NADA issues guidelines for dealer compliance with Fair Credit law
In response to last years guidance from the Consumer Financial Protection Bureau, NADA has issued new guidelines for complying with the Fair Credit law. The guidelines are endorsed by AIADA and the National Association of Minority Automobile Dealers. Every NADA dealer member received a copy by email on January 24.
The Fair Credit Compliance Program is an optional program for dealers that (1) establishes a Fair Credit Policy for the dealership that sets forth an unambiguous commitment to fair credit compliance, and (2) creates a general framework for promoting compliance with fair credit laws, NADA wrote in a memo sent to its dealers accompanying the guidelines.
Under the program, dealers would establish a set amount of compensation to be included in credit offers to every consumer, unless the deal met predetermined criteria for exemption from the program. Any exemption would have to be recorded and documented. Management would need to periodically examine the documentation and make changes to the program when necessary.The program offers seven (7) allowable exemptions:
-The finance source imposes a lower interest rate cap.
-The customer has a maximum monthly payment he or she can pay.
-The customer has an offer from another lender or dealer for a lower interest rate.
-The customer qualifies for a promotional credit offer made to all customers or to all buyers of
certain vehicle on the same terms.
-The customer qualifies for a subvention program from a manufacturer, finance source or other
-The customer qualifies for a Dealership Employee Incentive Program.
-The customer buys a vehicle that satisfies the dealerships predetermined inventory reduction
The dealer would need to appoint a Fair Credit Compliance Program Coordinator, who would administer the program and report to the dealership board of directors.
NADA advises dealers to consult with legal counsel before adopting any part of the program.
The CFPB has not said whether following NADAs program would mean a dealer would be in compliance with the Fair Credit Law and exempt from discrimination charges. The agency has said that dealers can be compensated by banks they regulate for arranging loans, but should not have discretion to set the interest rate.
A spokesman for AutoNation told the Wall Street Journal it plans to test the program in selected dealerships.
The dealer associations note in the memo to dealers about the program that the CFPB has alleged that finance sources that purchase credit contracts from dealers create a significant risk of fair credit violations when they allow dealers to exercise discretion in determining the finance commission, a.k.a. dealer reserve.
But the associations say, as they have in the past, that we along with a large bipartisan group of U.S. Senators and House members have not received essential information from the CFPB demonstrating that such unintentional discrimination exists.
In its meeting in New Orleans in conjunction with the NADA Convention, the American Financial Services Association announced that it would conduct its own study of indirect auto financing.
We want to make the case correctly, with accurate statistics, said AFSA President and CEO Chris Stinebert, according to WardsAuto. Our job is to make sure regulators understand the industries they regulate.Download Bulletin PDF