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Credit, Capacity, Collate and Compliance

February 2009, F&I and Showroom - Cover Story

by Joe Bartolone - Also by this author

Everyone knows the 3 C’s of consumer credit — credit, capacity, and collateral. Recently, I read a great article about the 5 C’s of credit. It added character and conditions to the list. I would argue that there is another C to be considered — compliance.

Being a compliance consultant for the last four years has provided me with the opportunity to review thousands of credit applications. Considering the fact that we are all operating under the same set of rules, I’m amazed at the variety of compliance issues I find. It’s just a simple form, so why all the issues?

When you consider how many laws come into play, the way applications are taken, and who is involved in the process, it’s easy to see why the credit application process can create a whole heap of litigation exposure and business risk.

First, let’s start with the laws that come into play when attempting to finance a customer. There’s the Equal Credit Opportunity Act (ECOA)’s Regulation B, the Fair Credit Reporting Act (FCRA), the Fair and Accurate Transactions Act (FACTA), the Gramm-Leach-Bliley Act (GLBA) and its Safeguards Rule, federal and state consumer protection laws, state community property laws, marital property laws, and state banking laws.

You also have to consider the variety of ways a customer’s credit-related information can be collected these days, including e-mail from third-party lead sources, manufacturer Websites, dealer Websites, online Internet services, facsimile, phone, mail, and, of course, in-person walk-ins.

And finally, consider the different employees within a dealership that could be involved with the process. There’s the general managers, sales managers, salespeople, business development and Internet sales personnel, administrative personnel, F&I directors, and F&I managers.

In this article, I’ll take a look at the credit application process and make some suggestions on how you can minimize your exposure and risk. I’ll also provide a checklist that can help you develop your own credit application policies and procedures.

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