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Compliance Rules and Financial Regulators

March 2008, F&I and Showroom - Feature

by Todd Clarke - Also by this author

Every vehicle needs a regular tune-up to keep it running at peak performance. And a car dealership’s compliance efforts are no different. Even the most comprehensive compliance program needs to be reviewed and updated regularly. Otherwise, just like the cars we sell, compliance can break down and lead to serious headaches.

Adverse Action Notices

One of the most significant compliance issues to arise in 2007 has to do with adverse action notice requirements. These are the notices sent to customers when they are turned down for credit, or when they are offered different credit terms than what was originally applied for. There hasn’t been a lot of formal guidance on when dealers are required to send out notices. Many dealers have made it a practice of sending all their deals to a finance company regardless of the customer’s creditworthiness. They do this in an attempt to transfer the responsibility of sending the notice to the finance company. The problem is, even if that practice is compliant, which is debatable, you are putting your dealership in the hands of someone else. If the matter went to court, what would you do if you had to prove that the finance company did send the notice?

Recognizing the lack of guidance in this area, the National Automobile Dealers Association (NADA) recently issued dealer guidelines covering an array of scenarios. Now, these guidelines are just suggestions on how to navigate this regulation, but many courts and regulators tend to rely on these guidelines since they represent the only formal guidance available to dealers. And that’s good news for you.

Here’s what the guidelines say about when a dealer is required to send an adverse action notice:

• When a customer’s credit is so bad that you don’t send the deal to any finance company

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