I admit that I watch too much sports. My time could probably be better spent with constructive activity, but I still tend to veg out a little.
For example, I recently watched some of the Tour de France. Not an active cyclist, still, I got a little mesmerized by the scenery of the French Alps, the sheer number of fans who lined the city streets and the rural roads and the athletic ability of the cyclists.
And then there were the crashes.
I watched more than a few crashes that were caused by the biker avoiding a crash. The cyclist is steaming along, comes up on another cyclist who is slowing down. He moves over to pass and crashes into another cyclist coming on his flank. He dodged once crash and created another one.
Our industry recently dodged a regulatory oversight bullet, but the Federales have two more bullets in the chambers.
Dodge one bullet
The auto industry has apparently dodged the over-bearing consumer financial services oversight bill. Thanks to the efforts of many, dealers are exempted from the new regulatory agency created by legislation to have an agency to watch the Wall Street wizards to make sure America is not put through another crisis like the recent one.
Still in the crosshairs
Unfortunately, 2011 is going to bring further regulation, further disclosures and more forms for the ever expanding file folder.
As of the end of the year, dealers should be giving and retaining a copy of a remodeled privacy notice and a new risk-based pricing notice.
Remodeled privacy notice
As a result of the Financial Services Regulatory Relief Act of 2006, the Federal Trade Commission (FTC) and the federal banking agencies were required to develop an optional model form which also serves as safe harbor for the dealers.
The law’s purpose is to have a more understandable privacy notice so consumers can more easily compare the privacy policies of different dealers.
So, these agencies took a simple half page, few paragraph form that consumers don’t read and throw away anyway and created a two-sided behemoth. This new and improved form will require a dealership to answer a number of questions about its privacy policies so consumers can compare your privacy policies to other dealers while shopping for a vehicle.
Too late to cry foul now. The rule is upon us and dealers must start using the new form by the end of the year to continue to be protected by the safe harbor language.
New risk-based pricing notice
This next new requirement is even more baffling. The Federal Reserve Board (FRB) and the FTC released the Risk-Based Pricing Rule to the industry in December 2009 as the last major dealer requirement under the FACT Act of 2003.
My question: If this rule was so important to include in the major overhaul of the Fair Credit Reporting Act (FCRA) in 2003, why did it take nine years to get a ruling from the Federales on how to comply with the law?
But I digress.
This Rule takes effect on January 1, 2011, one day after the remodeled privacy notice deadline.
The Rule’s intent is to improve the accuracy of credit reports by alerting consumers whose request for credit is approved or conditioned on less favorable terms than other consumers.
The Rule’s requirement is to provide a Risk-Based Pricing Notice (RBPN) to consumers to whom the credit approval or condition is on “material terms that are materially less favorable than the most favorable terms available to a substantial proportion of consumers from and through that person (dealer).”
Good luck! Please define material, favorable and substantial proportion.
So, according to the Rule, you have to figure out the substantial proportion of your financed sales that receive more favorable material terms and then give a piece of paper to the remaining segment of your consumers while singing the “Na Na Hey Hey” song?
Fortunately, NADA was able to secure an option so that dealers can provide all of its customers with an Exception Notice instead of the RBPN. This notice is similar to the one already in play in California and is much easier to complete. It is probably the notice that most dealers will be using to comply with the new Rule.
This notice requires a disclosure of the consumer’s credit score to all consumers who apply for credit. It must also include the range of possible credit scores and either a bar graph or a statement telling the consumer where his or her credit score ranks percentage wise with the credit scores of all U.S. consumers.
Adverse action supplement
The Risk-Based Pricing Rule is also meant to supplement the adverse action requirement contained within the FCRA.
Now, that’s great news. Dealers are being frivolously sued seemingly every week for not sending an adverse action notice. Now the dark side has a new allegation to supplement its adverse action complaints against dealers.
Through the implementation of the Risk-Based Pricing Rule, FRB and the FTC further cemented the notion that dealers are the initial creditors in a typical dealer-assisted financing process as the reason for declining a request for dealer exemption to the Rule.
Call to action
Call your forms providers, credit reporting agencies and DMS programmers and get everything lined up. When the ball drops at midnight in Times Square, your file folders will start getting a little thicker.