2017 GNYADA Membership Directory

HOT TOPICS

The Equal Credit Opportunity Act (“ECOA”) and the Federal Reserve Board’s Regulation B ECOA and the Federal Reserve Board’s and Consumer Financial Protection Bureau’s Regulation B prohibit auto dealer discrimination in granting or denying credit. While there has been some discussion as to whether ECOA applies only to financing in connection with a vehicle purchase, the better view is to comply on both retail installment financing as well as lease transactions, and that position has been adopted by most lenders. ECOA also mandates the time frames (30 days after receipt of a completed credit application) for notifying the applicant of the credit decision (e.g., offering credit, informing the consumer that additional information is necessary to make a credit decision, making a counteroffer, or sending an adverse action notice). An ECOA adverse action notice must be in writing and either provide specific reasons why the credit application was denied or counter-offered (additional explanatory disclosures are required if the adverse action is based on a credit score), or tell the consumer how they may contact the dealership within 60 days to get the reasons. ECOA also requires that credit application forms contain certain disclosures, such as the consumer’s right to not reveal income from alimony, child support, or separate maintenance if the consumer does not want such income to be considered as a basis for repaying the credit obligation. Certain state laws impose additional notice requirements in credit applications. Regulation B also requires that multiple consumer applicants affirmatively state on the credit application whether or not they want to apply for joint credit. Adverse Action Notice Obligations Adverse action means a refusal to grant credit or a refusal to grant credit in substantially the amount or on substantially the terms requested by the consumer, unless the consumer accepts a counteroffer of credit. Adverse action also means terminating an account or changing its terms in a manner unfavorable to the consumer, except for actions taken in connection with a default or delinquency on the account. An example is unwinding or re- contracting a “spot delivery” contract on less favorable terms. Auto dealers are identified as the creditor/seller on the retail installment sales contract (“RISC”), despite the fact they later sell the RISC to a finance source. As creditors, dealers should give adverse action notices to consumers in at least three situations: • When a dealer takes a credit application but does not send it to any financing source, typically because the consumer is credit-challenged; • When a dealer unwinds or re-contracts a spot delivery deal; and • When the dealer is unable to get the customer financed on terms acceptable to the dealer. It is a common misunderstanding that a dealer can rely on a finance source’s adverse action notice. In fact, a finance source’s adverse action notice will not shield the dealer from liability in these instances as it does not contain the necessary disclosures that must be given by the dealer, including but not limited to naming the credit bureaus used and the federal agency that administers compliance for dealers (i.e., the FTC). Furthermore, most lenders advise dealers in their dealer agreement or their program materials that the lender’s issuance of any adverse action notice is only on such lender’s behalf.

MEMBERSHIP

DIRECTORY

2017

164