The National Association of Automobile Dealers (NADA) issued a comprehensive manual in late January that includes detailed recommendations to dealers related to dealer reserve and fair lending compliance, in an attempt to assist members with compliance with the Consumer Financial Protection Bureau’s (CFPB) bulletin addressing indirect auto lending and the Equal Credit Opportunity Act (ECOA). The “NADA Fair Credit Compliance Policy & Program” manual has been distributed to NADA members and is available on the NADA’s website.
In short, the NADA manual provides that dealerships should adopt a percentage ceiling on dealer reserve, never exceed that ceiling and document a legitimate business reason every time the dealer offers a discount below that ceiling. Dealer reserve is the dealership’s share of the interest rate profit on a loan, also known as dealer markup; the CFPB has repeatedly charged that dealer participation has resulted in dealers charging higher rate markups to minority than non-minority buyers. Reportedly, the NADA’s recommendations are modeled after a 2007 settlement in which two Philadelphia-area dealerships settled lending discrimination charges filed by the U.S. Department of Justice.
“We believe this approach addresses Fair Credit concerns and at the same time it preserves many of the benefits of the dealer reserve structure,” said NADA General Counsel Andy Koblenz.
The NADA manual also includes a list of seven suggested reasons which, in the NADA’s view, a dealership could provide as a legitimate reason for making an exception its policy — for example, to meet or beat a competing offer. The NADA also recommends that dealers set up a compliance program, and appoint an individual who oversees and is responsible for fair lending compliance. Model templates for dealers to use are also included in the manual.
The CFPB has indicated that it would review the manual and advise whether the NADA’s recommendations are appropriate.