Hard inquiries are not limited to requests for credit.
FCRA 604 provides permissible purpose for an inquiry if the consumer initiates a business transaction, and that business transaction has an associated, legitimate need for the business to review the consumer's credit as a part of evaluation of the business transaction.
Such inquiires can be coded either hard or soft, and there is no policy restriction that such inquiries cannot be hard.
See FCRA 604(a)(3)(F).
Typical examples are the application for utilities, cable, apartment rental, etc.
The permissibility of the inquiry would thus not be challenged on the basis that it is not related to a request for credit, but rather that the business transaction does not carry with it any legitimate business need to view the consumer's credit information as a part of approval of the autopay. The business could assert that prior defaults in the consumer's credit history might affect their default on having adequate funds necessary to conduct autopay functions. The consumer would need to assert that conduct of autopay would not have a legitimate connection to information shown in their credit report.
As an alternative to the legitimate business transaction permissible purpose, they may have used the separtate permissible purpose under section 604 of reviewing an existing account of the consumer (so-called internal account reviews).
If they had used that permissbile purpose as basis for their inquiry, then CRA coding makes any such inquiry a soft pull.
The FCRA requires that a party making any inquiry must either provide a specific authorization signed by the consumer, or must provide a statment of their permissible purpose, which must be one or more of the purposes set forth under section 604.
Thus, the key to evaluating the legitimacy of their inquiry and of its coding of hard or soft is first to determine the permissbile purpose that accompanied their inquiry.
If it was for an internal account review, then there is clear basis for requring it to be coded as soft per CRA policy.
However, if their statement of permissible purpose was for a business transaction initiated by the consumer, then it would be necessary to show that setting up autopay involves no legitimate business need for them to review information in your credit history. That would likely be a subjective argument, as they may contend that autopay might be a process that could result in a loss by them if the consumer does not have funds to cover an auto payment.........,
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