CHICAGO — Dealer customers of BMO Harris Bank were issued a notice Monday that the finance source has eliminated dealer discretion in the setting of interest rates on retail installment sale contracts. The change, according to the notice, is in response to the guidelines issued by the Consumer Financial Protection Bureau (CFPB). 

“While no specific safe harbor has been identified by the CFPB, we have taken these proactive steps to follow current CFPB guidance while continuing to offer significant value to our dealer customers,” the notice, obtained by F&I and Showroom, read, in part.

In March 2013, the CFPB issued guidance claiming that potentially discriminatory markups in auto lending may result in tens of millions of dollars in consumer harm each year. The guidance has sparked much debate among dealer associations and lawmakers alike, who have questioned the CFPB’s methods and transparency related to determining the presence of discriminatory practices.

BMO Harris Bank took a survey of more than 3,000 of its dealer customers in February. According to the notice, it used those results to produce “a program that removes dealer discretion in pricing while continuing to compensate [dealers] … fairly and equitably.”

 “…after careful consideration of the needs of our customers and the evolving regulatory environment, BMO Harris Bank is taking the lead in changing its indirect auto lending practices,” said Vice President and Head of Media Relations Jim Kappel in a statement emailed to F&I and Showroom. “We believe the new guidelines create greater pricing consistency at the dealer level and demonstrate the bank’s deep commitment to fair lending practices. 

“We will continue to offer competitive rates and programs as our pricing model, which, combined with the high level of customer service we provide dealers, has helped to drive our growth in this segment.”

Under the new program, contracts must be delivered at the “buy rate” to be eligible for purchase by BMO Harris Bank. The bank will pay a flat fee of 3% of the amount financed — up to $2,000 — for contracts with maturities greater than 35 months.

The new policy went into effect on Thursday.