NADA Releases Fair Credit Compliance Program for Dealers

Forrest McConnell, III — February 2014

   COMMENTARYForrest McConnell III
McConnell
2014 NADA Chairman

Last year the Consumer Financial Protection Bureau issued fair credit “guidance” to indirect finance sources that seeks to change the way they compensate dealers for arranging financing. Since then NADA has led the charge in defending the dealer-assisted financing model, and is working to prevent the adverse consequences that government-imposed flat fees would cause for consumers, dealers and finance sources alike. 

At the same time, we have provided dealers with additional educational resources to strengthen their efforts to comply with fair credit laws. As part of this effort, NADA, the American International Automobile Dealers Association and the National Association of Minority Automobile Dealers issued the NADA Fair Credit Compliance Policy & Program to their respective members on January 24.

This publication provides essential background on this issue, sets forth a fair credit compliance program template that a dealer can adopt, and contains both general and specific instructions for completing the program template. Among many other features, the program template (a) sets forth a fair credit policy that states the dealer’s unambiguous commitment to fair credit compliance; and (b) establishes a voluntary standardized method for determining the amount of dealer compensation that may be earned in a credit transaction. 

The compensation method is based on one that was adopted by two dealers in 2007 to resolve Department of Justice allegations of unintentional credit discrimination. It generally involves establishing a set amount of dealer participation that a dealer adds to a buy rate and only deviating from that amount if certain pro-competitive factors that are unrelated to the consumer’s background are present in the transaction and are properly documented. The NADA template also contains sample forms to facilitate this process and it creates management, training, oversight and reporting guidelines to ensure the program is properly carried out.

Adopting the NADA program template, or any portion of it, is an individual dealer decision and is strictly optional. The program does not constitute a “safe harbor” for complying with federal law and no federal agency has endorsed it. However, NADA believes the program, if properly adopted and faithfully executed, will strengthen the dealership’s ability to comply with the federal Equal Credit Opportunity Act.  

Dealers can access a PDF of the NADA Fair Credit Compliance Policy & Program at nada.org/faircredit.

Additionally, NADA members can access a Word version of the program template on that web page by entering their user name and password and consenting to a licensing agreement. Dealers should consult with their attorney to determine appropriate fair credit compliance procedures for their dealership to adopt.

Stay tuned for more educational information on this topic and the NADA Fair Credit Compliance Policy & Program, including an NADA University webinar that will be announced to dealers in the near future.    

Forrest McConnell, III
NADA Chairman