been submitted for approval based on the application. And you can’t just tell customers they’re not eligible for credit — you must also provide adverse action notices under the Fair Credit Reporting Act.
As auto industry employee, it’s your job (and your dealership’s responsibility) to ensure you’re compliant with all relevant federal, state, and local laws. If you’re not sure how to write adverse action notices, consult with an attorney to verify that you’re in compliance.
Delivering Adverse Action Notices with Discretion
You’ve always been a great salesperson, but even top sellers get thrown off by having to gently let customers down when they aren’t approved for financing. In addition to feeling sorry for the person, you’re never sure how he or she is going to take the news — will the customer get up and walk out? Cry? Yell at you? It’s impossible to know ahead of time.
While you can’t predict how each individual will respond, you can do your best to deliver the news as tactfully as possible. If you handle it correctly, you may even be able to save the sale.
Use the right tone.
You have to get the bad news out of the way first, but it’s all in the delivery. Try to use a tone that is respectful but slightly upbeat — something that conveys “Hey, this is just a minor setback!” You could say something like, “John, I’m so sorry, but it looks like your credit application was denied. You may want to go online and request a free copy of your credit report to see if any inaccuracies on there need to be removed, but I’d still love to help you figure out a way to walk out of here with a new car today.”
Have a Plan B.
You don’t want to tell customers their credit was denied and then just let them walk out the door. If you can, think of a backup plan. Is there another car on the lot that’s less expensive, that you think they’d like, and that you think they’d be approved for? Tell them about it right away. Did they have a decent amount of cash to put down? See if you can find a vehicle on your lot that they could purchase with that money. Help them think about other payment options they may have, like credit cards or family members who would be willing to help.
Be a friend.
Yes, you’re doing business with your customers, but if they’re feeling depressed or embarrassed about the financial predicament they’ve found themselves in, you need to be human. Think about a personal story you may be able to tell them about a time something similar happened to you, a friend, or family member. Or, tell them about a time this happened to a past customer of yours and how well it worked out for that person in the end. If it seems like they need someone to listen to them, do that. Being empathetic may not ultimately get you paid that day, but in addition to being the decent thing to do, it may pay off for you in the long run when they recommend you to others.
Be Proactive to Avoid Giving Out Adverse Action Notices
One easy way to skip over an awkward credit denial is to ask the right questions upfront. Without being rude, try to get a feel for how much they’re willing to spend, what their down payment is going to be, what they want their monthly payments to be, and whether or not they have a decent credit score.
To be compliant, you should not be initiating a hard credit check until the customer tells you they intend to buy a vehicle, however if they’d like to see how much they could be approved for, you can do a soft credit check that won’t affect their score, and you can do it before they fall in love with a vehicle that is way out of their price range. Just remember that unless the customer has initiated a purchase with you, you can’t run a credit check without his or her written permission.