Salespeople get a lot of the glory, but much of the real credit (pun intended) should go to finance and insurance. A customer’s trust in an automotive dealership often stems from their interaction with the F&I department. Indeed, F&I team members are the ones who ensure customers leave happy, the business maximizes its profit, and relationships with lending sources remain mutually beneficial.
Essentially, the F&I department makes sure transactions actually happen—and continue happening. And doing that takes thorough knowledge of quite a few consumer finance laws and regulations:
Created in response to the 2007–2008 financial crisis, Dodd–Frank Financial Reform law is sweeping body of legislation that has transformed the financial services industry. In broad terms, Dodd–Frank requires certain accountability standards from financial institutions and protects consumers from supposed “unfair, deceptive, or abuse acts and practices.” One significant outcome of Dodd–Frank was the establishment of the Consumer Financial Protection Bureau.
The Equal Credit Opportunity Act (ECOA) prohibits creditors from discriminating against any borrower on the basis of that person’s protected characteristics, including race, sex, religion, marital status, age, and national origin.
Welcome to our series on the numerous federal rules and regulations that impact automotive dealerships. In this and upcoming articles, we’ll be taking a look at the roles employees at each department play in keeping your dealership compliant.
If you missed Part 1, which provides a bird’s eye view of regulations across your dealership,click here.
The Fair Credit Reporting Act (FCRA) obligates lenders to follow certain procedures to ensure fairness and protect individuals’ privacy when collecting, using, and sharing consumer credit information.
The Fair and Accurate Credit Transactions Act of 2003 gives consumers tools to access the credit scores and protect themselves against identity theft. Under the FACT Act, auto dealerships and other lenders must, among other things, take reasonable and appropriate steps to verify individuals’ identities when certain “red flags” are present, and to adequately dispose of sensitive consumer information.
To comply with the Federal Trade Commission’s Credit Practices Rule, dealerships must provide cosigners with liability disclosure statements, and must not engage in late fee “pyramiding” or other acts and practices considered abusive.
The FTC’s Holder in Due Course Rule, also known as Preservation of Consumers’ Claims and Defenses, enables consumers to raise legal actions against anyone who may own their credit contracts—not just the original seller.
The Gramm–Leach–Bliley Act obligates auto dealerships to develop written policies to protect consumers’ information (and ensure the same protection on the part of any vendors or third parties who have access to the information); allow consumers to opt out of processes that use, collect, and share this information; and provide consumers with privacy notices.
Dealerships that make use of producer-owned reinsurance companies should ensure that they fully understand their tax obligations, follow the rules, and file the correct annual forms. The Internal Revenue Service, seeking to reduce rates of offshore tax evasion, frequently applies heavy scrutiny to PORCs.
The Federal Reserve Board’s Regulation M (Consumer Leasing) and Regulation Z (Truth in Lending) regulate the disclosure of credit information to consumers. For an overview of Reg M and Reg Z, click here.
What are the latest regs in your state? And, more importantly, what do you need to do to stay in compliance with them? Use this guide as your quick reference of the EHS, HR, and Sales/F&I laws that directly affect your state.