Even a small investment in compliance training now can save a dealer thousands in legal fees later.
It’s no secret compliance is a hot topic in the auto-finance space.
For three years the Consumer Financial Protection Bureau has worked to regulate dealerships through lenders. This also has caused other regulatory bodies such as the Federal Trade Commission to look closer into dealership practices.
With these increased sensitivities and frustrations due to the ambiguity of the CFPB, now is the time to brush up on F&I practices. As a start, ask this: When a dealership sells a car and secures financing, who is the creditor at the time of sale?
Many think the lender is the creditor; however the correct answer is the dealer. Misunderstanding this fact opens the door for noncompliant behavior, as the F&I manager could think his actions have fewer repercussions.
To avoid legal pitfalls, ensure you have an informed staff that takes accountability for their actions. This requires training. Even a small investment in compliance training now can save you thousands in legal fees later. And you will have increased comfort knowing everyone in the dealership, from sales to accounting, has a baseline understanding of the regulations.
Clarifying Regulation B
Because dealerships are considered the creditor at the time of sale, their F&I transactions fall under Regulation B, which was created to prevent discrimination against applicants for consumer credit. While many aren’t familiar with Regulation B, they are familiar with the Equal Credit Opportunity Act (ECOA) and the Fair Credit Reporting Act (FCRA). Both fall under Regulation B.
Passed in 1974, the ECOA outlines how creditors can evaluate creditworthiness to eliminate discrimination. The ECOA regulates what and how information can be used to evaluate credit.
The FCRA, passed in 1970, works hand-in-hand with the ECOA, regulating notices that must be given to consumers about the credit decision.
Click below to read the full article:
Author: Digital Dealer
Digital Dealer exists to help dealers and their managers sell more vehicles more profitably by creating the best live events and media in the industry.