New rule would force tough choice

Donna Harris covers automotive retailing for Automotive News
Some strict new disclosure rules the Federal Reserve Board has proposed for mortgages could put a damper on car dealers' credit insurance and GAP contract business, warns the National Automobile Dealers Association.

The proposed revisions to Regulation Z, the Truth in Lending requirements, are supposed to "enhance consumer protections" for home mortgage transactions, the Fed's announcement says.

But the disclosures proposed for credit insurance and debt cancellation and suspension products would also apply to auto transactions, says NADA lawyer Bradley Miller.

Customers will have to sign off on a form that states the products are optional. Here's how the Fed's model form opens: "Stop. You do not have to buy (name of product) to get this loan."

The form also states: "You may not receive any benefits even if you buy this product."

NADA has asked the Fed to modify or drop the proposal.

But if the Fed adopts the amendments as they're written now, car dealers will have an unpleasant choice before them: Adopt tough disclosures that may discourage the sale of these products or include the cost of the products in the APR.

Either way, dealers are likely to lose business.