CFPB Lending Guidance Rescinded But Fair Credit Program Remains

Jun 12, 2018 | Member News

On May 21, 2018, President Trump signed SJ Res. 57, to rescind the Consumer Financial Protection Bureau’s (CFPB) flawed 2013 auto financing guidance. Dealers, however, should continue to utilize NADA’s Fair Credit Compliance Policy & Program, available online at www.paa.org under Hot Topics.

 

The NADA Fair Credit Compliance Policy & Program is an optional program that is designed to strengthen a dealership’s efforts to comply with fair credit laws. It is an effective approach to promote compliance with the federal Equal Credit Opportunity Act (ECOA), while preserving flexibility for dealerships to allow customers to benefit from today’s intensely competitive vehicle financing market.

 

PAA encourages dealers to review their compliance with the ECOA and Dodd Frank Act.

 

In 2007, the Department of Justice entered into consent orders with two dealerships to resolve allegations of disparate impact discrimination. The NADA Program is modeled on the fair credit compliance program contained in these consent orders.

 

Dealers and the auto lenders to which they assign their credit contracts may be exposed to liability for a fair credit violation if they are found to have discriminated against a credit applicant based on his or her race, national origin, or other prohibited factor. This applies to both intentional and unintentional (disparate impact) discrimination.

 

Disparate impact or treatment involves treating credit applicants differently on a prohibited basis even if there is not a deliberate intent to discriminate. An example of disparate treatment would be if a creditor were to require that a minority applicant provide greater documentation to secure financing than a similarly situated non-minority applicant.

 

Because a finding of disparate impact typically is established by a statistical evaluation of past credit transactions, dealers cannot ensure they are complying with ECOA solely by training their employees to avoid considering these prohibited factors when making credit decisions.

 

Dealers must ensure that their policy for determining the amount they earn for arranging financing will not give rise to post-transaction claims that the policy resulted in a negative statistical disparity in the amount of dealer participation paid by customers in a protected class.

 

In addition to an overview of Fair Credit guidelines, the NADA program provides templates for use in the dealership. Specifically, it is recommended that dealerships use Appendix D, the Dealer Participation Certification Form available at the back of the NADA Fair Credit and Compliance Guide online at: http://www.paa.org/Files/NADAFairCredit.pdf. The program also contains information on training sales staff, providing oversight through a program coordinator, and reporting guidelines within the dealership.

 

The NADA Fair Credit Compliance Sample Policy Statement serves as a strong, unambiguous statement affirming the dealership’s commitment to ensuring equal credit opportunity and complying with all applicable fair credit laws. Whether adopting NADA’s policy statement or a different statement, dealers should ensure that their fair credit commitment is stated clearly and unequivocally. In addition, dealers should strongly consider prominently posting their fair credit policy statement in locations where it can easily be viewed by both consumers and employees.

 

One of the prevailing arguments for the rescission of the CFPB Guidance was that the industry was working to ensure credit is fairly offered; therefore, dealers are strongly encouraged to review their Fair Credit Compliance Policy and Program or to implement a program for compliance and periodic review.

To download the free NADA Fair Credit Compliance Policy & Program online at www.paa.org under Hot Topics or directly at http://www.paa.org/Files/NADAFairCredit.pdf.

 

Courtesy of PAA Bulletin No. 11, 6/12/2018