Tag Archive | "risk-based pricing rule"

NADA University Announces Legal, Regulatory Webinars


McLEAN – NADA University announced it is now offering all of its legal and regulatory webinars – live and on-demand – at no cost to NADA and American Truck Dealer (ATD) members and their staffs.

Dealer members may extend this benefit to their contracted financial and legal professionals by adding those professionals as licensed users within their NADA University account.

“Dealers face an enormous challenge in staying updated and compliant on complex legal and regulatory requirements, so NADA U has responded by expanding access to critical information that will make that job a lot easier,” said Michelle Primm, managing partner of Cascade Auto Group and chair of NADA’s Dealership Operations Committee.

NADA U’s legal and regulatory webinars focus on a variety of topics, including the following:

  • Credit score disclosure requirements
  • The Family and Medical Leave Act
  • The Federal Trade Commission’s (FTC) new model privacy notice
  • FTC Red Flags Rule
  • The new Small Business Administration dealer floorplan loan program
  • Organized labor issues and response
  • Wage and hour compliance
  • Risk-based pricing rule
  • UNICAP safe harbor methods
  • Comprehensive Safety Analysis program

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DealerTrack Adds Compliance Tool for Risk-Based Pricing Rule


LAKE SUCCESS, N.Y. — DealerTrack Inc., a subsidiary of DealerTrack Holdings Inc., has added functionality to its DealerTrack Performance Suite that will enable dealers to comply with the Federal Trade Commission’s new Risk-based Pricing Rule, which goes into effect on Jan. 1, 2011. The enhancements are available automatically for free to all dealerships on the DealerTrack credit application network.

The Risk-Based Pricing Rule requires dealers who use credit reports to issue a notice to customers who receive credit from them on terms that are less favorable than terms received by most of their other credit customers. Dealers do not need to determine who falls into this category if they simply issue to all their credit applicants a credit score disclosure “exception notice.” This notice includes the customer’s credit score and other information that puts the score in context.

With the new functionality, any dealership using the DealerTrack credit application network will be able to print credit score exception notices pre-filled with all required information, as well as exception notices on their lender’s behalf for two-party financing. In addition, dealerships subscribed to the DealerTrack Compliance Solution will be able to electronically store and view status reports on all exception notices generated by their dealership though the solution’s dashboard and audit tools.

“We’re very pleased to further expand DealerTrack’s leading F&I offerings by including risk-based pricing functionality at no additional charge,” said Raj Sundaram, senior vice president, Solutions and Services Group at DealerTrack. “These and other enhancements underscore our ongoing commitment to providing dealers with the industry’s most comprehensive package of compliance capabilities, thus reducing their exposure to legal and regulatory risks.”

Dealers who do not comply with the new Risk-based Pricing Rule are subject to potential fines of up to $16,000 per violation, as well as possible penalties at the state level. The FTC is also scheduled to begin enforcement on Jan. 1 of the Red Flags Rule, which requires dealers to take steps to detect and prevent identity theft. DealerTrack’s Compliance Solution includes tools to help dealers comply with the Red Flags Rule as well.

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Sneak Preview: Safe-Harbor Privacy Notice & Risk-Based Pricing Rule


The Safe-Harbor Privacy Notice and Risk-Based Pricing Rule will go into effect in only a few short months. Since NADA has not issued its official guides, any speculation on my part about what their stance might be would be counterproductive. However, you can still learn a lot today.

Safe-Harbor Privacy Notice – What We Know Now

In an effort to ensure uniformity in the privacy notices being issued to consumers, the Gramm-Leach-Bliley Act was amended to create an online standardized form builder to generate compliant privacy notices. If the forms are properly constructed and applied, they provide a legal safe harbor. The forms currently utilizing the 2001 model language will only provide safe-harbor treatment through the end of this year. Privacy notices issued after December 31, 2010, must contain the new form text with very limited modifications to qualify for safe-harbor protection.

As of July 2001, dealerships have issued privacy notices at the time of consummation. Thereafter, the lending institution to which the installment sale agreement is assigned must issue annual notices until the vehicle is paid off. This will remain unchanged.

