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New privacy rules require homework and training

July 21, 2011
Federal privacy rules are a potential minefield for dealers. There are several to keep track of, they require dealership training programs, and the fines for failing to comply can be hefty.
           
There are some new requirements beginning this month; others were revised or began to be enforced Jan. 1. The rules, chiefly under the Fair Credit Reporting Act and the Gramm-Leach- Bliley Act, cover dealerships’ handling of customers’ personal information, especially their financial information.
           
A dealership must tell applicants what action it took on their credit application within 30 days. If the answer is no, the store must send an Adverse Action Notice.
           
Beginning July 21, if the credit score is used in the decision to extend credit, this notice must provide a credit score disclosure with specific details, including which credit bureau was used and the high and low range of scores.
           
Other changes
           
Also changing on July 21: The Risk-Based Pricing Notice given to customers who get credit on unfavorable terms must disclose their credit score. But few dealers use that form, instead giving a Credit Score Disclosure Notice to all credit applicants—an alternative recommended by Paul Metrey, the National Automobile Dealers Association’s chief regulatory counsel for financial services, privacy and tax. Metrey recommends that dealers now should use the model forms for both notices published by the FTC in early July.
           
Notably, the Federal Reserve Board and the Federal Trade Commission generally stated in the final rule that dealers who do not obtain credit reports may nevertheless be deemed to use credit reports for the purposes of the RBPR if they forward a credit application to a finance source that uses a credit report as part of its underwriting process.
           
Consequently, the agencies have formally determined that dealers who meet these requirements must comply with the RBPR, even though they never order or review credit reports.
           
Although not entirely clear, the Fed appears to take the same approach regarding whether dealers who do not order credit scores nevertheless use credit scores in taking adverse action. Therefore, such dealers should discuss with their counsel whether they should order credit scores so they can provide the new disclosures in their adverse action notices.
           
To help dealers meet the the latest regulation, the NADA has issued a new “Dealer Guide to Adverse Action Notices,” explaining when dealers must issue an adverse action notice, what the notice must say, when dealers can rely on a finance source’s notice, and other important issues.
           
The guide is available at www.nadauniversity.com. To access the guide, sign in or sign up for NADA University. Once you have logged in, visit the Resource Toolbox, select “Driven Management Guides,” then “Legal/Regulatory.”
 
 

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