The Industry's Leading Source For F&I, Sales And Technology

Article

New Disclosure Rule Proposed for Auto Finance Customers

July 2008, F&I and Showroom - Feature

by Michael Benoit

Way back in 2003, Congress passed the Fair and Accurate Credit Transactions Act (FACTA). We’ve talked about it a lot in this column. For us lawyers, it’s the gift that keeps on giving, and it just gave again with the recent proposal for the last of the major rules it mandated.

The rule in question would implement FACTA’s requirement for creditors and dealers to provide a consumer with a so-called “risk-based” pricing notice when a consumer is offered credit on terms less favorable than the terms available to other customers, and that you have obtained a credit score or consumer report on the applicant.

The provisions of the proposal require that the notice be provided when a dealer offers or provides “credit on material terms that are materially less favorable than the most favorable terms available to a substantial proportion of consumers from or through that person.” I know, that’s a mouthful.

The proposal requires the original creditor to give the risk-based pricing notice in most situations. In most instances, this means the F&I manager, and no, this is not some new change in his or her status in the transaction. When you enter into a retail installment sale transaction with your customer, you are the original creditor under every legal theory I can think of. Under this proposal, you’ll be the one required to give the risk-based pricing notice.

This rule was a long time in coming, mostly because the two agencies tasked to write it — the Federal Reserve Board (FRB) and the Federal Trade Commission (FTC) — couldn’t agree on how to do it. One was advocating a more general notice, while the other wanted a customer-specific notice. The solution? They split the baby.

The proposed rule provides two ways to give the notice: a customer-specific notice to certain credit applicants, or a more general notice to all credit applicants. If you choose to provide a customer-specific notice, you can either give it to consumers with credit scores below whatever score represents about 60 percent of your credit customers, or to consumers who do not qualify for the lower- or lowest-priced tiers. This notice has to be given after the terms of the credit have been set, but before the consumer becomes contractually obligated.

Alternatively, you can opt for a more general notice to all credit applicants. This notice must be provided as soon as reasonably practicable after obtaining the consumer’s credit score. This notice should include the customer’s actual credit score, along with a bar chart or other illustration to explain how the customer’s credit score compares to the scores of other consumers. The notice should also identify the consumer reporting agency that provided the score and other information.

Since this is a proposed rule, it is subject to a public comment period that ends August 18, 2008. As you might imagine, the FRB and the FTC expect a large number of comments. I expect many dealer associations, consumer groups, finance companies, banks and just about any other creditor subject to the rule, will have something to say as well. There’s a lot not to like, no matter which side you’re on.

On a side note, the compliance deadline for the Red Flag Rule is quickly approaching. Dealers have until Nov. 1 to create an identity-theft prevention program mandated by the FTC’s new rule. I know there are a lot of questions about what dealers are required to do, which is why I recently authored a new legal reference manual called, “A Dealer’s Guide to the Red Flag Rule.” The book is the first in a CARLAW Compliance Series published by Hudson Cook LLP. Flip to page 46 to get more information.

Michael Benoit is a partner in the Washington, D.C. office of Hudson Cook LLP. He is a frequent speaker and writer on a variety of consumer credit topics. He can be reached at michael.benoit@bobit.com. Nothing in this article is intended to be legal advice and should not be taken as such. All legal questions should be addressed to competent counsel.

Your Comment

Please note that comments may be moderated. 
Leave this field empty:
Your Name:  
Your Email:  

Blog

So Here's the Deal

Ronald J. Reahard
Capture Missed VSC Sales

By Ronald J. Reahard
In response to a reader question, the magazine’s F&I wiz updates his plan for re-pitching service contracts to customers who declined the protection at the time of delivery.

The Dealer Moved My Goal Posts

By Ronald J. Reahard
Top trainer has hard-earned advice — and a word of warning — for F&I pros whose dealers seem to change their pay plans every time they have a good month.

Addressing F&I’s Internet Problem

By Ronald J. Reahard

(Video) Selling Eight Products Without Losing the Customer

By Ronald J. Reahard

Done Deal

Gregory Arroyo
Game Almost Over

By Gregory Arroyo
With the CFPB’s controversial guidance officially repealed, the editor delves into what the bureau was really after in its targeting of dealer participation.

The Repair Is Covered

By Gregory Arroyo
The editor opens up about his first service-contract claim, which resulted in a covered and repaired vehicle as well as a few lessons.

Change Is Happening

By Gregory Arroyo

Who Will Take Up the CFPB's Torch?

By Gregory Arroyo

Mad Marv

Marv Eleazer
I Love F&I. How About You?

By Marv Eleazer
His Madness challenges F&I professionals to decide right here and now whether F&I is your career or just a job.

Is That Legal?

By Marv Eleazer
Is manipulating a sales agreement to accommodate a customer’s request to cash out of a dealer-arranged retail sales contract allowed? His Madness gets answers from the industry’s top legal mind.

Overcome Your F&I Weaknesses

By Marv Eleazer

Proper Deal Structure Moves Mountains

By Marv Eleazer

On the Point

Jim Ziegler
Bound to Fail

By Jim Ziegler
Da Man returns with a message to vehicle manufacturers jumping into the subscription waters: It ain’t gonna happen.

Sharpen Your Survival Skills

By Jim Ziegler
‘Da Man’ has a plan you can use to survive the collapse of the car business and remain profitable through the dealer apocalypse.

Sales Rock Stars Still Exist

By Jim Ziegler

The New Stooges

By Jim Ziegler