But the content of the privacy notices has changed and there are tighter restrictions on how they’re used to qualify for the safe-harbor protection. Here, a “safe harbor” is a provision in the regulation that reduces a party’s potential liability on the condition that the party accurately generates privacy notices using the online tool and, by doing so, creates a presumption of compliance. In other words, if you do things properly, you may be afforded a measure of protection if your actions are challenged.

It’s up to management to fully assess operational and marketing situations before selecting which privacy notice option best suits the dealership’s needs. Once completed within the established parameters, it can only be used as the form allows to be accorded safe-harbor protection.

As always, nonpublic personal information can be shared with potential lenders or other entities that need to evaluate potential in-store finance and lease customers’ financial worthiness. Under certain circumstances, it is possible to share customer information for marketing purposes between other dealerships under common ownership – as long as the proper notice is used and, if required, the proper opt-out provisions are addressed. Again, for the safe-harbor protection to apply, a hot prospect’s non-public personal information cannot be sent to a buddy at a sister dealership (or the aluminum siding company down the street) unless the notice issued explicitly allows it.

Risk-Based Pricing Rule – What We Know Now

Think about the Risk-Based Pricing Rule as the counterpart of the Adverse Action Notice. Both are the result of the federal government’s belief that consumers will make better credit decisions if they are aware of their personal scores as they compare to those of the general population. The Risk-Based Pricing Rule creates new notice requirements that significantly amend the FCRA. The Risk-Based Pricing Rule is effective January 1, 2011.

Dealers who, while acting in their capacity as creditors at the time of sale, use consumer credit reports to establish cost-of-credit risk-based pricing, must comply with the Risk-Based Pricing Rule. The rule excludes consumer lease transactions and business credit. Also, depending on the situation, customers with good credit may not need to be given the risk-based pricing notice if their credit score is in the upper 40 percent overall.

The notice must be issued to consumers in cases when “material terms (the APR) that are materially less favorable than the most favorable terms available to a substantiated proportion of consumers from or through that person.” Basically, you have to give the notice to consumers whose credit scores are in the bottom 60 percent of all consumers. In this case, a willing lender was found and the deal was consummated, but the buyer had a low enough credit score that the APR they were offered was less than the most favorable rate available.

There are two government-issued methods for identifying customers who should receive RBPNs, the Credit Score Proxy Method and the Tiered Pricing Method. But these determinations can be cumbersome and (because they’re only issued in select situations) difficult to monitor. As negotiated by NADA and explained in detail in their upcoming guide an exception notice can be issued in lieu of the risk-based pricing notice.

The exception notice is modeled after the California Car Buyers Bill of Rights Credit Score Disclosure form. The exception notice must be issued to all installment sale and consumer lease customers who are actively pursuing in-store funding options. Three worthy elements of the exception notice are:

  • The range of possible credit scores must be displayed as a bar graph or fully explained in writing. Given the fluctuations in overall consumer credit score levels, the array should be updated as required.
  • The exception notice must state the customer’s credit score. Dealers who don’t get credit scores in the normal course of business must secure the credit scores if they wish to use the exception notice. (Please note that the exception notice may require that both the buyer and co-buyer be apprised of their credit scores.)
  • The exception notice must state which credit reporting agency provided the information.

The provisions of the exception notice will be addressed in greater detail when made available by NADA.

Three Levels of Responsibility & Accountability

Dealer Management
How both new notices are configured will vary according to the unique needs of each dealership. Dealers are encouraged to consult the NADA guides and retain competent legal counsel to ensure they are issuing the proper documents.

F&I Practitioner
The F&I staff will be responsible for processing the notices, so it’s essential that they understand the spirit and specific provisions of the new notices – when they are to be used, how they are explained to customers, how they are executed and how the process is documented.

F&I Support Provider
The most famous phrase of the Hippocratic Oath certainly applies to integrating the two new notices into the F&I process. “First, do no harm.” Don’t become the purveyor of bad information. Misinformation about the two notices abounds, so seek guidance from competent counsel and reliable sources.

In the course of conducting onsite training, don’t merely ask the F&I practitioner if he or she understands the provisions of the new notices. Look to the FTC at www.ftc.gov, Hudson Cook, AFIP, and NADA for more detailed information on both notices. Go the extra step by asking specific questions about various aspects of the notices. Be vigilant in future calls to ensure that the notices are being used consistently and properly.

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