Auto Dealer Newsletter – Fair Credit Compliance
by Sheldon Cohen, Esq, Partner, Orange County Office
Last year the NADA encouraged its members to adopt a “Fair Credit Compliance Policy,” implementing policies and procedures to ensure that Dealers treated all of their customers fairly, and strictly abiding by all anti-discrimination laws. The interest and obvious concern of the NADA was no doubt prompted by actions of the Consumer Financial Protection Bureau (CFPB). The CFPB is an independent agency of the United States government responsible for consumer protection in the financial sector. Its jurisdiction includes banks and credit unions.
It is the position of the CFPB that there is a disparity in interest rate markups for certain minorities. Since the CFPB does not have the authority to regulate Dealerships directly, it is instead focusing its attention on lenders, who in turn are scrutinizing their Dealers.
The lending arm of Honda Motor Co., America Honda Finance Corp., became the most recent target of the CFPB, alleging that its discriminatory practices resulted in “borrowers of color paying higher interest rates than white borrowers”.
Most of the major lenders are closely monitoring their portfolios to ensure that there are no disparities in interest rate mark ups. They want to be certain that any time a Dealer deviates from its standard participation rate, it is being done for legitimate, pro-competitive business purposes.
Pro-competitive business purposes include, among other reasons, deviating from your standard participation rate to meet or beat an offer from another Dealer, satisfying the customer payment constraint, or a third-party subvention program.
Any time there is a deviation, we recommend that the Dealer document the reason in the deal file.
If you do not have policies and procedures in place, we urge you to contact your counsel or visit the NADA web site.