NADA's fixed-rate plan gets lawyers' backing

Henrick: “If you put this in any deal jacket, that's the best protection you can get."

NEW YORK -- The National Automobile Dealers Association’s program for dealerships to establish a fixed rate for dealer reserve was strongly endorsed by legal experts at the Automotive Resource Network conference here this week.

“It would not surprise me if the finance source starts requiring you [dealers] to include this,” said Jean Noonan, a partner in Hudson Cook law firm’s Washington, D.C., office. The firm, based in Hanover, Md., specializes in consumer finance law.

The “NADA Fair Credit Compliance Policy & Program,” introduced by NADA in January, is aimed at helping dealerships avoid trouble with lenders and the Consumer Financial Protection Bureau over allegations of discriminatory lending.

Under the program, each dealership establishes a fixed percentage rate for dealer reserve, an amount of interest -- usually up to 2 percentage points -- that lenders allow dealerships to add to the buy rate on an auto loan as compensation for arranging the loan. The fixed rate is never to be exceeded but can be discounted, say, to match a specific competing finance offer. Every discount the dealership gives must be documented in writing based on a set of preapproved reasons.

The CFPB says lenders enable discriminatory lending by allowing dealerships to set varied rates for dealer reserve. Varied rates, the CFPB says, result in legally protected classes of borrowers, such as minorities or women, being charged more. NADA denies tolerating discrimination.

The CFPB is barred from regulating almost all dealerships, but it accomplishes much the same thing through its regulation of auto lenders.

NADA’s program for fixed dealer reserve is based closely on the terms of a 2007 settlement between the U.S. Department of Justice and two Philadelphia-area dealerships accused of discrimination based on varying rates for dealer reserve.

At the conference, Randy Henrick, associate general counsel at Dealertrack Technologies, told an audience that the consent order between Ally Financial Inc., the CFPB and Justice Department in December “terrified” other lenders.

Under the order, Ally agreed to pay $80 million in restitution and another $18 million in penalties for allegedly allowing dealerships to charge African-American, Asian and Hispanic customers more in dealer reserve. Ally denied discriminating but paid nevertheless.

Henrick held up for the audience the form NADA recommends dealerships use to indicate whether a customer was charged its fixed rate for dealer reserve or a discounted rate and why.

“If you put this in any deal jacket, that’s the best protection you can get,” he said.

You can reach Jim Henry at

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