Chrysler Capital lowers rate cap on dealer reserve

UPDATED: 10/1/14 1:35 pm ET - corrected

Editor's note:  A spokeswoman for Santander Consumer USA was incorrectly identified in an earlier version of this story.

Chrysler Capital is cutting its maximum permissible dealer reserve to 175 basis points, or 1.75 percentage points, effective today. The previous maximum was 200 basis points.

Chrysler Capital, which provides full-service financing to Chrysler Group dealerships, notified retailers of the change in a fax last week.

“Chrysler Capital watches current market conditions very carefully and we feel this change puts us in line with many other lenders who have chosen to limit dealer participation below 2 points,” said the Sept. 26 fax, a copy of which was obtained by Automotive News.

The lender behind Chrysler Capital is Santander Consumer USA of Dallas. Ralph Kisiel, a spokesman for Chrysler Group, told Automotive News in an email the move was “an action Santander has taken,” adding: “We’re not going to comment on their business.”

Laurie Kight, a spokeswoman for Santander Consumer USA, declined to comment.

Voluntary caps

Meanwhile, the Consumer Financial Protection Bureau two weeks ago endorsed lower rate caps as a way to “reduce or even effectively eliminate pricing disparities” for dealer reserve, the small amount of interest dealerships can add to a lender’s buy rate as compensation for arranging loans.

Specifically, the CFPB said its experience with lenders shows that a cap of 100 basis points significantly limited “discretionary pricing adjustments.”

The Chrysler Capital action isn’t that low, but it’s a step in that direction.

The CFPB has been leaning on lenders since March 2013 to eliminate dealer discretion in setting dealer reserve, which the bureau says results in different rates for customers with similar credit histories. That can lead to higher rates for legally protected groups, such as minorities and women, the bureau says.

As a result of discrimination complaints in the late 1990s and early 2000s, most lenders adopted voluntary rate caps on dealer reserve of 200 or 300 basis points, depending on the length of the loan.

For example, Ford Motor Credit Co. said this week its rate cap on dealer reserve is 200 basis points on contracts from 61 to 72 months, and 250 basis points on contracts up to 60 months.

No big deal?

According to the National Automobile Dealers Association, dealer reserve, in practice, already averages out below lenders’ voluntary rate caps. In July, AutoNation Inc. CEO Mike Jackson said his dealership group averages about 90 basis points for dealer reserve. AutoNation is the nation’s biggest auto retailer based on 2013 new-vehicle retail sales.

Brian Kelly Jr., vice president of Kelly Auto Group, which includes Kelly Jeep Chrysler in Lynnfield, Mass., told Automotive News on Tuesday his dealership group earns more from the sale of F&I products such as extended service contracts than it does from dealer reserve.

He characterized the Chrysler Capital action as “no big deal,” adding, “All the banks are doing it.”

A copy of the fax sent to Chrysler Group dealers.

You can reach Jim Henry at autonews@autonews.com

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