NEW ORLEANS — The National Automobile Dealers Association has joined a handful of other organizations attempting to help dealers navigate the Consumer Financial Protection Bureau’s scrutiny of rate participation policies — an inquiry that officials believe is unwarranted and flawed.
During a Jan. 24 press conference at the NADA Convention and Expo in New Orleans, NADA officials announced the release of a new fair lending compliance policy dealers can use to document variations in rate markups on retail finance contracts.
Andy Koblenz, the NADA’s executive vice president of legal and regulatory affairs, told media in attendance that the program was in response to the Consumer Financial Protection Bureau (CFPB)’s allegations of discrimination in the indirect financing channel. Last month, the bureau ordered Ally Financial to pay $98 million to resolve claims that it charged approximately 235,000 minority car buyers higher interest rates than non-Hispanic white borrowers.
“The bureau is applying pressure on the finance sources to eliminate the dealer's current ability to offer interest rate discounts to consumers,” Koblenz charged. “In its place, the CFPB has identified flat fees as an appropriate method to compensate dealers for arranging financing.
“Under the CFPB's approach, no longer will dealers be able to cut into their retail margin to beat an offer from a bank, credit union or even another dealership. This would greatly weaken the competition that creates significant downward pressure on interest rates benefiting all car and truck buyers,” he added.
Dealers using the NADA Fair Credit Compliance Policy & Program would establish a preset amount of compensation included in credit offers to every customer. According to the policy, dealers would only offer discounts based on legitimate factors that can affect finance rates. Legitimate factors would include a customer’s monthly budget constraints or incentive programs, among others.
Dealers are then instructed to document any deviation from the preset amount of compensation on a template form developed by the NADA — a step designed to help dealers respond to inquiries from their finance sources about their pricing practices.
“Dealers now have a powerful tool to document and demonstrate their financing policies and comply with fair credit laws,” Koblenz said. “It's up to each individual dealership to determine if this program is fit for its store. It's just one way to comply with the law.”
The program was developed at the urging of the NADA’s board of directors and has been reviewed by multiple dealerships, according to Koblenz. The program’s template is based on a 2007 Department of Justice consent agreement, in which the DOJ sought to address alleged unintentional disparate impact discrimination at two separate dealerships.
“Both vehicle finance lenders and dealers agree that discrimination in any form is unacceptable. [The American Financial Services Association] applauds the [NADA] for taking a proactive approach to address fair lending concerns raised by regulators over the past year,” said Chris Stinebert, president and CEO of the AFSA, in a statement. “AFSA believes that NADA’s new proposed Fair Credit Compliance Program is a step in the right direction.”
The NADA’s Chief Regulatory Counsel for Financial Services, Privacy, and Tax, Paul Metrey, was also on hand at the press conference to answer questions. “We will be interacting extensively with our counterparts at the state and metro level to try and make sure that this educational information is disseminated through their channels as well,” he said.
Koblenz added: “The ultimate goal is to keep auto financing affordable and accessible to all.”