When NADA says it's OK to stray from reserve cap

NADA's 18-page program distributed to members last week.

Photo credit: JIM HENRY
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As part of its new "NADA Fair Credit Compliance Policy & Program," the National Automobile Dealers Association has compiled seven categories of allowable deviations from a dealership's self-selected cap on dealer reserve.

NADA calls these Pre-determined Allowable Deviations. Basically, NADA's program recommends that dealerships put a percentage limit on dealer reserve, never exceed it, and document a legitimate business reason every time they offer a discount below that limit.

The dealer reserve, also known as dealer markup or dealer participation, is the small amount of interest that a lender allows a dealership to add to the buy rate on a consumer auto loan as compensation for arranging the loan.

The Consumer Financial Protection Bureau believes that allowing dealers discretion in setting the dealer reserve results in higher rates for legally protected classes of borrowers, such as minorities or women. NADA denies its members tolerate discrimination.

Here are the seven categories of allowable deviations, according to NADA's program. The categories are followed by a simple description that finance managers can check off or fill in on a form. All descriptions but one are from NADA's 18-page program, which was distributed to NADA members on Jan. 24.

1. Category: Lower cap imposed by assignee

"Dealer participation limited by finance source."

AN editor's note: In other words, the finance source -- or assignee -- has a cap on dealer participation that's lower than the dealership's self-selected cap.

2. Category: Monthly payment constraint

"Customer stated monthly payment constraint of $______ per month."

3. Category: More competitive offer

"Customer stated competing offer by ________________ (name) of _____%."

This option leads to two alternatives:

• Meet the competing offer.

• Beat the competing offer, by a predetermined number of basis points established ahead of time for this scenario.

4. Category: Dealership promotional financing campaign

"Customer qualified for dealership promotional financing campaign."

5. Category: Manufacturer subvention program

"Customer qualified for subvented interest rate of ____% from _______________ (name)."

6. Category: Dealership employee incentive program (if applicable).

"Customer qualified for dealership employee incentive program."

7. Category: Dealership inventory reduction considerations

"Customer purchased a vehicle that satisfies the dealership's pre-determined inventory reduction criteria (describe how vehicle satisfies the criteria)."

You can reach Jim Henry at autonews@crain.com.

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