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National dealer groups promote compliance with fair credit laws

January 31, 2014
The federal Consumer Financial Protection Bureau last March issued "guidance" to indirect auto lenders alleging that the industry has engaged in unintentional, statistical discrimination against protected minority classes.
 
In Jan. 25 remarks at the NADA Convention & Expo in New Orleans, outgoing association Chairman David Westcott said: "Our message is simple: the CFPB’s effort to coerce the industry into adopting flat fees will harm the car-buying public. Rest assured that the NADA will continue to lead the charge and defend in-dealership financing."
 
Now comes the NADA Fair Credit Compliance Policy & Program, one that dealers may wish to consider to satisfy fair credit laws. The NADA publication also is supported by the American International Automobile Dealers Association and the National Association of Minority Automobile Dealers.
 
Treating customers in a fair and consistent manner and strictly abiding by all anti-discrimination laws is central to the mission and success of dealers. The NADA publication is designed to further that mission by providing dealers with an optional Fair Credit Compliance Program they can adopt which: (a) establishes a Fair Credit Policy for the dealership that sets forth an unambiguous commitment to fair credit compliance; and (b) creates a general framework for promoting compliance with fair credit laws.
 
Dealers who adopt this or a similar approach would individually establish a pre-set amount of compensation their dealership would include in credit offers to every consumer, unless any one of several pre-determined and pro-competitive reasons for deviating from that amount is present in the transaction. The approach also provides that any person offering an extension of credit must record and document any deviation from the dealership’s pre-set amount of compensation.
 
Finally, it establishes a periodic review process for management personnel to examine the documentation and, if necessary, take corrective action. This voluntary approach to fair credit compliance is designed to help dealers who adopt it to both promote their commitment to fair credit compliance and strengthen their ability to demonstrate that they have taken a consistent approach to the pricing of consumer credit.
 
Fulfilling these goals is particularly important in light of 2013 allegations by the federal CFPB 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 amount they earn for qualifying and extending credit to consumers.
 
The CFPB maintains (and has already entered into a consent order with one finance source) that such dealer discretion unintentionally results in certain groups of consumers (based on race, color, national origin, and other factors) paying more dealer compensation than similarly situated consumers in other groups. While the national dealer associations take these allegations seriously, their spokespersons said that they – along with a large bipartisan group of U.S. senators and representatives – have not received essential information from the CFPB demonstrating that such unintentional discrimination exists.
 
However, the nature of the CFPB’s allegations underscore the importance of strengthening the compliance resources that are available to our members in this area. The NADA Fair Credit Compliance Policy & Program is based on a compliance program that two dealers adopted in 2007 consent orders to resolve Department of Justice allegations of unintentional credit discrimination.
 
While neither the DOJ nor any other federal agency has stated that adopting this approach satisfies the requirements of federal law, it nevertheless provides a useful template for dealers to consider in developing their own approach to fair credit compliance.
 
The publication contains: (a) a brief overview of this issue; (b) general and specific instructions for completing the Fair Credit Compliance Program template; and (c) the actual Program template. Dealers are not required to adopt this Program.
 
If dealers decide to adopt this Program (or any part of it), it is essential that they make dealer specific entries where noted in the template and otherwise modify the Program to reflect their operational circumstances. It is imperative that dealers consult with qualified legal counsel when making these individual decisions.
 
 

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