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Feds toughen disclosure rules for dealerships

Paul Metrey: NADA will provide guidance on the new rules this year.
Next year dealerships will have to comply with another disclosure requirement before they can extend financing to car buyers, thanks to federal rules completed before Christmas.

The Federal Reserve Board and Federal Trade Commission issued their final Risk-Based Pricing Rules on Dec. 22. The disclosure requirement is designed to educate consumers on the cost of financing, which is based largely on the customer's credit history. The rules apply to any lender that bases credit terms on a customer's credit score, including dealerships that arrange financing for customers.

The rule, which takes effect Jan. 1, 2011, will require dealerships to give their finance customers a written report showing their current credit score, the name of the credit reporting agency providing the score and either a bar graph or clearly worded statement telling customers how their scores rank against those of other U.S. consumers.

How to comply
Dealers must give finance customers a written report showing
• Their credit score
• The name of the credit reporting agency
• A bar graph or statement on how they rank against other consumers
• General information about credit scores

The agencies are providing a form that dealerships can use to meet the disclosure requirements. This model notice "provides safe-harbor protection" from liability or penalty for dealerships that use it, says Paul Metrey, director of regulatory affairs for the National Automobile Dealers Association. Metrey worked with the FTC to make the requirements easier for dealerships to follow.

The notice will include some general information on credit scores, credit reports and how customers may obtain a free annual credit report, he says.

The disclosure requirements for car dealerships are based on similar rules adopted by California. "We arranged several conference calls before the rule was proposed between the agencies and the California New Car Dealers Association," Metrey says.

He says the rules could have been more burdensome for dealers. Originally, they would have required dealers to "determine on a deal-by-deal basis which credit customers must receive the notice," Metrey says. Based on the proposed rules, that would have involved extensive calculations.

Metrey says NADA will distribute additional guidance on the Risk-Based Pricing Rules this year.

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