GNYADA December 2013 Newsletter

5 NYS AG Hits Dealer for $136,000 for Charging Administrative Fees

Banks, being pressured by the Consumer Financial Protection Bureau (CFPB), have sent notices to dealers alleging discrimination in their rate markup policies. The CFPB had issued Guidance earli- er this year, warning lenders that if their portfolios show discrimination in loans originated by auto dealers, the lenders will be liable for penalties and restitution. CFPB urged lenders to monitor alleged credit discrimination by dealers and move to eliminate dealers’ ability to mark up rates on customer loans. Some lenders have now alerted deal- ers that they may be violating, “fair lending objectives.” What to do – push back! Generally, dealers should respond to any such letter in writing, challenging The NYAttorney General has settled claims against a Westchester dealer- ship which was adding a $499 “administrative fee” to the purchase price of their vehicles. As a result, the dealer is required to repay a total of $86,826 to customers who were charged the administrative fee. The dealership has also agreed to reform its advertising practices and to pay $50,000 in costs and penalties to the state. The AG claimed the deal- er’s advertising was deceptive. Administrative fees The $499 fee was pre-printed on the sales agreement used by the dealer- ship and was located in the price

column, near other required pre-print- ed fees and taxes that consumers pay when purchasing a vehicle. Thus, the AG said, it appeared to consumers that the “administrative fee” was mandatory and non-negotiable. False Advertising The Attorney General’s investigation also revealed that the dealership repeatedly engaged in false and deceptive advertising, including: Fine print and footnotes that con- tradicted the principal message of the advertisements; Advertised sales without identify- ing the vehicles that were being offered at reduced prices; n n

Advertising leased vehicles for $0 Down without disclosing that there were payments due at the incep- tion of the lease; Falsely claiming it has an “A+” rating from the Better Business Bureau. When this settlement is viewed in the light of prior settlements between the AG and other dealerships relating to pre-printed fees, it is clear that the AG views such fees as deceptive practices. GNYADA advises dealers to avoid such pre-printed fees on their forms. n n

Dealers Dispute CFPB Claims of Discrimination 6

the banks’ assertions and denying unlawful discriminatory actions.

markdown to close a deal that will generate a sales incentive.

Adopt a formal fair lending policy that states the dealership’s policy not to discriminate in any aspect of a credit transaction. Distribute it to sales staff and managers, train personnel, and monitor transactions to ensure compliance. Some dealers have consistent “buy rate markups” for all customers and they deviate from that markup only for significant reasons. Document (internally) any deviations in case of an audit. Valid reasons to deviate from the standard include meeting a competi- tor’s interest rate, extending an adver- tised promotional rate, meeting a con- sumer’s monthly payment target, or a

Go on record with the bank that it is your policy not to discriminate in any sales and credit practices. Ask the bank to disclose their “proxies” (how they determined who was a “protected class” and who was allegedly discrim- inated against) and reserve the right to challenge their validity. If you rely on multiple lending sources, advise this lender that it only receives a portion of your finance deals (and not a random sample). Thus, any conclusions that they have reached are based on inaccurate and incomplete information, and logically, are thus inaccurate and incomplete. Finally, request that they withdraw their conclusions in writing, and pro- vide a copy to you.

Greater New York Automobile Dealers Association • www.gnyada.com

The Newsletter • December 2013

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