There's more to the National Automobile Dealers Association's new compliance program than recommending that dealerships set a limit for dealer reserve and document all exceptions.
The program, which NADA e-mailed to members Jan. 24, provides a dealership to-do list.
The idea behind the NADA Fair Credit Compliance Policy & Program is to reduce the risk of discrimination charges stemming from the Consumer Financial Protection Bureau's oversight of auto lenders. The CFPB has lenders analyzing loans originated at dealerships, looking for what the bureau considers to be discrimination.
NADA's 18-page program includes extensive, footnoted background material on the regulatory environment plus suggested forms and instructions for filling them out. For example, the program defines seven categories of what the NADA considers valid reasons for making exceptions to a dealership's self-selected cap on dealer reserve.
Paul Metrey, NADA's chief regulatory counsel for financial services, privacy and tax, said compliance is strictly optional. "We're not telling anyone they have to do this," he said during an interview last week.
Metrey and Andy Koblenz, NADA general counsel, said dealerships that put the program into action should reduce "unexplained differential outcomes" in dealer reserve to zero.
The CFPB wants lenders to reduce variation in dealer reserve -- 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 bureau maintains that dealership discretion in setting the dealer reserve results in higher interest rates for minorities and other legally protected classes of borrowers.
One of the first steps in implementing the NADA program is to appoint a Fair Credit Compliance Program Coordinator, which would report directly to the dealership's board of directors.
The program also includes basics such as adopting and posting a recommended dealership Fair Credit policy. It also calls on dealerships to create a list of everyone at the dealership involved in any aspect of extending credit and determining the amount of dealership compensation.
The NADA attorneys said the approach is modeled after a 2007 settlement between a couple of Philadelphia-area dealerships and the U.S. Department of Justice, over similar accusations of higher rates for protected classes, based on higher rates for dealer reserve.
