Auto lenders are in no hurry to eliminate the dealer reserve, even though the Consumer Financial Protection Bureau indicated almost six months ago it would like to see lenders switch to flat fees.
That means lenders better prepare themselves -- and the dealerships they do business with -- for close examination by the bureau, attorney Mike Thurman says.
“Otherwise, you’re pretty much a sitting duck,” he said Tuesday during a Webinar co-sponsored by law firm Loeb & Loeb in Los Angeles, where Thurman is a partner, and Consolidated Asset Recovery Systems Inc.
The law firm’s “Consumer Protection Defense Department” represents financial services companies and other corporate clients.
Thurman stressed that auto lenders need to create policies and procedures to measure and monitor loans originated at dealerships and to correct any problems they find, especially if they pertain to the dealer reserve.
The CFPB says the dealer reserve provides a direct incentive for dealerships to charge the highest possible interest rate to boost their own profits. The dealer reserve therefore could potentially result in legally protected classes of borrowers, such as minorities, paying more, the bureau argues.
But the National Automobile Dealers Association responds that with today’s robust competition, dealers are more apt to lower rates than to raise them. Lenders, likewise, are more likely to lower rates as a means of gaining additional business.
NADA also says it doesn’t tolerate discrimination.
That’s all well and good. But as we all know, not doing what you’re asked to do pretty much guarantees added scrutiny, whether from a high-school basketball coach, the IRS or, now, the Consumer Financial Protection Bureau.