As much as your dealership would like to be able to sell to every customer, sometimes it doesn’t work out. Maybe a customer was credit-challenged, so you decided not to send their application to any financing sources – or you did send their application for financing but couldn’t get acceptable terms. Perhaps you had a spot delivery deal in place that you needed to unwind or re-contract.
In any of these instances, consumer protection laws, including the Equal Credit Opportunity Act (ECOA) and the Fair Credit Reporting Act (FCRA), require that the consumer be presented with an adverse action notice within a mandated timeframe.
This is where it gets tricky. There’s a common misconception among dealers that lenders handle sending adverse action notices. It’s true that a finance source may present their own adverse action notice to a consumer, but that’s not enough to protect a dealership from liability if the notice doesn’t contain certain dealer-specific disclosures.
According to consumer protection laws1, an adverse action notice must tell the customer:
- What the adverse action was
- Up to four reasons for the adverse action (or provide the dealership’s contact information so they can find out within 60 days)
- The names of the credit reporting agencies that provided the information to the dealership
- Their credit score and information about it
- Four or five “key factors” that adversely affected their credit score
These are detailed requirements and the dealership is in a better position to provide this information than any given lender, which is one of the reasons the dealer bears the responsibility for compliance.
So, it’s important be alert to situations that require your dealership to provide consumers with an adverse action notice.
Not sure exactly what to include? The 2022 Dealertrack Compliance Guide includes a sample of one type of adverse action notice form that’s appropriate for use in certain circumstances. Always consult your legal counsel for advice on developing an adverse action notice template for your dealership and knowing when to send an adverse action notice.
To learn more about adverse action notices and see the form sample, register to access the 2021 Dealertrack Compliance Guide.
1Please check with your attorney for verification and further details.