In response to a recent joint enforcement action by the CFPB and Department of Justice alleging violations of the Equal Opportunity Credit Act, and its implementing regulation, Regulation B (see December 23, 2013 Alert), the National Automobile Dealers Association issued fair lending guidance for use by its dealer members. The CFPB and DOJ took enforcement action against a bank and its bank holding company alleging that the bank’s indirect auto lending program subjected minority borrowers to statistically significant higher “dealer markups” than similarly situated whites. Though the CFPB does not directly regulate automobile dealers, the potential liability of indirect auto lenders has led them to monitor dealer financing, with an eye toward identifying statistical disparities that could trigger liability using the disparate impact theory. As a result, NADA issued fair lending guidance designed to help dealers minimize any potential lender liability that could harm the dealers’ ability to obtain financing.
The guidance begins by suggesting a model in which financing terms do not vary on a customer-by-customer basis. Recognizing that such a model would substantially inhibit the pricing flexibility on which many auto dealers depend, the guidance suggests factors to consider in deviating from the fixed approach, such as the customers’ ability to repay the loan, the availability of competing credit, the applicability of a promotional offer that applies across customers, and vehicle-specific pricing adjustments. The guidance further urges dealers to establish written procedures to govern pricing, standardize forms, train employees, and document compliance efforts. The guidance also includes four templates for complying with fair lending laws: (1) a fair credit policy; (2) a standard dealer participation rate form; (3) an inventory reduction criteria form; and (4) a dealer participation certification form. The guidance provides instructions for customizing these templates to an individual dealership’s circumstances.